diff --git a/src/Angular.js b/src/Angular.js
index 0e9a98ef3424..3ce8e7dfd060 100644
--- a/src/Angular.js
+++ b/src/Angular.js
@@ -936,7 +936,7 @@ function bindJQuery() {
     JQLitePatchJQueryRemove('empty');
     JQLitePatchJQueryRemove('html');
   } else {
-    jqLite = jqLiteWrap;
+    jqLite = JQLite;
   }
   angular.element = jqLite;
 }
diff --git a/src/angular.suffix b/src/angular.suffix
index 44cddef34d4c..ce80e4b0d02e 100644
--- a/src/angular.suffix
+++ b/src/angular.suffix
@@ -4,7 +4,7 @@
 
   publishExternalAPI(angular);
 
-  jqLiteWrap(document).ready(function() {
+  JQLite(document).ready(function() {
     angularInit(document, bootstrap);
   });
 
diff --git a/src/jqLite.js b/src/jqLite.js
index 2dd1aeb7728c..986d0002ae33 100644
--- a/src/jqLite.js
+++ b/src/jqLite.js
@@ -168,17 +168,18 @@ function JQLitePatchJQueryRemove(name, dispatchThis) {
 }
 
 /////////////////////////////////////////////
-function jqLiteWrap(element) {
-  if (isString(element) && element.charAt(0) != '<') {
-    throw new Error('selectors not implemented');
-  }
-  return new JQLite(element);
-}
-
 function JQLite(element) {
   if (element instanceof JQLite) {
     return element;
-  } else if (isString(element)) {
+  }
+  if (!(this instanceof JQLite)) {
+    if (isString(element) && element.charAt(0) != '<') {
+      throw Error('selectors not implemented');
+    }
+    return new JQLite(element);
+  }
+
+  if (isString(element)) {
     var div = document.createElement('div');
     // Read about the NoScope elements here:
     // http://msdn.microsoft.com/en-us/library/ms533897(VS.85).aspx
@@ -299,7 +300,7 @@ var JQLitePrototype = JQLite.prototype = {
 
     this.bind('DOMContentLoaded', trigger); // works for modern browsers and IE9
     // we can not use jqLite since we are not done loading and jQuery could be loaded later.
-    jqLiteWrap(window).bind('load', trigger); // fallback to window.onload for others
+    JQLite(window).bind('load', trigger); // fallback to window.onload for others
   },
   toString: function() {
     var value = [];
diff --git a/src/scenario/angular.suffix b/src/scenario/angular.suffix
index c75c5cca152c..846dbe176b39 100644
--- a/src/scenario/angular.suffix
+++ b/src/scenario/angular.suffix
@@ -14,7 +14,7 @@ angular.forEach(script.attributes, function(attr) {
 });
 
 if (config.autotest) {
-  jqLiteWrap(document).ready(function() {
+  JQLite(document).ready(function() {
     angular.scenario.setUpAndRun(config);
   });
 }
diff --git a/src/service/compiler.js b/src/service/compiler.js
index 8aba28e422b9..6cbfc9d3834c 100644
--- a/src/service/compiler.js
+++ b/src/service/compiler.js
@@ -225,7 +225,10 @@ function $CompileProvider($provide) {
     //================================
 
     function compile(templateElement, transcludeFn, maxPriority) {
-      templateElement = jqLite(templateElement);
+      if (!(templateElement instanceof jqLite)) {
+        // jquery always rewraps, where as we need to preserve the original selector so that we can modify it.
+        templateElement = jqLite(templateElement);
+      }
       // We can not compile top level text elements since text nodes can be merged and we will
       // not be able to attach scope data to them, so we will wrap them in <span>
       forEach(templateElement, function(node, index){
@@ -488,7 +491,7 @@ function $CompileProvider($provide) {
             template = jqLite(templateNode);
             templateNode = (element = templateAttrs.$element = jqLite(
                 '<!-- ' + directiveName + ': ' + templateAttrs[directiveName]  + ' -->'))[0];
-            template.replaceWith(templateNode);
+            replaceWith(rootElement, jqLite(template[0]), templateNode);
             childTranscludeFn = compile(template, transcludeFn, terminalPriority);
           } else {
             template = jqLite(JQLiteClone(templateNode));
diff --git a/test/jqLiteSpec.js b/test/jqLiteSpec.js
index 5cad8c24b528..417b912c2682 100644
--- a/test/jqLiteSpec.js
+++ b/test/jqLiteSpec.js
@@ -39,7 +39,7 @@ describe('jqLite', function() {
 
 
   it('should be jqLite when jqLiteMode is on, otherwise jQuery', function() {
-    expect(jqLite).toBe(_jqLiteMode ? jqLiteWrap : _jQuery);
+    expect(jqLite).toBe(_jqLiteMode ? JQLite : _jQuery);
   });
 
 
diff --git a/test/service/compilerSpec.js b/test/service/compilerSpec.js
index 28c9149297e1..f977294b0257 100644
--- a/test/service/compilerSpec.js
+++ b/test/service/compilerSpec.js
@@ -1751,5 +1751,27 @@ describe('$compile', function() {
       });
     });
 
+
+    it('should support transcluded element on root content', function() {
+      var comment;
+      module(function($compileProvider) {
+        $compileProvider.directive('transclude', valueFn({
+          transclude: 'element',
+          compile: function(element, attr, linker) {
+            return function(scope, element, attr) {
+              comment = element;
+            };
+          }
+        }));
+      });
+      inject(function($compile, $rootScope) {
+        var element = jqLite('<div>before<div transclude></div>after</div>').contents();
+        expect(element.length).toEqual(3);
+        expect(nodeName_(element[1])).toBe('DIV');
+        $compile(element)($rootScope);
+        expect(nodeName_(element[1])).toBe('#comment');
+        expect(nodeName_(comment)).toBe('#comment');
+      });
+    });
   });
 });