diff --git a/src/components/chips/contact-chips.spec.js b/src/components/chips/contact-chips.spec.js
index 43e5f4e9cac..8d0be74fdd8 100644
--- a/src/components/chips/contact-chips.spec.js
+++ b/src/components/chips/contact-chips.spec.js
@@ -7,6 +7,7 @@ describe('<md-contact-chips>', function() {
           md-contact-name="name"\
           md-contact-image="image"\
           md-contact-email="email"\
+          md-highlight-flags="i"\
           placeholder="To">\
       </md-contact-chips>';
 
@@ -31,6 +32,8 @@ describe('<md-contact-chips>', function() {
       }
     ];
     scope.contacts = [];
+
+    scope.highlightFlags = "i";
   }));
 
   var attachedElements = [];
@@ -42,26 +45,34 @@ describe('<md-contact-chips>', function() {
   });
 
   describe('basic functionality', function() {
-    it('should show the placeholder', inject(function($timeout) {
+    it('should show the placeholder', inject(function() {
       var element = buildChips(CONTACT_CHIPS_TEMPLATE);
       var ctrl = element.controller('mdContactChips');
-      $timeout.flush();
+
       expect(element.find('input').length).toBe(1);
       expect(element.find('input')[0].placeholder).toBe('To');
     }));
 
+    it('binds the md-highlight-flags to the controller', function() {
+      var element = buildChips(CONTACT_CHIPS_TEMPLATE);
+      var ctrl = element.controller('mdContactChips');
+
+      expect(ctrl.highlightFlags).toEqual('i');
+    });
+
     describe('filtering selected items', function() {
-      it('should filter', inject(function($timeout) {
+      it('should filter', inject(function() {
         scope.querySearch = jasmine.createSpy('querySearch').and.callFake(function(q) {
           return scope.allContacts;
         });
         scope.contacts.push(scope.allContacts[2]);
+
         var element = buildChips(CONTACT_CHIPS_TEMPLATE);
         var ctrl = element.controller('mdContactChips');
-        $timeout.flush();
 
         var autocompleteElement = element.find('md-autocomplete');
         var autocompleteCtrl = autocompleteElement.controller('mdAutocomplete');
+
         element.scope().$apply(function() {
           autocompleteCtrl.scope.searchText = 'NAME';
           autocompleteCtrl.keydown({});
@@ -72,25 +83,25 @@ describe('<md-contact-chips>', function() {
       }));
 
       /* it('should not filter when disabled', inject(function($timeout) {
-        scope.querySearch = jasmine.createSpy('querySearch').and.callFake(function(q) {
-          return scope.allContacts;
-        });
-        scope.contacts.push(scope.allContacts[2]);
-        scope.filterSelected = false;
-        var element = buildChips(CONTACT_CHIPS_TEMPLATE);
-        var ctrl = element.controller('mdContactChips');
-        $timeout.flush();
+       scope.querySearch = jasmine.createSpy('querySearch').and.callFake(function(q) {
+       return scope.allContacts;
+       });
+       scope.contacts.push(scope.allContacts[2]);
+       scope.filterSelected = false;
+       var element = buildChips(CONTACT_CHIPS_TEMPLATE);
+       var ctrl = element.controller('mdContactChips');
+       $timeout.flush();
 
-        var autocompleteElement = element.find('md-autocomplete');
-        var autocompleteCtrl = autocompleteElement.controller('mdAutocomplete');
-        element.scope().$apply(function() {
-          autocompleteCtrl.scope.searchText = 'NAME';
-          autocompleteCtrl.keydown({});
-        });
+       var autocompleteElement = element.find('md-autocomplete');
+       var autocompleteCtrl = autocompleteElement.controller('mdAutocomplete');
+       element.scope().$apply(function() {
+       autocompleteCtrl.scope.searchText = 'NAME';
+       autocompleteCtrl.keydown({});
+       });
 
-        var matches = autocompleteCtrl.matches;
-        expect(matches.length).toBe(3);
-      }));*/
+       var matches = autocompleteCtrl.matches;
+       expect(matches.length).toBe(3);
+       }));*/
     });
 
   });
@@ -101,11 +112,15 @@ describe('<md-contact-chips>', function() {
 
   function buildChips(str) {
     var container;
-    inject(function($compile) {
+
+    inject(function($compile, $timeout) {
       container = $compile(str)(scope);
       container.scope().$apply();
+      $timeout.flush();
     });
+
     attachedElements.push(container);
+
     return container;
   }
 
diff --git a/src/components/chips/demoContactChips/index.html b/src/components/chips/demoContactChips/index.html
index f1c64a3a4b3..b88da06da54 100644
--- a/src/components/chips/demoContactChips/index.html
+++ b/src/components/chips/demoContactChips/index.html
@@ -8,6 +8,7 @@
         md-contact-image="image"
         md-contact-email="email"
         md-require-match="true"
+        md-highlight-flags="i"
         filter-selected="ctrl.filterSelected"
         placeholder="To">
     </md-contact-chips>
diff --git a/src/components/chips/js/contactChipsDirective.js b/src/components/chips/js/contactChipsDirective.js
index e2412606d99..40c11c8a11d 100644
--- a/src/components/chips/js/contactChipsDirective.js
+++ b/src/components/chips/js/contactChipsDirective.js
@@ -1,54 +1,57 @@
-  angular
-      .module('material.components.chips')
-      .directive('mdContactChips', MdContactChips);
+angular
+  .module('material.components.chips')
+  .directive('mdContactChips', MdContactChips);
 
-  /**
-   * @ngdoc directive
-   * @name mdContactChips
-   * @module material.components.chips
-   *
-   * @description
-   * `<md-contact-chips>` is an input component based on `md-chips` and makes use of an
-   *    `md-autocomplete` element. The component allows the caller to supply a query expression
-   *    which returns  a list of possible contacts. The user can select one of these and add it to
-   *    the list of chips.
-   *
-   * @param {string=|object=} ng-model A model to bind the list of items to
-   * @param {string=} placeholder Placeholder text that will be forwarded to the input.
-   * @param {string=} secondary-placeholder Placeholder text that will be forwarded to the input,
-   *    displayed when there is at least on item in the list
-   * @param {expression} md-contacts An expression expected to return contacts matching the search
-   *    test, `$query`.
-   * @param {string} md-contact-name The field name of the contact object representing the
-   *    contact's name.
-   * @param {string} md-contact-email The field name of the contact object representing the
-   *    contact's email address.
-   * @param {string} md-contact-image The field name of the contact object representing the
-   *    contact's image.
-   *
-   *
-   * // The following attribute has been removed but may come back.
-   * @param {expression=} filter-selected Whether to filter selected contacts from the list of
-   *    suggestions shown in the autocomplete.
-   *
-   *
-   *
-   * @usage
-   * <hljs lang="html">
-   *   <md-contact-chips
-   *       ng-model="ctrl.contacts"
-   *       md-contacts="ctrl.querySearch($query)"
-   *       md-contact-name="name"
-   *       md-contact-image="image"
-   *       md-contact-email="email"
-   *       placeholder="To">
-   *   </md-contact-chips>
-   * </hljs>
-   *
-   */
+/**
+ * @ngdoc directive
+ * @name mdContactChips
+ * @module material.components.chips
+ *
+ * @description
+ * `<md-contact-chips>` is an input component based on `md-chips` and makes use of an
+ * `md-autocomplete` element. The component allows the caller to supply a query expression which
+ * returns  a list of possible contacts. The user can select one of these and add it to the list of
+ * chips.
+ *
+ * You may also use the `md-highlight-text` directive along with it's parameters to control the
+ * appearance of the matched text inside of the contacts' autocomplete popup.
+ *
+ * @param {string=|object=} ng-model A model to bind the list of items to
+ * @param {string=} placeholder Placeholder text that will be forwarded to the input.
+ * @param {string=} secondary-placeholder Placeholder text that will be forwarded to the input,
+ *    displayed when there is at least on item in the list
+ * @param {expression} md-contacts An expression expected to return contacts matching the search
+ *    test, `$query`.
+ * @param {string} md-contact-name The field name of the contact object representing the
+ *    contact's name.
+ * @param {string} md-contact-email The field name of the contact object representing the
+ *    contact's email address.
+ * @param {string} md-contact-image The field name of the contact object representing the
+ *    contact's image.
+ *
+ *
+ * // The following attribute has been removed but may come back.
+ * @param {expression=} filter-selected Whether to filter selected contacts from the list of
+ *    suggestions shown in the autocomplete.
+ *
+ *
+ *
+ * @usage
+ * <hljs lang="html">
+ *   <md-contact-chips
+ *       ng-model="ctrl.contacts"
+ *       md-contacts="ctrl.querySearch($query)"
+ *       md-contact-name="name"
+ *       md-contact-image="image"
+ *       md-contact-email="email"
+ *       placeholder="To">
+ *   </md-contact-chips>
+ * </hljs>
+ *
+ */
 
 
-  var MD_CONTACT_CHIPS_TEMPLATE = '\
+var MD_CONTACT_CHIPS_TEMPLATE = '\
       <md-chips class="md-contact-chips"\
           ng-model="$mdContactChipsCtrl.contacts"\
           md-require-match="$mdContactChipsCtrl.requireMatch"\
@@ -67,7 +70,8 @@
               <img \
                   ng-src="{{item[$mdContactChipsCtrl.contactImage]}}"\
                   alt="{{item[$mdContactChipsCtrl.contactName]}}" />\
-              <span class="md-contact-name" md-highlight-text="$mdContactChipsCtrl.searchText">\
+              <span class="md-contact-name" md-highlight-text="$mdContactChipsCtrl.searchText"\
+                    md-highlight-flags="{{$mdContactChipsCtrl.highlightFlags}}">\
                 {{item[$mdContactChipsCtrl.contactName]}}\
               </span>\
               <span class="md-contact-email" >{{item[$mdContactChipsCtrl.contactEmail]}}</span>\
@@ -86,42 +90,43 @@
       </md-chips>';
 
 
-  /**
-   * MDContactChips Directive Definition
-   *
-   * @param $mdTheming
-   * @returns {*}
-   * @ngInject
-   */
-  function MdContactChips ($mdTheming, $mdUtil) {
-    return {
-      template: function(element, attrs) {
-        return MD_CONTACT_CHIPS_TEMPLATE;
-      },
-      restrict: 'E',
-      controller: 'MdContactChipsCtrl',
-      controllerAs: '$mdContactChipsCtrl',
-      bindToController: true,
-      compile: compile,
-      scope: {
-        contactQuery: '&mdContacts',
-        placeholder: '@',
-        secondaryPlaceholder: '@',
-        contactName: '@mdContactName',
-        contactImage: '@mdContactImage',
-        contactEmail: '@mdContactEmail',
-        contacts: '=ngModel',
-        requireMatch: '=?mdRequireMatch'
-      }
-    };
+/**
+ * MDContactChips Directive Definition
+ *
+ * @param $mdTheming
+ * @returns {*}
+ * @ngInject
+ */
+function MdContactChips($mdTheming, $mdUtil) {
+  return {
+    template: function(element, attrs) {
+      return MD_CONTACT_CHIPS_TEMPLATE;
+    },
+    restrict: 'E',
+    controller: 'MdContactChipsCtrl',
+    controllerAs: '$mdContactChipsCtrl',
+    bindToController: true,
+    compile: compile,
+    scope: {
+      contactQuery: '&mdContacts',
+      placeholder: '@',
+      secondaryPlaceholder: '@',
+      contactName: '@mdContactName',
+      contactImage: '@mdContactImage',
+      contactEmail: '@mdContactEmail',
+      contacts: '=ngModel',
+      requireMatch: '=?mdRequireMatch',
+      highlightFlags: '@?mdHighlightFlags'
+    }
+  };
 
-    function compile(element, attr) {
-      return function postLink(scope, element, attrs, controllers) {
+  function compile(element, attr) {
+    return function postLink(scope, element, attrs, controllers) {
 
-        $mdUtil.initOptionalProperties(scope, attr);
-        $mdTheming(element);
+      $mdUtil.initOptionalProperties(scope, attr);
+      $mdTheming(element);
 
-        element.attr('tabindex', '-1');
-      };
-    }
+      element.attr('tabindex', '-1');
+    };
   }
+}