diff --git a/lib/bundler/cli.rb b/lib/bundler/cli.rb
index b8048e3ca4f..ae40f7fd80f 100644
--- a/lib/bundler/cli.rb
+++ b/lib/bundler/cli.rb
@@ -129,6 +129,9 @@ def update(*gems)
       end
 
       Installer.install Bundler.root, Bundler.definition
+      cache if Bundler.root.join("vendor/cache").exist?
+      Bundler.ui.confirm "Your bundle is updated! " +
+        "Use `bundle show [gemname]` to see where a bundled gem is installed."
     end
 
     desc "lock", "Locks the bundle to the current set of dependencies, including all child dependencies."
diff --git a/lib/bundler/runtime.rb b/lib/bundler/runtime.rb
index 7a325f0cdf4..5471aae02b5 100644
--- a/lib/bundler/runtime.rb
+++ b/lib/bundler/runtime.rb
@@ -20,7 +20,7 @@ def setup(*groups)
       # Activate the specs
       specs.each do |spec|
         unless spec.loaded_from
-          raise GemNotFound, "#{spec.full_name} is cached, but not installed."
+          raise GemNotFound, "#{spec.full_name} is missing. Run `bundle` to get it."
         end
 
         Gem.loaded_specs[spec.name] = spec
diff --git a/lib/bundler/source.rb b/lib/bundler/source.rb
index 962b16c340c..0ae02546ec4 100644
--- a/lib/bundler/source.rb
+++ b/lib/bundler/source.rb
@@ -150,10 +150,22 @@ def installed_specs
         @installed_specs ||= begin
           idx = Index.new
           Gem::SourceIndex.from_installed_gems.to_a.reverse.each do |name, spec|
+            next if name == 'bundler'
             @installed[spec.full_name] = true
             spec.source = self
             idx << spec
           end
+          # Always have bundler locally
+          bundler = Gem::Specification.new do |s|
+            s.name     = 'bundler'
+            s.version  = VERSION
+            s.platform = Gem::Platform::RUBY
+            s.source   = self
+            # TODO: Remove this
+            s.loaded_from = 'w0t'
+          end
+          @installed[bundler.full_name] = true
+          idx << bundler
           idx
         end
       end
@@ -163,6 +175,7 @@ def cached_specs
           idx = Index.new
           @caches.each do |path|
             Dir["#{path}/*.gem"].each do |gemfile|
+              next if name == 'bundler'
               s = Gem::Format.from_file_by_path(gemfile).spec
               s.source = self
               idx << s
@@ -183,6 +196,7 @@ def remote_specs
             Gem.sources = ["#{uri}"]
             fetch_all_remote_specs do |n,v|
               v.each do |name, version, platform|
+                next if name == 'bundler'
                 spec = RemoteSpecification.new(name, version, platform, uri)
                 spec.source = self
                 # Temporary hack until this can be figured out better
diff --git a/spec/cache/gems_spec.rb b/spec/cache/gems_spec.rb
index b50aea07f7d..d1c98c94bdd 100644
--- a/spec/cache/gems_spec.rb
+++ b/spec/cache/gems_spec.rb
@@ -92,10 +92,8 @@
     end
 
     it "adds and removes when gems are updated" do
-      pending_bundle_update
       update_repo2
-      bundle :unlock
-      bundle :install
+      bundle 'update'
       cached_gem("rack-1.2").should exist
       cached_gem("rack-1.0.0").should_not exist
     end
diff --git a/spec/support/matchers.rb b/spec/support/matchers.rb
index 3122aea1fdb..ab2e74e1db8 100644
--- a/spec/support/matchers.rb
+++ b/spec/support/matchers.rb
@@ -31,7 +31,8 @@ def should_be_installed(*names)
       groups << opts
       names.each do |name|
         name, version, platform = name.split(/\s+/)
-        run "load '#{name}.rb'; puts #{Spec::Builders.constantize(name)}", *groups
+        version_const = name == 'bundler' ? 'Bundler::VERSION' : Spec::Builders.constantize(name)
+        run "require '#{name}.rb'; puts #{version_const}", *groups
         actual_version, actual_platform = out.split(/\s+/)
         Gem::Version.new(actual_version).should == Gem::Version.new(version)
         actual_platform.should == platform