diff --git a/README.md b/README.md
index 59fa76f..5e3ecf7 100644
--- a/README.md
+++ b/README.md
@@ -75,6 +75,8 @@ export default {
 
 ### Options
 
+#### `css`
+
 ```js
 vue({
   // Filename to write all styles to
@@ -95,6 +97,15 @@ vue({
 })
 ```
 
+#### `compileTemplate`
+
+```js
+vue({
+  // Compile templates to render functions (Vue 2 only)
+  compileTemplate: true,
+})
+```
+
 ## Change log
 
 Please see [CHANGELOG](CHANGELOG.md) for more information what has changed recently.
diff --git a/package.json b/package.json
index 373b1c1..3e7d36c 100644
--- a/package.json
+++ b/package.json
@@ -30,6 +30,7 @@
     "html-minifier": "latest",
     "parse5": "latest",
     "rollup-pluginutils": "latest",
+    "vue-template-compiler": "^2.0.0-rc.4",
     "vue-template-validator": "latest"
   },
   "devDependencies": {
diff --git a/src/index.js b/src/index.js
index b4d9502..3647e6d 100644
--- a/src/index.js
+++ b/src/index.js
@@ -7,6 +7,7 @@ export default function vue(options = {}) {
     const filter = createFilter(options.include, options.exclude);
     const styles = {};
     let dest = options.css;
+    const compileTemplate = !!options.compileTemplate;
 
     return {
         name: 'vue',
@@ -19,7 +20,7 @@ export default function vue(options = {}) {
                 return null;
             }
 
-            const { js, css } = vueTransform(source, id);
+            const { js, css } = vueTransform(source, id, { compileTemplate });
 
             // Map of every stylesheet
             styles[id] = css || {};
@@ -27,7 +28,11 @@ export default function vue(options = {}) {
             // Component javascript with inlined html template
             return js;
         },
-        ongenerate(opts) {
+        ongenerate(opts, rendered) {
+            // Put with statements back
+            /* eslint-disable no-param-reassign */
+            rendered.code = rendered.code.replace(/if\s*\(""__VUE_WITH_STATEMENT__"\)/g,
+                                                  'with(this)');
             if (options.css === false) {
                 return;
             }
diff --git a/src/options.js b/src/options.js
index 2c39717..b05e800 100644
--- a/src/options.js
+++ b/src/options.js
@@ -12,4 +12,5 @@ export default {
         removeEmptyAttributes: true,
         removeOptionalTags: true,
     },
+    VUE_WITH_STATEMENT: '__VUE_WITH_STATEMENT__',
 };
diff --git a/src/vueTransform.js b/src/vueTransform.js
index 4d20df2..c0f68e7 100644
--- a/src/vueTransform.js
+++ b/src/vueTransform.js
@@ -1,5 +1,6 @@
 import deIndent from 'de-indent';
 import htmlMinifier from 'html-minifier';
+import { compile as compileTemplate } from 'vue-template-compiler';
 import parse5 from 'parse5';
 import validateTemplate from 'vue-template-validator';
 import { relative } from 'path';
@@ -38,6 +39,39 @@ function padContent(content) {
           .join('\n');
 }
 
+/**
+ * Wrap code inside a with statement inside a function
+ * This is necessary for Vue 2 template compilation
+ *
+ * @param {string} code
+ * @returns {string}
+ */
+function wrapRenderFunction(code) {
+    // Replace with(this) by something that works on strict mode
+    // https://github.com/vuejs/vue-template-es2015-compiler/blob/master/index.js
+    return `function(){${code.replace(/with\(this\)/g, 'if("__VUE_WITH_STATEMENT__")')}}`;
+}
+
+/**
+ * Only support for es5 modules
+ *
+ * @param script
+ * @param render
+ * @returns {string}
+ */
+function injectRender(script, render) {
+    const matches = /(export default[^{]*\{)/g.exec(script);
+    if (matches) {
+        return script.split(matches[1])
+            .join(`${matches[1]}` +
+                  `render: ${wrapRenderFunction(render.render)},` +
+                  'staticRenderFns: [' +
+                  `${render.staticRenderFns.map(wrapRenderFunction).join(',')}],`
+                 );
+    }
+    throw new Error('[rollup-plugin-vue] could not find place to inject template in script.');
+}
+
 /**
  * Only support for es5 modules
  *
@@ -78,19 +112,24 @@ function processTemplate(node, filePath, content) {
  * @param {string} content
  * @param {string} template
  */
-function processScript(node, filePath, content, template) {
+function processScript(node, filePath, content, { template, render }) {
     const lang = checkLang(node) || 'js';
     let script = parse5.serialize(node);
     // pad the script to ensure correct line number for syntax errors
     const location = content.indexOf(script);
     const before = padContent(content.slice(0, location));
     script = before + script;
-    script = injectTemplate(script, template, lang);
+    if (template) {
+        script = injectTemplate(script, template, lang);
+    } else if (render) {
+        script = injectRender(script, render, lang);
+    }
     script = deIndent(script);
+
     return script;
 }
 
-export default function vueTransform(code, filePath) {
+export default function vueTransform(code, filePath, transformOptions) {
     // 1. Parse the file into an HTML tree
     const fragment = parse5.parseFragment(code, { locationInfo: true });
 
@@ -108,10 +147,17 @@ export default function vueTransform(code, filePath) {
 
     // 4. Process template
     const template = processTemplate(nodes.template, filePath, code);
+    let js;
+    if (transformOptions.compileTemplate) {
+        const render = compileTemplate(template);
+        js = processScript(nodes.script, filePath, code, { render });
+    } else {
+        js = processScript(nodes.script, filePath, code, { template });
+    }
 
     // 5. Process script & style
     return {
-        js: processScript(nodes.script, filePath, code, template),
+        js,
         css: nodes.style && {
             content: parse5.serialize(nodes.style),
             lang: checkLang(nodes.style),
diff --git a/test/expects/compileTemplate.js b/test/expects/compileTemplate.js
new file mode 100755
index 0000000..95a5d7a
--- /dev/null
+++ b/test/expects/compileTemplate.js
@@ -0,0 +1,9 @@
+var compileTemplate = {render: function(){if("__VUE_WITH_STATEMENT__"){return _h('div',[_h('p',[_s(msg)])])}},staticRenderFns: [],
+  data() {
+    return {
+      msg: 'Compile Template'
+    }
+  }
+}
+
+export default compileTemplate;
\ No newline at end of file
diff --git a/test/fixtures/compileTemplate.vue b/test/fixtures/compileTemplate.vue
new file mode 100755
index 0000000..d5306ff
--- /dev/null
+++ b/test/fixtures/compileTemplate.vue
@@ -0,0 +1,15 @@
+<template>
+  <div>
+    <p>{{msg}}</p>
+  </div>
+</template>
+
+<script>
+export default {
+  data() {
+    return {
+      msg: 'Compile Template'
+    }
+  }
+}
+</script>
diff --git a/test/test.js b/test/test.js
index 5c3f651..912edef 100644
--- a/test/test.js
+++ b/test/test.js
@@ -23,7 +23,8 @@ function test(name) {
             plugins: [vuePlugin({
                 css (css) {
                     actualCss = css
-                }
+                },
+                compileTemplate: name === 'compileTemplate'
             })]
         }).then(function (bundle) {
             var result = bundle.generate()