diff --git a/src/lib/chips/chip-list.spec.ts b/src/lib/chips/chip-list.spec.ts
index 0d2407c495b..e4ed12a247c 100644
--- a/src/lib/chips/chip-list.spec.ts
+++ b/src/lib/chips/chip-list.spec.ts
@@ -1,10 +1,12 @@
-import {async, ComponentFixture, TestBed} from '@angular/core/testing';
+import {async, ComponentFixture, TestBed, fakeAsync, tick} from '@angular/core/testing';
 import {Component, DebugElement, QueryList} from '@angular/core';
 import {By} from '@angular/platform-browser';
 import {MdChip, MdChipList, MdChipsModule} from './index';
 import {FocusKeyManager} from '../core/a11y/focus-key-manager';
 import {FakeEvent} from '../core/a11y/list-key-manager.spec';
-import {SPACE, LEFT_ARROW, RIGHT_ARROW} from '../core/keyboard/keycodes';
+import {SPACE, LEFT_ARROW, RIGHT_ARROW, TAB} from '../core/keyboard/keycodes';
+import {createKeyboardEvent} from '../core/testing/event-objects';
+
 
 class FakeKeyboardEvent extends FakeEvent {
   constructor(keyCode: number, protected target: HTMLElement) {
@@ -26,9 +28,7 @@ describe('MdChipList', () => {
   beforeEach(async(() => {
     TestBed.configureTestingModule({
       imports: [MdChipsModule],
-      declarations: [
-        StaticChipList
-      ]
+      declarations: [StaticChipList]
     });
 
     TestBed.compileComponents();
@@ -189,6 +189,17 @@ describe('MdChipList', () => {
         expect(testComponent.chipDeselect).toHaveBeenCalledTimes(1);
         expect(testComponent.chipDeselect).toHaveBeenCalledWith(0);
       });
+
+      it('allow focus to escape when tabbing away', fakeAsync(() => {
+        chipListInstance._keyManager.onKeydown(createKeyboardEvent('keydown', TAB));
+
+        expect(chipListInstance._tabIndex)
+            .toBe(-1, 'Expected tabIndex to be set to -1 temporarily.');
+
+        tick();
+
+        expect(chipListInstance._tabIndex).toBe(0, 'Expected tabIndex to be reset back to 0');
+      }));
     });
 
     describe('when selectable is false', () => {
diff --git a/src/lib/chips/chip-list.ts b/src/lib/chips/chip-list.ts
index 7c4a396cf84..276258f699e 100644
--- a/src/lib/chips/chip-list.ts
+++ b/src/lib/chips/chip-list.ts
@@ -3,16 +3,17 @@ import {
   ChangeDetectionStrategy,
   Component,
   ContentChildren,
-  ElementRef,
   Input,
   QueryList,
-  ViewEncapsulation
+  ViewEncapsulation,
+  OnDestroy,
 } from '@angular/core';
 
 import {MdChip} from './chip';
 import {FocusKeyManager} from '../core/a11y/focus-key-manager';
 import {coerceBooleanProperty} from '../core/coercion/boolean-property';
-import {SPACE, LEFT_ARROW, RIGHT_ARROW} from '../core/keyboard/keycodes';
+import {SPACE, LEFT_ARROW, RIGHT_ARROW, TAB} from '../core/keyboard/keycodes';
+import {Subscription} from 'rxjs/Subscription';
 
 /**
  * A material design chips component (named ChipList for it's similarity to the List component).
@@ -30,7 +31,7 @@ import {SPACE, LEFT_ARROW, RIGHT_ARROW} from '../core/keyboard/keycodes';
   template: `<div class="mat-chip-list-wrapper"><ng-content></ng-content></div>`,
   host: {
     // Properties
-    'tabindex': '0',
+    '[attr.tabindex]': '_tabIndex',
     'role': 'listbox',
     '[class.mat-chip-list]': 'true',
 
@@ -45,11 +46,14 @@ import {SPACE, LEFT_ARROW, RIGHT_ARROW} from '../core/keyboard/keycodes';
   encapsulation: ViewEncapsulation.None,
   changeDetection: ChangeDetectionStrategy.OnPush
 })
-export class MdChipList implements AfterContentInit {
+export class MdChipList implements AfterContentInit, OnDestroy {
 
   /** Track which chips we're listening to for focus/destruction. */
   private _subscribed: WeakMap<MdChip, boolean> = new WeakMap();
 
+  /** Subscription to tabbing out from the chip list. */
+  private _tabOutSubscription: Subscription;
+
   /** Whether or not the chip is selectable. */
   protected _selectable: boolean = true;
 
@@ -59,11 +63,19 @@ export class MdChipList implements AfterContentInit {
   /** The chip components contained within this chip list. */
   chips: QueryList<MdChip>;
 
-  constructor(private _elementRef: ElementRef) { }
+  /** Tab index for the chip list. */
+  _tabIndex = 0;
 
   ngAfterContentInit(): void {
     this._keyManager = new FocusKeyManager(this.chips).withWrap();
 
+    // Prevents the chip list from capturing focus and redirecting
+    // it back to the first chip when the user tabs out.
+    this._tabOutSubscription = this._keyManager.tabOut.subscribe(() => {
+      this._tabIndex = -1;
+      setTimeout(() => this._tabIndex = 0);
+    });
+
     // Go ahead and subscribe all of the initial chips
     this._subscribeChips(this.chips);
 
@@ -73,14 +85,18 @@ export class MdChipList implements AfterContentInit {
     });
   }
 
+  ngOnDestroy(): void {
+    if (this._tabOutSubscription) {
+      this._tabOutSubscription.unsubscribe();
+    }
+  }
+
   /**
    * Whether or not this chip is selectable. When a chip is not selectable,
    * it's selected state is always ignored.
    */
-  @Input() get selectable(): boolean {
-    return this._selectable;
-  }
-
+  @Input()
+  get selectable(): boolean { return this._selectable; }
   set selectable(value: boolean) {
     this._selectable = coerceBooleanProperty(value);
   }