diff --git a/src/servicesHost.ts b/src/servicesHost.ts
index f094ba5da..4f65fb2ed 100644
--- a/src/servicesHost.ts
+++ b/src/servicesHost.ts
@@ -152,7 +152,8 @@ function resolveModuleName(
             isExternalLibraryImport: tsResolution.resolvedModule.isExternalLibraryImport
         };
         if (resolutionResult!) {
-            if (resolutionResult!.resolvedFileName === tsResolutionResult.resolvedFileName) {
+            if (resolutionResult!.resolvedFileName === tsResolutionResult.resolvedFileName ||
+                /node_modules(\\|\/).*\.d\.ts$/.test(tsResolutionResult.resolvedFileName)) {
                 resolutionResult!.isExternalLibraryImport = tsResolutionResult.isExternalLibraryImport;
             }
         } else {
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/README.md b/test/execution-tests/2.1.4_babel-allowJsImportTypes/README.md
new file mode 100644
index 000000000..06a794d2f
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/README.md
@@ -0,0 +1,3 @@
+This test confirms that you can import typings from an npm module when `allowJs` is true.  See details [#586](https://github.com/TypeStrong/ts-loader/issues/586).
+
+This test is roughly based on https://github.com/bsouthga/ts-loader-types-error-example
\ No newline at end of file
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/karma.conf.js b/test/execution-tests/2.1.4_babel-allowJsImportTypes/karma.conf.js
new file mode 100644
index 000000000..90545c70d
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/karma.conf.js
@@ -0,0 +1,51 @@
+/* eslint-disable no-var, strict */
+'use strict';
+var webpackConfig = require('./webpack.config.js');
+
+module.exports = function(config) {
+  // Documentation: https://karma-runner.github.io/0.13/config/configuration-file.html
+  config.set({
+    browsers: [ 'PhantomJS' ],
+
+    files: [
+      // This ensures we have the es6 shims in place and then loads all the tests
+      'main.js'
+    ],
+
+    port: 9876,
+
+    frameworks: [ 'jasmine' ],
+
+    logLevel: config.LOG_INFO, //config.LOG_DEBUG
+
+    preprocessors: {
+      'main.js': [ 'webpack', 'sourcemap' ]
+    },
+
+    webpack: {
+      devtool: 'inline-source-map',
+      module: webpackConfig.module,
+      resolve: webpackConfig.resolve,
+
+      // for test harness purposes only, you would not need this in a normal project
+      resolveLoader: webpackConfig.resolveLoader
+    },
+
+    webpackMiddleware: {
+      quiet: true,
+      stats: {
+        colors: true
+      }
+    },
+
+    // reporter options
+    mochaReporter: {
+      colors: {
+        success: 'bgGreen',
+        info: 'cyan',
+        warning: 'bgBlue',
+        error: 'bgRed'
+      }
+    }
+  });
+};
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/main.js b/test/execution-tests/2.1.4_babel-allowJsImportTypes/main.js
new file mode 100644
index 000000000..735130b0e
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/main.js
@@ -0,0 +1,4 @@
+import 'babel-polyfill';
+
+const testsContext = require.context('./', true, /\.tests\.js$/);
+testsContext.keys().forEach(testsContext);
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/package.json b/test/execution-tests/2.1.4_babel-allowJsImportTypes/package.json
new file mode 100644
index 000000000..3a82c6a5e
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/package.json
@@ -0,0 +1,16 @@
+{
+  "name": "allow-js-import-types",
+  "version": "1.0.0",
+  "main": "index.js",
+  "devDependencies": {
+    "babel": "^6.0.0",
+    "babel-core": "^6.0.0",
+    "babel-loader": "^7.0.0",
+    "babel-preset-es2015": "^6.0.0",
+    "jasmine-core": "^2.3.4"
+  },
+  "dependencies": {
+    "babel-polyfill": "^6.0.0",
+    "event-rank": "^0.0.10"
+  }
+}
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/entry.js b/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/entry.js
new file mode 100644
index 000000000..e224b9ff5
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/entry.js
@@ -0,0 +1,5 @@
+import EventRank from './imported';
+
+export function getEventRank() {
+    return EventRank;
+}
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/imported.ts b/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/imported.ts
new file mode 100644
index 000000000..4e047d329
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/src/imported.ts
@@ -0,0 +1,3 @@
+import { EventRank } from 'event-rank';
+
+export default EventRank;
\ No newline at end of file
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/test/entry.tests.js b/test/execution-tests/2.1.4_babel-allowJsImportTypes/test/entry.tests.js
new file mode 100644
index 000000000..5ffccb5f4
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/test/entry.tests.js
@@ -0,0 +1,8 @@
+var entry = require('../src/entry');
+
+describe("entry", function() {
+  it("getEventRank produces something", function() {
+    var EventRank = entry.getEventRank();
+    expect(EventRank).not.toBeUndefined();
+  });
+});
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/tsconfig.json b/test/execution-tests/2.1.4_babel-allowJsImportTypes/tsconfig.json
new file mode 100644
index 000000000..930957a60
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/tsconfig.json
@@ -0,0 +1,11 @@
+{
+    "compilerOptions": {
+        "allowJs": true,
+        "module": "es2015",
+        "moduleResolution": "node",
+        "noEmitOnError": true,
+        "noImplicitAny": false,
+        "sourceMap": true,
+        "target": "es2015"
+    }
+}
\ No newline at end of file
diff --git a/test/execution-tests/2.1.4_babel-allowJsImportTypes/webpack.config.js b/test/execution-tests/2.1.4_babel-allowJsImportTypes/webpack.config.js
new file mode 100644
index 000000000..76a3718a5
--- /dev/null
+++ b/test/execution-tests/2.1.4_babel-allowJsImportTypes/webpack.config.js
@@ -0,0 +1,55 @@
+/* eslint-disable no-var, strict, prefer-arrow-callback */
+'use strict';
+
+var path = require('path');
+var webpack = require('webpack');
+
+var babelOptions = {
+  "presets": [
+    [
+      "es2015",
+      {
+        "modules": false
+      }
+    ]
+  ]
+};
+
+module.exports = {
+  entry: './src/entry.js',
+  output: {
+      filename: 'bundle.js'
+  },
+  module: {
+    rules: [{
+      test: /\.ts(x?)$/,
+      exclude: /node_modules/,
+      use: [
+        {
+          loader: 'babel-loader',
+          options: babelOptions
+        },
+        {
+          loader: 'ts-loader', 
+          options: { entryFileIsJs: true }
+        }
+      ]
+    }, {
+      test: /\.js$/,
+      exclude: /node_modules/,
+      use: [
+        {
+          loader: 'babel-loader',
+          options: babelOptions
+        }
+      ]
+    }]
+  },
+  resolve: {
+    // Add `.ts` and `.tsx` as a resolvable extension.
+    extensions: ['.ts', '.tsx', '.js']
+  },
+};
+
+// for test harness purposes only, you would not need this in a normal project
+module.exports.resolveLoader = { alias: { 'ts-loader': path.join(__dirname, "../../../index.js") } }
\ No newline at end of file