diff --git a/src/components/list/list.js b/src/components/list/list.js
index a04fdbfb3ec..f3a98807edb 100644
--- a/src/components/list/list.js
+++ b/src/components/list/list.js
@@ -86,7 +86,7 @@ function mdListItemDirective($mdAria, $mdConstant, $timeout) {
         }
         if (hasProxiedElement) {
           wrapIn('div');
-        } else {
+        } else if (!tEl[0].querySelector('md-button')) {
           tEl.addClass('md-no-proxy');
         }
       } else {
diff --git a/src/components/list/list.spec.js b/src/components/list/list.spec.js
index 7a90623da3b..23efaab2977 100644
--- a/src/components/list/list.spec.js
+++ b/src/components/list/list.spec.js
@@ -1,4 +1,4 @@
-describe('mdListItem directive', function() {
+ddescribe('mdListItem directive', function() {
   beforeEach(module('material.components.list', 'material.components.checkbox', 'material.components.switch'));
 
   function setup(html) {
@@ -94,4 +94,9 @@ describe('mdListItem directive', function() {
     expect(secondChild.nodeName).toBe('MD-BUTTON');
   });
 
+  it('should detect non-compiled md-buttons', function() {
+    var listItem = setup('<md-list-item><md-button ng-click="sayHello()">Hello</md-button></md-list-item>');
+    expect(listItem.hasClass('md-no-proxy')).toBeFalsy();
+  });
+
 });