diff --git a/src/components/chips/chips-theme.scss b/src/components/chips/chips-theme.scss
index 1d8d62f7ae..fcbd92c74a 100644
--- a/src/components/chips/chips-theme.scss
+++ b/src/components/chips/chips-theme.scss
@@ -31,6 +31,11 @@ md-chips.md-THEME_NAME-theme {
         color: '{{primary-contrast}}';
       }
     }
+
+    &._md-chip-editing {
+      background: transparent;
+      color: '{{background-800}}';
+    }
   }
   md-chip-remove {
     .md-button {
diff --git a/src/components/chips/chips.scss b/src/components/chips/chips.scss
index 90888665bb..1f367593cb 100644
--- a/src/components/chips/chips.scss
+++ b/src/components/chips/chips.scss
@@ -100,6 +100,12 @@ $contact-chip-name-width: rem(12) !default;
         outline: none;
       }
     }
+    &._md-chip-content-edit-is-enabled {
+      -webkit-user-select: none; /* webkit (safari, chrome) browsers */
+      -moz-user-select: none; /* mozilla browsers */
+      -khtml-user-select: none; /* webkit (konqueror) browsers */
+      -ms-user-select: none; /* IE10+ */
+    }
     ._md-chip-remove-container {
       position: absolute;
       @include rtl-prop(right, left, 0);
diff --git a/src/components/chips/demoBasicUsage/index.html b/src/components/chips/demoBasicUsage/index.html
index 9b1119008c..43be5e8232 100644
--- a/src/components/chips/demoBasicUsage/index.html
+++ b/src/components/chips/demoBasicUsage/index.html
@@ -22,6 +22,12 @@ <h2 class="md-title">Use the default chip template.</h2>
 
     <md-chips ng-model="ctrl.fruitNames" readonly="ctrl.readonly"></md-chips>
 
+
+    <br/>
+    <h2 class="md-title">Make chips editable.</h2>
+
+    <md-chips ng-model="ctrl.editableFruitNames" readonly="ctrl.readonly" md-enable-chip-edit="true"></md-chips>
+
     <br/>
     <h2 class="md-title">Use Placeholders and override hint texts.</h2>
 
diff --git a/src/components/chips/demoBasicUsage/script.js b/src/components/chips/demoBasicUsage/script.js
index f4e960ef2d..d86a107ecd 100644
--- a/src/components/chips/demoBasicUsage/script.js
+++ b/src/components/chips/demoBasicUsage/script.js
@@ -12,6 +12,8 @@
     // Lists of fruit names and Vegetable objects
     self.fruitNames = ['Apple', 'Banana', 'Orange'];
     self.roFruitNames = angular.copy(self.fruitNames);
+    self.editableFruitNames = angular.copy(self.fruitNames);
+
     self.tags = [];
     self.vegObjs = [
       {
diff --git a/src/components/chips/js/chipController.js b/src/components/chips/js/chipController.js
new file mode 100644
index 0000000000..c6b4d9b055
--- /dev/null
+++ b/src/components/chips/js/chipController.js
@@ -0,0 +1,192 @@
+angular
+  .module('material.components.chips')
+  .controller('MdChipCtrl', MdChipCtrl);
+
+/**
+ * Controller for the MdChip component. Responsible for handling keyboard
+ * events and editting the chip if needed.
+ *
+ * @param $scope
+ * @param $element
+ * @param $mdConstant
+ * @param $timeout
+ * @param $mdUtil
+ * @constructor
+ */
+function MdChipCtrl ($scope, $element, $mdConstant, $timeout, $mdUtil) {
+  /**
+   * @type {$scope}
+   */
+  this.$scope = $scope;
+
+  /**
+   * @type {$element}
+   */
+  this.$element = $element;
+
+  /**
+   * @type {$mdConstant}
+   */
+  this.$mdConstant = $mdConstant;
+
+  /**
+   * @type {$timeout}
+   */
+  this.$timeout = $timeout;
+
+  /**
+   * @type {$mdUtil}
+   */
+  this.$mdUtil = $mdUtil;
+
+  /**
+   * @type {boolean}
+   */
+  this.isEditting = false;
+
+  /**
+   * @type {MdChipsCtrl}
+   */
+  this.parentController = undefined;
+
+  /**
+   * @type {boolean}
+   */
+  this.enableChipEdit = false;
+}
+
+
+/**
+ * @param {MdChipsCtrl} controller
+ */
+MdChipCtrl.prototype.init = function(controller) {
+  this.parentController = controller;
+  this.enableChipEdit = this.parentController.enableChipEdit;
+
+  if (this.enableChipEdit) {
+    this.$element.on('keydown', this.chipKeyDown.bind(this));
+    this.$element.on('mousedown', this.chipMouseDown.bind(this));
+    this.getChipContent().addClass('_md-chip-content-edit-is-enabled');
+  }
+};
+
+
+/**
+ * @return {Object}
+ */
+MdChipCtrl.prototype.getChipContent = function() {
+  var chipContents = this.$element[0].getElementsByClassName('_md-chip-content');
+  return angular.element(chipContents[0]);
+};
+
+
+/**
+ * @return {Object}
+ */
+MdChipCtrl.prototype.getContentElement = function() {
+  return angular.element(this.getChipContent().children()[0]);
+};
+
+
+/**
+ * @return {number}
+ */
+MdChipCtrl.prototype.getChipIndex = function() {
+  return parseInt(this.$element.attr('index'));
+};
+
+
+/**
+ * Presents an input element to edit the contents of the chip.
+ */
+MdChipCtrl.prototype.goOutOfEditMode = function() {
+  if (!this.isEditting) return;
+
+  this.isEditting = false;
+  this.$element.removeClass('_md-chip-editing');
+  this.getChipContent()[0].contentEditable = 'false';
+  var chipIndex = this.getChipIndex();
+
+  var content = this.getContentElement().text();
+  if (content) {
+    this.parentController.updateChipContents(
+        chipIndex,
+        this.getContentElement().text()
+    );
+
+    this.$mdUtil.nextTick(function() {
+      if (this.parentController.selectedChip === chipIndex) {
+        this.parentController.focusChip(chipIndex);
+      }
+    }.bind(this));
+  } else {
+    this.parentController.removeChipAndFocusInput(chipIndex);
+  }
+};
+
+
+/**
+ * Given an HTML element. Selects contents of it.
+ * @param node
+ */
+MdChipCtrl.prototype.selectNodeContents = function(node) {
+  var range, selection;
+  if (document.body.createTextRange) {
+    range = document.body.createTextRange();
+    range.moveToElementText(node);
+    range.select();
+  } else if (window.getSelection) {
+    selection = window.getSelection();
+    range = document.createRange();
+    range.selectNodeContents(node);
+    selection.removeAllRanges();
+    selection.addRange(range);
+  }
+};
+
+
+/**
+ * Presents an input element to edit the contents of the chip.
+ */
+MdChipCtrl.prototype.goInEditMode = function() {
+  this.isEditting = true;
+  this.$element.addClass('_md-chip-editing');
+  this.getChipContent()[0].contentEditable = 'true';
+  this.getChipContent().on('blur', function() {
+    this.goOutOfEditMode();
+  }.bind(this));
+
+  this.selectNodeContents(this.getChipContent()[0]);
+};
+
+
+/**
+ * Handles the keydown event on the chip element. If enable-chip-edit attribute is
+ * set to true, space or enter keys can trigger going into edit mode. Enter can also
+ * trigger submitting if the chip is already being edited.
+ * @param event
+ */
+MdChipCtrl.prototype.chipKeyDown = function(event) {
+  if (!this.isEditting &&
+    (event.keyCode === this.$mdConstant.KEY_CODE.ENTER ||
+    event.keyCode === this.$mdConstant.KEY_CODE.SPACE)) {
+    event.preventDefault();
+    this.goInEditMode();
+  } else if (this.isEditting &&
+    event.keyCode === this.$mdConstant.KEY_CODE.ENTER) {
+    event.preventDefault();
+    this.goOutOfEditMode();
+  }
+};
+
+
+/**
+ * Handles the double click event
+ */
+MdChipCtrl.prototype.chipMouseDown = function() {
+  if(this.getChipIndex() == this.parentController.selectedChip &&
+    this.enableChipEdit &&
+    !this.isEditting) {
+    this.goInEditMode();
+  }
+};
diff --git a/src/components/chips/js/chipDirective.js b/src/components/chips/js/chipDirective.js
index b934886ba2..607e7f18a1 100644
--- a/src/components/chips/js/chipDirective.js
+++ b/src/components/chips/js/chipDirective.js
@@ -30,7 +30,7 @@ var DELETE_HINT_TEMPLATE = '\
  * MDChip Directive Definition
  *
  * @param $mdTheming
- * @param $mdInkRipple
+ * @param $mdUtil
  * @ngInject
  */
 function MdChip($mdTheming, $mdUtil) {
@@ -38,22 +38,29 @@ function MdChip($mdTheming, $mdUtil) {
 
   return {
     restrict: 'E',
-    require: '^?mdChips',
-    compile:  compile
+    require: ['^?mdChips', 'mdChip'],
+    compile:  compile,
+    controller: 'MdChipCtrl'
   };
 
   function compile(element, attr) {
     // Append the delete template
     element.append($mdUtil.processTemplate(hintTemplate));
 
-    return function postLink(scope, element, attr, ctrl) {
+    return function postLink(scope, element, attr, ctrls) {
+      var chipsController = ctrls.shift();
+      var chipController  = ctrls.shift();
       $mdTheming(element);
 
-      if (ctrl) angular.element(element[0].querySelector('._md-chip-content'))
-          .on('blur', function () {
-            ctrl.resetSelectedChip();
-            ctrl.$scope.$applyAsync();
-          });
+      if (chipsController) {
+        chipController.init(chipsController);
+
+        angular.element(element[0].querySelector('._md-chip-content'))
+            .on('blur', function () {
+              chipsController.selectedChip = -1;
+              chipsController.$scope.$applyAsync();
+            });
+      }
     };
   }
 }
diff --git a/src/components/chips/js/chipsController.js b/src/components/chips/js/chipsController.js
old mode 100755
new mode 100644
index d19558e38b..bf055a1e9d
--- a/src/components/chips/js/chipsController.js
+++ b/src/components/chips/js/chipsController.js
@@ -11,9 +11,10 @@ angular
  * @param $mdConstant
  * @param $log
  * @param $element
+ * @param $mdUtil
  * @constructor
  */
-function MdChipsCtrl ($scope, $mdConstant, $log, $element, $timeout) {
+function MdChipsCtrl ($scope, $mdConstant, $log, $element, $timeout, $mdUtil) {
   /** @type {$timeout} **/
   this.$timeout = $timeout;
 
@@ -50,6 +51,8 @@ function MdChipsCtrl ($scope, $mdConstant, $log, $element, $timeout) {
   /** @type {boolean} */
   this.hasAutocomplete = false;
 
+  /** @type {string} */
+  this.enableChipEdit = $mdUtil.parseAttributeBoolean(this.mdEnableChipEdit);
 
   /**
    * Hidden hint text for how to delete a chip. Used to give context to screen readers.
@@ -146,6 +149,29 @@ MdChipsCtrl.prototype.inputKeydown = function(event) {
   }
 };
 
+
+/**
+ * Updates the content of the chip at given index
+ * @param chipIndex
+ * @param chipContents
+ */
+MdChipsCtrl.prototype.updateChipContents = function(chipIndex, chipContents){
+  if(chipIndex >= 0 && chipIndex < this.items.length) {
+    this.items[chipIndex] = chipContents;
+    this.ngModelCtrl.$setDirty();
+  }
+};
+
+
+/**
+ * Returns true if a chip is currently being edited. False otherwise.
+ * @return {boolean}
+ */
+MdChipsCtrl.prototype.isEditingChip = function(){
+  return !!this.$element[0].getElementsByClassName('_md-chip-editing').length;
+};
+
+
 /**
  * Handles the keydown event on the chip elements: backspace removes the selected chip, arrow
  * keys switch which chips is active
@@ -153,6 +179,8 @@ MdChipsCtrl.prototype.inputKeydown = function(event) {
  */
 MdChipsCtrl.prototype.chipKeydown = function (event) {
   if (this.getChipBuffer()) return;
+  if (this.isEditingChip()) return;
+  
   switch (event.keyCode) {
     case this.$mdConstant.KEY_CODE.BACKSPACE:
     case this.$mdConstant.KEY_CODE.DELETE:
diff --git a/src/components/chips/js/chipsDirective.js b/src/components/chips/js/chipsDirective.js
old mode 100755
new mode 100644
index 5260fc6d09..4a1987fd60
--- a/src/components/chips/js/chipsDirective.js
+++ b/src/components/chips/js/chipsDirective.js
@@ -68,6 +68,9 @@
    * @param {boolean=} readonly Disables list manipulation (deleting or adding list items), hiding
    *    the input and delete buttons. If no `ng-model` is provided, the chips will automatically be
    *    marked as readonly.
+   * @param {string=} md-enable-chip-edit Set this to "true" to enable editing of chip contents. The user can
+   *    go into edit mode with pressing "space", "enter", or double clicking on the chip. Chip edit is only
+   *    supported for chips with basic template.
    * @param {number=} md-max-chips The maximum number of chips allowed to add through user input.
    *    <br/><br/>The validation property `md-max-chips` can be used when the max chips
    *    amount is reached.
@@ -195,6 +198,7 @@
       scope: {
         readonly: '=readonly',
         placeholder: '@',
+        mdEnableChipEdit: '@',
         secondaryPlaceholder: '@',
         maxChips: '@mdMaxChips',
         transformChip: '&mdTransformChip',