diff --git a/src/ng/compile.js b/src/ng/compile.js
index 32f88a41bc8a..6ad1899f5f1d 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -964,7 +964,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
             //  or
             //  - there is no parentBoundTranscludeFn already and a transcludeFn was passed in
             if ( nodeLinkFn.transcludeOnThisElement || (!parentBoundTranscludeFn && transcludeFn) ) {
-              childBoundTranscludeFn = createBoundTranscludeFn(scope, nodeLinkFn.transclude || transcludeFn);
+              childBoundTranscludeFn = createBoundTranscludeFn(scope, nodeLinkFn.transclude || transcludeFn, parentBoundTranscludeFn);
             } else {
               childBoundTranscludeFn = parentBoundTranscludeFn;
             }
@@ -978,8 +978,13 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
       }
     }
 
-    function createBoundTranscludeFn(scope, transcludeFn) {
-      return function boundTranscludeFn(transcludedScope, cloneFn, controllers) {
+    function createBoundTranscludeFn(scope, transcludeFn, previousBoundTranscludeFn) {
+
+      // If there is a previous boundTransclude function and it has a transclusionScope then
+      // use this instead of the current scope
+      scope = previousBoundTranscludeFn && previousBoundTranscludeFn.transclusionScope || scope;
+
+      var boundTranscludeFn = function(transcludedScope, cloneFn, controllers) {
         var scopeCreated = false;
 
         if (!transcludedScope) {
@@ -994,6 +999,11 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
         }
         return clone;
       };
+
+      // Store the transclusionScope for nested transclusions
+      boundTranscludeFn.transclusionScope = scope;
+
+      return boundTranscludeFn;
     }
 
     /**
@@ -1768,7 +1778,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
               safeAddClass(jqLite(linkNode), oldClasses);
             }
             if (afterTemplateNodeLinkFn.transclude) {
-              childBoundTranscludeFn = createBoundTranscludeFn(scope, afterTemplateNodeLinkFn.transclude);
+              childBoundTranscludeFn = createBoundTranscludeFn(scope, afterTemplateNodeLinkFn.transclude, boundTranscludeFn);
             } else {
               childBoundTranscludeFn = boundTranscludeFn;
             }
diff --git a/test/ng/compileSpec.js b/test/ng/compileSpec.js
index 4d1610bcd714..b7d2e7aaf932 100755
--- a/test/ng/compileSpec.js
+++ b/test/ng/compileSpec.js
@@ -4279,6 +4279,73 @@ describe('$compile', function() {
       });
 
 
+      describe('nested isolated scope transcludes', function() {
+        beforeEach(module(function($compileProvider) {
+
+          $compileProvider.directive('trans', valueFn({
+            restrict: 'E',
+            template: '<div ng-transclude></div>',
+            transclude: true
+          }));
+
+          $compileProvider.directive('transAsync', valueFn({
+            restrict: 'E',
+            templateUrl: 'transAsync',
+            transclude: true
+          }));
+
+          $compileProvider.directive('iso', valueFn({
+            restrict: 'E',
+            transclude: true,
+            template: '<trans><span ng-transclude></span></trans>',
+            scope: {}
+          }));
+          $compileProvider.directive('isoAsync1', valueFn({
+            restrict: 'E',
+            transclude: true,
+            template: '<trans-async><span ng-transclude></span></trans-async>',
+            scope: {}
+          }));
+          $compileProvider.directive('isoAsync2', valueFn({
+            restrict: 'E',
+            transclude: true,
+            templateUrl: 'isoAsync',
+            scope: {}
+          }));
+        }));
+
+        beforeEach(inject(function($templateCache) {
+          $templateCache.put('transAsync', '<div ng-transclude></div>');
+          $templateCache.put('isoAsync', '<trans-async><span ng-transclude></span></trans-async>');
+        }));
+
+
+        it('should pass the outer scope to the transclude on the isolated template sync-sync', inject(function($compile, $rootScope) {
+
+          $rootScope.val = 'transcluded content';
+          element = $compile('<iso><span ng-bind="val"></span></iso>')($rootScope);
+          $rootScope.$digest();
+          expect(element.text()).toEqual('transcluded content');
+        }));
+
+        it('should pass the outer scope to the transclude on the isolated template async-sync', inject(function($compile, $rootScope) {
+
+          $rootScope.val = 'transcluded content';
+          element = $compile('<iso-async1><span ng-bind="val"></span></iso-async1>')($rootScope);
+          $rootScope.$digest();
+          expect(element.text()).toEqual('transcluded content');
+        }));
+
+        it('should pass the outer scope to the transclude on the isolated template async-async', inject(function($compile, $rootScope) {
+
+          $rootScope.val = 'transcluded content';
+          element = $compile('<iso-async2><span ng-bind="val"></span></iso-async2>')($rootScope);
+          $rootScope.$digest();
+          expect(element.text()).toEqual('transcluded content');
+        }));
+
+      });
+
       describe('multiple siblings receiving transclusion', function() {
 
         it("should only receive transclude from parent", function() {