diff --git a/build/ng-tags-input.js b/build/ng-tags-input.js
index e9d93ac8..efb52c7a 100644
--- a/build/ng-tags-input.js
+++ b/build/ng-tags-input.js
@@ -337,6 +337,12 @@ tagsInput.directive('autoComplete', ["$document","$timeout","$sce","tagsInputCon
         return self;
     }
 
+    function encodeHTML(value) {
+        return value.replace(/&/g, '&')
+                    .replace(/</g, '&lt;')
+                    .replace(/>/g, '&gt;');
+    }
+
     return {
         restrict: 'E',
         require: '?^tagsInput',
@@ -344,7 +350,7 @@ tagsInput.directive('autoComplete', ["$document","$timeout","$sce","tagsInputCon
         templateUrl: 'ngTagsInput/auto-complete.html',
         link: function(scope, element, attrs, tagsInputCtrl) {
             var hotkeys = [KEYS.enter, KEYS.tab, KEYS.escape, KEYS.up, KEYS.down],
-                suggestionList, tagsInput, highlight;
+                suggestionList, tagsInput, markdown;
 
             tagsInputConfig.load(scope, attrs, {
                 debounceDelay: { type: Number, defaultValue: 100 },
@@ -357,13 +363,13 @@ tagsInput.directive('autoComplete', ["$document","$timeout","$sce","tagsInputCon
             suggestionList = new SuggestionList(scope.source, scope.options);
 
             if (scope.options.highlightMatchedText) {
-                highlight = function(item, text) {
+                markdown = function(item, text) {
                     var expression = new RegExp(text, 'gi');
-                    return item.replace(expression, '<em>$&</em>');
+                    return item.replace(expression, '**$&**');
                 };
             }
             else {
-                highlight = function(item) {
+                markdown = function(item) {
                     return item;
                 };
             }
@@ -384,7 +390,10 @@ tagsInput.directive('autoComplete', ["$document","$timeout","$sce","tagsInputCon
             };
 
             scope.highlight = function(item) {
-                return $sce.trustAsHtml(highlight(item, suggestionList.query));
+                item = markdown(item, suggestionList.query);
+                item = encodeHTML(item);
+                item = item.replace(/\*\*(.+?)\*\*/g, '<em>$1</em>');
+                return $sce.trustAsHtml(item);
             };
 
             tagsInput
diff --git a/build/ng-tags-input.min.zip b/build/ng-tags-input.min.zip
index efb9a46c..70809573 100644
Binary files a/build/ng-tags-input.min.zip and b/build/ng-tags-input.min.zip differ
diff --git a/build/ng-tags-input.zip b/build/ng-tags-input.zip
index 975ba99e..b0f12fdb 100644
Binary files a/build/ng-tags-input.zip and b/build/ng-tags-input.zip differ
diff --git a/src/auto-complete.js b/src/auto-complete.js
index 07c6f311..5bdda480 100644
--- a/src/auto-complete.js
+++ b/src/auto-complete.js
@@ -89,6 +89,12 @@ tagsInput.directive('autoComplete', function($document, $timeout, $sce, tagsInpu
         return self;
     }
 
+    function encodeHTML(value) {
+        return value.replace(/&/g, '&amp;')
+                    .replace(/</g, '&lt;')
+                    .replace(/>/g, '&gt;');
+    }
+
     return {
         restrict: 'E',
         require: '?^tagsInput',
@@ -96,7 +102,7 @@ tagsInput.directive('autoComplete', function($document, $timeout, $sce, tagsInpu
         templateUrl: 'ngTagsInput/auto-complete.html',
         link: function(scope, element, attrs, tagsInputCtrl) {
             var hotkeys = [KEYS.enter, KEYS.tab, KEYS.escape, KEYS.up, KEYS.down],
-                suggestionList, tagsInput, highlight;
+                suggestionList, tagsInput, markdown;
 
             tagsInputConfig.load(scope, attrs, {
                 debounceDelay: { type: Number, defaultValue: 100 },
@@ -109,13 +115,13 @@ tagsInput.directive('autoComplete', function($document, $timeout, $sce, tagsInpu
             suggestionList = new SuggestionList(scope.source, scope.options);
 
             if (scope.options.highlightMatchedText) {
-                highlight = function(item, text) {
+                markdown = function(item, text) {
                     var expression = new RegExp(text, 'gi');
-                    return item.replace(expression, '<em>$&</em>');
+                    return item.replace(expression, '**$&**');
                 };
             }
             else {
-                highlight = function(item) {
+                markdown = function(item) {
                     return item;
                 };
             }
@@ -136,7 +142,10 @@ tagsInput.directive('autoComplete', function($document, $timeout, $sce, tagsInpu
             };
 
             scope.highlight = function(item) {
-                return $sce.trustAsHtml(highlight(item, suggestionList.query));
+                item = markdown(item, suggestionList.query);
+                item = encodeHTML(item);
+                item = item.replace(/\*\*(.+?)\*\*/g, '<em>$1</em>');
+                return $sce.trustAsHtml(item);
             };
 
             tagsInput
diff --git a/test/auto-complete.spec.js b/test/auto-complete.spec.js
index 54f9595d..63fd03f4 100644
--- a/test/auto-complete.spec.js
+++ b/test/auto-complete.spec.js
@@ -683,6 +683,30 @@ describe('autocomplete-directive', function() {
             expect(getSuggestionText(3)).toBe('aba');
             expect(getSuggestionText(4)).toBe('bab');
         });
+
+        it('encodes HTML characters in suggestions list', function() {
+            // Act
+            loadSuggestions(['<Item 1>', 'Item <2>', 'Item &3']);
+
+            // Assert
+            expect(getSuggestionText(0)).toBe('&lt;Item 1&gt;');
+            expect(getSuggestionText(1)).toBe('Item &lt;2&gt;');
+            expect(getSuggestionText(2)).toBe('Item &amp;3');
+        });
+
+        it('highlights encoded HTML characters in suggestions list', function() {
+            // Arrange
+            compile('highlight-matched-text="true"', 'min-length="1"');
+
+            // Act
+            loadSuggestions(['<Item 1>', 'Item <2>', 'Item &3'], '>');
+
+            // Assert
+            expect(getSuggestionText(0)).toBe('&lt;Item 1<em>&gt;</em>');
+            expect(getSuggestionText(1)).toBe('Item &lt;2<em>&gt;</em>');
+            expect(getSuggestionText(2)).toBe('Item &amp;3');
+        });
+
     });
 
     describe('max-results-to-show option', function() {
diff --git a/test/test-page.html b/test/test-page.html
index 5850cd44..d14e79a5 100644
--- a/test/test-page.html
+++ b/test/test-page.html
@@ -10,7 +10,8 @@
   <tags-input ng-model="tags"
               placeholder="{{ placeholder.value }}"
               replace-spaces-with-dashes="false"
-              add-on-blur="true">
+              add-on-blur="true"
+              allowed-tags-pattern="^[a-zA-Z0-9\s<>@\.]+$">
     <auto-complete source="loadItems($query)"
                    debounce-delay="0"
                    min-length="1"
@@ -29,7 +30,7 @@
             $scope.loadItems = function(query) {
               console.log(query);
               var deferred = $q.defer();
-              deferred.resolve(['Batman', 'Superman', 'Flash', 'Iron Man', 'Hulk', 'Wolverine', "Green Lantern", "Green Arrow", "Spiderman"]);
+              deferred.resolve(['Batman <bruce@wayne.com>', 'Superman', 'Flash', 'Iron Man', 'Hulk', 'Wolverine', "Green Lantern", "Green Arrow", "Spiderman"]);
               return deferred.promise;
             };
         });