diff --git a/src/ng/compile.js b/src/ng/compile.js
index b7253679a08b..7ae720f4a2d4 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -924,7 +924,9 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
                       !childNodes.length)
             ? null
             : compileNodes(childNodes,
-                 nodeLinkFn ? nodeLinkFn.transclude : transcludeFn);
+                 nodeLinkFn ? (
+                  (nodeLinkFn.transcludeOnThisElement || !nodeLinkFn.templateOnThisElement)
+                     && nodeLinkFn.transclude) : transcludeFn);
 
         linkFns.push(nodeLinkFn, childLinkFn);
         linkFnFound = linkFnFound || nodeLinkFn || childLinkFn;
@@ -959,14 +961,17 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
               childScope = scope;
             }
 
-            // We need to create a new boundTranscludeFn if
-            //  - a directive on this element wants to transclude
-            //  or
-            //  - there is no parentBoundTranscludeFn already and a transcludeFn was passed in
-            if ( nodeLinkFn.transcludeOnThisElement || (!parentBoundTranscludeFn && transcludeFn) ) {
-              childBoundTranscludeFn = createBoundTranscludeFn(scope, nodeLinkFn.transclude || transcludeFn, parentBoundTranscludeFn);
-            } else {
+            if ( nodeLinkFn.transcludeOnThisElement ) {
+              childBoundTranscludeFn = createBoundTranscludeFn(scope, nodeLinkFn.transclude, parentBoundTranscludeFn);
+
+            } else if (!nodeLinkFn.templateOnThisElement && parentBoundTranscludeFn) {
               childBoundTranscludeFn = parentBoundTranscludeFn;
+
+            } else if (!parentBoundTranscludeFn && transcludeFn) {
+              childBoundTranscludeFn = createBoundTranscludeFn(scope, transcludeFn);
+
+            } else {
+              childBoundTranscludeFn = null;
             }
 
             nodeLinkFn(childLinkFn, childScope, node, $rootElement, childBoundTranscludeFn);
@@ -1181,6 +1186,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
           templateDirective = previousCompileContext.templateDirective,
           nonTlbTranscludeDirective = previousCompileContext.nonTlbTranscludeDirective,
           hasTranscludeDirective = false,
+          hasTemplate = false,
           hasElementTranscludeDirective = previousCompileContext.hasElementTranscludeDirective,
           $compileNode = templateAttrs.$$element = jqLite(compileNode),
           directive,
@@ -1271,6 +1277,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
         }
 
         if (directive.template) {
+          hasTemplate = true;
           assertNoDuplicate('template', templateDirective, directive, $compileNode);
           templateDirective = directive;
 
@@ -1320,6 +1327,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
         }
 
         if (directive.templateUrl) {
+          hasTemplate = true;
           assertNoDuplicate('template', templateDirective, directive, $compileNode);
           templateDirective = directive;
 
@@ -1357,6 +1365,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
 
       nodeLinkFn.scope = newScopeDirective && newScopeDirective.scope === true;
       nodeLinkFn.transcludeOnThisElement = hasTranscludeDirective;
+      nodeLinkFn.templateOnThisElement = hasTemplate;
       nodeLinkFn.transclude = childTranscludeFn;
 
       previousCompileContext.hasElementTranscludeDirective = hasElementTranscludeDirective;
diff --git a/test/ng/compileSpec.js b/test/ng/compileSpec.js
index b7d2e7aaf932..cce526d17363 100755
--- a/test/ng/compileSpec.js
+++ b/test/ng/compileSpec.js
@@ -3988,6 +3988,39 @@ describe('$compile', function() {
       });
 
 
+      it('should not pass transclusion into a template directive when the directive didn\'t request transclusion', function() {
+
+        module(function($compileProvider) {
+
+          $compileProvider.directive('transFoo', valueFn({
+            template: '<div>' +
+              '<div no-trans-bar></div>' +
+              '<div ng-transclude>this one should get replaced with content</div>' +
+              '<div class="foo" ng-transclude></div>' +
+            '</div>',
+            transclude: true
+
+          }));
+
+          $compileProvider.directive('noTransBar', valueFn({
+            template: '<div>' +
+              // This ng-transclude is invalid. It should throw an error.
+              '<div class="bar" ng-transclude></div>' +
+            '</div>',
+            transclude: false
+
+          }));
+        });
+
+        inject(function($compile, $rootScope) {
+          expect(function() {
+            $compile('<div trans-foo>content</div>')($rootScope);
+          }).toThrowMinErr('ngTransclude', 'orphan',
+              'Illegal use of ngTransclude directive in the template! No parent directive that requires a transclusion found. Element: <div class="bar" ng-transclude="">');
+        });
+      });
+
+
       it('should make the result of a transclusion available to the parent directive in post-linking phase' +
           '(template)', function() {
         module(function() {