diff --git a/README.markdown b/README.markdown
index b6e4fea5..bafd2010 100644
--- a/README.markdown
+++ b/README.markdown
@@ -58,7 +58,7 @@ would render:
 Handlebars.js also adds the ability to define block helpers. Block helpers are functions that can be called from anywhere in the template. Here's an example:
 
     var source = "<ul>{{#people}}<li>{{#link}}{{name}}{{/link}}</li>{{/people}}</ul>";
-    var link = function(fn) {
+    var link = function(context, fn) {
       return '<a href="/people/' + this.__get__("id") + '">' + fn(this) + '</a>';
     };
     var template = Handlebars.compile(source);
diff --git a/lib/handlebars.js b/lib/handlebars.js
index aaba40da..3d651154 100644
--- a/lib/handlebars.js
+++ b/lib/handlebars.js
@@ -324,16 +324,17 @@ Handlebars.Compiler.prototype = {
     // don't need to be globally unique, just per compiler
     var fnId = "fn" + this.pointer.toString();
     this.fn += "var proxy = Handlebars.buildContext(" + param + ", stack);";
+    this.fn += "var wrappedContext = Handlebars.buildContext(context);";
     this.fn += "var " + fnId + " = function(context) {" + result + "}; ";
     this.fn += "lookup = " + this.lookupFor(mustache) + "; ";
-    this.fn += "if(Handlebars.isFunction(lookup)) out = out + lookup.call(context, proxy, " + fnId + "); ";
+    this.fn += "if(Handlebars.isFunction(lookup)) out = out + lookup.call(wrappedContext, proxy, " + fnId + "); ";
     this.fn += "else if(typeof lookup !== 'undefined') { out = out + Handlebars.helperMissing.call(proxy, lookup, " + fnId + "); }";
 
     if (compiler.continueInverted) {
       var invertedCompiler = this.compileToEndOfBlock(mustache);
       this.fn += "if (Handlebars.isFunction(lookup.not)) {";
       this.fn += "  var " + fnId + "Not = function(context) { " + invertedCompiler.fn + " };";
-      this.fn += "  out = out + lookup.not.call(context, proxy, " + fnId + "Not);";
+      this.fn += "  out = out + lookup.not.call(wrappedContext, proxy, " + fnId + "Not);";
       this.fn += "}";
     }
 
diff --git a/test/handlebars.js b/test/handlebars.js
index e090ac32..649830f0 100644
--- a/test/handlebars.js
+++ b/test/handlebars.js
@@ -177,6 +177,19 @@ test("block helper staying in the same context", function() {
   equal(result, "<form><p>Yehuda</p></form>");
 });
 
+test("block helper should have wrapped context in this", function() {
+  var source = "<ul>{{#people}}<li>{{#link}}{{name}}{{/link}}</li>{{/people}}</ul>";
+  var link = function(context, fn) {
+    return '<a href="/people/' + this.__get__("id") + '">' + fn(this) + '</a>';
+  };
+  var data = { "people": [
+    { "name": "Alan", "id": 1 },
+    { "name": "Yehuda", "id": 2 }
+  ]};
+
+  shouldCompileTo(source, [data, {link: link}], "<ul><li><a href=\"/people/1\">Alan</a></li><li><a href=\"/people/2\">Yehuda</a></li></ul>");
+});
+
 test("block helper passing a new context", function() {
   var string   = "{{#form yehuda}}<p>{{name}}</p>{{/form}}"
   var template = Handlebars.compile(string);