diff --git a/tools/gulp/tasks/material-release.ts b/tools/gulp/tasks/material-release.ts
index 693e2a9934fc..2a2e2e94e81e 100644
--- a/tools/gulp/tasks/material-release.ts
+++ b/tools/gulp/tasks/material-release.ts
@@ -2,9 +2,10 @@ import {task, src, dest} from 'gulp';
 import {join} from 'path';
 import {writeFileSync} from 'fs';
 import {Bundler} from 'scss-bundle';
-import {execNodeTask, sequenceTask} from '../util/task_helpers';
+import {sequenceTask} from '../util/task_helpers';
 import {composeRelease} from '../util/package-build';
 import {COMPONENTS_DIR, DIST_MATERIAL, DIST_RELEASES} from '../constants';
+import {composeSubpackages, buildAllSubpackages} from '../util/sub-packages';
 
 // There are no type definitions available for these imports.
 const gulpRename = require('gulp-rename');
@@ -24,7 +25,10 @@ const allScssGlob = join(COMPONENTS_DIR, '**/*.scss');
  * Overwrite the release task for the material package. The material release will include special
  * files, like a bundled theming SCSS file or all prebuilt themes.
  */
-task('material:build-release', ['material:prepare-release'], () => composeRelease('material'));
+task('material:build-release', ['material:prepare-release'], async () => {
+  await composeRelease('material');
+  await composeSubpackages('material');
+});
 
 /**
  * Task that will build the material package. It will also copy all prebuilt themes and build
@@ -32,9 +36,12 @@ task('material:build-release', ['material:prepare-release'], () => composeReleas
  */
 task('material:prepare-release', sequenceTask(
   'material:build',
-  ['material:copy-prebuilt-themes', 'material:bundle-theming-scss']
+  ['material:copy-prebuilt-themes', 'material:bundle-theming-scss', 'material:build-subpackages']
 ));
 
+/** Task that builds all subpackages of the Material package. Necessary for releases. */
+task('material:build-subpackages', () => buildAllSubpackages('material'));
+
 /** Copies all prebuilt themes into the release package under `prebuilt-themes/` */
 task('material:copy-prebuilt-themes', () => {
   src(prebuiltThemeGlob)
diff --git a/tools/gulp/util/package-build.ts b/tools/gulp/util/package-build.ts
index c4b0b97c1534..23a752ceac3c 100644
--- a/tools/gulp/util/package-build.ts
+++ b/tools/gulp/util/package-build.ts
@@ -90,7 +90,7 @@ export async function buildPackageBundles(entryFile: string, packageName: string
  * Finds the original sourcemap of the file and maps it to the current file.
  * This is useful when multiple transformation happen (e.g TSC -> Rollup -> Uglify)
  **/
-async function remapSourcemap(sourceFile: string) {
+export async function remapSourcemap(sourceFile: string) {
   // Once sorcery loaded the chain of sourcemaps, the new sourcemap will be written asynchronously.
   return (await sorcery.load(sourceFile)).write();
 }
@@ -107,7 +107,7 @@ function uglifyFile(inputPath: string, outputPath: string) {
   writeFileSync(sourcemapOut, result.map);
 }
 
-function copyFiles(fromPath: string, fileGlob: string, outDir: string) {
+export function copyFiles(fromPath: string, fileGlob: string, outDir: string) {
   glob(fileGlob, {cwd: fromPath}).forEach(filePath => {
     let fileDestPath = join(outDir, filePath);
     mkdirpSync(dirname(fileDestPath));
diff --git a/tools/gulp/util/rollup-helper.ts b/tools/gulp/util/rollup-helper.ts
index 32f85561bb43..425943f5df92 100644
--- a/tools/gulp/util/rollup-helper.ts
+++ b/tools/gulp/util/rollup-helper.ts
@@ -3,7 +3,7 @@ import {LICENSE_BANNER} from '../constants';
 // There are no type definitions available for these imports.
 const rollup = require('rollup');
 
-const ROLLUP_GLOBALS = {
+export const ROLLUP_GLOBALS = {
   // Angular dependencies
   '@angular/animations': 'ng.animations',
   '@angular/core': 'ng.core',
@@ -44,14 +44,17 @@ export type BundleConfig = {
   dest: string;
   format: string;
   moduleName: string;
+  external?: (moduleId: string) => boolean;
+  paths?: (moduleId: string) => string;
 };
 
 /** Creates a rollup bundles of the Material components.*/
 export function createRollupBundle(config: BundleConfig): Promise<any> {
   let bundleOptions = {
     context: 'this',
-    external: Object.keys(ROLLUP_GLOBALS),
-    entry: config.entry
+    external: config.external || Object.keys(ROLLUP_GLOBALS),
+    entry: config.entry,
+    paths: config.paths
   };
 
   let writeOptions = {
diff --git a/tools/gulp/util/sub-packages.ts b/tools/gulp/util/sub-packages.ts
new file mode 100644
index 000000000000..b1d36f709358
--- /dev/null
+++ b/tools/gulp/util/sub-packages.ts
@@ -0,0 +1,109 @@
+import {join, basename, normalize, isAbsolute, dirname, relative} from 'path';
+import {sync as glob} from 'glob';
+import {DIST_ROOT, DIST_BUNDLES, DIST_RELEASES} from '../constants';
+import {remapSourcemap, copyFiles} from './package-build';
+import {createRollupBundle, ROLLUP_GLOBALS} from './rollup-helper';
+import {transpileFile} from './ts-compiler';
+import {ScriptTarget, ModuleKind} from 'typescript';
+import {writeFileSync} from 'fs';
+
+/** Modules that will be always treated as external */
+const ROLLUP_EXTERNALS = Object.keys(ROLLUP_GLOBALS);
+
+/**
+ * Builds FESM bundles for all available sub-packages of the package. A subpackage is every
+ * directory inside of the root package.
+ */
+export async function buildAllSubpackages(packageName: string) {
+  const packageOut = join(DIST_ROOT, 'packages', packageName);
+  const subPackages = glob(join(packageOut, '*/'));
+
+  await Promise.all(subPackages.map(packagePath => {
+    return buildSubpackage(basename(packagePath), packagePath, packageName);
+  }));
+}
+
+/**
+ * Builds FESM bundles for the specified sub-package of a package. Subpackage bundles are
+ * used to improve tree-shaking in bundlers like Webpack.
+ */
+async function buildSubpackage(packageName: string, packagePath: string, rootPackage: string) {
+  const entryFile = join(packagePath, 'index.js');
+  const moduleName = `ng.${rootPackage}.${packageName}`;
+
+  // List of paths to the subpackage bundles.
+  const fesm2015File = join(DIST_BUNDLES, rootPackage, `${packageName}.js`);
+  const fesm2014File = join(DIST_BUNDLES, rootPackage, `${packageName}.es5.js`);
+
+  // Build a FESM-2015 bundle for the subpackage folder.
+  await createRollupBundle({
+    moduleName: moduleName,
+    entry: entryFile,
+    dest: fesm2015File,
+    format: 'es',
+    // Rewrite all internal paths to scoped package imports
+    paths: importPath => importPath.includes(DIST_ROOT) && `@angular/${rootPackage}`,
+    // Function to only bundle all files inside of the current subpackage.
+    external: importPath => {
+      return ROLLUP_EXTERNALS.indexOf(importPath) !== -1 ||
+        isAbsolute(importPath) && !importPath.includes(packageName);
+    },
+  });
+
+  await remapSourcemap(fesm2015File);
+
+  // Downlevel the FESM-2015 file to ES5.
+  transpileFile(fesm2015File, fesm2014File, {
+    target: ScriptTarget.ES5,
+    module: ModuleKind.ES2015,
+    allowJs: true
+  });
+
+  await remapSourcemap(fesm2014File);
+}
+
+/**
+ * Function that composes a release with the subpackages included. Needs to run after the main
+ * compose release function.
+ */
+export async function composeSubpackages(packageName: string) {
+  const packagePath = join(DIST_ROOT, 'packages', packageName);
+  const bundlesDir = join(DIST_BUNDLES, packageName);
+  const bundlePaths = glob(join(bundlesDir, '!(*.es5).js')).map(normalize);
+
+  const fesmOutputDir = join(DIST_RELEASES, packageName, '@angular');
+  const fesm2015File = join(fesmOutputDir, `${packageName}.js`);
+  const fesm2014File = join(fesmOutputDir, `${packageName}.es5.js`);
+
+  const moduleIndexPath = join(fesmOutputDir, `module-index.js`);
+
+  let indexContent = `export * from '../../../packages/${packageName}/module';\n`;
+
+  indexContent += bundlePaths.map(bundle => `export * from './${basename(bundle)}';`).join('\n');
+
+  // Write index file to disk. Afterwards run rollup to bundle.
+  writeFileSync(moduleIndexPath, indexContent);
+
+  // Copy all bundles into the release directory.
+  copyFiles(bundlesDir, '*.js', fesmOutputDir);
+
+  await createRollupBundle({
+    moduleName: `ng.${packageName}`,
+    entry: moduleIndexPath,
+    dest: fesm2015File,
+    format: 'es',
+    external: importPath => importPath !== moduleIndexPath && !importPath.includes('module'),
+    paths: importPath => {
+      if (importPath.includes(packagePath)) { return `@angular/${packageName}`; }
+      if (dirname(importPath) === fesmOutputDir) { return 'TEST (intentionally committed!)'; }
+    }
+  });
+
+
+  // Downlevel the FESM-2015 file to ES5.
+  transpileFile(fesm2015File, fesm2014File, {
+    target: ScriptTarget.ES5,
+    module: ModuleKind.ES2015,
+    allowJs: true
+  });
+}