diff --git a/addon/ng2/blueprints/ng2/files/src/tsconfig.json b/addon/ng2/blueprints/ng2/files/src/tsconfig.json
index 165ab9b6d60f..28cc5a60e546 100644
--- a/addon/ng2/blueprints/ng2/files/src/tsconfig.json
+++ b/addon/ng2/blueprints/ng2/files/src/tsconfig.json
@@ -9,10 +9,16 @@
     "moduleResolution": "node",
     "noEmitOnError": true,
     "noImplicitAny": false,
-    "outDir": "../dist/",
+    "//outDir": "this option is used only during manual invocation of tsc usually while debugging",
+    "outDir": "../dist-manual/",
     "rootDir": ".",
     "sourceMap": true,
     "sourceRoot": "/",
     "target": "es5"
-  }
+  },
+
+  "files": [
+    "app/main.ts",
+    "typings.d.ts"
+  ]
 }
diff --git a/lib/broccoli/angular2-app.js b/lib/broccoli/angular2-app.js
index 2cb6ba39a958..5968fc01785e 100644
--- a/lib/broccoli/angular2-app.js
+++ b/lib/broccoli/angular2-app.js
@@ -18,7 +18,17 @@ function Angular2App(defaults, options, additionalPaths) {
 }
 
 Angular2App.prototype.toTree = function() {
-    var sourceTree = 'src';
+    var sourceDir = 'src';
+
+    var sourceTree = new Funnel('src', {
+      destDir: 'src'
+    });
+
+    var typingsTree = new Funnel('typings', {
+      include: ['browser.d.ts', 'browser/**'],
+      destDir: 'typings'
+    });
+
     var vendorNpmFiles = [
       'systemjs/dist/system-polyfills.js',
       'systemjs/dist/system.src.js',
@@ -31,28 +41,50 @@ Angular2App.prototype.toTree = function() {
       'angular2/bundles/upgrade.dev.js'
     ];
 
+
+
     if (this.options && this.options.vendorNpmFiles) {
       vendorNpmFiles = vendorNpmFiles.concat(this.options.vendorNpmFiles);
     }
 
-    var tsConfigCompilerOptions = JSON.parse(fs.readFileSync('src/tsconfig.json', 'utf-8')).compilerOptions;
-    tsConfigCompilerOptions.rootFilePaths = ['typings.d.ts'].concat(this.additionalPaths)
-      .map(function(name) {
-        return path.join(process.cwd(), sourceTree, name)
+    var tsconfig = JSON.parse(fs.readFileSync('src/tsconfig.json', 'utf-8'));
+    var tsConfigCompilerOptions = tsconfig.compilerOptions;
+
+
+    // TODO(i): why do we need these additional paths? remove?
+    tsConfigCompilerOptions.rootFilePaths = this.additionalPaths.map(function(name) {
+        return path.join(process.cwd(), sourceDir, name)
       });
 
-    var tsTree = compileWithTypescript(sourceTree, tsConfigCompilerOptions);
-    var tsSrcTree = new Funnel(sourceTree, {
+    // TODO(i): kill rootFilePaths in broccoli-typescript and use tsconfig.json#files instead
+    tsConfigCompilerOptions.rootFilePaths = tsConfigCompilerOptions.rootFilePaths.
+        concat(tsconfig.files.map(function(p) {
+          // TODO(i): this is a hack - for some reason we need to prefix all paths with srcDir because
+          //          tsc's "rootDir" doesn't take effect when resolving "files" paths
+          return path.join(sourceDir, p);
+        }));
+
+
+    var srcAndTypingsTree = mergeTrees([sourceTree, typingsTree]);
+
+    var tsTree = compileWithTypescript(srcAndTypingsTree, tsConfigCompilerOptions);
+
+    tsTree = new Funnel(tsTree, {
+      srcDir: 'src',
+      exclude: ['*.d.ts', 'tsconfig.json']
+    });
+
+    var tsSrcTree = new Funnel(sourceDir, {
       include: ['**/*.ts'],
       allowEmpty: true
     });
 
-    var jsTree = new Funnel(sourceTree, {
+    var jsTree = new Funnel(sourceDir, {
         include: ['**/*.js'],
         allowEmpty: true
     });
 
-    var assetTree = new Funnel(sourceTree, {
+    var assetTree = new Funnel(sourceDir, {
         include: ['**/*.*'],
         exclude: ['**/*.ts', '**/*.js'],
         allowEmpty: true