diff --git a/addon/templates/components/paper-chips.hbs b/addon/templates/components/paper-chips.hbs
index 9a029e42c..b599be167 100644
--- a/addon/templates/components/paper-chips.hbs
+++ b/addon/templates/components/paper-chips.hbs
@@ -32,6 +32,7 @@
         {{#paper-autocomplete
           options=options
           closeOnSelect=true
+          defaultHighlighted=defaultHighlighted
           placeholder=placeholder
           searchField=searchField
           search=search
diff --git a/tests/integration/components/paper-chips-test.js b/tests/integration/components/paper-chips-test.js
new file mode 100644
index 000000000..e2e2b9fa2
--- /dev/null
+++ b/tests/integration/components/paper-chips-test.js
@@ -0,0 +1,71 @@
+import { module, test } from 'qunit';
+import { setupRenderingTest } from 'ember-qunit';
+import { render, triggerKeyEvent, fillIn } from '@ember/test-helpers';
+import hbs from 'htmlbars-inline-precompile';
+
+module('Integration | Component | paper-chips', function(hooks) {
+  setupRenderingTest(hooks);
+
+  test('on input, opens dropdown with matched options', async function(assert) {
+    this.items = ['Two', 'Three', 'Ten', 'Thirtneen'];
+    this.selectedItems = [];
+    await render(hbs`
+    {{paper-chips
+      options=items
+      content=selectedItems}}`);
+
+    await fillIn('md-chips input', 'T');
+    assert.dom('.md-autocomplete-suggestions li').exists({ count: this.items.length });
+  });
+
+  test('without defaultHighlighted, none of the dropdown options are highlighted', async function(assert) {
+    this.items = ['Two', 'Three', 'Ten', 'Thirtneen'];
+    this.selectedItems = [];
+
+    await render(hbs`
+    {{paper-chips
+      options=items
+      content=selectedItems}}`);
+
+    await fillIn('md-chips input', 'T');
+    assert.dom('.md-autocomplete-suggestions li.selected').doesNotExist();
+  });
+
+  test('providing defaultHighlighted, opens dropdown where that option is highlighted', async function(assert) {
+    this.items = ['Two', 'Three', 'Ten', 'Thirtneen'];
+    this.selectedItems = [];
+    this.defaultHighlighted = (a) => a.results[0];
+
+    await render(hbs`
+    {{paper-chips
+      defaultHighlighted=defaultHighlighted
+      options=items
+      content=selectedItems}}`);
+
+    await fillIn('md-chips input', 'T');
+    assert.dom('.md-autocomplete-suggestions li.selected').exists({ count: 1 });
+  });
+
+  test('pressing ENTER key, sets defaultHighlighted item as selected', async function(assert) {
+    this.items = ['Two', 'Three', 'Ten', 'Thirtneen'];
+    this.selectedItems = [];
+    this.defaultHighlighted = (a) => a.results[0];
+    this.addItems = (item) => { this.set('selectedItems', [...this.selectedItems, item])};
+
+    await render(hbs`
+    {{paper-chips
+      addItem=(action addItems)
+      defaultHighlighted=defaultHighlighted
+      options=items
+      content=selectedItems}}`);
+
+    await fillIn('md-chips input', 'T');
+    assert.dom('.md-autocomplete-suggestions li.selected').exists({ count: 1 });
+
+    await triggerKeyEvent('md-chips input', 'keydown', 13);
+    assert.dom('md-chip').exists({ count: this.selectedItems.length });
+    assert.dom('md-chip .md-chip-content').hasText('Two');
+    assert.equal(this.selectedItems[0], this.items[0]);
+  });
+
+});