diff --git a/src/lib/core/overlay/overlay-ref.ts b/src/lib/core/overlay/overlay-ref.ts
index 7894ca657251..f1deae352c6f 100644
--- a/src/lib/core/overlay/overlay-ref.ts
+++ b/src/lib/core/overlay/overlay-ref.ts
@@ -100,6 +100,7 @@ export class OverlayRef implements PortalHost {
     this.detachBackdrop();
     this._portalHost.dispose();
     this._attachments.complete();
+    this._backdropClick.complete();
     this._detachments.next();
     this._detachments.complete();
   }
diff --git a/src/lib/core/overlay/overlay.spec.ts b/src/lib/core/overlay/overlay.spec.ts
index f907a712200c..6c9b1494c932 100644
--- a/src/lib/core/overlay/overlay.spec.ts
+++ b/src/lib/core/overlay/overlay.spec.ts
@@ -327,6 +327,21 @@ describe('Overlay', () => {
       expect(backdropClickHandler).toHaveBeenCalled();
     });
 
+    it('should complete the backdrop click stream once the overlay is destroyed', () => {
+      let overlayRef = overlay.create(config);
+
+      overlayRef.attach(componentPortal);
+      viewContainerFixture.detectChanges();
+
+      let backdrop = overlayContainerElement.querySelector('.cdk-overlay-backdrop') as HTMLElement;
+      let completeHandler = jasmine.createSpy('backdrop complete handler');
+
+      overlayRef.backdropClick().subscribe(null, null, completeHandler);
+      overlayRef.dispose();
+
+      expect(completeHandler).toHaveBeenCalled();
+    });
+
     it('should apply the default overlay backdrop class', () => {
       let overlayRef = overlay.create(config);
       overlayRef.attach(componentPortal);
diff --git a/src/lib/dialog/dialog-container.ts b/src/lib/dialog/dialog-container.ts
index 0274c58379b8..ded0002e41cf 100644
--- a/src/lib/dialog/dialog-container.ts
+++ b/src/lib/dialog/dialog-container.ts
@@ -57,7 +57,7 @@ export function throwMdDialogContentAlreadyAttachedError() {
   ],
   host: {
     '[class.mat-dialog-container]': 'true',
-    '[attr.role]': 'dialogConfig?.role',
+    '[attr.role]': 'config?.role',
     '[@slideDialog]': '_state',
     '(@slideDialog.done)': '_onAnimationDone($event)',
   },
@@ -76,7 +76,7 @@ export class MdDialogContainer extends BasePortalHost {
   private _document: Document;
 
   /** The dialog configuration. */
-  dialogConfig: MdDialogConfig;
+  config: MdDialogConfig;
 
   /** State of the dialog animation. */
   _state: 'void' | 'enter' | 'exit' = 'enter';
diff --git a/src/lib/dialog/dialog-ref.ts b/src/lib/dialog/dialog-ref.ts
index 36a6979c556d..3654acae1aa3 100644
--- a/src/lib/dialog/dialog-ref.ts
+++ b/src/lib/dialog/dialog-ref.ts
@@ -18,13 +18,16 @@ export class MdDialogRef<T> {
   /** The instance of component opened into the dialog. */
   componentInstance: T;
 
+  /** Whether the user is allowed to close the dialog. */
+  disableClose: boolean = this._containerInstance.config.disableClose;
+
   /** Subject for notifying the user that the dialog has finished closing. */
   private _afterClosed: Subject<any> = new Subject();
 
   /** Result to be passed to afterClosed. */
   private _result: any;
 
-  constructor(private _overlayRef: OverlayRef, public _containerInstance: MdDialogContainer) {
+  constructor(private _overlayRef: OverlayRef, private _containerInstance: MdDialogContainer) {
     _containerInstance._onAnimationStateChange
       .filter((event: AnimationEvent) => event.toState === 'exit')
       .subscribe(() => this._overlayRef.dispose(), null, () => {
diff --git a/src/lib/dialog/dialog.spec.ts b/src/lib/dialog/dialog.spec.ts
index f1f9f539115a..c33c7bf70bde 100644
--- a/src/lib/dialog/dialog.spec.ts
+++ b/src/lib/dialog/dialog.spec.ts
@@ -451,6 +451,28 @@ describe('MdDialog', () => {
 
       expect(overlayContainerElement.querySelector('md-dialog-container')).toBeTruthy();
     });
+
+    it('should allow for the disableClose option to be updated while open', async(() => {
+      let dialogRef = dialog.open(PizzaMsg, {
+        disableClose: true,
+        viewContainerRef: testViewContainerRef
+      });
+
+      viewContainerFixture.detectChanges();
+
+      let backdrop = overlayContainerElement.querySelector('.cdk-overlay-backdrop') as HTMLElement;
+      backdrop.click();
+
+      expect(overlayContainerElement.querySelector('md-dialog-container')).toBeTruthy();
+
+      dialogRef.disableClose = false;
+      backdrop.click();
+
+      viewContainerFixture.detectChanges();
+      viewContainerFixture.whenStable().then(() => {
+        expect(overlayContainerElement.querySelector('md-dialog-container')).toBeFalsy();
+      });
+    }));
   });
 
   describe('hasBackdrop option', () => {
diff --git a/src/lib/dialog/dialog.ts b/src/lib/dialog/dialog.ts
index abcc0c5a462d..85d2c8471054 100644
--- a/src/lib/dialog/dialog.ts
+++ b/src/lib/dialog/dialog.ts
@@ -16,7 +16,6 @@ import {MdDialogConfig} from './dialog-config';
 import {MdDialogRef} from './dialog-ref';
 import {MdDialogContainer} from './dialog-container';
 import {TemplatePortal} from '../core/portal/portal';
-import 'rxjs/add/operator/first';
 
 
 /**
@@ -147,7 +146,7 @@ export class MdDialog {
     let containerPortal = new ComponentPortal(MdDialogContainer, viewContainer);
 
     let containerRef: ComponentRef<MdDialogContainer> = overlay.attach(containerPortal);
-    containerRef.instance.dialogConfig = config;
+    containerRef.instance.config = config;
 
     return containerRef.instance;
   }
@@ -166,14 +165,18 @@ export class MdDialog {
       dialogContainer: MdDialogContainer,
       overlayRef: OverlayRef,
       config: MdDialogConfig): MdDialogRef<T> {
+
     // Create a reference to the dialog we're creating in order to give the user a handle
     // to modify and close it.
-
     let dialogRef = new MdDialogRef<T>(overlayRef, dialogContainer);
 
-    if (!config.disableClose) {
-      // When the dialog backdrop is clicked, we want to close it.
-      overlayRef.backdropClick().first().subscribe(() => dialogRef.close());
+    // When the dialog backdrop is clicked, we want to close it.
+    if (config.hasBackdrop) {
+      overlayRef.backdropClick().subscribe(() => {
+        if (!dialogRef.disableClose) {
+          dialogRef.close();
+        }
+      });
     }
 
     // We create an injector specifically for the component we're instantiating so that it can
@@ -221,7 +224,7 @@ export class MdDialog {
    */
   private _handleKeydown(event: KeyboardEvent): void {
     let topDialog = this._openDialogs[this._openDialogs.length - 1];
-    let canClose = topDialog ? !topDialog._containerInstance.dialogConfig.disableClose : false;
+    let canClose = topDialog ? !topDialog.disableClose : false;
 
     if (event.keyCode === ESCAPE && canClose) {
       topDialog.close();