diff --git a/src/demo-app/overlay/overlay-demo.html b/src/demo-app/overlay/overlay-demo.html
index 1575e8dbe222..83ac9bf82a26 100644
--- a/src/demo-app/overlay/overlay-demo.html
+++ b/src/demo-app/overlay/overlay-demo.html
@@ -15,8 +15,9 @@
   Open menu
 </button>
 
-<template connected-overlay [origin]="trigger">
-  <div style="background-color: mediumpurple" *ngIf="isMenuOpen">
+<template connected-overlay [origin]="trigger" [width]="500" hasBackdrop [open]="isMenuOpen"
+  (backdropClick)="isMenuOpen=false">
+  <div style="background-color: mediumpurple" >
     This is the menu panel.
   </div>
 </template>
diff --git a/src/lib/core/overlay/overlay-directives.spec.ts b/src/lib/core/overlay/overlay-directives.spec.ts
index 04b539d9550f..9fe8d4660ab3 100644
--- a/src/lib/core/overlay/overlay-directives.spec.ts
+++ b/src/lib/core/overlay/overlay-directives.spec.ts
@@ -27,38 +27,120 @@ describe('Overlay directives', () => {
     fixture.detectChanges();
   });
 
-  it(`should create an overlay and attach the directive's template`, () => {
+  it(`should attach the overlay based on the open property`, () => {
+    fixture.componentInstance.isOpen = true;
+    fixture.detectChanges();
+
     expect(overlayContainerElement.textContent).toContain('Menu content');
+
+    fixture.componentInstance.isOpen = false;
+    fixture.detectChanges();
+
+    expect(overlayContainerElement.textContent).toBe('');
   });
 
   it('should destroy the overlay when the directive is destroyed', () => {
+    fixture.componentInstance.isOpen = true;
+    fixture.detectChanges();
     fixture.destroy();
 
     expect(overlayContainerElement.textContent.trim()).toBe('');
   });
 
   it('should use a connected position strategy with a default set of positions', () => {
+    fixture.componentInstance.isOpen = true;
+    fixture.detectChanges();
+
     let testComponent: ConnectedOverlayDirectiveTest =
         fixture.debugElement.componentInstance;
     let overlayDirective = testComponent.connectedOverlayDirective;
 
     let strategy =
         <ConnectedPositionStrategy> overlayDirective.overlayRef.getState().positionStrategy;
-    expect(strategy) .toEqual(jasmine.any(ConnectedPositionStrategy));
+    expect(strategy).toEqual(jasmine.any(ConnectedPositionStrategy));
 
     let positions = strategy.positions;
     expect(positions.length).toBeGreaterThan(0);
   });
+
+  describe('inputs', () => {
+
+    it('should set the width', () => {
+      fixture.componentInstance.width = 250;
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      const pane = overlayContainerElement.children[0] as HTMLElement;
+      expect(pane.style.width).toEqual('250px');
+    });
+
+    it('should set the height', () => {
+      fixture.componentInstance.height = '100vh';
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      const pane = overlayContainerElement.children[0] as HTMLElement;
+      expect(pane.style.height).toEqual('100vh');
+    });
+
+    it('should create the backdrop if designated', () => {
+      fixture.componentInstance.hasBackdrop = true;
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      let backdrop = overlayContainerElement.querySelector('.md-overlay-backdrop');
+      expect(backdrop).toBeTruthy();
+    });
+
+    it('should not create the backdrop by default', () => {
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      let backdrop = overlayContainerElement.querySelector('.md-overlay-backdrop');
+      expect(backdrop).toBeNull();
+    });
+
+    it('should set the custom backdrop class', () => {
+      fixture.componentInstance.hasBackdrop = true;
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      const backdrop = overlayContainerElement.querySelector('.md-overlay-backdrop') as HTMLElement;
+      expect(backdrop.classList).toContain('md-test-class');
+    });
+
+    it('should emit backdropClick appropriately', () => {
+      fixture.componentInstance.hasBackdrop = true;
+      fixture.componentInstance.isOpen = true;
+      fixture.detectChanges();
+
+      const backdrop = overlayContainerElement.querySelector('.md-overlay-backdrop') as HTMLElement;
+      backdrop.click();
+      fixture.detectChanges();
+
+      expect(fixture.componentInstance.backdropClicked).toBe(true);
+    });
+
+  });
+
 });
 
 
 @Component({
   template: `
   <button overlay-origin #trigger="overlayOrigin">Toggle menu</button>
-  <template connected-overlay [origin]="trigger">
+  <template connected-overlay [origin]="trigger" [open]="isOpen" [width]="width" [height]="height"
+            [hasBackdrop]="hasBackdrop" backdropClass="md-test-class" 
+            (backdropClick)="backdropClicked=true">
     <p>Menu content</p>
   </template>`,
 })
 class ConnectedOverlayDirectiveTest {
+  isOpen = false;
+  width: number | string;
+  height: number | string;
+  hasBackdrop: boolean;
+  backdropClicked = false;
+
   @ViewChild(ConnectedOverlayDirective) connectedOverlayDirective: ConnectedOverlayDirective;
 }
diff --git a/src/lib/core/overlay/overlay-directives.ts b/src/lib/core/overlay/overlay-directives.ts
index 53f082e27905..5e90541635c7 100644
--- a/src/lib/core/overlay/overlay-directives.ts
+++ b/src/lib/core/overlay/overlay-directives.ts
@@ -2,11 +2,12 @@ import {
     NgModule,
     ModuleWithProviders,
     Directive,
+    EventEmitter,
     TemplateRef,
     ViewContainerRef,
-    OnInit,
     Input,
     OnDestroy,
+    Output,
     ElementRef
 } from '@angular/core';
 import {Overlay, OVERLAY_PROVIDERS} from './overlay';
@@ -15,7 +16,8 @@ import {TemplatePortal} from '../portal/portal';
 import {OverlayState} from './overlay-state';
 import {ConnectionPositionPair} from './position/connected-position';
 import {PortalModule} from '../portal/portal-directives';
-
+import {ConnectedPositionStrategy} from './position/connected-position-strategy';
+import {Subscription} from 'rxjs/Subscription';
 
 /** Default set of positions for the overlay. Follows the behavior of a dropdown. */
 let defaultPositionList = [
@@ -50,15 +52,52 @@ export class OverlayOrigin {
  * Directive to facilitate declarative creation of an Overlay using a ConnectedPositionStrategy.
  */
 @Directive({
-  selector: '[connected-overlay]'
+  selector: '[connected-overlay]',
+  exportAs: 'connectedOverlay'
 })
-export class ConnectedOverlayDirective implements OnInit, OnDestroy {
+export class ConnectedOverlayDirective implements OnDestroy {
   private _overlayRef: OverlayRef;
   private _templatePortal: TemplatePortal;
+  private _open = false;
+  private _hasBackdrop = false;
+  private _backdropSubscription: Subscription;
 
   @Input() origin: OverlayOrigin;
   @Input() positions: ConnectionPositionPair[];
 
+  /** The width of the overlay panel. */
+  @Input() width: number | string;
+
+  /** The height of the overlay panel. */
+  @Input() height: number | string;
+
+  /** The custom class to be set on the backdrop element. */
+  @Input() backdropClass: string;
+
+  /** Whether or not the overlay should attach a backdrop. */
+  @Input()
+  get hasBackdrop() {
+    return this._hasBackdrop;
+  }
+
+  // TODO: move the boolean coercion logic to a shared function in core
+  set hasBackdrop(value: any) {
+    this._hasBackdrop = value != null && `${value}` !== 'false';
+  }
+
+  @Input()
+  get open() {
+    return this._open;
+  }
+
+  set open(value: boolean) {
+    value ? this._attachOverlay() : this._detachOverlay();
+    this._open = value;
+  }
+
+  /** Event emitted when the backdrop is clicked. */
+  @Output() backdropClick: EventEmitter<null> = new EventEmitter();
+
   // TODO(jelbourn): inputs for size, scroll behavior, animation, etc.
 
   constructor(
@@ -68,40 +107,93 @@ export class ConnectedOverlayDirective implements OnInit, OnDestroy {
     this._templatePortal = new TemplatePortal(templateRef, viewContainerRef);
   }
 
-  get overlayRef() {
+  get overlayRef(): OverlayRef {
     return this._overlayRef;
   }
 
-  /** TODO: internal */
-  ngOnInit() {
-    this._createOverlay();
-  }
-
   /** TODO: internal */
   ngOnDestroy() {
     this._destroyOverlay();
   }
 
-  /** Creates an overlay and attaches this directive's template to it. */
+  /** Creates an overlay */
   private _createOverlay() {
     if (!this.positions || !this.positions.length) {
       this.positions = defaultPositionList;
     }
 
+    this._overlayRef = this._overlay.create(this._buildConfig());
+  }
+
+  /** Builds the overlay config based on the directive's inputs */
+  private _buildConfig(): OverlayState {
     let overlayConfig = new OverlayState();
-    overlayConfig.positionStrategy =
-        this._overlay.position().connectedTo(
-            this.origin.elementRef,
-            {originX: this.positions[0].overlayX, originY: this.positions[0].originY},
-            {overlayX: this.positions[0].overlayX, overlayY: this.positions[0].overlayY});
-
-    this._overlayRef = this._overlay.create(overlayConfig);
-    this._overlayRef.attach(this._templatePortal);
+
+    if (this.width || this.width === 0) {
+      overlayConfig.width = this.width;
+    }
+
+    if (this.height || this.height === 0) {
+      overlayConfig.height = this.height;
+    }
+
+    overlayConfig.hasBackdrop = this.hasBackdrop;
+
+    if (this.backdropClass) {
+      overlayConfig.backdropClass = this.backdropClass;
+    }
+
+    overlayConfig.positionStrategy = this._getPosition();
+
+    return overlayConfig;
+  }
+
+  /** Returns the position of the overlay to be set on the overlay config */
+  private _getPosition(): ConnectedPositionStrategy {
+    return this._overlay.position().connectedTo(
+      this.origin.elementRef,
+      {originX: this.positions[0].overlayX, originY: this.positions[0].originY},
+      {overlayX: this.positions[0].overlayX, overlayY: this.positions[0].overlayY});
+  }
+
+  /** Attaches the overlay and subscribes to backdrop clicks if backdrop exists */
+  private _attachOverlay() {
+    if (!this._overlayRef) {
+      this._createOverlay();
+    }
+
+    if (!this._overlayRef.hasAttached()) {
+      this._overlayRef.attach(this._templatePortal);
+    }
+
+    if (this.hasBackdrop) {
+      this._backdropSubscription = this._overlayRef.backdropClick().subscribe(() => {
+        this.backdropClick.emit(null);
+      });
+    }
+  }
+
+  /** Detaches the overlay and unsubscribes to backdrop clicks if backdrop exists */
+  private _detachOverlay() {
+    if (this._overlayRef) {
+      this._overlayRef.detach();
+    }
+
+    if (this._backdropSubscription) {
+      this._backdropSubscription.unsubscribe();
+      this._backdropSubscription = null;
+    }
   }
 
   /** Destroys the overlay created by this directive. */
   private _destroyOverlay() {
-    this._overlayRef.dispose();
+    if (this._overlayRef) {
+      this._overlayRef.dispose();
+    }
+
+    if (this._backdropSubscription) {
+      this._backdropSubscription.unsubscribe();
+    }
   }
 }