diff --git a/src/lib/core/a11y/focus-key-manager.ts b/src/lib/core/a11y/focus-key-manager.ts
index d92160b07c15..dbf1b6107b59 100644
--- a/src/lib/core/a11y/focus-key-manager.ts
+++ b/src/lib/core/a11y/focus-key-manager.ts
@@ -23,7 +23,10 @@ export class FocusKeyManager extends ListKeyManager<Focusable> {
    */
   setActiveItem(index: number): void {
     super.setActiveItem(index);
-    this.activeItem.focus();
+
+    if (this.activeItem) {
+      this.activeItem.focus();
+    }
   }
 
 }
diff --git a/src/lib/select/select.spec.ts b/src/lib/select/select.spec.ts
index 1577f252e85c..9d20d14e104b 100644
--- a/src/lib/select/select.spec.ts
+++ b/src/lib/select/select.spec.ts
@@ -16,11 +16,12 @@ import {MdSelect, MdSelectFloatPlaceholderType} from './select';
 import {MdSelectDynamicMultipleError, MdSelectNonArrayValueError} from './select-errors';
 import {MdOption} from '../core/option/option';
 import {Dir} from '../core/rtl/dir';
+import {DOWN_ARROW, UP_ARROW} from '../core/keyboard/keycodes';
 import {
   ControlValueAccessor, FormControl, FormsModule, NG_VALUE_ACCESSOR, ReactiveFormsModule
 } from '@angular/forms';
 import {ViewportRuler} from '../core/overlay/position/viewport-ruler';
-import {dispatchFakeEvent} from '../core/testing/dispatch-events';
+import {dispatchFakeEvent, dispatchKeyboardEvent} from '../core/testing/dispatch-events';
 import {wrappedErrorMessage} from '../core/testing/wrapped-error-message';
 
 
@@ -1170,6 +1171,81 @@ describe('MdSelect', () => {
         expect(select.getAttribute('tabindex')).toEqual('0');
       });
 
+      it('should be able to select options via the arrow keys on a closed select', () => {
+        const formControl = fixture.componentInstance.control;
+        const options = fixture.componentInstance.options.toArray();
+
+        expect(formControl.value).toBeFalsy('Expected no initial value.');
+
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+
+        expect(options[0].selected).toBe(true, 'Expected first option to be selected.');
+        expect(formControl.value).toBe(options[0].value,
+          'Expected value from first option to have been set on the model.');
+
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+
+        // Note that the third option is skipped, because it is disabled.
+        expect(options[3].selected).toBe(true, 'Expected fourth option to be selected.');
+        expect(formControl.value).toBe(options[3].value,
+          'Expected value from fourth option to have been set on the model.');
+
+        dispatchKeyboardEvent(select, 'keydown', UP_ARROW);
+
+        expect(options[1].selected).toBe(true, 'Expected second option to be selected.');
+        expect(formControl.value).toBe(options[1].value,
+          'Expected value from second option to have been set on the model.');
+      });
+
+      it('should do nothing if the key manager did not change the active item', () => {
+        const formControl = fixture.componentInstance.control;
+
+        expect(formControl.value).toBeNull('Expected form control value to be empty.');
+        expect(formControl.pristine).toBe(true, 'Expected form control to be clean.');
+
+        dispatchKeyboardEvent(select, 'keydown', 16); // Press a random key.
+
+        expect(formControl.value).toBeNull('Expected form control value to stay empty.');
+        expect(formControl.pristine).toBe(true, 'Expected form control to stay clean.');
+      });
+
+      it('should continue from the selected option when the value is set programmatically', () => {
+        const formControl = fixture.componentInstance.control;
+
+        formControl.setValue('eggs-5');
+        fixture.detectChanges();
+
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+
+        expect(formControl.value).toBe('pasta-6');
+        expect(fixture.componentInstance.options.toArray()[6].selected).toBe(true);
+      });
+
+      it('should not cycle through the options if the control is disabled', () => {
+        const formControl = fixture.componentInstance.control;
+
+        formControl.setValue('eggs-5');
+        formControl.disable();
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+
+        expect(formControl.value).toBe('eggs-5', 'Expected value to remain unchaged.');
+      });
+
+      it('should not wrap selection around after reaching the end of the options', () => {
+        const lastOption = fixture.componentInstance.options.last;
+
+        fixture.componentInstance.options.forEach(() => {
+          dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+        });
+
+        expect(lastOption.selected).toBe(true, 'Expected last option to be selected.');
+
+        dispatchKeyboardEvent(select, 'keydown', DOWN_ARROW);
+
+        expect(lastOption.selected).toBe(true, 'Expected last option to stay selected.');
+      });
+
     });
 
     describe('for options', () => {
diff --git a/src/lib/select/select.ts b/src/lib/select/select.ts
index 91b1b9a47558..195b183f4442 100644
--- a/src/lib/select/select.ts
+++ b/src/lib/select/select.ts
@@ -443,7 +443,8 @@ export class MdSelect implements AfterContentInit, OnDestroy, OnInit, ControlVal
     return this._dir ? this._dir.value === 'rtl' : false;
   }
 
-  /** The width of the trigger element. This is necessary to match
+  /**
+   * The width of the trigger element. This is necessary to match
    * the overlay width to the trigger width.
    */
   _getWidth(): number {
@@ -454,6 +455,24 @@ export class MdSelect implements AfterContentInit, OnDestroy, OnInit, ControlVal
   _handleKeydown(event: KeyboardEvent): void {
     if (event.keyCode === ENTER || event.keyCode === SPACE) {
       this.open();
+    } else if (!this.disabled) {
+      let prevActiveItem = this._keyManager.activeItem;
+
+      // Cycle though the select options even when the select is closed,
+      // matching the behavior of the native select element.
+      // TODO(crisbeto): native selects also cycle through the options with left/right arrows,
+      // however the key manager only supports up/down at the moment.
+      this._keyManager.onKeydown(event);
+
+      let currentActiveItem = this._keyManager.activeItem as MdOption;
+
+      if (this._multiple) {
+        this.open();
+      } else if (currentActiveItem !== prevActiveItem) {
+        this._clearSelection();
+        this._setSelectionByValue(currentActiveItem.value);
+        this._propagateChanges();
+      }
     }
   }
 
@@ -533,11 +552,14 @@ export class MdSelect implements AfterContentInit, OnDestroy, OnInit, ControlVal
    * @returns Option that has the corresponding value.
    */
   private _selectValue(value: any): MdOption {
-    let correspondingOption = this.options.find(option => option.value === value);
+    let optionsArray = this.options.toArray();
+    let correspondingOptionIndex = optionsArray.findIndex(option => option.value === value);
+    let correspondingOption = optionsArray[correspondingOptionIndex];
 
     if (correspondingOption) {
       correspondingOption.select();
       this._selectionModel.select(correspondingOption);
+      this._keyManager.setActiveItem(correspondingOptionIndex);
     }
 
     return correspondingOption;