diff --git a/src/compiler/sys.ts b/src/compiler/sys.ts
index 5b46324601..6656ead18a 100644
--- a/src/compiler/sys.ts
+++ b/src/compiler/sys.ts
@@ -8,7 +8,7 @@ namespace ts {
         write(s: string): void;
         readFile(path: string, encoding?: string): string;
         writeFile(path: string, data: string, writeByteOrderMark?: boolean): void;
-        watchFile?(path: string, callback: (path: string) => void): FileWatcher;
+        watchFile?(path: string, callback: (path: string, removed: boolean) => void): FileWatcher;
         resolvePath(path: string): string;
         fileExists(path: string): boolean;
         directoryExists(path: string): boolean;
@@ -292,11 +292,16 @@ namespace ts {
                     };
 
                     function fileChanged(curr: any, prev: any) {
+                        // mtime.getTime() equals 0 if file was removed
+                        if (curr.mtime.getTime() === 0) {
+                            callback(fileName, /* removed */ true);
+                            return;
+                        }
                         if (+curr.mtime <= +prev.mtime) {
                             return;
                         }
 
-                        callback(fileName);
+                        callback(fileName, /* removed */ false);
                     }
                 },
                 resolvePath: function (path: string): string {
diff --git a/src/compiler/tsc.ts b/src/compiler/tsc.ts
index 9d254e6fa2..e8d80dcbb7 100644
--- a/src/compiler/tsc.ts
+++ b/src/compiler/tsc.ts
@@ -103,7 +103,7 @@ namespace ts {
 
     function reportWatchDiagnostic(diagnostic: Diagnostic) {
         let output = new Date().toLocaleTimeString() + " - ";
-		
+
         if (diagnostic.file) {
             let loc = getLineAndCharacterOfPosition(diagnostic.file, diagnostic.start);
             output += `${ diagnostic.file.fileName }(${ loc.line + 1 },${ loc.character + 1 }): `;
@@ -113,7 +113,7 @@ namespace ts {
 
         sys.write(output);
     }
-	
+
     function padLeft(s: string, length: number) {
         while (s.length < length) {
             s = " " + s;
@@ -275,7 +275,7 @@ namespace ts {
             let sourceFile = hostGetSourceFile(fileName, languageVersion, onError);
             if (sourceFile && compilerOptions.watch) {
                 // Attach a file watcher
-                sourceFile.fileWatcher = sys.watchFile(sourceFile.fileName, () => sourceFileChanged(sourceFile));
+                sourceFile.fileWatcher = sys.watchFile(sourceFile.fileName, (fileName, removed) => sourceFileChanged(sourceFile, removed));
             }
             return sourceFile;
         }
@@ -297,9 +297,15 @@ namespace ts {
         }
 
         // If a source file changes, mark it as unwatched and start the recompilation timer
-        function sourceFileChanged(sourceFile: SourceFile) {
+        function sourceFileChanged(sourceFile: SourceFile, removed: boolean) {
             sourceFile.fileWatcher.close();
             sourceFile.fileWatcher = undefined;
+            if (removed) {
+                var index = rootFileNames.indexOf(sourceFile.fileName);
+                if (index >= 0) {
+                    rootFileNames.splice(index, 1);
+                }
+            }
             startTimer();
         }
 
@@ -531,8 +537,8 @@ namespace ts {
 
         return;
 
-        function serializeCompilerOptions(options: CompilerOptions): Map<string|number|boolean> {
-            let result: Map<string|number|boolean> = {};
+        function serializeCompilerOptions(options: CompilerOptions): Map<string | number | boolean> {
+            let result: Map<string | number | boolean> = {};
             let optionsNameMap = getOptionNameMap().optionNameMap;
 
             for (let name in options) {
diff --git a/src/server/server.ts b/src/server/server.ts
index 843197b918..c3942b01a3 100644
--- a/src/server/server.ts
+++ b/src/server/server.ts
@@ -11,7 +11,7 @@ namespace ts.server {
         input: process.stdin,
         output: process.stdout,
         terminal: false,
-    });  
+    });
 
     class Logger implements ts.server.Logger {
         fd = -1;
@@ -58,7 +58,7 @@ namespace ts.server {
         isVerbose() {
             return this.loggingEnabled() && (this.level == "verbose");
         }
-        
+
 
         msg(s: string, type = "Err") {
             if (this.fd < 0) {
@@ -85,7 +85,7 @@ namespace ts.server {
 
     interface WatchedFile {
         fileName: string;
-        callback: (fileName: string) => void;
+        callback: (fileName: string, removed: boolean) => void;
         mtime: Date;
     }
 
@@ -121,11 +121,11 @@ namespace ts.server {
 
             fs.stat(watchedFile.fileName,(err, stats) => {
                 if (err) {
-                    watchedFile.callback(watchedFile.fileName);
+                    watchedFile.callback(watchedFile.fileName, /* removed */ false);
                 }
                 else if (watchedFile.mtime.getTime() !== stats.mtime.getTime()) {
                     watchedFile.mtime = WatchedFileSet.getModifiedTime(watchedFile.fileName);
-                    watchedFile.callback(watchedFile.fileName);
+                    watchedFile.callback(watchedFile.fileName, watchedFile.mtime.getTime() === 0);
                 }
             });
         }
@@ -153,7 +153,7 @@ namespace ts.server {
             }, this.interval);
         }
 
-        addFile(fileName: string, callback: (fileName: string) => void ): WatchedFile {
+        addFile(fileName: string, callback: (fileName: string, removed: boolean) => void ): WatchedFile {
             var file: WatchedFile = {
                 fileName,
                 callback,
@@ -170,7 +170,7 @@ namespace ts.server {
         removeFile(file: WatchedFile) {
             this.watchedFiles = WatchedFileSet.copyListRemovingItem(file, this.watchedFiles);
         }
-    } 
+    }
 
     class IOSession extends Session {
         constructor(host: ServerHost, logger: ts.server.Logger) {
@@ -243,11 +243,11 @@ namespace ts.server {
     // TODO: check that this location is writable
 
     var logger = createLoggerFromEnv();
-    
+
     // REVIEW: for now this implementation uses polling.
     // The advantage of polling is that it works reliably
     // on all os and with network mounted files.
-    // For 90 referenced files, the average time to detect 
+    // For 90 referenced files, the average time to detect
     // changes is 2*msInterval (by default 5 seconds).
     // The overhead of this is .04 percent (1/2500) with
     // average pause of < 1 millisecond (and max
@@ -271,4 +271,4 @@ namespace ts.server {
     });
     // Start listening
     ioSession.listen();
-}
\ No newline at end of file
+}