diff --git a/src/components/select/demoOptionGroups/index.html b/src/components/select/demoOptionGroups/index.html
index 8f3ac30f8d4..d0258a7aa9a 100644
--- a/src/components/select/demoOptionGroups/index.html
+++ b/src/components/select/demoOptionGroups/index.html
@@ -5,17 +5,26 @@ <h1 class="md-title">Pick your pizza below</h1>
       <md-input-container style="margin-right: 10px;">
         <label>Size</label>
         <md-select ng-model="size">
-          <md-option ng-repeat="size in sizes" value="{{size}}">{{size}}</md-option>
+          <md-optgroup label="No Surcharge">
+            <md-option ng-repeat="size in sizes | filter: {surcharge: 'none'}"
+                       value="{{size.name}}">{{size.name}}</md-option>
+          </md-optgroup>
+          <md-optgroup label="Additional Surcharge">
+            <md-option ng-repeat="size in sizes | filter: {surcharge: 'extra'}"
+                       value="{{size.name}}">{{size.name}}</md-option>
+          </md-optgroup>
         </md-select>
       </md-input-container>
       <md-input-container>
         <label>Toppings</label>
         <md-select ng-model="selectedToppings" multiple>
           <md-optgroup label="Meats">
-            <md-option ng-value="topping.name" ng-repeat="topping in toppings | filter: {category: 'meat' }">{{topping.name}}</md-option>
+            <md-option ng-value="topping.name" ng-repeat="topping in toppings | filter: {category: 'meat'}">
+              {{topping.name}}</md-option>
           </md-optgroup>
           <md-optgroup label="Veggies">
-            <md-option ng-value="topping.name" ng-repeat="topping in toppings | filter: {category: 'veg' }">{{topping.name}}</md-option>
+            <md-option ng-value="topping.name" ng-repeat="topping in toppings | filter: {category: 'veg'}">
+              {{topping.name}}</md-option>
           </md-optgroup>
         </md-select>
       </md-input-container>
diff --git a/src/components/select/demoOptionGroups/script.js b/src/components/select/demoOptionGroups/script.js
index a16103c631e..f2cad9b0ff2 100644
--- a/src/components/select/demoOptionGroups/script.js
+++ b/src/components/select/demoOptionGroups/script.js
@@ -2,10 +2,10 @@ angular
     .module('selectDemoOptGroups', ['ngMaterial'])
     .controller('SelectOptGroupController', function($scope) {
       $scope.sizes = [
-          "small (12-inch)",
-          "medium (14-inch)",
-          "large (16-inch)",
-          "insane (42-inch)"
+        { surcharge: 'none', name: "small (12-inch)" },
+        { surcharge: 'none', name: "medium (14-inch)" },
+        { surcharge: 'extra', name: "large (16-inch)" },
+        { surcharge: 'extra', name: "insane (42-inch)" }
       ];
       $scope.toppings = [
         { category: 'meat', name: 'Pepperoni' },
diff --git a/src/components/select/select.js b/src/components/select/select.js
index f2889883937..90257bff195 100755
--- a/src/components/select/select.js
+++ b/src/components/select/select.js
@@ -741,6 +741,7 @@ function SelectMenuDirective($parse, $mdUtil, $mdConstant, $mdTheming) {
       return self.options;
     }, function() {
       self.ngModel.$render();
+      updateOptionSetSizeAndPosition();
     });
 
     /**
@@ -1067,9 +1068,32 @@ function SelectMenuDirective($parse, $mdUtil, $mdConstant, $mdTheming) {
       }
     };
 
+    /**
+     * If the options include md-optgroups, then we need to apply aria-setsize and aria-posinset
+     * to help screen readers understand the indexes. When md-optgroups are not used, we save on
+     * perf and extra attributes by not applying these attributes as they are not needed by screen
+     * readers.
+     */
+    function updateOptionSetSizeAndPosition() {
+      var i, options;
+      var hasOptGroup = $element.find('md-optgroup');
+      if (!hasOptGroup.length) {
+        return;
+      }
+
+      options = $element.find('md-option');
+
+      for (i = 0; i < options.length; i++) {
+        options[i].setAttribute('aria-setsize', options.length);
+        options[i].setAttribute('aria-posinset', i + 1);
+      }
+    }
+
     function renderMultiple() {
       var newSelectedValues = self.ngModel.$modelValue || self.ngModel.$viewValue || [];
-      if (!angular.isArray(newSelectedValues)) return;
+      if (!angular.isArray(newSelectedValues)) {
+        return;
+      }
 
       var oldSelected = Object.keys(self.selected);
 
@@ -1371,6 +1395,7 @@ function OptgroupDirective() {
     if (!hasSelectHeader()) {
       setupLabelElement();
     }
+    element.attr('role', 'group');
 
     function hasSelectHeader() {
       return element.parent().find('md-select-header').length;
@@ -1387,6 +1412,7 @@ function OptgroupDirective() {
       if (attrs.label) {
         labelElement.text(attrs.label);
       }
+      element.attr('aria-label', labelElement.text());
     }
   }
 }
@@ -1590,7 +1616,7 @@ function SelectProvider($$interimElementProvider) {
       /**
        * @param {Element|HTMLElement|null=} previousNode
        * @param {Element|HTMLElement} node
-       * @param {SelectMenuController|Function|Object=} menuController SelectMenuController instance
+       * @param {SelectMenuController|Function|object=} menuController SelectMenuController instance
        */
       function focusOptionNode(previousNode, node, menuController) {
         var listboxContentNode = opts.contentEl[0];
diff --git a/src/components/select/select.spec.js b/src/components/select/select.spec.js
index 7d4ceebbaec..99c3cf428ba 100755
--- a/src/components/select/select.spec.js
+++ b/src/components/select/select.spec.js
@@ -1446,6 +1446,92 @@ describe('<md-select>', function() {
       clickOption(el, 2);
       expect(options.eq(2).attr('aria-selected')).toBe('true');
     });
+
+    it('applies label element\'s text to optgroup\'s aria-label', function() {
+      $rootScope.val = [1];
+      var select = $compile(
+        '<md-input-container>' +
+        '  <label>Label</label>' +
+        '  <md-select ng-model="val" placeholder="Hello World">' +
+        '    <md-optgroup>' +
+        '      <label>stuff</label>' +
+        '      <md-option value="1">One</md-option>' +
+        '      <md-option value="2">Two</md-option>' +
+        '      <md-option value="3">Three</md-option>' +
+        '    </md-optgroup>' +
+        '  </md-select>' +
+        '</md-input-container>')($rootScope);
+
+      var optgroups = select.find('md-optgroup');
+      expect(optgroups[0].getAttribute('aria-label')).toBe('stuff');
+    });
+
+    it('applies optgroup\'s label as aria-label', function() {
+      $rootScope.val = [1];
+      var select = $compile(
+        '<md-input-container>' +
+        '  <label>Label</label>' +
+        '  <md-select ng-model="val" placeholder="Hello World">' +
+        '    <md-optgroup label="stuff">' +
+        '      <md-option value="1">One</md-option>' +
+        '      <md-option value="2">Two</md-option>' +
+        '      <md-option value="3">Three</md-option>' +
+        '    </md-optgroup>' +
+        '  </md-select>' +
+        '</md-input-container>')($rootScope);
+
+      var optgroups = select.find('md-optgroup');
+      expect(optgroups[0].getAttribute('aria-label')).toBe('stuff');
+    });
+
+    it('applies setsize and posinset when optgroups are used', function() {
+      $rootScope.val = [1];
+      var select = $compile(
+        '<md-input-container>' +
+        '  <label>Label</label>' +
+        '  <md-select ng-model="val" placeholder="Hello World">' +
+        '    <md-optgroup label="stuff">' +
+        '      <md-option value="1">One</md-option>' +
+        '      <md-option value="2">Two</md-option>' +
+        '      <md-option value="3">Three</md-option>' +
+        '    </md-optgroup>' +
+        '  </md-select>' +
+        '</md-input-container>')($rootScope);
+      $rootScope.$digest();
+
+      var options = select.find('md-option');
+      expect(options[0].getAttribute('aria-setsize')).toBe('3');
+      expect(options[0].getAttribute('aria-posinset')).toBe('1');
+    });
+
+    it('applies setsize and posinset when optgroups are used with multiple', function() {
+      $rootScope.val = [1];
+      var select = $compile(
+        '<md-input-container>' +
+        '  <label>Label</label>' +
+        '  <md-select multiple ng-model="val" placeholder="Hello World">' +
+        '    <md-optgroup label="stuff">' +
+        '      <md-option value="1">One</md-option>' +
+        '      <md-option value="2">Two</md-option>' +
+        '      <md-option value="3">Three</md-option>' +
+        '    </md-optgroup>' +
+        '  </md-select>' +
+        '</md-input-container>')($rootScope);
+      $rootScope.$digest();
+
+      var options = select.find('md-option');
+      expect(options[0].getAttribute('aria-setsize')).toBe('3');
+      expect(options[0].getAttribute('aria-posinset')).toBe('1');
+    });
+
+    it('does not apply setsize and posinset when optgroups are not used', function() {
+      var select = setupSelect('ng-model="$root.model"', [1, 2, 3]);
+      $rootScope.$digest();
+
+      var options = select.find('md-option');
+      expect(options[0].getAttribute('aria-setsize')).toBe(null);
+      expect(options[0].getAttribute('aria-posinset')).toBe(null);
+    });
   });
 
   describe('keyboard controls', function() {