diff --git a/src/lib/autocomplete/autocomplete-trigger.ts b/src/lib/autocomplete/autocomplete-trigger.ts
index 120b014a57e3..b6e841046605 100644
--- a/src/lib/autocomplete/autocomplete-trigger.ts
+++ b/src/lib/autocomplete/autocomplete-trigger.ts
@@ -8,7 +8,6 @@ import {
     NgZone,
     Optional,
     OnDestroy,
-    QueryList,
     ViewContainerRef,
 } from '@angular/core';
 import {ControlValueAccessor, NG_VALUE_ACCESSOR} from '@angular/forms';
@@ -23,7 +22,6 @@ import {ENTER, UP_ARROW, DOWN_ARROW} from '../core/keyboard/keycodes';
 import {Dir} from '../core/rtl/dir';
 import {Subscription} from 'rxjs/Subscription';
 import {Subject} from 'rxjs/Subject';
-import 'rxjs/add/observable/of';
 import 'rxjs/add/observable/merge';
 import 'rxjs/add/operator/startWith';
 import 'rxjs/add/operator/switchMap';
@@ -258,17 +256,13 @@ export class MdAutocompleteTrigger implements AfterContentInit, ControlValueAcce
    * stream every time the option list changes.
    */
   private _subscribeToClosingActions(): void {
-    const initialOptions = this._getStableOptions();
-
     // When the zone is stable initially, and when the option list changes...
-    Observable.merge(initialOptions, this.autocomplete.options.changes)
+    Observable.merge(this._zone.onStable.first(), this.autocomplete.options.changes)
         // create a new stream of panelClosingActions, replacing any previous streams
         // that were created, and flatten it so our stream only emits closing events...
-        .switchMap(options => {
+        .switchMap(() => {
           this._resetPanel();
-          // If the options list is empty, emit close event immediately.
-          // Otherwise, listen for panel closing actions...
-          return options.length ? this.panelClosingActions : Observable.of(null);
+          return this.panelClosingActions;
         })
         // when the first closing event occurs...
         .first()
@@ -276,15 +270,6 @@ export class MdAutocompleteTrigger implements AfterContentInit, ControlValueAcce
         .subscribe(event => this._setValueAndClose(event));
   }
 
-  /**
-   * Retrieves the option list once the zone stabilizes. It's important to wait until
-   * stable so that change detection can run first and update the query list
-   * with the options available under the current filter.
-   */
-  private _getStableOptions(): Observable<QueryList<MdOption>> {
-    return this._zone.onStable.first().map(() => this.autocomplete.options);
-  }
-
   /** Destroys the autocomplete suggestion panel. */
   private _destroyPanel(): void {
     if (this._overlayRef) {
@@ -364,6 +349,7 @@ export class MdAutocompleteTrigger implements AfterContentInit, ControlValueAcce
   private _resetPanel() {
     this._resetActiveItem();
     this._positionStrategy.recalculateLastPosition();
+    this.autocomplete._setVisibility();
   }
 
 }
diff --git a/src/lib/autocomplete/autocomplete.html b/src/lib/autocomplete/autocomplete.html
index 54c2ad9117cd..cd94ceeb7340 100644
--- a/src/lib/autocomplete/autocomplete.html
+++ b/src/lib/autocomplete/autocomplete.html
@@ -1,5 +1,5 @@
 <template>
-  <div class="mat-autocomplete-panel" role="listbox" [id]="id" [ngClass]="_getPositionClass()" #panel>
+  <div class="mat-autocomplete-panel" role="listbox" [id]="id" [ngClass]="_getClassList()" #panel>
     <ng-content></ng-content>
   </div>
 </template>
\ No newline at end of file
diff --git a/src/lib/autocomplete/autocomplete.scss b/src/lib/autocomplete/autocomplete.scss
index 69ef00d8b2f5..80fbcc56d6d2 100644
--- a/src/lib/autocomplete/autocomplete.scss
+++ b/src/lib/autocomplete/autocomplete.scss
@@ -14,6 +14,7 @@ $mat-autocomplete-panel-above-offset: -24px !default;
 
 .mat-autocomplete-panel {
   @include mat-menu-base();
+  visibility: hidden;
 
   max-height: $mat-autocomplete-panel-max-height;
   position: relative;
@@ -25,4 +26,12 @@ $mat-autocomplete-panel-above-offset: -24px !default;
   &.mat-autocomplete-panel-above {
     top: $mat-autocomplete-panel-above-offset;
   }
+
+  &.mat-autocomplete-visible {
+    visibility: visible;
+  }
+
+  &.mat-autocomplete-hidden {
+    visibility: hidden;
+  }
 }
\ No newline at end of file
diff --git a/src/lib/autocomplete/autocomplete.spec.ts b/src/lib/autocomplete/autocomplete.spec.ts
index 1d12c4611ca2..e533ae34704c 100644
--- a/src/lib/autocomplete/autocomplete.spec.ts
+++ b/src/lib/autocomplete/autocomplete.spec.ts
@@ -165,20 +165,30 @@ describe('MdAutocomplete', () => {
           .toEqual('', `Expected closing programmatically to close the panel.`);
     });
 
-    it('should close the panel when the options list is empty', async(() => {
+    it('should hide the panel when the options list is empty', async(() => {
       dispatchEvent('focus', input);
-      fixture.detectChanges();
 
       fixture.whenStable().then(() => {
+        fixture.detectChanges();
+
+        const panel =
+            overlayContainerElement.querySelector('.mat-autocomplete-panel') as HTMLElement;
+        expect(panel.classList)
+            .toContain('mat-autocomplete-visible', `Expected panel to start out visible.`);
+
         // Filter down the option list such that no options match the value
         input.value = 'af';
         dispatchEvent('input', input);
         fixture.detectChanges();
 
-        expect(fixture.componentInstance.trigger.panelOpen)
-            .toBe(false, `Expected panel to close when options list is empty.`);
-        expect(overlayContainerElement.textContent)
-            .toEqual('', `Expected panel to close when options list is empty.`);
+        fixture.whenStable().then(() => {
+          fixture.detectChanges();
+
+          expect(fixture.componentInstance.trigger.panelOpen)
+            .toBe(true, `Expected panel to stay open when options list is empty.`);
+          expect(panel.classList)
+              .toContain('mat-autocomplete-hidden', `Expected panel to hide itself when empty.`);
+        });
       });
     }));
 
diff --git a/src/lib/autocomplete/autocomplete.ts b/src/lib/autocomplete/autocomplete.ts
index ff9af9688ffd..bbed800589cc 100644
--- a/src/lib/autocomplete/autocomplete.ts
+++ b/src/lib/autocomplete/autocomplete.ts
@@ -34,6 +34,9 @@ export class MdAutocomplete {
   /** Whether the autocomplete panel displays above or below its trigger. */
   positionY: AutocompletePositionY = 'below';
 
+  /** Whether the autocomplete panel should be visible, depending on option length. */
+  showPanel = false;
+
   @ViewChild(TemplateRef) template: TemplateRef<any>;
   @ViewChild('panel') panel: ElementRef;
   @ContentChildren(MdOption) options: QueryList<MdOption>;
@@ -54,11 +57,18 @@ export class MdAutocomplete {
     }
   }
 
+  /** Panel should hide itself when the option list is empty. */
+  _setVisibility() {
+    Promise.resolve().then(() => this.showPanel = !!this.options.length);
+  }
+
   /** Sets a class on the panel based on its position (used to set y-offset). */
-  _getPositionClass() {
+  _getClassList() {
     return {
       'mat-autocomplete-panel-below': this.positionY === 'below',
-      'mat-autocomplete-panel-above': this.positionY === 'above'
+      'mat-autocomplete-panel-above': this.positionY === 'above',
+      'mat-autocomplete-visible': this.showPanel,
+      'mat-autocomplete-hidden': !this.showPanel
     };
   }