diff --git a/src/reactivity/unwrap.ts b/src/reactivity/unwrap.ts
new file mode 100644
index 00000000..bf306ac1
--- /dev/null
+++ b/src/reactivity/unwrap.ts
@@ -0,0 +1,51 @@
+import { isRef } from './ref'
+import { proxy, isFunction, isObject, isArray } from '../utils'
+import { isReactive } from './reactive'
+
+export function unwrapRefProxy(value: any) {
+  if (isFunction(value)) {
+    return value
+  }
+
+  if (isRef(value)) {
+    return value
+  }
+
+  if (isArray(value)) {
+    return value
+  }
+
+  if (isReactive(value)) {
+    return value
+  }
+
+  if (!isObject(value)) {
+    return value
+  }
+
+  if (!Object.isExtensible(value)) {
+    return value
+  }
+
+  const obj: any = {}
+
+  // copy symbols over
+  Object.getOwnPropertySymbols(value).forEach(
+    (s) => (obj[s] = (value as any)[s])
+  )
+
+  for (const k of Object.keys(value)) {
+    const r = value[k]
+    // if is a ref, create a proxy to retrieve the value,
+    if (isRef(r)) {
+      const set = (v: any) => (r.value = v)
+      const get = () => r.value
+
+      proxy(obj, k, { get, set })
+    } else {
+      obj[k] = unwrapRefProxy(r)
+    }
+  }
+
+  return obj
+}
diff --git a/src/setup.ts b/src/setup.ts
index de5bbe0f..b1a40ae2 100644
--- a/src/setup.ts
+++ b/src/setup.ts
@@ -11,6 +11,7 @@ import { resolveSlots, createSlotProxy } from './helper'
 import { hasOwn, isPlainObject, assert, proxy, warn, isFunction } from './utils'
 import { ref } from './apis/state'
 import vmStateManager from './vmStateManager'
+import { unwrapRefProxy } from './reactivity/unwrap'
 import { markReactive } from './reactivity/reactive'
 
 function asVmProperty(
@@ -220,7 +221,7 @@ export function mixin(Vue: VueConstructor) {
               bindingValue = bindingValue.bind(vm)
             }
             // a non-reactive should not don't get reactivity
-            bindingValue = ref(markRaw(bindingValue))
+            bindingValue = ref(markRaw(unwrapRefProxy(bindingValue)))
           }
         }
         asVmProperty(vm, name, bindingValue)
diff --git a/test/setup.spec.js b/test/setup.spec.js
index 1c0841ad..e273de06 100644
--- a/test/setup.spec.js
+++ b/test/setup.spec.js
@@ -5,6 +5,7 @@ const {
   createElement: h,
   provide,
   inject,
+  reactive,
   toRefs,
 } = require('../src')
 
@@ -466,6 +467,107 @@ describe('setup', () => {
       .then(done)
   })
 
+  it('should unwrap on the template', () => {
+    const vm = new Vue({
+      setup() {
+        const r = ref('r')
+        const nested = {
+          a: ref('a'),
+          aa: {
+            b: ref('aa'),
+            bb: {
+              cc: ref('aa'),
+              c: 'aa',
+            },
+          },
+
+          aaa: reactive({
+            b: ref('aaa'),
+            bb: {
+              c: ref('aaa'),
+              cc: 'aaa',
+            },
+          }),
+
+          aaaa: {
+            b: [1],
+            bb: ref([1]),
+            bbb: reactive({
+              c: [1],
+              cc: ref([1]),
+            }),
+            bbbb: [ref(1)],
+          },
+        }
+
+        const refList = ref([ref('1'), ref('2'), ref('3')])
+        const list = [ref('a'), ref('b')]
+
+        return {
+          r,
+          nested,
+          refList,
+          list,
+        }
+      },
+      template: `<div>
+        <p id="r">{{r}}</p>
+        <p id="nested">{{nested.a}}</p>
+        <p id="list">{{list}}</p>
+        <p id="refList">{{refList}}</p>
+
+        <p id="nested_aa_b">{{ nested.aa.b }}</p>
+        <p id="nested_aa_bb_c">{{ nested.aa.bb.c }}</p>
+        <p id="nested_aa_bb_cc">{{ nested.aa.bb.cc }}</p>
+
+        <p id="nested_aaa_b">{{ nested.aaa.b }}</p>
+        <p id="nested_aaa_bb_c">{{ nested.aaa.bb.c }}</p>
+        <p id="nested_aaa_bb_cc">{{ nested.aaa.bb.cc }}</p>
+
+        <p id="nested_aaaa_b">{{ nested.aaaa.b }}</p>
+        <p id="nested_aaaa_bb_c">{{ nested.aaaa.bb }}</p>
+        <p id="nested_aaaa_bbb_cc">{{ nested.aaaa.bbb.c }}</p>
+        <p id="nested_aaaa_bbb_cc">{{ nested.aaaa.bbb.cc }}</p>
+        <p id="nested_aaaa_bbbb">{{ nested.aaaa.bbbb }}</p>
+      </div>`,
+    }).$mount()
+
+    expect(vm.$el.querySelector('#r').textContent).toBe('r')
+    expect(vm.$el.querySelector('#nested').textContent).toBe('a')
+
+    // shouldn't unwrap arrays
+    expect(
+      JSON.parse(vm.$el.querySelector('#list').textContent)
+    ).toMatchObject([{ value: 'a' }, { value: 'b' }])
+    expect(
+      JSON.parse(vm.$el.querySelector('#refList').textContent)
+    ).toMatchObject([{ value: '1' }, { value: '2' }, { value: '3' }])
+
+    expect(vm.$el.querySelector('#nested_aa_b').textContent).toBe('aa')
+    expect(vm.$el.querySelector('#nested_aa_bb_c').textContent).toBe('aa')
+    expect(vm.$el.querySelector('#nested_aa_bb_cc').textContent).toBe('aa')
+
+    expect(vm.$el.querySelector('#nested_aaa_b').textContent).toBe('aaa')
+    expect(vm.$el.querySelector('#nested_aaa_bb_c').textContent).toBe('aaa')
+    expect(vm.$el.querySelector('#nested_aaa_bb_cc').textContent).toBe('aaa')
+
+    expect(
+      JSON.parse(vm.$el.querySelector('#nested_aaaa_b').textContent)
+    ).toMatchObject([1])
+    expect(
+      JSON.parse(vm.$el.querySelector('#nested_aaaa_bb_c').textContent)
+    ).toMatchObject([1])
+    expect(
+      JSON.parse(vm.$el.querySelector('#nested_aaaa_bbb_cc').textContent)
+    ).toMatchObject([1])
+    expect(
+      JSON.parse(vm.$el.querySelector('#nested_aaaa_bbb_cc').textContent)
+    ).toMatchObject([1])
+    expect(
+      JSON.parse(vm.$el.querySelector('#nested_aaaa_bbbb').textContent)
+    ).toMatchObject([{ value: 1 }])
+  })
+
   describe('Methods', () => {
     it('binds methods when calling with parenthesis', async () => {
       let context = null