diff --git a/src/ng/compile.js b/src/ng/compile.js
index afafb081cf72..b333b079aa82 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -1293,6 +1293,14 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
       return function publicLinkFn(scope, cloneConnectFn, options) {
         assertArg(scope, 'scope');
 
+        if (previousCompileContext && previousCompileContext.needsNewScope) {
+          // A parent directive did a replace and a directive on this element asked
+          // for transclusion, which caused us to lose a layer of element on which
+          // we could hold the new transclusion scope, so we will create it manually
+          // here.
+          scope = scope.$parent.$new();
+        }
+
         options = options || {};
         var parentBoundTranscludeFn = options.parentBoundTranscludeFn,
           transcludeControllers = options.transcludeControllers,
@@ -1874,7 +1882,8 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
             }
 
             $compileNode.empty(); // clear contents
-            childTranscludeFn = compilationGenerator(mightHaveMultipleTransclusionError, $template, transcludeFn);
+            childTranscludeFn = compilationGenerator(mightHaveMultipleTransclusionError, $template, transcludeFn, undefined,
+                undefined, { needsNewScope: directive.$$isolateScope || directive.$$newScope});
             childTranscludeFn.$$slots = slots;
           }
         }
@@ -1917,8 +1926,11 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
             var templateDirectives = collectDirectives(compileNode, [], newTemplateAttrs);
             var unprocessedDirectives = directives.splice(i + 1, directives.length - (i + 1));
 
-            if (newIsolateScopeDirective) {
-              markDirectivesAsIsolate(templateDirectives);
+            if (newIsolateScopeDirective || newScopeDirective) {
+              // The original directive caused the current element to be replaced but this element
+              // also needs to have a new scope, so we need to tell the template directives
+              // that they would need to get their scope from further up, if they require transclusion
+              markDirectiveScope(templateDirectives, newIsolateScopeDirective, newScopeDirective);
             }
             directives = directives.concat(templateDirectives).concat(unprocessedDirectives);
             mergeTemplateAttributes(templateAttrs, newTemplateAttrs);
@@ -2072,7 +2084,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
       }
 
       function nodeLinkFn(childLinkFn, scope, linkNode, $rootElement, boundTranscludeFn) {
-        var i, ii, linkFn, controller, isolateScope, elementControllers, transcludeFn, $element,
+        var linkFn, isolateScope, controllerScope, elementControllers, transcludeFn, $element,
             attrs, removeScopeBindingWatches, removeControllerBindingWatches;
 
         if (compileNode === linkNode) {
@@ -2083,8 +2095,11 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
           attrs = new Attributes($element, templateAttrs);
         }
 
+        controllerScope = scope;
         if (newIsolateScopeDirective) {
           isolateScope = scope.$new(true);
+        } else if (newScopeDirective) {
+          controllerScope = scope.$parent;
         }
 
         if (boundTranscludeFn) {
@@ -2112,38 +2127,27 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
             isolateScope.$on('$destroy', removeScopeBindingWatches);
           }
         }
-        if (elementControllers) {
-          // Initialize bindToController bindings for new/isolate scopes
-          var scopeDirective = newIsolateScopeDirective || newScopeDirective;
-          var bindings;
-          var controllerForBindings;
-          if (scopeDirective && elementControllers[scopeDirective.name]) {
-            bindings = scopeDirective.$$bindings.bindToController;
-            controller = elementControllers[scopeDirective.name];
-
-            if (controller && controller.identifier && bindings) {
-              controllerForBindings = controller;
-              removeControllerBindingWatches =
-                  initializeDirectiveBindings(scope, attrs, controller.instance,
-                                              bindings, scopeDirective);
-            }
+
+        // Initialize bindToController bindings
+        for (var name in elementControllers) {
+          var controllerDirective = controllerDirectives[name];
+          var controller = elementControllers[name];
+          var bindings = controllerDirective.$$bindings.bindToController;
+
+          if (controller.identifier && bindings) {
+            removeControllerBindingWatches =
+              initializeDirectiveBindings(controllerScope, attrs, controller.instance, bindings, controllerDirective);
           }
-          for (i in elementControllers) {
-            controller = elementControllers[i];
-            var controllerResult = controller();
-
-            if (controllerResult !== controller.instance) {
-              // If the controller constructor has a return value, overwrite the instance
-              // from setupControllers and update the element data
-              controller.instance = controllerResult;
-              $element.data('$' + i + 'Controller', controllerResult);
-              if (controller === controllerForBindings) {
-                // Remove and re-install bindToController bindings
-                removeControllerBindingWatches && removeControllerBindingWatches();
-                removeControllerBindingWatches =
-                  initializeDirectiveBindings(scope, attrs, controllerResult, bindings, scopeDirective);
-              }
-            }
+
+          var controllerResult = controller();
+          if (controllerResult !== controller.instance) {
+            // If the controller constructor has a return value, overwrite the instance
+            // from setupControllers
+            controller.instance = controllerResult;
+            $element.data('$' + controllerDirective.name + 'Controller', controllerResult);
+            removeControllerBindingWatches && removeControllerBindingWatches();
+            removeControllerBindingWatches =
+              initializeDirectiveBindings(controllerScope, attrs, controller.instance, bindings, controllerDirective);
           }
         }
 
@@ -2213,10 +2217,15 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
       }
     }
 
-    function markDirectivesAsIsolate(directives) {
-      // mark all directives as needing isolate scope.
+    // Depending upon the context in which a directive finds itself it might need to have a new isolated
+    // or child scope created. For instance:
+    // * if the directive has been pulled into a template because another directive with a higher priority
+    // asked for element transclusion
+    // * if the directive itself asks for transclusion but it is at the root of a template and the original
+    // element was replaced. See https://github.com/angular/angular.js/issues/12936
+    function markDirectiveScope(directives, isolateScope, newScope) {
       for (var j = 0, jj = directives.length; j < jj; j++) {
-        directives[j] = inherit(directives[j], {$$isolateScope: true});
+        directives[j] = inherit(directives[j], {$$isolateScope: isolateScope, $$newScope: newScope});
       }
     }
 
@@ -2363,7 +2372,9 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
             var templateDirectives = collectDirectives(compileNode, [], tempTemplateAttrs);
 
             if (isObject(origAsyncDirective.scope)) {
-              markDirectivesAsIsolate(templateDirectives);
+              // the original directive that caused the template to be loaded async required
+              // an isolate scope
+              markDirectiveScope(templateDirectives, true);
             }
             directives = templateDirectives.concat(directives);
             mergeTemplateAttributes(tAttrs, tempTemplateAttrs);
diff --git a/test/ng/compileSpec.js b/test/ng/compileSpec.js
index da016f74c5ac..ee09676bc4dd 100755
--- a/test/ng/compileSpec.js
+++ b/test/ng/compileSpec.js
@@ -4414,6 +4414,301 @@ describe('$compile', function() {
     });
 
 
+    it('should bind to multiple directives controllers via object notation (no scope)', function() {
+      var controller1Called = false;
+      var controller2Called = false;
+      module(function($compileProvider, $controllerProvider) {
+        $compileProvider.directive('foo', valueFn({
+          bindToController: {
+            'data': '=fooData',
+            'str': '@fooStr',
+            'fn': '&fooFn'
+          },
+          controllerAs: 'fooCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo': 'bar', 'baz': 'biz'});
+            expect(this.str).toBe('Hello, world!');
+            expect(this.fn()).toBe('called!');
+            controller1Called = true;
+          }
+        }));
+        $compileProvider.directive('bar', valueFn({
+          bindToController: {
+            'data': '=barData',
+            'str': '@barStr',
+            'fn': '&barFn'
+          },
+          controllerAs: 'barCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo2': 'bar2', 'baz2': 'biz2'});
+            expect(this.str).toBe('Hello, second world!');
+            expect(this.fn()).toBe('second called!');
+            controller2Called = true;
+          }
+        }));
+      });
+      inject(function($compile, $rootScope) {
+        $rootScope.fn = valueFn('called!');
+        $rootScope.string = 'world';
+        $rootScope.data = {'foo': 'bar','baz': 'biz'};
+        $rootScope.fn2 = valueFn('second called!');
+        $rootScope.string2 = 'second world';
+        $rootScope.data2 = {'foo2': 'bar2', 'baz2': 'biz2'};
+        element = $compile(
+          '<div ' +
+            'foo ' +
+            'foo-data="data" ' +
+            'foo-str="Hello, {{string}}!" ' +
+            'foo-fn="fn()" ' +
+            'bar ' +
+            'bar-data="data2" ' +
+            'bar-str="Hello, {{string2}}!" ' +
+            'bar-fn="fn2()" > ' +
+          '</div>')($rootScope);
+        $rootScope.$digest();
+        expect(controller1Called).toBe(true);
+        expect(controller2Called).toBe(true);
+      });
+    });
+
+
+    it('should bind to multiple directives controllers via object notation (new iso scope)', function() {
+      var controller1Called = false;
+      var controller2Called = false;
+      module(function($compileProvider, $controllerProvider) {
+        $compileProvider.directive('foo', valueFn({
+          bindToController: {
+            'data': '=fooData',
+            'str': '@fooStr',
+            'fn': '&fooFn'
+          },
+          scope: {},
+          controllerAs: 'fooCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo': 'bar', 'baz': 'biz'});
+            expect(this.str).toBe('Hello, world!');
+            expect(this.fn()).toBe('called!');
+            controller1Called = true;
+          }
+        }));
+        $compileProvider.directive('bar', valueFn({
+          bindToController: {
+            'data': '=barData',
+            'str': '@barStr',
+            'fn': '&barFn'
+          },
+          controllerAs: 'barCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo2': 'bar2', 'baz2': 'biz2'});
+            expect(this.str).toBe('Hello, second world!');
+            expect(this.fn()).toBe('second called!');
+            controller2Called = true;
+          }
+        }));
+      });
+      inject(function($compile, $rootScope) {
+        $rootScope.fn = valueFn('called!');
+        $rootScope.string = 'world';
+        $rootScope.data = {'foo': 'bar','baz': 'biz'};
+        $rootScope.fn2 = valueFn('second called!');
+        $rootScope.string2 = 'second world';
+        $rootScope.data2 = {'foo2': 'bar2', 'baz2': 'biz2'};
+        element = $compile(
+          '<div ' +
+            'foo ' +
+            'foo-data="data" ' +
+            'foo-str="Hello, {{string}}!" ' +
+            'foo-fn="fn()" ' +
+            'bar ' +
+            'bar-data="data2" ' +
+            'bar-str="Hello, {{string2}}!" ' +
+            'bar-fn="fn2()" > ' +
+          '</div>')($rootScope);
+        $rootScope.$digest();
+        expect(controller1Called).toBe(true);
+        expect(controller2Called).toBe(true);
+      });
+    });
+
+
+    it('should bind to multiple directives controllers via object notation (new scope)', function() {
+      var controller1Called = false;
+      var controller2Called = false;
+      module(function($compileProvider, $controllerProvider) {
+        $compileProvider.directive('foo', valueFn({
+          bindToController: {
+            'data': '=fooData',
+            'str': '@fooStr',
+            'fn': '&fooFn'
+          },
+          scope: true,
+          controllerAs: 'fooCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo': 'bar', 'baz': 'biz'});
+            expect(this.str).toBe('Hello, world!');
+            expect(this.fn()).toBe('called!');
+            controller1Called = true;
+          }
+        }));
+        $compileProvider.directive('bar', valueFn({
+          bindToController: {
+            'data': '=barData',
+            'str': '@barStr',
+            'fn': '&barFn'
+          },
+          scope: true,
+          controllerAs: 'barCtrl',
+          controller: function() {
+            expect(this.data).toEqualData({'foo2': 'bar2', 'baz2': 'biz2'});
+            expect(this.str).toBe('Hello, second world!');
+            expect(this.fn()).toBe('second called!');
+            controller2Called = true;
+          }
+        }));
+      });
+      inject(function($compile, $rootScope) {
+        $rootScope.fn = valueFn('called!');
+        $rootScope.string = 'world';
+        $rootScope.data = {'foo': 'bar','baz': 'biz'};
+        $rootScope.fn2 = valueFn('second called!');
+        $rootScope.string2 = 'second world';
+        $rootScope.data2 = {'foo2': 'bar2', 'baz2': 'biz2'};
+        element = $compile(
+          '<div ' +
+            'foo ' +
+            'foo-data="data" ' +
+            'foo-str="Hello, {{string}}!" ' +
+            'foo-fn="fn()" ' +
+            'bar ' +
+            'bar-data="data2" ' +
+            'bar-str="Hello, {{string2}}!" ' +
+            'bar-fn="fn2()" > ' +
+          '</div>')($rootScope);
+        $rootScope.$digest();
+        expect(controller1Called).toBe(true);
+        expect(controller2Called).toBe(true);
+      });
+    });
+
+
+    it('should evaluate against the correct scope, when using `bindToController` (new scope)',
+      function() {
+        module(function($compileProvider, $controllerProvider) {
+          $controllerProvider.register({
+            'ParentCtrl': function() {
+              this.value1 = 'parent1';
+              this.value2 = 'parent2';
+              this.value3 = function() { return 'parent3'; };
+            },
+            'ChildCtrl': function() {
+              this.value1 = 'child1';
+              this.value2 = 'child2';
+              this.value3 = function() { return 'child3'; };
+            }
+          });
+
+          $compileProvider.directive('child', valueFn({
+            scope: true,
+            controller: 'ChildCtrl as ctrl',
+            bindToController: {
+              fromParent1: '@',
+              fromParent2: '=',
+              fromParent3: '&'
+            },
+            template: ''
+          }));
+        });
+
+        inject(function($compile, $rootScope) {
+          element = $compile(
+              '<div ng-controller="ParentCtrl as ctrl">' +
+                '<child ' +
+                    'from-parent-1="{{ ctrl.value1 }}" ' +
+                    'from-parent-2="ctrl.value2" ' +
+                    'from-parent-3="ctrl.value3">' +
+                '</child>' +
+              '</div>')($rootScope);
+          $rootScope.$digest();
+
+          var parentCtrl = element.controller('ngController');
+          var childCtrl = element.find('child').controller('child');
+
+          expect(childCtrl.fromParent1).toBe(parentCtrl.value1);
+          expect(childCtrl.fromParent1).not.toBe(childCtrl.value1);
+          expect(childCtrl.fromParent2).toBe(parentCtrl.value2);
+          expect(childCtrl.fromParent2).not.toBe(childCtrl.value2);
+          expect(childCtrl.fromParent3()()).toBe(parentCtrl.value3());
+          expect(childCtrl.fromParent3()()).not.toBe(childCtrl.value3());
+
+          childCtrl.fromParent2 = 'modified';
+          $rootScope.$digest();
+
+          expect(parentCtrl.value2).toBe('modified');
+          expect(childCtrl.value2).toBe('child2');
+        });
+      }
+    );
+
+
+    it('should evaluate against the correct scope, when using `bindToController` (new iso scope)',
+      function() {
+        module(function($compileProvider, $controllerProvider) {
+          $controllerProvider.register({
+            'ParentCtrl': function() {
+              this.value1 = 'parent1';
+              this.value2 = 'parent2';
+              this.value3 = function() { return 'parent3'; };
+            },
+            'ChildCtrl': function() {
+              this.value1 = 'child1';
+              this.value2 = 'child2';
+              this.value3 = function() { return 'child3'; };
+            }
+          });
+
+          $compileProvider.directive('child', valueFn({
+            scope: {},
+            controller: 'ChildCtrl as ctrl',
+            bindToController: {
+              fromParent1: '@',
+              fromParent2: '=',
+              fromParent3: '&'
+            },
+            template: ''
+          }));
+        });
+
+        inject(function($compile, $rootScope) {
+          element = $compile(
+              '<div ng-controller="ParentCtrl as ctrl">' +
+                '<child ' +
+                    'from-parent-1="{{ ctrl.value1 }}" ' +
+                    'from-parent-2="ctrl.value2" ' +
+                    'from-parent-3="ctrl.value3">' +
+                '</child>' +
+              '</div>')($rootScope);
+          $rootScope.$digest();
+
+          var parentCtrl = element.controller('ngController');
+          var childCtrl = element.find('child').controller('child');
+
+          expect(childCtrl.fromParent1).toBe(parentCtrl.value1);
+          expect(childCtrl.fromParent1).not.toBe(childCtrl.value1);
+          expect(childCtrl.fromParent2).toBe(parentCtrl.value2);
+          expect(childCtrl.fromParent2).not.toBe(childCtrl.value2);
+          expect(childCtrl.fromParent3()()).toBe(parentCtrl.value3());
+          expect(childCtrl.fromParent3()()).not.toBe(childCtrl.value3());
+
+          childCtrl.fromParent2 = 'modified';
+          $rootScope.$digest();
+
+          expect(parentCtrl.value2).toBe('modified');
+          expect(childCtrl.value2).toBe('child2');
+        });
+      }
+    );
+
+
     it('should put controller in scope when controller identifier present but not using controllerAs', function() {
       var controllerCalled = false;
       var myCtrl;
@@ -5636,6 +5931,62 @@ describe('$compile', function() {
         });
       });
 
+      //see issue https://github.com/angular/angular.js/issues/12936
+      it('should use the proper scope when it is on the root element of a replaced directive template', function() {
+        module(function() {
+          directive('isolate', valueFn({
+            scope: {},
+            replace: true,
+            template: '<div trans>{{x}}</div>',
+            link: function(scope, element, attr, ctrl) {
+              scope.x = 'iso';
+            }
+          }));
+          directive('trans', valueFn({
+            transclude: 'content',
+            link: function(scope, element, attr, ctrl, $transclude) {
+              $transclude(function(clone) {
+                element.append(clone);
+              });
+            }
+          }));
+        });
+        inject(function($rootScope, $compile) {
+          element = $compile('<isolate></isolate>')($rootScope);
+          $rootScope.x = 'root';
+          $rootScope.$apply();
+          expect(element.text()).toEqual('iso');
+        });
+      });
+
+
+      //see issue https://github.com/angular/angular.js/issues/12936
+      it('should use the proper scope when it is on the root element of a replaced directive template with child scope', function() {
+        module(function() {
+          directive('child', valueFn({
+            scope: true,
+            replace: true,
+            template: '<div trans>{{x}}</div>',
+            link: function(scope, element, attr, ctrl) {
+              scope.x = 'child';
+            }
+          }));
+          directive('trans', valueFn({
+            transclude: 'content',
+            link: function(scope, element, attr, ctrl, $transclude) {
+              $transclude(function(clone) {
+                element.append(clone);
+              });
+            }
+          }));
+        });
+        inject(function($rootScope, $compile) {
+          element = $compile('<child></child>')($rootScope);
+          $rootScope.x = 'root';
+          $rootScope.$apply();
+          expect(element.text()).toEqual('child');
+        });
+      });
 
 
       it('should not leak if two "element" transclusions are on the same element (with debug info)', function() {