diff --git a/Jakefile.js b/Jakefile.js
index 5a3348a61eb19..744914c315716 100644
--- a/Jakefile.js
+++ b/Jakefile.js
@@ -120,6 +120,7 @@ var languageServiceLibrarySources = [
 
 var harnessCoreSources = [
     "harness.ts",
+    "virtualFileSystem.ts",
     "sourceMapRecorder.ts",
     "harnessLanguageService.ts",
     "fourslash.ts",
@@ -150,7 +151,8 @@ var harnessSources = harnessCoreSources.concat([
     "reuseProgramStructure.ts",
     "cachingInServerLSHost.ts",
     "moduleResolution.ts",
-    "tsconfigParsing.ts"
+    "tsconfigParsing.ts",
+    "matchFiles.ts"
 ].map(function (f) {
     return path.join(unittestsDirectory, f);
 })).concat([
diff --git a/src/compiler/commandLineParser.ts b/src/compiler/commandLineParser.ts
index 367fcf48c0d7f..52f9ef05f37b1 100644
--- a/src/compiler/commandLineParser.ts
+++ b/src/compiler/commandLineParser.ts
@@ -492,53 +492,50 @@ namespace ts {
         const { options: optionsFromJsonConfigFile, errors } = convertCompilerOptionsFromJson(json["compilerOptions"], basePath);
 
         const options = extend(existingOptions, optionsFromJsonConfigFile);
+        const { fileNames, wildcardDirectories } = getFileNames();
         return {
             options,
-            fileNames: getFileNames(),
-            errors
+            fileNames,
+            errors,
+            wildcardDirectories
         };
 
-        function getFileNames(): string[] {
-            let fileNames: string[] = [];
+        function getFileNames(): ExpandResult {
+            let fileNames: string[];
             if (hasProperty(json, "files")) {
-                if (json["files"] instanceof Array) {
-                    fileNames = map(<string[]>json["files"], s => combinePaths(basePath, s));
+                if (isArray(json["files"])) {
+                    fileNames = <string[]>json["files"];
                 }
                 else {
                     errors.push(createCompilerDiagnostic(Diagnostics.Compiler_option_0_requires_a_value_of_type_1, "files", "Array"));
                 }
             }
-            else {
-                const filesSeen: Map<boolean> = {};
-                const exclude = json["exclude"] instanceof Array ? map(<string[]>json["exclude"], normalizeSlashes) : undefined;
-                const supportedExtensions = getSupportedExtensions(options);
-                Debug.assert(indexOf(supportedExtensions, ".ts") < indexOf(supportedExtensions, ".d.ts"), "Changed priority of extensions to pick");
-
-                // Get files of supported extensions in their order of resolution
-                for (const extension of supportedExtensions) {
-                    const filesInDirWithExtension = host.readDirectory(basePath, extension, exclude);
-                    for (const fileName of filesInDirWithExtension) {
-                        // .ts extension would read the .d.ts extension files too but since .d.ts is lower priority extension, 
-                        // lets pick them when its turn comes up
-                        if (extension === ".ts" && fileExtensionIs(fileName, ".d.ts")) {
-                            continue;
-                        }
 
-                        // If this is one of the output extension (which would be .d.ts and .js if we are allowing compilation of js files)
-                        // do not include this file if we included .ts or .tsx file with same base name as it could be output of the earlier compilation
-                        if (extension === ".d.ts" || (options.allowJs && contains(supportedJavascriptExtensions, extension))) {
-                            const baseName = fileName.substr(0, fileName.length - extension.length);
-                            if (hasProperty(filesSeen, baseName + ".ts") || hasProperty(filesSeen, baseName + ".tsx")) {
-                                continue;
-                            }
-                        }
+            let includeSpecs: string[];
+            if (hasProperty(json, "include")) {
+                if (isArray(json["include"])) {
+                    includeSpecs = <string[]>json["include"];
+                }
+                else {
+                    errors.push(createCompilerDiagnostic(Diagnostics.Compiler_option_0_requires_a_value_of_type_1, "include", "Array"));
+                }
+            }
 
-                        filesSeen[fileName] = true;
-                        fileNames.push(fileName);
-                    }
+            let excludeSpecs: string[];
+            if (hasProperty(json, "exclude")) {
+                if (isArray(json["exclude"])) {
+                    excludeSpecs = <string[]>json["exclude"];
+                }
+                else {
+                    errors.push(createCompilerDiagnostic(Diagnostics.Compiler_option_0_requires_a_value_of_type_1, "exclude", "Array"));
                 }
             }
-            return fileNames;
+
+            if (fileNames === undefined && includeSpecs === undefined) {
+                includeSpecs = ["**/*"];
+            }
+
+            return matchFileNames(fileNames, includeSpecs, excludeSpecs, basePath, options, host, errors);
         }
     }
 
@@ -588,4 +585,292 @@ namespace ts {
 
         return { options, errors };
     }
+
+    /**
+     * Tests for a path that ends in a recursive directory wildcard.
+     * Matches **, \**, **\, and \**\, but not a**b.
+     *
+     * NOTE: used \ in place of / above to avoid issues with multiline comments.
+     *
+     * Breakdown:
+     *  (^|\/)      # matches either the beginning of the string or a directory separator.
+     *  \*\*        # matches the recursive directory wildcard "**".
+     *  \/?$        # matches an optional trailing directory separator at the end of the string.
+     */
+    const invalidTrailingRecursionPattern = /(^|\/)\*\*\/?$/;
+
+    /**
+     * Tests for a path with multiple recursive directory wildcards.
+     * Matches **\** and **\a\**, but not **\a**b.
+     *
+     * NOTE: used \ in place of / above to avoid issues with multiline comments.
+     *
+     * Breakdown:
+     *  (^|\/)      # matches either the beginning of the string or a directory separator.
+     *  \*\*\/      # matches a recursive directory wildcard "**" followed by a directory separator.
+     *  (.*\/)?     # optionally matches any number of characters followed by a directory separator.
+     *  \*\*        # matches a recursive directory wildcard "**"
+     *  ($|\/)      # matches either the end of the string or a directory separator.
+     */
+    const invalidMultipleRecursionPatterns = /(^|\/)\*\*\/(.*\/)?\*\*($|\/)/;
+
+    /**
+     * Tests for a path containing a wildcard character in a directory component of the path.
+     * Matches \*\, \?\, and \a*b\, but not \a\ or \a\*.
+     *
+     * NOTE: used \ in place of / above to avoid issues with multiline comments.
+     *
+     * Breakdown:
+     *  \/          # matches a directory separator.
+     *  [^/]*?      # matches any number of characters excluding directory separators (non-greedy).
+     *  [*?]        # matches either a wildcard character (* or ?)
+     *  [^/]*       # matches any number of characters excluding directory separators (greedy).
+     *  \/          # matches a directory separator.
+     */
+    const watchRecursivePattern = /\/[^/]*?[*?][^/]*\//;
+
+    /**
+     * Matches the portion of a wildcard path that does not contain wildcards.
+     * Matches \a of \a\*, or \a\b\c of \a\b\c\?\d.
+     *
+     * NOTE: used \ in place of / above to avoid issues with multiline comments.
+     *
+     * Breakdown:
+     *  ^                   # matches the beginning of the string
+     *  [^*?]*              # matches any number of non-wildcard characters
+     *  (?=\/[^/]*[*?])     # lookahead that matches a directory separator followed by
+     *                      # a path component that contains at least one wildcard character (* or ?).
+     */
+    const wildcardDirectoryPattern = /^[^*?]*(?=\/[^/]*[*?])/;
+
+    /**
+     * Expands an array of file specifications.
+     *
+     * @param fileNames The literal file names to include.
+     * @param include The wildcard file specifications to include.
+     * @param exclude The wildcard file specifications to exclude.
+     * @param basePath The base path for any relative file specifications.
+     * @param options Compiler options.
+     * @param host The host used to resolve files and directories.
+     * @param errors An array for diagnostic reporting.
+     */
+    function matchFileNames(fileNames: string[], include: string[], exclude: string[], basePath: string, options: CompilerOptions, host: ParseConfigHost, errors: Diagnostic[]): ExpandResult {
+        basePath = normalizePath(basePath);
+        basePath = removeTrailingDirectorySeparator(basePath);
+
+        // The exclude spec list is converted into a regular expression, which allows us to quickly
+        // test whether a file or directory should be excluded before recursively traversing the
+        // file system.
+        const keyMapper = host.useCaseSensitiveFileNames ? caseSensitiveKeyMapper : caseInsensitiveKeyMapper;
+
+        // Literal file names (provided via the "files" array in tsconfig.json) are stored in a
+        // file map with a possibly case insensitive key. We use this map later when when including
+        // wildcard paths.
+        const literalFileMap: Map<string> = {};
+
+        // Wildcard paths (provided via the "includes" array in tsconfig.json) are stored in a
+        // file map with a possibly case insensitive key. We use this map to store paths matched
+        // via wildcard, and to handle extension priority.
+        const wildcardFileMap: Map<string> = {};
+
+        if (include) {
+            include = validateSpecs(include, errors, /*allowTrailingRecursion*/ false);
+        }
+
+        if (exclude) {
+            exclude = validateSpecs(exclude, errors, /*allowTrailingRecursion*/ true);
+        }
+
+        // Wildcard directories (provided as part of a wildcard path) are stored in a
+        // file map that marks whether it was a regular wildcard match (with a `*` or `?` token),
+        // or a recursive directory. This information is used by filesystem watchers to monitor for
+        // new entries in these paths.
+        const wildcardDirectories: Map<WatchDirectoryFlags> = getWildcardDirectories(include, exclude, basePath, host.useCaseSensitiveFileNames);
+
+        // Rather than requery this for each file and filespec, we query the supported extensions
+        // once and store it on the expansion context.
+        const supportedExtensions = getSupportedExtensions(options);
+
+        // Literal files are always included verbatim. An "include" or "exclude" specification cannot
+        // remove a literal file.
+        if (fileNames) {
+            for (const fileName of fileNames) {
+                const file = combinePaths(basePath, fileName);
+                literalFileMap[keyMapper(file)] = file;
+            }
+        }
+
+        if (include && include.length > 0) {
+            for (const file of host.readDirectory(basePath, supportedExtensions, exclude, include)) {
+                // If we have already included a literal or wildcard path with a
+                // higher priority extension, we should skip this file.
+                //
+                // This handles cases where we may encounter both <file>.ts and
+                // <file>.d.ts (or <file>.js if "allowJs" is enabled) in the same
+                // directory when they are compilation outputs.
+                if (hasFileWithHigherPriorityExtension(file, literalFileMap, wildcardFileMap, supportedExtensions, keyMapper)) {
+                    continue;
+                }
+
+                // We may have included a wildcard path with a lower priority
+                // extension due to the user-defined order of entries in the
+                // "include" array. If there is a lower priority extension in the
+                // same directory, we should remove it.
+                removeWildcardFilesWithLowerPriorityExtension(file, wildcardFileMap, supportedExtensions, keyMapper);
+
+                const key = keyMapper(file);
+                if (!hasProperty(literalFileMap, key) && !hasProperty(wildcardFileMap, key)) {
+                    wildcardFileMap[key] = file;
+                }
+            }
+        }
+
+        const literalFiles = reduceProperties(literalFileMap, addFileToOutput, []);
+        const wildcardFiles = reduceProperties(wildcardFileMap, addFileToOutput, []);
+        wildcardFiles.sort(host.useCaseSensitiveFileNames ? compareStrings : compareStringsCaseInsensitive);
+        return {
+            fileNames: literalFiles.concat(wildcardFiles),
+            wildcardDirectories
+        };
+    }
+
+    function validateSpecs(specs: string[], errors: Diagnostic[], allowTrailingRecursion: boolean) {
+        const validSpecs: string[] = [];
+        for (const spec of specs) {
+            if (!allowTrailingRecursion && invalidTrailingRecursionPattern.test(spec)) {
+                errors.push(createCompilerDiagnostic(Diagnostics.File_specification_cannot_end_in_a_recursive_directory_wildcard_Asterisk_Asterisk_Colon_0, spec));
+            }
+            else if (invalidMultipleRecursionPatterns.test(spec)) {
+                errors.push(createCompilerDiagnostic(Diagnostics.File_specification_cannot_contain_multiple_recursive_directory_wildcards_Asterisk_Asterisk_Colon_0, spec));
+            }
+            else {
+                validSpecs.push(spec);
+            }
+        }
+
+        return validSpecs;
+    }
+
+    /**
+     * Gets directories in a set of include patterns that should be watched for changes.
+     */
+    function getWildcardDirectories(include: string[], exclude: string[], path: string, useCaseSensitiveFileNames: boolean) {
+        // We watch a directory recursively if it contains a wildcard anywhere in a directory segment
+        // of the pattern:
+        //
+        //  /a/b/**/d   - Watch /a/b recursively to catch changes to any d in any subfolder recursively
+        //  /a/b/*/d    - Watch /a/b recursively to catch any d in any immediate subfolder, even if a new subfolder is added
+        //
+        // We watch a directory without recursion if it contains a wildcard in the file segment of
+        // the pattern:
+        //
+        //  /a/b/*      - Watch /a/b directly to catch any new file
+        //  /a/b/a?z    - Watch /a/b directly to catch any new file matching a?z
+        const excludeRegExp = getRegularExpressionForWildcard(exclude, path, "exclude", useCaseSensitiveFileNames);
+        const wildcardDirectories: Map<WatchDirectoryFlags> = {};
+        if (include !== undefined) {
+            const recursiveKeys: string[] = [];
+            for (const file of include) {
+                const name = combinePaths(path, file);
+                if (excludeRegExp && excludeRegExp.test(name)) {
+                    continue;
+                }
+
+                const match = wildcardDirectoryPattern.exec(name);
+                if (match) {
+                    const key = useCaseSensitiveFileNames ? match[0] : match[0].toLowerCase();
+                    const flags = watchRecursivePattern.test(name) ? WatchDirectoryFlags.Recursive : WatchDirectoryFlags.None;
+                    const existingFlags = getProperty(wildcardDirectories, key);
+                    if (existingFlags === undefined || existingFlags < flags) {
+                        wildcardDirectories[key] = flags;
+                        if (flags === WatchDirectoryFlags.Recursive) {
+                            recursiveKeys.push(key);
+                        }
+                    }
+                }
+            }
+
+            // Remove any subpaths under an existing recursively watched directory.
+            for (const key in wildcardDirectories) {
+                if (hasProperty(wildcardDirectories, key)) {
+                    for (const recursiveKey in recursiveKeys) {
+                        if (containsPath(recursiveKey, key, path, !useCaseSensitiveFileNames)) {
+                            delete wildcardDirectories[key];
+                        }
+                    }
+                }
+            }
+        }
+
+        return wildcardDirectories;
+    }
+
+    /**
+     * Determines whether a literal or wildcard file has already been included that has a higher
+     * extension priority.
+     *
+     * @param file The path to the file.
+     * @param extensionPriority The priority of the extension.
+     * @param context The expansion context.
+     */
+    function hasFileWithHigherPriorityExtension(file: string, literalFiles: Map<string>, wildcardFiles: Map<string>, extensions: string[], keyMapper: (value: string) => string) {
+        const extensionPriority = getExtensionPriority(file, extensions);
+        const adjustedExtensionPriority = adjustExtensionPriority(extensionPriority);
+        for (let i = ExtensionPriority.Highest; i < adjustedExtensionPriority; i++) {
+            const higherPriorityExtension = extensions[i];
+            const higherPriorityPath = keyMapper(changeExtension(file, higherPriorityExtension));
+            if (hasProperty(literalFiles, higherPriorityPath) || hasProperty(wildcardFiles, higherPriorityPath)) {
+                return true;
+            }
+        }
+
+        return false;
+    }
+
+    /**
+     * Removes files included via wildcard expansion with a lower extension priority that have
+     * already been included.
+     *
+     * @param file The path to the file.
+     * @param extensionPriority The priority of the extension.
+     * @param context The expansion context.
+     */
+    function removeWildcardFilesWithLowerPriorityExtension(file: string, wildcardFiles: Map<string>, extensions: string[], keyMapper: (value: string) => string) {
+        const extensionPriority = getExtensionPriority(file, extensions);
+        const nextExtensionPriority = getNextLowestExtensionPriority(extensionPriority);
+        for (let i = nextExtensionPriority; i < extensions.length; i++) {
+            const lowerPriorityExtension = extensions[i];
+            const lowerPriorityPath = keyMapper(changeExtension(file, lowerPriorityExtension));
+            delete wildcardFiles[lowerPriorityPath];
+        }
+    }
+
+    /**
+     * Adds a file to an array of files.
+     *
+     * @param output The output array.
+     * @param file The file path.
+     */
+    function addFileToOutput(output: string[], file: string) {
+        output.push(file);
+        return output;
+    }
+
+    /**
+     * Gets a case sensitive key.
+     *
+     * @param key The original key.
+     */
+    function caseSensitiveKeyMapper(key: string) {
+        return key;
+    }
+
+    /**
+     * Gets a case insensitive key.
+     *
+     * @param key The original key.
+     */
+    function caseInsensitiveKeyMapper(key: string) {
+        return key.toLowerCase();
+    }
 }
diff --git a/src/compiler/core.ts b/src/compiler/core.ts
index 1ae130f0f2d9f..d0f27a2046f61 100644
--- a/src/compiler/core.ts
+++ b/src/compiler/core.ts
@@ -25,7 +25,7 @@ namespace ts {
             contains,
             remove,
             forEachValue: forEachValueInMap,
-            clear
+            clear,
         };
 
         function forEachValueInMap(f: (key: Path, value: T) => void) {
@@ -115,6 +115,15 @@ namespace ts {
         return -1;
     }
 
+    export function indexOfAnyCharCode(text: string, charCodes: number[], start?: number): number {
+        for (let i = start || 0, len = text.length; i < len; i++) {
+            if (contains(charCodes, text.charCodeAt(i))) {
+                return i;
+            }
+        }
+        return -1;
+    }
+
     export function countWhere<T>(array: T[], predicate: (x: T) => boolean): number {
         let count = 0;
         if (array) {
@@ -494,6 +503,28 @@ namespace ts {
         return a < b ? Comparison.LessThan : Comparison.GreaterThan;
     }
 
+    export function compareStrings(a: string, b: string, ignoreCase?: boolean): Comparison {
+        if (a === b) return Comparison.EqualTo;
+        if (a === undefined) return Comparison.LessThan;
+        if (b === undefined) return Comparison.GreaterThan;
+        if (ignoreCase) {
+            if (String.prototype.localeCompare) {
+                const result = a.localeCompare(b, /*locales*/ undefined, { usage: "sort", sensitivity: "accent" });
+                return result < 0 ? Comparison.LessThan : result > 0 ? Comparison.GreaterThan : Comparison.EqualTo;
+            }
+
+            a = a.toUpperCase();
+            b = b.toUpperCase();
+            if (a === b) return Comparison.EqualTo;
+        }
+
+        return a < b ? Comparison.LessThan : Comparison.GreaterThan;
+    }
+
+    export function compareStringsCaseInsensitive(a: string, b: string) {
+        return compareStrings(a, b, /*ignoreCase*/ true);
+    }
+
     function getDiagnosticFileName(diagnostic: Diagnostic): string {
         return diagnostic.file ? diagnostic.file.fileName : undefined;
     }
@@ -760,12 +791,251 @@ namespace ts {
         return path1 + directorySeparator + path2;
     }
 
+    /**
+     * Removes a trailing directory separator from a path.
+     * @param path The path.
+     */
+    export function removeTrailingDirectorySeparator(path: string) {
+        if (path.charAt(path.length - 1) === directorySeparator) {
+            return path.substr(0, path.length - 1);
+        }
+
+        return path;
+    }
+
+    /**
+     * Adds a trailing directory separator to a path, if it does not already have one.
+     * @param path The path.
+     */
+    export function ensureTrailingDirectorySeparator(path: string) {
+        if (path.charAt(path.length - 1) !== directorySeparator) {
+            return path + directorySeparator;
+        }
+
+        return path;
+    }
+
+    export function comparePaths(a: string, b: string, currentDirectory: string, ignoreCase?: boolean) {
+        if (a === b) return Comparison.EqualTo;
+        if (a === undefined) return Comparison.LessThan;
+        if (b === undefined) return Comparison.GreaterThan;
+        a = removeTrailingDirectorySeparator(a);
+        b = removeTrailingDirectorySeparator(b);
+        const aComponents = getNormalizedPathComponents(a, currentDirectory);
+        const bComponents = getNormalizedPathComponents(b, currentDirectory);
+        const sharedLength = Math.min(aComponents.length, bComponents.length);
+        for (let i = 0; i < sharedLength; i++) {
+            const result = compareStrings(aComponents[i], bComponents[i], ignoreCase);
+            if (result !== Comparison.EqualTo) {
+                return result;
+            }
+        }
+
+        return compareValues(aComponents.length, bComponents.length);
+    }
+
+    export function containsPath(parent: string, child: string, currentDirectory: string, ignoreCase?: boolean) {
+        if (parent === undefined || child === undefined) return false;
+        if (parent === child) return true;
+        parent = removeTrailingDirectorySeparator(parent);
+        child = removeTrailingDirectorySeparator(child);
+        if (parent === child) return true;
+        const parentComponents = getNormalizedPathComponents(parent, currentDirectory);
+        const childComponents = getNormalizedPathComponents(child, currentDirectory);
+        if (childComponents.length < parentComponents.length) {
+            return false;
+        }
+
+        for (let i = 0; i < parentComponents.length; i++) {
+            const result = compareStrings(parentComponents[i], childComponents[i], ignoreCase);
+            if (result !== Comparison.EqualTo) {
+                return false;
+            }
+        }
+
+        return true;
+    }
+
     export function fileExtensionIs(path: string, extension: string): boolean {
         const pathLen = path.length;
         const extLen = extension.length;
         return pathLen > extLen && path.substr(pathLen - extLen, extLen) === extension;
     }
 
+    export function fileExtensionIsAny(path: string, extensions: string[]): boolean {
+        for (const extension of extensions) {
+            if (fileExtensionIs(path, extension)) {
+                return true;
+            }
+        }
+
+        return false;
+    }
+
+
+    // Reserved characters, forces escaping of any non-word (or digit), non-whitespace character.
+    // It may be inefficient (we could just match (/[-[\]{}()*+?.,\\^$|#\s]/g), but this is future
+    // proof.
+    const reservedCharacterPattern = /[^\w\s\/]/g;
+    const wildcardCharCodes = [CharacterCodes.asterisk, CharacterCodes.question];
+
+    export function getRegularExpressionForWildcard(specs: string[], basePath: string, usage: "files" | "directories" | "exclude", useCaseSensitiveFileNames: boolean) {
+        if (specs === undefined || specs.length === 0) {
+            return undefined;
+        }
+
+        let pattern = "";
+        let hasWrittenSubpattern = false;
+        spec: for (const spec of specs) {
+            if (!spec) {
+                continue;
+            }
+
+            let subpattern = "";
+            let hasRecursiveDirectoryWildcard = false;
+            let hasWrittenComponent = false;
+            const components = getNormalizedPathComponents(spec, basePath);
+            if (usage !== "exclude" && components[components.length - 1] === "**") {
+                continue spec;
+            }
+
+            // getNormalizedPathComponents includes the separator for the root component.
+            // We need to remove to create our regex correctly.
+            components[0] = removeTrailingDirectorySeparator(components[0]);
+
+            let optionalCount = 0;
+            for (const component of components) {
+                if (component === "**") {
+                    if (hasRecursiveDirectoryWildcard) {
+                        continue spec;
+                    }
+
+                    subpattern += "(/.+?)?";
+                    hasRecursiveDirectoryWildcard = true;
+                    hasWrittenComponent = true;
+                }
+                else {
+                    if (usage === "directories") {
+                        subpattern += "(";
+                        optionalCount++;
+                    }
+
+                    if (hasWrittenComponent) {
+                        subpattern += directorySeparator;
+                    }
+
+                    subpattern += component.replace(reservedCharacterPattern, replaceWildcardCharacter);
+                    hasWrittenComponent = true;
+                }
+            }
+
+            while (optionalCount > 0) {
+                subpattern += ")?";
+                optionalCount--;
+            }
+
+            if (hasWrittenSubpattern) {
+                pattern += "|";
+            }
+
+            pattern += "(" + subpattern + ")";
+            hasWrittenSubpattern = true;
+        }
+
+        if (!pattern) {
+            return undefined;
+        }
+
+        return new RegExp("^(" + pattern + (usage === "exclude" ? ")($|/)" : ")$"), useCaseSensitiveFileNames ? "" : "i");
+    }
+
+    function replaceWildcardCharacter(match: string) {
+        return match === "*" ? "[^/]*" : match === "?" ? "[^/]" : "\\" + match;
+    }
+
+    export interface FileSystemEntries {
+        files: string[];
+        directories: string[];
+    }
+
+    export function matchFiles(path: string, extensions: string[], excludes: string[], includes: string[], useCaseSensitiveFileNames: boolean, currentDirectory: string, getFileSystemEntries: (path: string) => FileSystemEntries): string[] {
+        path = normalizePath(path);
+        currentDirectory = normalizePath(currentDirectory);
+        const absolutePath = combinePaths(currentDirectory, path);
+        const includeFileRegex = getRegularExpressionForWildcard(includes, absolutePath, "files", useCaseSensitiveFileNames);
+        const includeDirectoryRegex = getRegularExpressionForWildcard(includes, absolutePath, "directories", useCaseSensitiveFileNames);
+        const excludeRegex = getRegularExpressionForWildcard(excludes, absolutePath, "exclude", useCaseSensitiveFileNames);
+        const result: string[] = [];
+        for (const basePath of getBasePaths(path, includes, useCaseSensitiveFileNames)) {
+            visitDirectory(basePath, combinePaths(currentDirectory, basePath));
+        }
+        return result;
+
+        function visitDirectory(path: string, absolutePath: string) {
+            const { files, directories } = getFileSystemEntries(path);
+
+            for (const current of files) {
+                const name = combinePaths(path, current);
+                const absoluteName = combinePaths(absolutePath, current);
+                if ((!extensions || fileExtensionIsAny(name, extensions)) &&
+                    (!includeFileRegex || includeFileRegex.test(absoluteName)) &&
+                    (!excludeRegex || !excludeRegex.test(absoluteName))) {
+                    result.push(name);
+                }
+            }
+
+            for (const current of directories) {
+                const name = combinePaths(path, current);
+                const absoluteName = combinePaths(absolutePath, current);
+                if ((!includeDirectoryRegex || includeDirectoryRegex.test(absoluteName)) &&
+                    (!excludeRegex || !excludeRegex.test(absoluteName))) {
+                    visitDirectory(name, absoluteName);
+                }
+            }
+        }
+    }
+
+    /**
+     * Computes the unique non-wildcard base paths amongst the provided include patterns.
+     */
+    function getBasePaths(path: string, includes: string[], useCaseSensitiveFileNames: boolean) {
+        // Storage for our results in the form of literal paths (e.g. the paths as written by the user).
+        const basePaths: string[] = [path];
+        if (includes) {
+            // Storage for literal base paths amongst the include patterns.
+            const includeBasePaths: string[] = [];
+            for (const include of includes) {
+                if (isRootedDiskPath(include)) {
+                    const wildcardOffset = indexOfAnyCharCode(include, wildcardCharCodes);
+                    const includeBasePath = wildcardOffset < 0
+                        ? removeTrailingDirectorySeparator(getDirectoryPath(include))
+                        : include.substring(0, include.lastIndexOf(directorySeparator, wildcardOffset));
+
+                    // Append the literal and canonical candidate base paths.
+                    includeBasePaths.push(includeBasePath);
+                }
+            }
+
+            // Sort the offsets array using either the literal or canonical path representations.
+            includeBasePaths.sort(useCaseSensitiveFileNames ? compareStrings : compareStringsCaseInsensitive);
+
+            // Iterate over each include base path and include unique base paths that are not a
+            // subpath of an existing base path
+            include: for (let i = 0; i < includeBasePaths.length; i++) {
+                const includeBasePath = includeBasePaths[i];
+                for (let j = 0; j < basePaths.length; j++) {
+                    if (containsPath(basePaths[j], includeBasePath, path, !useCaseSensitiveFileNames)) {
+                        continue include;
+                    }
+                }
+
+                basePaths.push(includeBasePath);
+            }
+        }
+
+        return basePaths;
+    }
+
     /**
      *  List of supported extensions in order of file resolution precedence.
      */
@@ -788,6 +1058,59 @@ namespace ts {
         return false;
     }
 
+    /**
+     * Extension boundaries by priority. Lower numbers indicate higher priorities, and are
+     * aligned to the offset of the highest priority extension in the
+     * allSupportedExtensions array.
+     */
+    export const enum ExtensionPriority {
+        TypeScriptFiles = 0,
+        DeclarationAndJavaScriptFiles = 2,
+        Limit = 5,
+
+        Highest = TypeScriptFiles,
+        Lowest = DeclarationAndJavaScriptFiles,
+    }
+
+    export function getExtensionPriority(path: string, supportedExtensions: string[]): ExtensionPriority {
+        for (let i = supportedExtensions.length - 1; i >= 0; i--) {
+            if (fileExtensionIs(path, supportedExtensions[i])) {
+                return adjustExtensionPriority(<ExtensionPriority>i);
+            }
+        }
+
+        // If its not in the list of supported extensions, this is likely a
+        // TypeScript file with a non-ts extension
+        return ExtensionPriority.Highest;
+    }
+
+    /**
+     * Adjusts an extension priority to be the highest priority within the same range.
+     */
+    export function adjustExtensionPriority(extensionPriority: ExtensionPriority): ExtensionPriority {
+        if (extensionPriority < ExtensionPriority.DeclarationAndJavaScriptFiles) {
+            return ExtensionPriority.TypeScriptFiles;
+        }
+        else if (extensionPriority < ExtensionPriority.Limit) {
+            return ExtensionPriority.DeclarationAndJavaScriptFiles;
+        }
+        else {
+            return ExtensionPriority.Limit;
+        }
+    }
+
+    /**
+     * Gets the next lowest extension priority for a given priority.
+     */
+    export function getNextLowestExtensionPriority(extensionPriority: ExtensionPriority): ExtensionPriority {
+        if (extensionPriority < ExtensionPriority.DeclarationAndJavaScriptFiles) {
+            return ExtensionPriority.DeclarationAndJavaScriptFiles;
+        }
+        else {
+            return ExtensionPriority.Limit;
+        }
+    }
+
     const extensionsToRemove = [".d.ts", ".ts", ".js", ".tsx", ".jsx"];
     export function removeFileExtension(path: string): string {
         for (const ext of extensionsToRemove) {
@@ -798,6 +1121,10 @@ namespace ts {
         return path;
     }
 
+    export function changeExtension<T extends string | Path>(path: T, newExtension: string): T {
+        return <T>(removeFileExtension(path) + newExtension);
+    }
+
     export interface ObjectAllocator {
         getNodeConstructor(): new (kind: SyntaxKind, pos?: number, end?: number) => Node;
         getSourceFileConstructor(): new (kind: SyntaxKind, pos?: number, end?: number) => SourceFile;
diff --git a/src/compiler/diagnosticMessages.json b/src/compiler/diagnosticMessages.json
index a43f3534df6b5..35334ffdf4d06 100644
--- a/src/compiler/diagnosticMessages.json
+++ b/src/compiler/diagnosticMessages.json
@@ -2059,6 +2059,14 @@
         "category": "Error",
         "code": 5009
     },
+    "File specification cannot end in a recursive directory wildcard ('**'): '{0}'.": {
+        "category": "Error",
+        "code": 5010
+    },
+    "File specification cannot contain multiple recursive directory wildcards ('**'): '{0}'.": {
+        "category": "Error",
+        "code": 5011
+    },
     "Cannot read file '{0}': {1}": {
         "category": "Error",
         "code": 5012
diff --git a/src/compiler/sys.ts b/src/compiler/sys.ts
index c99c28bc0dd06..2c23e4016eb30 100644
--- a/src/compiler/sys.ts
+++ b/src/compiler/sys.ts
@@ -16,7 +16,7 @@ namespace ts {
         createDirectory(path: string): void;
         getExecutingFilePath(): string;
         getCurrentDirectory(): string;
-        readDirectory(path: string, extension?: string, exclude?: string[]): string[];
+        readDirectory(path: string, extensions?: string[], exclude?: string[], include?: string[]): string[];
         getMemoryUsage?(): number;
         exit(exitCode?: number): void;
     }
@@ -61,7 +61,7 @@ namespace ts {
         resolvePath(path: string): string;
         readFile(path: string): string;
         writeFile(path: string, contents: string): void;
-        readDirectory(path: string, extension?: string, exclude?: string[]): string[];
+        readDirectory(path: string, extensions?: string[], exclude?: string[], include?: string[]): string[];
         watchFile?(path: string, callback: (path: string, removed?: boolean) => void): FileWatcher;
         watchDirectory?(path: string, callback: (path: string) => void, recursive?: boolean): FileWatcher;
     };
@@ -71,6 +71,7 @@ namespace ts {
         function getWScriptSystem(): System {
 
             const fso = new ActiveXObject("Scripting.FileSystemObject");
+            const shell = new ActiveXObject("WScript.Shell");
 
             const fileStream = new ActiveXObject("ADODB.Stream");
             fileStream.Type = 2 /*text*/;
@@ -138,10 +139,6 @@ namespace ts {
                 }
             }
 
-            function getCanonicalPath(path: string): string {
-                return path.toLowerCase();
-            }
-
             function getNames(collection: any): string[] {
                 const result: string[] = [];
                 for (let e = new Enumerator(collection); !e.atEnd(); e.moveNext()) {
@@ -150,30 +147,22 @@ namespace ts {
                 return result.sort();
             }
 
-            function readDirectory(path: string, extension?: string, exclude?: string[]): string[] {
-                const result: string[] = [];
-                exclude = map(exclude, s => getCanonicalPath(combinePaths(path, s)));
-                visitDirectory(path);
-                return result;
-                function visitDirectory(path: string) {
+            function getAccessibleFileSystemEntries(path: string): FileSystemEntries {
+                try {
                     const folder = fso.GetFolder(path || ".");
                     const files = getNames(folder.files);
-                    for (const current of files) {
-                        const name = combinePaths(path, current);
-                        if ((!extension || fileExtensionIs(name, extension)) && !contains(exclude, getCanonicalPath(name))) {
-                            result.push(name);
-                        }
-                    }
-                    const subfolders = getNames(folder.subfolders);
-                    for (const current of subfolders) {
-                        const name = combinePaths(path, current);
-                        if (!contains(exclude, getCanonicalPath(name))) {
-                            visitDirectory(name);
-                        }
-                    }
+                    const directories = getNames(folder.subfolders);
+                    return { files, directories };
+                }
+                catch (e) {
+                    return { files: [], directories: [] };
                 }
             }
 
+            function readDirectory(path: string, extensions?: string[], excludes?: string[], includes?: string[]): string[] {
+                return matchFiles(path, extensions, excludes, includes, /*useCaseSensitiveFileNames*/ false, shell.CurrentDirectory, getAccessibleFileSystemEntries);
+            }
+
             return {
                 args,
                 newLine: "\r\n",
@@ -201,7 +190,7 @@ namespace ts {
                     return WScript.ScriptFullName;
                 },
                 getCurrentDirectory() {
-                    return new ActiveXObject("WScript.Shell").CurrentDirectory;
+                    return shell.CurrentDirectory;
                 },
                 readDirectory,
                 exit(exitCode?: number): void {
@@ -364,36 +353,30 @@ namespace ts {
                 }
             }
 
-            function getCanonicalPath(path: string): string {
-                return useCaseSensitiveFileNames ? path.toLowerCase() : path;
-            }
-
-            function readDirectory(path: string, extension?: string, exclude?: string[]): string[] {
-                const result: string[] = [];
-                exclude = map(exclude, s => getCanonicalPath(combinePaths(path, s)));
-                visitDirectory(path);
-                return result;
-                function visitDirectory(path: string) {
-                    const files = _fs.readdirSync(path || ".").sort();
+            function getAccessibleFileSystemEntries(path: string): FileSystemEntries {
+                try {
+                    const entries = _fs.readdirSync(path || ".").sort();
+                    const files: string[] = [];
                     const directories: string[] = [];
-                    for (const current of files) {
-                        const name = combinePaths(path, current);
-                        if (!contains(exclude, getCanonicalPath(name))) {
-                            const stat = _fs.statSync(name);
-                            if (stat.isFile()) {
-                                if (!extension || fileExtensionIs(name, extension)) {
-                                    result.push(name);
-                                }
-                            }
-                            else if (stat.isDirectory()) {
-                                directories.push(name);
-                            }
+                    for (const entry of entries) {
+                        const name = combinePaths(path, entry);
+                        const stat = _fs.statSync(name);
+                        if (stat.isFile()) {
+                            files.push(entry);
+                        }
+                        else if (stat.isDirectory()) {
+                            directories.push(entry);
                         }
                     }
-                    for (const current of directories) {
-                        visitDirectory(current);
-                    }
+                    return { files, directories };
                 }
+                catch (e) {
+                    return { files: [], directories: [] };
+                }
+            }
+
+            function readDirectory(path: string, extensions?: string[], excludes?: string[], includes?: string[]): string[] {
+                return matchFiles(path, extensions, excludes, includes, useCaseSensitiveFileNames, process.cwd(), getAccessibleFileSystemEntries);
             }
 
             return {
@@ -511,5 +494,3 @@ namespace ts {
         }
     })();
 }
-
-
diff --git a/src/compiler/types.ts b/src/compiler/types.ts
index 24f70373a8ace..709c95ac0a3b5 100644
--- a/src/compiler/types.ts
+++ b/src/compiler/types.ts
@@ -1586,7 +1586,15 @@ namespace ts {
     }
 
     export interface ParseConfigHost {
-        readDirectory(rootDir: string, extension: string, exclude: string[]): string[];
+        useCaseSensitiveFileNames: boolean;
+
+        readDirectory(rootDir: string, extensions: string[], excludes: string[], includes: string[]): string[];
+
+        /**
+          * Gets a value indicating whether the specified path exists and is a file.
+          * @param path The path to test.
+          */
+        fileExists(path: string): boolean;
     }
 
     export interface WriteFileCallback {
@@ -2480,6 +2488,17 @@ namespace ts {
         options: CompilerOptions;
         fileNames: string[];
         errors: Diagnostic[];
+        wildcardDirectories?: Map<WatchDirectoryFlags>;
+    }
+
+    export const enum WatchDirectoryFlags {
+        None = 0,
+        Recursive = 1 << 0,
+    }
+
+    export interface ExpandResult {
+        fileNames: string[];
+        wildcardDirectories: Map<WatchDirectoryFlags>;
     }
 
     /* @internal */
diff --git a/src/harness/external/chai.d.ts b/src/harness/external/chai.d.ts
index 814de75e7b254..fba0024d254ee 100644
--- a/src/harness/external/chai.d.ts
+++ b/src/harness/external/chai.d.ts
@@ -167,9 +167,14 @@ declare module chai {
     module assert {
         function equal(actual: any, expected: any, message?: string): void;
         function notEqual(actual: any, expected: any, message?: string): void;
+        function deepEqual<T>(actual: T, expected: T, message?: string): void;
+        function notDeepEqual<T>(actual: T, expected: T, message?: string): void;
+        function lengthOf(object: any[], length: number, message?: string): void;
         function isTrue(value: any, message?: string): void;
         function isFalse(value: any, message?: string): void;
         function isNull(value: any, message?: string): void;
         function isNotNull(value: any, message?: string): void;
+        function isUndefined(value: any, message?: string): void;
+        function isDefined(value: any, message?: string): void;
     }
 }
\ No newline at end of file
diff --git a/src/harness/harness.ts b/src/harness/harness.ts
index 7fd819731721a..b1e8bb5cc4ef7 100644
--- a/src/harness/harness.ts
+++ b/src/harness/harness.ts
@@ -1,7 +1,7 @@
 
 //
 // Copyright (c) Microsoft Corporation.  All rights reserved.
-// 
+//
 // Licensed under the Apache License, Version 2.0 (the "License");
 // you may not use this file except in compliance with the License.
 // You may obtain a copy of the License at
@@ -23,6 +23,7 @@
 /// <reference path="external\chai.d.ts"/>
 /// <reference path="sourceMapRecorder.ts"/>
 /// <reference path="runnerbase.ts"/>
+/// <reference path="virtualFileSystem.ts" />
 /* tslint:disable:no-null */
 
 // Block scoped definitions work poorly for global variables, temporarily enable var
@@ -281,7 +282,7 @@ namespace Utils {
                         break;
 
                     case "parserContextFlags":
-                        // Clear the flag that are produced by aggregating child values..  That is ephemeral 
+                        // Clear the flag that are produced by aggregating child values..  That is ephemeral
                         // data we don't care about in the dump.  We only care what the parser set directly
                         // on the ast.
                         let value = n.parserContextFlags & ts.ParserContextFlags.ParserGeneratedFlags;
@@ -355,7 +356,7 @@ namespace Utils {
         assert.equal(node1.kind, node2.kind, "node1.kind !== node2.kind");
         assert.equal(node1.flags, node2.flags, "node1.flags !== node2.flags");
 
-        // call this on both nodes to ensure all propagated flags have been set (and thus can be 
+        // call this on both nodes to ensure all propagated flags have been set (and thus can be
         // compared).
         assert.equal(ts.containsParseError(node1), ts.containsParseError(node2));
         assert.equal(node1.parserContextFlags, node2.parserContextFlags, "node1.parserContextFlags !== node2.parserContextFlags");
@@ -434,7 +435,7 @@ namespace Harness {
         args(): string[];
         getExecutingFilePath(): string;
         exit(exitCode?: number): void;
-        readDirectory(path: string, extension?: string, exclude?: string[]): string[];
+        readDirectory(path: string, extension?: string[], exclude?: string[], include?: string[]): string[];
     }
     export var IO: IO;
 
@@ -472,7 +473,7 @@ namespace Harness {
             export const directoryExists: typeof IO.directoryExists = fso.FolderExists;
             export const fileExists: typeof IO.fileExists = fso.FileExists;
             export const log: typeof IO.log = global.WScript && global.WScript.StdOut.WriteLine;
-            export const readDirectory: typeof IO.readDirectory = (path, extension, exclude) => ts.sys.readDirectory(path, extension, exclude);
+            export const readDirectory: typeof IO.readDirectory = (path, extension, exclude, include) => ts.sys.readDirectory(path, extension, exclude, include);
 
             export function createDirectory(path: string) {
                 if (directoryExists(path)) {
@@ -541,7 +542,7 @@ namespace Harness {
             export const fileExists: typeof IO.fileExists = fs.existsSync;
             export const log: typeof IO.log = s => console.log(s);
 
-            export const readDirectory: typeof IO.readDirectory = (path, extension, exclude) => ts.sys.readDirectory(path, extension, exclude);
+            export const readDirectory: typeof IO.readDirectory = (path, extension, exclude, include) => ts.sys.readDirectory(path, extension, exclude, include);
 
             export function createDirectory(path: string) {
                 if (!directoryExists(path)) {
@@ -734,8 +735,22 @@ namespace Harness {
                 Http.writeToServerSync(serverRoot + path, "WRITE", contents);
             }
 
-            export function readDirectory(path: string, extension?: string, exclude?: string[]) {
-                return listFiles(path).filter(f => !extension || ts.fileExtensionIs(f, extension));
+            export function readDirectory(path: string, extension?: string[], exclude?: string[], include?: string[]) {
+                const fs = new Utils.VirtualFileSystem(path, useCaseSensitiveFileNames());
+                for (const file in listFiles(path)) {
+                    fs.addFile(file);
+                }
+                return ts.matchFiles(path, extension, exclude, include, useCaseSensitiveFileNames(), getCurrentDirectory(), path => {
+                    const entry = fs.traversePath(path);
+                    if (entry && entry.isDirectory()) {
+                        const directory = <Utils.VirtualDirectory>entry;
+                        return {
+                            files: ts.map(directory.getFiles(), f => f.name),
+                            directories: ts.map(directory.getDirectories(), d => d.name)
+                        };
+                    }
+                    return { files: [], directories: [] };
+                });
             }
         }
     }
@@ -762,7 +777,7 @@ namespace Harness {
         (emittedFile: string, emittedLine: number, emittedColumn: number, sourceFile: string, sourceLine: number, sourceColumn: number, sourceName: string): void;
     }
 
-    // Settings 
+    // Settings
     export let userSpecifiedRoot = "";
     export let lightMode = false;
 
@@ -801,7 +816,7 @@ namespace Harness {
             fileName: string,
             sourceText: string,
             languageVersion: ts.ScriptTarget) {
-            // We'll only assert invariants outside of light mode. 
+            // We'll only assert invariants outside of light mode.
             const shouldAssertInvariants = !Harness.lightMode;
 
             // Only set the parent nodes if we're asserting invariants.  We don't need them otherwise.
@@ -896,7 +911,7 @@ namespace Harness {
             libFiles?: string;
         }
 
-        // Additional options not already in ts.optionDeclarations 
+        // Additional options not already in ts.optionDeclarations
         const harnessOptionDeclarations: ts.CommandLineOption[] = [
             { name: "allowNonTsExtensions", type: "boolean" },
             { name: "useCaseSensitiveFileNames", type: "boolean" },
@@ -1134,7 +1149,7 @@ namespace Harness {
                 errLines.forEach(e => outputLines.push(e));
 
                 // do not count errors from lib.d.ts here, they are computed separately as numLibraryDiagnostics
-                // if lib.d.ts is explicitly included in input files and there are some errors in it (i.e. because of duplicate identifiers) 
+                // if lib.d.ts is explicitly included in input files and there are some errors in it (i.e. because of duplicate identifiers)
                 // then they will be added twice thus triggering 'total errors' assertion with condition
                 // 'totalErrorsReportedInNonLibraryFiles + numLibraryDiagnostics + numTest262HarnessDiagnostics, diagnostics.length
 
diff --git a/src/harness/harnessLanguageService.ts b/src/harness/harnessLanguageService.ts
index fb5b6ce92aa0d..b9a826e78ed24 100644
--- a/src/harness/harnessLanguageService.ts
+++ b/src/harness/harnessLanguageService.ts
@@ -259,7 +259,14 @@ namespace Harness.LanguageService {
         readDirectory(rootDir: string, extension: string): string {
             throw new Error("NYI");
         }
+        readDirectoryNames(path: string): string {
+            throw new Error("Not implemented.");
+        }
+        readFileNames(path: string): string {
+            throw new Error("Not implemented.");
+        }
         fileExists(fileName: string) { return this.getScriptInfo(fileName) !== undefined; }
+        directoryExists(directoryName: string) { return false; }
         readFile(fileName: string) {
             const snapshot = this.nativeHost.getScriptSnapshot(fileName);
             return snapshot && snapshot.getText(0, snapshot.getLength());
@@ -561,7 +568,7 @@ namespace Harness.LanguageService {
             return this.host.getCurrentDirectory();
         }
 
-        readDirectory(path: string, extension?: string): string[] {
+        readDirectory(path: string, extension?: string[], exclude?: string[], include?: string[]): string[] {
             throw new Error("Not implemented Yet.");
         }
 
@@ -637,4 +644,3 @@ namespace Harness.LanguageService {
         getPreProcessedFileInfo(fileName: string, fileContents: string): ts.PreProcessedFileInfo { throw new Error("getPreProcessedFileInfo is not available using the server interface."); }
     }
 }
- 
\ No newline at end of file
diff --git a/src/harness/loggedIO.ts b/src/harness/loggedIO.ts
index 3d51682f745b9..2d6e6481f241b 100644
--- a/src/harness/loggedIO.ts
+++ b/src/harness/loggedIO.ts
@@ -62,8 +62,9 @@ interface IOLog {
     }[];
     directoriesRead: {
         path: string,
-        extension: string,
+        extension: string[],
         exclude: string[],
+        include: string[],
         result: string[]
     }[];
 }
@@ -217,9 +218,9 @@ namespace Playback {
             memoize(path => findResultByPath(wrapper, replayLog.filesRead, path).contents));
 
         wrapper.readDirectory = recordReplay(wrapper.readDirectory, underlying)(
-            (path, extension, exclude) => {
-                const result = (<ts.System>underlying).readDirectory(path, extension, exclude);
-                const logEntry = { path, extension, exclude, result };
+            (path, extension, exclude, include) => {
+                const result = (<ts.System>underlying).readDirectory(path, extension, exclude, include);
+                const logEntry = { path, extension, exclude, include, result };
                 recordLog.directoriesRead.push(logEntry);
                 return result;
             },
diff --git a/src/harness/projectsRunner.ts b/src/harness/projectsRunner.ts
index 96fcfedc6b48e..769e72d385127 100644
--- a/src/harness/projectsRunner.ts
+++ b/src/harness/projectsRunner.ts
@@ -210,7 +210,12 @@ class ProjectRunner extends RunnerBase {
                 }
 
                 const configObject = result.config;
-                const configParseResult = ts.parseJsonConfigFileContent(configObject, { readDirectory }, ts.getDirectoryPath(configFileName), compilerOptions);
+                const configParseHost: ts.ParseConfigHost = {
+                    useCaseSensitiveFileNames: Harness.IO.useCaseSensitiveFileNames(),
+                    fileExists,
+                    readDirectory,
+                };
+                const configParseResult = ts.parseJsonConfigFileContent(configObject, configParseHost, ts.getDirectoryPath(configFileName), compilerOptions);
                 if (configParseResult.errors.length > 0) {
                     return {
                         moduleKind,
@@ -237,7 +242,7 @@ class ProjectRunner extends RunnerBase {
                     mapRoot: testCase.resolveMapRoot && testCase.mapRoot ? Harness.IO.resolvePath(testCase.mapRoot) : testCase.mapRoot,
                     sourceRoot: testCase.resolveSourceRoot && testCase.sourceRoot ? Harness.IO.resolvePath(testCase.sourceRoot) : testCase.sourceRoot,
                     module: moduleKind,
-                    moduleResolution: ts.ModuleResolutionKind.Classic, // currently all tests use classic module resolution kind, this will change in the future 
+                    moduleResolution: ts.ModuleResolutionKind.Classic, // currently all tests use classic module resolution kind, this will change in the future
                 };
                 // Set the values specified using json
                 const optionNameMap: ts.Map<ts.CommandLineOption> = {};
@@ -268,8 +273,8 @@ class ProjectRunner extends RunnerBase {
                     : ts.normalizeSlashes(testCase.projectRoot) + "/" + ts.normalizeSlashes(fileName);
             }
 
-            function readDirectory(rootDir: string, extension: string, exclude: string[]): string[] {
-                const harnessReadDirectoryResult = Harness.IO.readDirectory(getFileNameInTheProjectTest(rootDir), extension, exclude);
+            function readDirectory(rootDir: string, extension: string[], exclude: string[], include: string[]): string[] {
+                const harnessReadDirectoryResult = Harness.IO.readDirectory(getFileNameInTheProjectTest(rootDir), extension, exclude, include);
                 const result: string[] = [];
                 for (let i = 0; i < harnessReadDirectoryResult.length; i++) {
                     result[i] = ts.getRelativePathToDirectoryOrUrl(testCase.projectRoot, harnessReadDirectoryResult[i],
diff --git a/src/harness/rwcRunner.ts b/src/harness/rwcRunner.ts
index ce570a7d6ad01..791c684c79c16 100644
--- a/src/harness/rwcRunner.ts
+++ b/src/harness/rwcRunner.ts
@@ -76,7 +76,12 @@ namespace RWC {
                     if (tsconfigFile) {
                         const tsconfigFileContents = getHarnessCompilerInputUnit(tsconfigFile.path);
                         const parsedTsconfigFileContents = ts.parseConfigFileTextToJson(tsconfigFile.path, tsconfigFileContents.content);
-                        const configParseResult = ts.parseJsonConfigFileContent(parsedTsconfigFileContents.config, Harness.IO, ts.getDirectoryPath(tsconfigFile.path));
+                        const configParseHost: ts.ParseConfigHost = {
+                            useCaseSensitiveFileNames: Harness.IO.useCaseSensitiveFileNames(),
+                            fileExists: Harness.IO.fileExists,
+                            readDirectory: Harness.IO.readDirectory,
+                        };
+                        const configParseResult = ts.parseJsonConfigFileContent(parsedTsconfigFileContents.config, configParseHost, ts.getDirectoryPath(tsconfigFile.path));
                         fileNames = configParseResult.fileNames;
                         opts.options = ts.extend(opts.options, configParseResult.options);
                     }
diff --git a/src/harness/virtualFileSystem.ts b/src/harness/virtualFileSystem.ts
new file mode 100644
index 0000000000000..66bbd715fbc60
--- /dev/null
+++ b/src/harness/virtualFileSystem.ts
@@ -0,0 +1,160 @@
+/// <reference path="harness.ts" />
+namespace Utils {
+    export class VirtualFileSystemEntry {
+        fileSystem: VirtualFileSystem;
+        name: string;
+
+        constructor(fileSystem: VirtualFileSystem, name: string) {
+            this.fileSystem = fileSystem;
+            this.name = name;
+        }
+
+        isDirectory() { return false; }
+        isFile() { return false; }
+        isFileSystem() { return false; }
+    }
+
+    export class VirtualFile extends VirtualFileSystemEntry {
+        content: string;
+        isFile() { return true; }
+    }
+
+    export abstract class VirtualFileSystemContainer extends VirtualFileSystemEntry {
+        abstract getFileSystemEntries(): VirtualFileSystemEntry[];
+
+        getFileSystemEntry(name: string): VirtualFileSystemEntry {
+            for (const entry of this.getFileSystemEntries()) {
+                if (this.fileSystem.sameName(entry.name, name)) {
+                    return entry;
+                }
+            }
+            return undefined;
+        }
+
+        getDirectories(): VirtualDirectory[] {
+            return <VirtualDirectory[]>ts.filter(this.getFileSystemEntries(), entry => entry.isDirectory());
+        }
+
+        getFiles(): VirtualFile[] {
+            return <VirtualFile[]>ts.filter(this.getFileSystemEntries(), entry => entry.isFile());
+        }
+
+        getDirectory(name: string): VirtualDirectory {
+            const entry = this.getFileSystemEntry(name);
+            return entry.isDirectory() ? <VirtualDirectory>entry : undefined;
+        }
+
+        getFile(name: string): VirtualFile {
+            const entry = this.getFileSystemEntry(name);
+            return entry.isFile() ? <VirtualFile>entry : undefined;
+        }
+    }
+
+    export class VirtualDirectory extends VirtualFileSystemContainer {
+        private entries: VirtualFileSystemEntry[] = [];
+
+        isDirectory() { return true; }
+
+        getFileSystemEntries() { return this.entries.slice(); }
+
+        addDirectory(name: string): VirtualDirectory {
+            const entry = this.getFileSystemEntry(name);
+            if (entry === undefined) {
+                const directory = new VirtualDirectory(this.fileSystem, name);
+                this.entries.push(directory);
+                return directory;
+            }
+            else if (entry.isDirectory()) {
+                return <VirtualDirectory>entry;
+            }
+            else {
+                return undefined;
+            }
+        }
+
+        addFile(name: string, content?: string): VirtualFile {
+            const entry = this.getFileSystemEntry(name);
+            if (entry === undefined) {
+                const file = new VirtualFile(this.fileSystem, name);
+                file.content = content;
+                this.entries.push(file);
+                return file;
+            }
+            else if (entry.isFile()) {
+                const file = <VirtualFile>entry;
+                file.content = content;
+                return file;
+            }
+            else {
+                return undefined;
+            }
+        }
+    }
+
+    export class VirtualFileSystem extends VirtualFileSystemContainer {
+        private root: VirtualDirectory;
+
+        currentDirectory: string;
+        useCaseSensitiveFileNames: boolean;
+
+        constructor(currentDirectory: string, useCaseSensitiveFileNames: boolean) {
+            super(undefined, "");
+            this.fileSystem = this;
+            this.root = new VirtualDirectory(this, "");
+            this.currentDirectory = currentDirectory;
+            this.useCaseSensitiveFileNames = useCaseSensitiveFileNames;
+        }
+
+        isFileSystem() { return true; }
+
+        getFileSystemEntries() { return this.root.getFileSystemEntries(); }
+
+        addDirectory(path: string) {
+            const components = ts.getNormalizedPathComponents(path, this.currentDirectory);
+            let directory: VirtualDirectory = this.root;
+            for (const component of components) {
+                directory = directory.addDirectory(component);
+                if (directory === undefined) {
+                    break;
+                }
+            }
+
+            return directory;
+        }
+
+        addFile(path: string, content?: string) {
+            const absolutePath = ts.getNormalizedAbsolutePath(path, this.currentDirectory);
+            const fileName = ts.getBaseFileName(path);
+            const directoryPath = ts.getDirectoryPath(absolutePath);
+            const directory = this.addDirectory(directoryPath);
+            return directory ? directory.addFile(fileName, content) : undefined;
+        }
+
+        fileExists(path: string) {
+            const entry = this.traversePath(path);
+            return entry !== undefined && entry.isFile();
+        }
+
+        sameName(a: string, b: string) {
+            return this.useCaseSensitiveFileNames ? a === b : a.toLowerCase() === b.toLowerCase();
+        }
+
+        traversePath(path: string) {
+            let directory: VirtualDirectory = this.root;
+            for (const component of ts.getNormalizedPathComponents(path, this.currentDirectory)) {
+                const entry = directory.getFileSystemEntry(component);
+                if (entry === undefined) {
+                    return undefined;
+                }
+                else if (entry.isDirectory()) {
+                    directory = <VirtualDirectory>entry;
+                }
+                else {
+                    return entry;
+                }
+            }
+
+            return directory;
+        }
+    }
+}
\ No newline at end of file
diff --git a/src/server/editorServices.ts b/src/server/editorServices.ts
index d78f7d40ef668..9305031089cdf 100644
--- a/src/server/editorServices.ts
+++ b/src/server/editorServices.ts
@@ -119,7 +119,7 @@ namespace ts.server {
                 if (!resolution) {
                     const existingResolution = currentResolutionsInFile && ts.lookUp(currentResolutionsInFile, moduleName);
                     if (moduleResolutionIsValid(existingResolution)) {
-                        // ok, it is safe to use existing module resolution results  
+                        // ok, it is safe to use existing module resolution results
                         resolution = existingResolution;
                     }
                     else {
@@ -144,8 +144,8 @@ namespace ts.server {
                 }
 
                 if (resolution.resolvedModule) {
-                    // TODO: consider checking failedLookupLocations  
-                    // TODO: use lastCheckTime to track expiration for module name resolution 
+                    // TODO: consider checking failedLookupLocations
+                    // TODO: use lastCheckTime to track expiration for module name resolution
                     return true;
                 }
 
@@ -326,6 +326,7 @@ namespace ts.server {
     export interface ProjectOptions {
         // these fields can be present in the project file
         files?: string[];
+        wildcardDirectories?: ts.Map<ts.WatchDirectoryFlags>;
         compilerOptions?: ts.CompilerOptions;
     }
 
@@ -334,6 +335,7 @@ namespace ts.server {
         projectFilename: string;
         projectFileWatcher: FileWatcher;
         directoryWatcher: FileWatcher;
+        directoriesWatchedForWildcards: Map<FileWatcher>;
         // Used to keep track of what directories are watched for this project
         directoriesWatchedForTsconfig: string[] = [];
         program: ts.Program;
@@ -482,7 +484,7 @@ namespace ts.server {
         openFileRootsConfigured: ScriptInfo[] = [];
         // a path to directory watcher map that detects added tsconfig files
         directoryWatchersForTsconfig: ts.Map<FileWatcher> = {};
-        // count of how many projects are using the directory watcher. If the 
+        // count of how many projects are using the directory watcher. If the
         // number becomes 0 for a watcher, then we should close it.
         directoryWatchersRefCount: ts.Map<number> = {};
         hostConfiguration: HostConfiguration;
@@ -563,11 +565,11 @@ namespace ts.server {
             // We check if the project file list has changed. If so, we update the project.
             if (!arrayIsEqualTo(currentRootFiles && currentRootFiles.sort(), newRootFiles && newRootFiles.sort())) {
                 // For configured projects, the change is made outside the tsconfig file, and
-                // it is not likely to affect the project for other files opened by the client. We can 
+                // it is not likely to affect the project for other files opened by the client. We can
                 // just update the current project.
                 this.updateConfiguredProject(project);
 
-                // Call updateProjectStructure to clean up inferred projects we may have 
+                // Call updateProjectStructure to clean up inferred projects we may have
                 // created for the new files
                 this.updateProjectStructure();
             }
@@ -713,6 +715,8 @@ namespace ts.server {
             if (project.isConfiguredProject()) {
                 project.projectFileWatcher.close();
                 project.directoryWatcher.close();
+                forEachValue(project.directoriesWatchedForWildcards, watcher => { watcher.close(); });
+                delete project.directoriesWatchedForWildcards;
                 this.configuredProjects = copyListRemovingItem(project, this.configuredProjects);
             }
             else {
@@ -791,8 +795,8 @@ namespace ts.server {
           * @param info The file that has been closed or newly configured
           */
         closeOpenFile(info: ScriptInfo) {
-            // Closing file should trigger re-reading the file content from disk. This is 
-            // because the user may chose to discard the buffer content before saving 
+            // Closing file should trigger re-reading the file content from disk. This is
+            // because the user may chose to discard the buffer content before saving
             // to the disk, and the server's version of the file can be out of sync.
             info.svc.reloadFromFile(info.fileName);
 
@@ -890,8 +894,8 @@ namespace ts.server {
         }
 
         /**
-         * This function is to update the project structure for every projects. 
-         * It is called on the premise that all the configured projects are 
+         * This function is to update the project structure for every projects.
+         * It is called on the premise that all the configured projects are
          * up to date.
          */
         updateProjectStructure() {
@@ -945,7 +949,7 @@ namespace ts.server {
 
                 if (rootFile.defaultProject && rootFile.defaultProject.isConfiguredProject()) {
                     // If the root file has already been added into a configured project,
-                    // meaning the original inferred project is gone already. 
+                    // meaning the original inferred project is gone already.
                     if (!rootedProject.isConfiguredProject()) {
                         this.removeProject(rootedProject);
                     }
@@ -1050,9 +1054,9 @@ namespace ts.server {
         }
 
         /**
-         * This function tries to search for a tsconfig.json for the given file. If we found it, 
+         * This function tries to search for a tsconfig.json for the given file. If we found it,
          * we first detect if there is already a configured project created for it: if so, we re-read
-         * the tsconfig file content and update the project; otherwise we create a new one. 
+         * the tsconfig file content and update the project; otherwise we create a new one.
          */
         openOrUpdateConfiguredProjectForFile(fileName: string) {
             const searchPath = ts.normalizePath(getDirectoryPath(fileName));
@@ -1189,7 +1193,8 @@ namespace ts.server {
                 else {
                     const projectOptions: ProjectOptions = {
                         files: parsedCommandLine.fileNames,
-                        compilerOptions: parsedCommandLine.options
+                        wildcardDirectories: parsedCommandLine.wildcardDirectories,
+                        compilerOptions: parsedCommandLine.options,
                     };
                     return { succeeded: true, projectOptions };
                 }
@@ -1215,12 +1220,30 @@ namespace ts.server {
                 }
                 project.finishGraph();
                 project.projectFileWatcher = this.host.watchFile(configFilename, _ => this.watchedProjectConfigFileChanged(project));
-                this.log("Add recursive watcher for: " + ts.getDirectoryPath(configFilename));
+
+                const configDirectoryPath = ts.getDirectoryPath(configFilename);
+
+                this.log("Add recursive watcher for: " + configDirectoryPath);
                 project.directoryWatcher = this.host.watchDirectory(
-                    ts.getDirectoryPath(configFilename),
+                    configDirectoryPath,
                     path => this.directoryWatchedForSourceFilesChanged(project, path),
                     /*recursive*/ true
                 );
+
+                project.directoriesWatchedForWildcards = reduceProperties(projectOptions.wildcardDirectories, (watchers, flag, directory) => {
+                    if (comparePaths(configDirectoryPath, directory, ".", !this.host.useCaseSensitiveFileNames) !== Comparison.EqualTo) {
+                        const recursive = (flag & WatchDirectoryFlags.Recursive) !== 0;
+                        this.log(`Add ${ recursive ? "recursive " : ""}watcher for: ${directory}`);
+                        watchers[directory] = this.host.watchDirectory(
+                            directory,
+                            path => this.directoryWatchedForSourceFilesChanged(project, path),
+                            recursive
+                        );
+                    }
+
+                    return watchers;
+                }, <Map<FileWatcher>>{});
+
                 return { success: true, project: project };
             }
         }
@@ -1254,7 +1277,7 @@ namespace ts.server {
                             info = this.openFile(fileName, /*openedByClient*/ false);
                         }
                         else {
-                            // if the root file was opened by client, it would belong to either 
+                            // if the root file was opened by client, it would belong to either
                             // openFileRoots or openFileReferenced.
                             if (info.isOpen) {
                                 if (this.openFileRoots.indexOf(info) >= 0) {
diff --git a/src/services/shims.ts b/src/services/shims.ts
index 6b656ea2738fb..46056eb110fff 100644
--- a/src/services/shims.ts
+++ b/src/services/shims.ts
@@ -60,7 +60,7 @@ namespace ts {
         getNewLine?(): string;
         getProjectVersion?(): string;
         useCaseSensitiveFileNames?(): boolean;
-        
+
         getModuleResolutionsForFile?(fileName: string): string;
     }
 
@@ -72,7 +72,8 @@ namespace ts {
          * @param exclude A JSON encoded string[] containing the paths to exclude
          *  when enumerating the directory.
          */
-        readDirectory(rootDir: string, extension: string, exclude?: string): string;
+        readDirectory(rootDir: string, extension: string, exclude?: string, include?: string): string;
+        useCaseSensitiveFileNames?(): boolean;
     }
 
     ///
@@ -272,12 +273,12 @@ namespace ts {
         private files: string[];
         private loggingEnabled = false;
         private tracingEnabled = false;
-        
+
         public resolveModuleNames: (moduleName: string[], containingFile: string) => ResolvedModule[];
-        
+
         constructor(private shimHost: LanguageServiceShimHost) {
             // if shimHost is a COM object then property check will become method call with no arguments.
-            // 'in' does not have this effect. 
+            // 'in' does not have this effect.
             if ("getModuleResolutionsForFile" in this.shimHost) {
                 this.resolveModuleNames = (moduleNames: string[], containingFile: string) => {
                     let resolutionsInFile = <Map<string>>JSON.parse(this.shimHost.getModuleResolutionsForFile(containingFile));
@@ -407,31 +408,49 @@ namespace ts {
 
     export class CoreServicesShimHostAdapter implements ParseConfigHost {
 
+        public useCaseSensitiveFileNames: boolean;
+
         constructor(private shimHost: CoreServicesShimHost) {
+            this.useCaseSensitiveFileNames = this.shimHost.useCaseSensitiveFileNames ? this.shimHost.useCaseSensitiveFileNames() : false;
         }
 
-        public readDirectory(rootDir: string, extension: string, exclude: string[]): string[] {
-            // Wrap the API changes for 1.5 release. This try/catch
-            // should be removed once TypeScript 1.5 has shipped.
+        public readDirectory(rootDir: string, extensions: string[], exclude: string[], include: string[]): string[] {
+            // Wrap the API changes for 1.8 release. This try/catch
+            // should be removed once TypeScript 1.8 has shipped.
             // Also consider removing the optional designation for
             // the exclude param at this time.
-            var encoded: string;
             try {
-                encoded = this.shimHost.readDirectory(rootDir, extension, JSON.stringify(exclude));
+                return JSON.parse(this.shimHost.readDirectory(
+                    rootDir,
+                    JSON.stringify(extensions),
+                    JSON.stringify(exclude),
+                    JSON.stringify(include)));
             }
             catch (e) {
-                encoded = this.shimHost.readDirectory(rootDir, extension);
+                const results: string[] = [];
+                for (const extension of extensions) {
+                    for (const file of this.readDirectoryFallback(rootDir, extension, exclude))
+                    {
+                        if (!contains(results, file)) {
+                            results.push(file);
+                        }
+                    }
+                }
+                return results;
             }
-            return JSON.parse(encoded);
         }
-        
+
         public fileExists(fileName: string): boolean {
             return this.shimHost.fileExists(fileName);
         }
-        
+
         public readFile(fileName: string): string {
             return this.shimHost.readFile(fileName);
         }
+
+        private readDirectoryFallback(rootDir: string, extension: string, exclude: string[]) {
+            return JSON.parse(this.shimHost.readDirectory(rootDir, extension, JSON.stringify(exclude)));
+        }
     }
 
     function simpleForwardCall(logger: Logger, actionDescription: string, action: () => any, logPerformance: boolean): any {
@@ -940,7 +959,7 @@ namespace ts {
         private forwardJSONCall(actionDescription: string, action: () => any): any {
             return forwardJSONCall(this.logger, actionDescription, action, this.logPerformance);
         }
-        
+
         public resolveModuleName(fileName: string, moduleName: string, compilerOptionsJson: string): string {
             return this.forwardJSONCall(`resolveModuleName('${fileName}')`, () => {
                 let compilerOptions = <CompilerOptions>JSON.parse(compilerOptionsJson);
@@ -949,14 +968,14 @@ namespace ts {
                     resolvedFileName: result.resolvedModule ? result.resolvedModule.resolvedFileName: undefined,
                     failedLookupLocations: result.failedLookupLocations
                 };
-            }); 
+            });
         }
 
         public getPreProcessedFileInfo(fileName: string, sourceTextSnapshot: IScriptSnapshot): string {
             return this.forwardJSONCall(
                 "getPreProcessedFileInfo('" + fileName + "')",
                 () => {
-                    // for now treat files as JavaScript 
+                    // for now treat files as JavaScript
                     var result = preProcessFile(sourceTextSnapshot.getText(0, sourceTextSnapshot.getLength()), /* readImportFiles */ true, /* detectJavaScriptImports */ true);
                     var convertResult = {
                         referencedFiles: <IFileReference[]>[],
diff --git a/tests/cases/unittests/cachingInServerLSHost.ts b/tests/cases/unittests/cachingInServerLSHost.ts
index 88b44a693b940..0d2a9ebf54d40 100644
--- a/tests/cases/unittests/cachingInServerLSHost.ts
+++ b/tests/cases/unittests/cachingInServerLSHost.ts
@@ -36,7 +36,7 @@ module ts {
             getCurrentDirectory: (): string => {
                 return "";
             },
-            readDirectory: (path: string, extension?: string, exclude?: string[]): string[] => {
+            readDirectory: (path: string, extension?: string[], exclude?: string[], include?: string[]): string[] => {
                 throw new Error("NYI");
             },
             exit: (exitCode?: number) => {
@@ -69,8 +69,8 @@ module ts {
         let projectService = new server.ProjectService(serverHost, logger);
         let rootScriptInfo = projectService.openFile(rootFile, /* openedByClient */true);
         let project = projectService.createInferredProject(rootScriptInfo);
-        project.setProjectOptions( {files: [rootScriptInfo.fileName], compilerOptions: {module: ts.ModuleKind.AMD} } ); 
-        return { 
+        project.setProjectOptions( {files: [rootScriptInfo.fileName], compilerOptions: {module: ts.ModuleKind.AMD} } );
+        return {
             project,
             rootScriptInfo
         };
@@ -87,22 +87,22 @@ module ts {
                 name: "c:/f1.ts",
                 content: `foo()`
             };
-            
+
             let serverHost = createDefaultServerHost({ [root.name]: root, [imported.name]: imported });
             let { project, rootScriptInfo } = createProject(root.name, serverHost);
 
             // ensure that imported file was found
             let diags = project.compilerService.languageService.getSemanticDiagnostics(imported.name);
             assert.equal(diags.length, 1);
-            
+
             let originalFileExists = serverHost.fileExists;
             {
                 // patch fileExists to make sure that disk is not touched
                 serverHost.fileExists = (fileName): boolean => {
-                    assert.isTrue(false, "fileExists should not be called"); 
+                    assert.isTrue(false, "fileExists should not be called");
                     return false;
                 };
-                
+
                 let newContent = `import {x} from "f1"
                 var x: string = 1;`;
                 rootScriptInfo.editContent(0, rootScriptInfo.content.length, newContent);
@@ -123,7 +123,7 @@ module ts {
                 };
                 let newContent = `import {x} from "f2"`;
                 rootScriptInfo.editContent(0, rootScriptInfo.content.length, newContent);
-                
+
                 try {
                     // trigger synchronization to make sure that LSHost will try to find 'f2' module on disk
                     project.compilerService.languageService.getSemanticDiagnostics(imported.name);
@@ -132,7 +132,7 @@ module ts {
                 catch(e) {
                     assert.isTrue(e.message.indexOf(`Could not find file: '${imported.name}'.`) === 0);
                 }
-                
+
                 assert.isTrue(fileExistsIsCalled);
             }
             {
@@ -140,45 +140,45 @@ module ts {
                 serverHost.fileExists = (fileName): boolean => {
                     if (fileName === "lib.d.ts") {
                         return false;
-                    }                    
+                    }
                     fileExistsCalled = true;
                     assert.isTrue(fileName.indexOf('/f1.') !== -1);
                     return originalFileExists(fileName);
                 };
-                
+
                 let newContent = `import {x} from "f1"`;
                 rootScriptInfo.editContent(0, rootScriptInfo.content.length, newContent);
                 project.compilerService.languageService.getSemanticDiagnostics(imported.name);
                 assert.isTrue(fileExistsCalled);
-                
+
                 // setting compiler options discards module resolution cache
                 fileExistsCalled = false;
-                
+
                 let opts = ts.clone(project.projectOptions);
                 opts.compilerOptions = ts.clone(opts.compilerOptions);
                 opts.compilerOptions.target = ts.ScriptTarget.ES5;
                 project.setProjectOptions(opts);
-                
+
                 project.compilerService.languageService.getSemanticDiagnostics(imported.name);
                 assert.isTrue(fileExistsCalled);
             }
         });
-        
+
         it("loads missing files from disk", () => {
             let root: File = {
                 name: 'c:/foo.ts',
                 content: `import {x} from "bar"`
             };
-            
+
             let imported: File = {
                 name: 'c:/bar.d.ts',
                 content: `export var y = 1`
-            };            
-            
+            };
+
             let fileMap: Map<File> = { [root.name]: root };
             let serverHost = createDefaultServerHost(fileMap);
             let originalFileExists = serverHost.fileExists;
-            
+
             let fileExistsCalledForBar = false;
             serverHost.fileExists = fileName => {
                 if (fileName === "lib.d.ts") {
@@ -187,22 +187,22 @@ module ts {
                 if (!fileExistsCalledForBar) {
                     fileExistsCalledForBar = fileName.indexOf("/bar.") !== -1;
                 }
-                
+
                 return originalFileExists(fileName);
             };
-            
+
             let { project, rootScriptInfo } = createProject(root.name, serverHost);
 
             let diags = project.compilerService.languageService.getSemanticDiagnostics(root.name);
             assert.isTrue(fileExistsCalledForBar, "'fileExists' should be called");
             assert.isTrue(diags.length === 1, "one diagnostic expected");
             assert.isTrue(typeof diags[0].messageText === "string" && ((<string>diags[0].messageText).indexOf("Cannot find module") === 0), "should be 'cannot find module' message");
-            
+
             // assert that import will success once file appear on disk
             fileMap[imported.name] = imported;
             fileExistsCalledForBar = false;
             rootScriptInfo.editContent(0, rootScriptInfo.content.length, `import {y} from "bar"`)
-            
+
             diags = project.compilerService.languageService.getSemanticDiagnostics(root.name);
             assert.isTrue(fileExistsCalledForBar, "'fileExists' should be called");
             assert.isTrue(diags.length === 0);
diff --git a/tests/cases/unittests/matchFiles.ts b/tests/cases/unittests/matchFiles.ts
new file mode 100644
index 0000000000000..faccd31b88f40
--- /dev/null
+++ b/tests/cases/unittests/matchFiles.ts
@@ -0,0 +1,734 @@
+/// <reference path="..\..\..\src\harness\external\mocha.d.ts" />
+/// <reference path="..\..\..\src\harness\harness.ts" />
+/// <reference path="..\..\..\src\harness\virtualFileSystem.ts" />
+
+namespace ts {
+    class MockParseConfigHost extends Utils.VirtualFileSystem implements ParseConfigHost {
+        constructor(currentDirectory: string, ignoreCase: boolean, files: string[]) {
+            super(currentDirectory, ignoreCase);
+            for (const file of files) {
+                this.addFile(file);
+            }
+        }
+
+        readDirectory(path: string, extensions: string[], excludes: string[], includes: string[]) {
+            return matchFiles(path, extensions, excludes, includes, this.useCaseSensitiveFileNames, this.currentDirectory, (path: string) => this.getAccessibleFileSystemEntries(path));
+        }
+
+        getAccessibleFileSystemEntries(path: string) {
+            const entry = this.traversePath(path);
+            if (entry && entry.isDirectory()) {
+                const directory = <Utils.VirtualDirectory>entry;
+                return {
+                    files: map(directory.getFiles(), f => f.name),
+                    directories: map(directory.getDirectories(), d => d.name)
+                };
+            }
+            return { files: [], directories: [] };
+        }
+    }
+
+    const caseInsensitiveBasePath = "c:/dev/";
+    const caseInsensitiveHost = new MockParseConfigHost(caseInsensitiveBasePath, /*useCaseSensitiveFileNames*/ false, [
+        "c:/dev/a.ts",
+        "c:/dev/a.d.ts",
+        "c:/dev/a.js",
+        "c:/dev/b.ts",
+        "c:/dev/b.js",
+        "c:/dev/c.d.ts",
+        "c:/dev/z/a.ts",
+        "c:/dev/z/abz.ts",
+        "c:/dev/z/aba.ts",
+        "c:/dev/z/b.ts",
+        "c:/dev/z/bbz.ts",
+        "c:/dev/z/bba.ts",
+        "c:/dev/x/a.ts",
+        "c:/dev/x/aa.ts",
+        "c:/dev/x/b.ts",
+        "c:/dev/x/y/a.ts",
+        "c:/dev/x/y/b.ts",
+        "c:/dev/js/a.js",
+        "c:/dev/js/b.js",
+        "c:/ext/ext.ts"
+    ]);
+
+    const caseSensitiveBasePath = "/dev/";
+    const caseSensitiveHost = new MockParseConfigHost(caseSensitiveBasePath, /*useCaseSensitiveFileNames*/ true, [
+        "/dev/a.ts",
+        "/dev/a.d.ts",
+        "/dev/a.js",
+        "/dev/b.ts",
+        "/dev/b.js",
+        "/dev/A.ts",
+        "/dev/B.ts",
+        "/dev/c.d.ts",
+        "/dev/z/a.ts",
+        "/dev/z/abz.ts",
+        "/dev/z/aba.ts",
+        "/dev/z/b.ts",
+        "/dev/z/bbz.ts",
+        "/dev/z/bba.ts",
+        "/dev/x/a.ts",
+        "/dev/x/b.ts",
+        "/dev/x/y/a.ts",
+        "/dev/x/y/b.ts",
+        "/dev/js/a.js",
+        "/dev/js/b.js",
+    ]);
+
+    const caseInsensitiveMixedExtensionHost = new MockParseConfigHost(caseInsensitiveBasePath, /*useCaseSensitiveFileNames*/ false, [
+        "c:/dev/a.ts",
+        "c:/dev/a.d.ts",
+        "c:/dev/a.js",
+        "c:/dev/b.tsx",
+        "c:/dev/b.d.ts",
+        "c:/dev/b.jsx",
+        "c:/dev/c.tsx",
+        "c:/dev/c.js",
+        "c:/dev/d.js",
+        "c:/dev/e.jsx",
+        "c:/dev/f.other"
+    ]);
+
+    describe("matchFiles", () => {
+        describe("with literal file list", () => {
+            it("without exclusions", () => {
+                const json = {
+                    files: [
+                        "a.ts",
+                        "b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("missing files are still present", () => {
+                const json = {
+                    files: [
+                        "z.ts",
+                        "x.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/z.ts",
+                        "c:/dev/x.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("are not removed due to excludes", () => {
+                const json = {
+                    files: [
+                        "a.ts",
+                        "b.ts"
+                    ],
+                    exclude: [
+                        "b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+        });
+
+        describe("with literal include list", () => {
+            it("without exclusions", () => {
+                const json = {
+                    include: [
+                        "a.ts",
+                        "b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with non .ts file extensions are excluded", () => {
+                const json = {
+                    include: [
+                        "a.js",
+                        "b.js"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with missing files are excluded", () => {
+                const json = {
+                    include: [
+                        "z.ts",
+                        "x.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with literal excludes", () => {
+                const json = {
+                    include: [
+                        "a.ts",
+                        "b.ts"
+                    ],
+                    exclude: [
+                        "b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with wildcard excludes", () => {
+                const json = {
+                    include: [
+                        "a.ts",
+                        "b.ts",
+                        "z/a.ts",
+                        "z/abz.ts",
+                        "z/aba.ts",
+                        "x/b.ts"
+                    ],
+                    exclude: [
+                        "*.ts",
+                        "z/??z.ts",
+                        "*/b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/z/a.ts",
+                        "c:/dev/z/aba.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with recursive excludes", () => {
+                const json = {
+                    include: [
+                        "a.ts",
+                        "b.ts",
+                        "x/a.ts",
+                        "x/b.ts",
+                        "x/y/a.ts",
+                        "x/y/b.ts"
+                    ],
+                    exclude: [
+                        "**/b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/x/a.ts",
+                        "c:/dev/x/y/a.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with case sensitive exclude", () => {
+                const json = {
+                    include: [
+                        "B.ts"
+                    ],
+                    exclude: [
+                        "**/b.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "/dev/B.ts"
+                    ],
+                    wildcardDirectories: {},
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseSensitiveHost, caseSensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+        });
+
+        describe("with wildcard include list", () => {
+            it("same named declarations are excluded", () => {
+                const json = {
+                    include: [
+                        "*.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.None
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("`*` matches only ts files", () => {
+                const json = {
+                    include: [
+                        "*"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.None
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("`?` matches only a single character", () => {
+                const json = {
+                    include: [
+                        "x/?.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/x/a.ts",
+                        "c:/dev/x/b.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev/x": ts.WatchDirectoryFlags.None
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with recursive directory", () => {
+                const json = {
+                    include: [
+                        "**/a.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/x/a.ts",
+                        "c:/dev/x/y/a.ts",
+                        "c:/dev/z/a.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("case sensitive", () => {
+                const json = {
+                    include: [
+                        "**/A.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "/dev/A.ts"
+                    ],
+                    wildcardDirectories: {
+                        "/dev": ts.WatchDirectoryFlags.Recursive
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseSensitiveHost, caseSensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with missing files are excluded", () => {
+                const json = {
+                    include: [
+                        "*/z.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("always include literal files", () => {
+                const json = {
+                    files: [
+                        "a.ts"
+                    ],
+                    include: [
+                        "*/z.ts"
+                    ],
+                    exclude: [
+                        "**/a.ts"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    },
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("exclude folders", () => {
+                const json = {
+                    include: [
+                        "**/*"
+                    ],
+                    exclude: [
+                        "z",
+                        "x"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("exclude .js files when allowJs=false", () => {
+                const json = {
+                    compilerOptions: {
+                        allowJs: false
+                    },
+                    include: [
+                        "js/*"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        allowJs: false
+                    },
+                    errors: [],
+                    fileNames: [],
+                    wildcardDirectories: {
+                        "c:/dev/js": ts.WatchDirectoryFlags.None
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("include .js files when allowJs=true", () => {
+                const json = {
+                    compilerOptions: {
+                        allowJs: true
+                    },
+                    include: [
+                        "js/*"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        allowJs: true
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/js/a.js",
+                        "c:/dev/js/b.js"
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev/js": ts.WatchDirectoryFlags.None
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("include paths outside of the project", () => {
+                const json = {
+                    include: [
+                        "*",
+                        "c:/ext/*"
+                    ]
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {},
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.ts",
+                        "c:/dev/c.d.ts",
+                        "c:/ext/ext.ts",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.None,
+                        "c:/ext": ts.WatchDirectoryFlags.None
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with jsx=none, allowJs=false", () => {
+                const json = {
+                    compilerOptions: {
+                        allowJs: false
+                    }
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        allowJs: false
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.tsx",
+                        "c:/dev/c.tsx",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveMixedExtensionHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with jsx=preserve, allowJs=false", () => {
+                const json = {
+                    compilerOptions: {
+                        jsx: "preserve",
+                        allowJs: false
+                    }
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        jsx: ts.JsxEmit.Preserve,
+                        allowJs: false
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.tsx",
+                        "c:/dev/c.tsx",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveMixedExtensionHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with jsx=none, allowJs=true", () => {
+                const json = {
+                    compilerOptions: {
+                        allowJs: true
+                    }
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        allowJs: true
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.tsx",
+                        "c:/dev/c.tsx",
+                        "c:/dev/d.js",
+                        "c:/dev/e.jsx",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveMixedExtensionHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            it("with jsx=preserve, allowJs=true", () => {
+                const json = {
+                    compilerOptions: {
+                        jsx: "preserve",
+                        allowJs: true
+                    }
+                };
+                const expected: ts.ParsedCommandLine = {
+                    options: {
+                        jsx: ts.JsxEmit.Preserve,
+                        allowJs: true
+                    },
+                    errors: [],
+                    fileNames: [
+                        "c:/dev/a.ts",
+                        "c:/dev/b.tsx",
+                        "c:/dev/c.tsx",
+                        "c:/dev/d.js",
+                        "c:/dev/e.jsx",
+                    ],
+                    wildcardDirectories: {
+                        "c:/dev": ts.WatchDirectoryFlags.Recursive
+                    }
+                };
+                const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveMixedExtensionHost, caseInsensitiveBasePath);
+                assert.deepEqual(actual, expected);
+            });
+            describe("with trailing recursive directory", () => {
+                it("in includes", () => {
+                    const json = {
+                        include: [
+                            "**"
+                        ]
+                    };
+                    const expected: ts.ParsedCommandLine = {
+                        options: {},
+                        errors: [
+                            ts.createCompilerDiagnostic(ts.Diagnostics.File_specification_cannot_end_in_a_recursive_directory_wildcard_Asterisk_Asterisk_Colon_0, "**")
+                        ],
+                        fileNames: [],
+                        wildcardDirectories: {}
+                    };
+                    const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                    assert.deepEqual(actual, expected);
+                });
+                it("in excludes", () => {
+                    const json = {
+                        include: [
+                            "**/*"
+                        ],
+                        exclude: [
+                            "**"
+                        ]
+                    };
+                    const expected: ts.ParsedCommandLine = {
+                        options: {},
+                        errors: [],
+                        fileNames: [],
+                        wildcardDirectories: {}
+                    };
+                    const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                    assert.deepEqual(actual, expected);
+                });
+            });
+            describe("with multiple recursive directory patterns", () => {
+                it("in includes", () => {
+                    const json = {
+                        include: [
+                            "**/x/**/*"
+                        ]
+                    };
+                    const expected: ts.ParsedCommandLine = {
+                        options: {},
+                        errors: [
+                            ts.createCompilerDiagnostic(ts.Diagnostics.File_specification_cannot_contain_multiple_recursive_directory_wildcards_Asterisk_Asterisk_Colon_0, "**/x/**/*")
+                        ],
+                        fileNames: [],
+                        wildcardDirectories: {}
+                    };
+                    const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                    assert.deepEqual(actual, expected);
+                });
+                it("in excludes", () => {
+                    const json = {
+                        include: [
+                            "**/a.ts"
+                        ],
+                        exclude: [
+                            "**/x/**"
+                        ]
+                    };
+                    const expected: ts.ParsedCommandLine = {
+                        options: {},
+                        errors: [
+                            ts.createCompilerDiagnostic(ts.Diagnostics.File_specification_cannot_contain_multiple_recursive_directory_wildcards_Asterisk_Asterisk_Colon_0, "**/x/**")
+                        ],
+                        fileNames: [
+                            "c:/dev/a.ts",
+                            "c:/dev/x/a.ts",
+                            "c:/dev/x/y/a.ts",
+                            "c:/dev/z/a.ts"
+                        ],
+                        wildcardDirectories: {
+                            "c:/dev": ts.WatchDirectoryFlags.Recursive
+                        }
+                    };
+                    const actual = ts.parseJsonConfigFileContent(json, caseInsensitiveHost, caseInsensitiveBasePath);
+                    assert.deepEqual(actual, expected);
+                });
+            });
+        });
+    });
+}
\ No newline at end of file