diff --git a/src/compiler/sys.ts b/src/compiler/sys.ts
index 688400fc6d5c2..1438bebc78c8d 100644
--- a/src/compiler/sys.ts
+++ b/src/compiler/sys.ts
@@ -317,18 +317,22 @@ namespace ts {
         const newTime = modifiedTime.getTime();
         if (oldTime !== newTime) {
             watchedFile.mtime = modifiedTime;
-            const eventKind = oldTime === 0
-                ? FileWatcherEventKind.Created
-                : newTime === 0
-                    ? FileWatcherEventKind.Deleted
-                    : FileWatcherEventKind.Changed;
-            watchedFile.callback(watchedFile.fileName, eventKind);
+            watchedFile.callback(watchedFile.fileName, getFileWatcherEventKind(oldTime, newTime));
             return true;
         }
 
         return false;
     }
 
+    /*@internal*/
+    export function getFileWatcherEventKind(oldTime: number, newTime: number) {
+        return oldTime === 0
+            ? FileWatcherEventKind.Created
+            : newTime === 0
+                ? FileWatcherEventKind.Deleted
+                : FileWatcherEventKind.Changed;
+    }
+
     /*@internal*/
     export interface RecursiveDirectoryWatcherHost {
         watchDirectory: HostWatchDirectory;
diff --git a/src/harness/unittests/tsserverProjectSystem.ts b/src/harness/unittests/tsserverProjectSystem.ts
index bfa999a3790d5..c1ad196149eba 100644
--- a/src/harness/unittests/tsserverProjectSystem.ts
+++ b/src/harness/unittests/tsserverProjectSystem.ts
@@ -3028,7 +3028,7 @@ namespace ts.projectSystem {
             const project = projectService.configuredProjects.get(configFile.path);
             assert.isDefined(project);
             checkProjectActualFiles(project, [file1.path, libFile.path, module1.path, module2.path, configFile.path]);
-            checkWatchedFiles(host, [libFile.path, module1.path, module2.path, configFile.path]);
+            checkWatchedFiles(host, [libFile.path, configFile.path]);
             checkWatchedDirectories(host, [], /*recursive*/ false);
             const watchedRecursiveDirectories = getTypeRootsFromLocation(root + "/a/b/src");
             watchedRecursiveDirectories.push(`${root}/a/b/src`, `${root}/a/b/node_modules`);
@@ -6632,6 +6632,7 @@ namespace ts.projectSystem {
                 projectFiles.push(find(filesAndFoldersToAdd, f => f.path === lodashIndexPath));
                 // we would now not have failed lookup in the parent of appFolder since lodash is available
                 recursiveWatchedDirectories.length = 1;
+                recursiveWatchedDirectories.push(`${root}/a/b/node_modules`);
                 // npm installation complete, timeout after reload fs
                 timeoutAfterReloadFs = true;
                 verifyAfterPartialOrCompleteNpmInstall(2);
@@ -6654,7 +6655,7 @@ namespace ts.projectSystem {
                     const projectFilePaths = map(projectFiles, f => f.path);
                     checkProjectActualFiles(project, projectFilePaths);
 
-                    const filesWatched = filter(projectFilePaths, p => p !== app.path);
+                    const filesWatched = filter(projectFilePaths, p => p !== app.path && p.indexOf("/a/b/node_modules") === -1);
                     checkWatchedFiles(host, filesWatched);
                     checkWatchedDirectories(host, typeRootDirectories.concat(recursiveWatchedDirectories), /*recursive*/ true);
                     checkWatchedDirectories(host, [], /*recursive*/ false);
@@ -7689,10 +7690,23 @@ namespace ts.projectSystem {
         }
 
         function verifyWatchesWithConfigFile(host: TestServerHost, files: FileOrFolder[], openFile: FileOrFolder) {
-            checkWatchedFiles(host, mapDefined(files, f => f === openFile ? undefined : f.path));
+            const nodeModulesDirs = createMap<true>();
+            checkWatchedFiles(host, mapDefined(files, f => {
+                if (f === openFile) {
+                    return undefined;
+                }
+
+                const indexOfNodeModules = f.path.indexOf("/node_modules/");
+                if (indexOfNodeModules === -1) {
+                    return f.path;
+                }
+
+                nodeModulesDirs.set(f.path.substr(0, indexOfNodeModules + "/node_modules".length), true);
+                return undefined;
+            }));
             checkWatchedDirectories(host, [], /*recursive*/ false);
             const configDirectory = getDirectoryPath(configFile.path);
-            checkWatchedDirectories(host, [configDirectory, `${configDirectory}/${nodeModulesAtTypes}`], /*recursive*/ true);
+            checkWatchedDirectories(host, [configDirectory, `${configDirectory}/${nodeModulesAtTypes}`].concat(arrayFrom(nodeModulesDirs.keys())), /*recursive*/ true);
         }
 
         describe("from files in same folder", () => {
@@ -7892,7 +7906,7 @@ namespace ts.projectSystem {
                 verifyTrace(resolutionTrace, expectedTrace);
 
                 const currentDirectory = getDirectoryPath(file1.path);
-                const watchedFiles = mapDefined(files, f => f === file1 ? undefined : f.path);
+                const watchedFiles = mapDefined(files, f => f === file1 || f.path.indexOf("/node_modules/") !== -1 ? undefined : f.path);
                 forEachAncestorDirectory(currentDirectory, d => {
                     watchedFiles.push(combinePaths(d, "tsconfig.json"), combinePaths(d, "jsconfig.json"));
                 });
diff --git a/src/server/editorServices.ts b/src/server/editorServices.ts
index ef82e6de30e03..4d6320534a0ae 100644
--- a/src/server/editorServices.ts
+++ b/src/server/editorServices.ts
@@ -251,7 +251,8 @@ namespace ts.server {
         ClosedScriptInfo = "Closed Script info",
         ConfigFileForInferredRoot = "Config file for the inferred project root",
         FailedLookupLocation = "Directory of Failed lookup locations in module resolution",
-        TypeRoots = "Type root directory"
+        TypeRoots = "Type root directory",
+        ScriptInfoInNodeModules = "node_modules for closed script infos",
     }
 
     const enum ConfigFileWatcherStatus {
@@ -306,6 +307,10 @@ namespace ts.server {
         syntaxOnly?: boolean;
     }
 
+    interface ScriptInfoInNodeModulesWatcher extends FileWatcher {
+        refCount: number;
+    }
+
     function getDetailWatchInfo(watchType: WatchType, project: Project | undefined) {
         return `Project: ${project ? project.getProjectName() : ""} WatchType: ${watchType}`;
     }
@@ -325,6 +330,7 @@ namespace ts.server {
          * Container of all known scripts
          */
         private readonly filenameToScriptInfo = createMap<ScriptInfo>();
+        private readonly scriptInfoInNodeModulesWatchers = createMap <ScriptInfoInNodeModulesWatcher>();
         /**
          * Map to the real path of the infos
          */
@@ -1742,16 +1748,86 @@ namespace ts.server {
             if (!info.isDynamicOrHasMixedContent() &&
                 (!this.globalCacheLocationDirectoryPath ||
                     !startsWith(info.path, this.globalCacheLocationDirectoryPath))) {
-                const { fileName } = info;
-                info.fileWatcher = this.watchFactory.watchFilePath(
-                    this.host,
-                    fileName,
-                    (fileName, eventKind, path) => this.onSourceFileChanged(fileName, eventKind, path),
-                    PollingInterval.Medium,
-                    info.path,
-                    WatchType.ClosedScriptInfo
-                );
+
+                const indexOfNodeModules = info.path.indexOf("/node_modules/");
+                if (indexOfNodeModules === -1) {
+                    info.fileWatcher = this.watchFactory.watchFilePath(
+                        this.host,
+                        info.fileName,
+                        (fileName, eventKind, path) => this.onSourceFileChanged(fileName, eventKind, path),
+                        PollingInterval.Medium,
+                        info.path,
+                        WatchType.ClosedScriptInfo
+                    );
+                }
+                else {
+                    info.mTime = this.getModifiedTime(info);
+                    info.fileWatcher = this.watchClosedScriptInfoInNodeModules(info.path.substr(0, indexOfNodeModules) as Path);
+                }
+            }
+        }
+
+
+        private watchClosedScriptInfoInNodeModules(dir: Path): ScriptInfoInNodeModulesWatcher {
+            // Watch only directory
+            const existing = this.scriptInfoInNodeModulesWatchers.get(dir);
+            if (existing) {
+                existing.refCount++;
+                return existing;
             }
+
+            const watchDir = dir + "/node_modules" as Path;
+            let watcher = this.watchFactory.watchDirectory(
+                this.host,
+                watchDir,
+                (fileOrDirectory) => {
+                    const fileOrDirectoryPath = this.toPath(fileOrDirectory);
+                    if (fileOrDirectoryPath.indexOf("/.staging") || fileOrDirectoryPath.indexOf("/.bin")) return;
+                    // Has extension
+                    Debug.assert(result.refCount > 0);
+                    if (watchDir === fileOrDirectoryPath) {
+                        this.refreshScriptInfosInDirectory(watchDir);
+                    }
+                    else {
+                        this.refreshScriptInfosInDirectory(hasExtension(fileOrDirectoryPath) ? getDirectoryPath(fileOrDirectoryPath) : fileOrDirectoryPath);
+                    }
+                },
+                WatchDirectoryFlags.Recursive,
+                WatchType.ScriptInfoInNodeModules
+            );
+            const result: ScriptInfoInNodeModulesWatcher = {
+                close: () => {
+                    if (result.refCount === 1) {
+                        watcher.close();
+                        watcher = undefined;
+                        this.scriptInfoInNodeModulesWatchers.delete(dir);
+                    }
+                    else {
+                        result.refCount--;
+                    }
+                },
+                refCount: 1
+            };
+            this.scriptInfoInNodeModulesWatchers.set(dir, result);
+            return result;
+        }
+
+        private getModifiedTime(info: ScriptInfo) {
+            return (this.host.getModifiedTime(info.path) || new Date()).getTime();
+        }
+
+        private refreshScriptInfosInDirectory(dir: Path) {
+            dir = dir + directorySeparator as Path;
+            this.filenameToScriptInfo.forEach(info => {
+                if (startsWith(info.path, dir)) {
+                    const mTime = this.getModifiedTime(info);
+                    if (mTime !== info.mTime) {
+                        const eventKind = getFileWatcherEventKind(info.mTime, mTime);
+                        info.mTime = mTime;
+                        this.onSourceFileChanged(info.fileName, eventKind, info.path);
+                    }
+                }
+            });
         }
 
         private stopWatchingScriptInfo(info: ScriptInfo) {
diff --git a/src/server/scriptInfo.ts b/src/server/scriptInfo.ts
index efae3a5faa68d..e3cd74a182bb4 100644
--- a/src/server/scriptInfo.ts
+++ b/src/server/scriptInfo.ts
@@ -221,6 +221,9 @@ namespace ts.server {
         /** Set to real path if path is different from info.path */
         private realpath: Path | undefined;
 
+        /*@internal*/
+        mTime: number;
+
         constructor(
             private readonly host: ServerHost,
             readonly fileName: NormalizedPath,
diff --git a/tests/baselines/reference/api/tsserverlibrary.d.ts b/tests/baselines/reference/api/tsserverlibrary.d.ts
index 60b5d7ffd9371..9547e0f5f58ac 100644
--- a/tests/baselines/reference/api/tsserverlibrary.d.ts
+++ b/tests/baselines/reference/api/tsserverlibrary.d.ts
@@ -7968,6 +7968,7 @@ declare namespace ts.server {
          * Container of all known scripts
          */
         private readonly filenameToScriptInfo;
+        private readonly scriptInfoInNodeModulesWatchers;
         /**
          * maps external project file name to list of config files that were the part of this project
          */
@@ -8127,6 +8128,9 @@ declare namespace ts.server {
         private createInferredProject;
         getScriptInfo(uncheckedFileName: string): ScriptInfo;
         private watchClosedScriptInfo;
+        private watchClosedScriptInfoInNodeModules;
+        private getModifiedTime;
+        private refreshScriptInfosInDirectory;
         private stopWatchingScriptInfo;
         getOrCreateScriptInfoForNormalizedPath(fileName: NormalizedPath, openedByClient: boolean, fileContent?: string, scriptKind?: ScriptKind, hasMixedContent?: boolean, hostToQueryFileExistsOn?: {
             fileExists(path: string): boolean;