diff --git a/src/.jshintrc b/src/.jshintrc
index b3211355..1202b644 100644
--- a/src/.jshintrc
+++ b/src/.jshintrc
@@ -138,6 +138,7 @@
     "JQLitePrototype": false,
     "addEventListenerFn": false,
     "removeEventListenerFn": false,
+    "jqLiteIsTextNode": false,
 
     /* apis.js */
     "hashKey": false,
diff --git a/src/jqLite.js b/src/jqLite.js
index 738f47a9..d03ea67b 100644
--- a/src/jqLite.js
+++ b/src/jqLite.js
@@ -179,6 +179,81 @@ function jqLitePatchJQueryRemove(name, dispatchThis, filterElems, getterIfNoArgu
   }
 }
 
+var SINGLE_TAG_REGEXP = /^<(\w+)\s*\/?>(?:<\/\1>|)$/;
+var HTML_REGEXP = /<|&#?\w+;/;
+var TAG_NAME_REGEXP = /<([\w:]+)/;
+var XHTML_TAG_REGEXP = /<(?!area|br|col|embed|hr|img|input|link|meta|param)(([\w:]+)[^>]*)\/>/gi;
+
+var wrapMap = {
+  'option': [1, '<select multiple="multiple">', '</select>'],
+
+  'thead': [1, '<table>', '</table>'],
+  'col': [2, '<table><colgroup>', '</colgroup></table>'],
+  'tr': [2, '<table><tbody>', '</tbody></table>'],
+  'td': [3, '<table><tbody><tr>', '</tr></tbody></table>'],
+  '_default': [0, "", ""]
+};
+
+wrapMap.optgroup = wrapMap.option;
+wrapMap.tbody = wrapMap.tfoot = wrapMap.colgroup = wrapMap.caption = wrapMap.thead;
+wrapMap.th = wrapMap.td;
+
+function jqLiteIsTextNode(html) {
+  return !HTML_REGEXP.test(html);
+}
+
+function jqLiteBuildFragment(html, context) {
+  var elem, tmp, tag, wrap,
+      fragment = context.createDocumentFragment(),
+      nodes = [], i;
+
+  if (jqLiteIsTextNode(html)) {
+    // Convert non-html into a text node
+    nodes.push(context.createTextNode(html));
+  } else {
+    // Convert html into DOM nodes
+    tmp = tmp || fragment.appendChild(context.createElement("div"));
+    tag = (TAG_NAME_REGEXP.exec(html) || ["", ""])[1].toLowerCase();
+    wrap = wrapMap[tag] || wrapMap._default;
+    tmp.innerHTML = wrap[1] + html.replace(XHTML_TAG_REGEXP, "<$1></$2>") + wrap[2];
+
+    // Descend through wrappers to the right content
+    i = wrap[0];
+    while (i--) {
+      tmp = tmp.lastChild;
+    }
+
+    nodes = concat(nodes, tmp.childNodes);
+
+    tmp = fragment.firstChild;
+    tmp.textContent = "";
+  }
+
+  // Remove wrapper from fragment
+  fragment.textContent = "";
+  fragment.innerHTML = ""; // Clear inner HTML
+  forEach(nodes, function(node) {
+    fragment.appendChild(node);
+  });
+
+  return fragment;
+}
+
+function jqLiteParseHTML(html, context) {
+  context = context || document;
+  var parsed;
+
+  if ((parsed = SINGLE_TAG_REGEXP.exec(html))) {
+    return [context.createElement(parsed[1])];
+  }
+
+  if ((parsed = jqLiteBuildFragment(html, context))) {
+    return parsed.childNodes;
+  }
+
+  return [];
+}
+
 /////////////////////////////////////////////
 function JQLite(element) {
   if (element instanceof JQLite) {
@@ -195,14 +270,7 @@ function JQLite(element) {
   }
 
   if (isString(element)) {
-    var div = document.createElement('div');
-    // Read about the NoScope elements here:
-    // http://msdn.microsoft.com/en-us/library/ms533897(VS.85).aspx
-    div.innerHTML = '<div>&#160;</div>' + element; // IE insanity to make NoScope elements work!
-    div.removeChild(div.firstChild); // remove the superfluous div
-    jqLiteAddNodes(this, div.childNodes);
-    var fragment = jqLite(document.createDocumentFragment());
-    fragment.append(this); // detach the elements from the temporary DOM div.
+    jqLiteAddNodes(this, jqLiteParseHTML(element));
   } else {
     jqLiteAddNodes(this, element);
   }
diff --git a/src/ng/compile.js b/src/ng/compile.js
index 58c3b5fc..98159551 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -513,8 +513,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
   var hasDirectives = {},
       Suffix = 'Directive',
       COMMENT_DIRECTIVE_REGEXP = /^\s*directive\:\s*([\d\w\-_]+)\s+(.*)$/,
-      CLASS_DIRECTIVE_REGEXP = /(([\d\w\-_]+)(?:\:([^;]+))?;?)/,
-      TABLE_CONTENT_REGEXP = /^<\s*(tr|th|td|thead|tbody|tfoot)(\s+[^>]*)?>/i;
+      CLASS_DIRECTIVE_REGEXP = /(([\d\w\-_]+)(?:\:([^;]+))?;?)/;
 
   // Ref: http://developers.whatwg.org/webappapis.html#event-handler-idl-attributes
   // The assumption is that future DOM event attribute names will begin with
@@ -1259,7 +1258,11 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
 
           if (directive.replace) {
             replaceDirective = directive;
-            $template = directiveTemplateContents(directiveValue);
+            if (jqLiteIsTextNode(directiveValue)) {
+              $template = [];
+            } else {
+              $template = jqLite(directiveValue);
+            }
             compileNode = $template[0];
 
             if ($template.length != 1 || compileNode.nodeType !== 1) {
@@ -1658,27 +1661,6 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
     }
 
 
-    function directiveTemplateContents(template) {
-      var type;
-      template = trim(template);
-      if ((type = TABLE_CONTENT_REGEXP.exec(template))) {
-        type = type[1].toLowerCase();
-        var table = jqLite('<table>' + template + '</table>');
-        if (/(thead|tbody|tfoot)/.test(type)) {
-          return table.children(type);
-        }
-        table = table.children('tbody');
-        if (type === 'tr') {
-          return table.children('tr');
-        }
-        return table.children('tr').contents();
-      }
-      return jqLite('<div>' +
-                      template +
-                    '</div>').contents();
-    }
-
-
     function compileTemplateUrl(directives, $compileNode, tAttrs,
         $rootElement, childTranscludeFn, preLinkFns, postLinkFns, previousCompileContext) {
       var linkQueue = [],
@@ -1703,7 +1685,11 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
           content = denormalizeTemplate(content);
 
           if (origAsyncDirective.replace) {
-            $template = directiveTemplateContents(content);
+            if (jqLiteIsTextNode(content)) {
+              $template = [];
+            } else {
+              $template = jqLite(content);
+            }
             compileNode = $template[0];
 
             if ($template.length != 1 || compileNode.nodeType !== 1) {
diff --git a/test/jqLiteSpec.js b/test/jqLiteSpec.js
index faf1c98c..f9c6f3a2 100644
--- a/test/jqLiteSpec.js
+++ b/test/jqLiteSpec.js
@@ -95,6 +95,36 @@ describe('jqLite', function() {
       expect(fragment.length).toBe(1);
       expect(fragment[0].nodeType).toBe(11);
     });
+
+
+    it('should allow construction of <option> elements', function() {
+      var nodes = jqLite('<option>');
+      expect(nodes.length).toBe(1);
+      expect(nodes[0].nodeName.toLowerCase()).toBe('option');
+    });
+
+
+    // Special tests for the construction of elements which are restricted (in the HTML5 spec) to
+    // being children of specific nodes.
+    forEach([
+      'caption',
+      'colgroup',
+      'col',
+      'optgroup',
+      'opt',
+      'tbody',
+      'td',
+      'tfoot',
+      'th',
+      'thead',
+      'tr'
+    ], function(name) {
+      it('should allow construction of <$NAME$> elements'.replace('$NAME$', name), function() {
+        var nodes = jqLite('<$NAME$>'.replace('$NAME$', name));
+        expect(nodes.length).toBe(1);
+        expect(nodes[0].nodeName.toLowerCase()).toBe(name);
+      });
+    });
   });
 
   describe('_data', function() {