diff --git a/src/components/virtualRepeat/virtual-repeater.js b/src/components/virtualRepeat/virtual-repeater.js
index 11c83c53a77..2f0219f2382 100644
--- a/src/components/virtualRepeat/virtual-repeater.js
+++ b/src/components/virtualRepeat/virtual-repeater.js
@@ -243,7 +243,8 @@ VirtualRepeatContainerController.prototype.sizeScroller_ = function(size) {
 VirtualRepeatContainerController.prototype.autoShrink_ = function(size) {
   var shrinkSize = Math.max(size, this.autoShrinkMin * this.repeater.getItemSize());
   if (this.autoShrink && shrinkSize !== this.size) {
-    if (shrinkSize < (this.originalSize || this.size)) {
+    var currentSize = this.originalSize || this.size;
+    if (!currentSize || shrinkSize < currentSize) {
       if (!this.originalSize) {
         this.originalSize = this.size;
       }
diff --git a/src/components/virtualRepeat/virtual-repeater.spec.js b/src/components/virtualRepeat/virtual-repeater.spec.js
index b483f578397..617e64d6ef4 100644
--- a/src/components/virtualRepeat/virtual-repeater.spec.js
+++ b/src/components/virtualRepeat/virtual-repeater.spec.js
@@ -558,6 +558,21 @@ describe('<md-virtual-repeat>', function() {
     expect(offsetter.children().length).toBe(43);
   });
 
+  it('should shrink when initial results require shrinking', inject(function() {
+    scope.items = [
+      { value: 'alabama', display: 'Alabama' },
+      { value: 'alaska', display: 'Alaska' },
+      { value: 'arizona', display: 'Arizona' }
+    ];
+    createRepeater();
+    var controller = component.controller('mdVirtualRepeatContainer');
+    controller.autoShrink = true;
+    controller.autoShrink_(200);
+
+    expect(component[0].getBoundingClientRect().height).toBe(200);
+    expect(offsetter.children().length).toBe(3);
+  }));
+
   /**
    * Facade to access transform properly even when jQuery is used;
    * since jQuery's css function is obtaining the computed style (not wanted)