diff --git a/docs/changelog.rst b/docs/changelog.rst
index ffbc8c54..42d98597 100644
--- a/docs/changelog.rst
+++ b/docs/changelog.rst
@@ -19,6 +19,7 @@ Changes in 0.9.X - DEV
 - Added __ support to escape field name in fields lookup keywords that match operators names #949
 - Support for PyMongo 3+ #946
 - Fix for issue where FileField deletion did not free space in GridFS. 
+- No_dereference() not respected on embedded docs containing reference. #517
 
 Changes in 0.9.0
 ================
diff --git a/mongoengine/base/fields.py b/mongoengine/base/fields.py
index 91f95b4f..b3ec0763 100644
--- a/mongoengine/base/fields.py
+++ b/mongoengine/base/fields.py
@@ -290,6 +290,7 @@ class ComplexBaseField(BaseField):
                 return value
 
         if self.field:
+            self.field._auto_dereference = self._auto_dereference
             value_dict = dict([(key, self.field.to_python(item))
                                for key, item in value.items()])
         else:
diff --git a/mongoengine/fields.py b/mongoengine/fields.py
index 53d4ac95..9176828c 100644
--- a/mongoengine/fields.py
+++ b/mongoengine/fields.py
@@ -546,7 +546,7 @@ class EmbeddedDocumentField(BaseField):
 
     def to_python(self, value):
         if not isinstance(value, self.document_type):
-            return self.document_type._from_son(value)
+            return self.document_type._from_son(value, _auto_dereference=self._auto_dereference)
         return value
 
     def to_mongo(self, value, use_db_field=True, fields=[]):
diff --git a/tests/queryset/queryset.py b/tests/queryset/queryset.py
index 65d84305..3dc3ef20 100644
--- a/tests/queryset/queryset.py
+++ b/tests/queryset/queryset.py
@@ -13,7 +13,7 @@ import pymongo
 from pymongo.errors import ConfigurationError
 from pymongo.read_preferences import ReadPreference
 
-from bson import ObjectId
+from bson import ObjectId, DBRef
 
 from mongoengine import *
 from mongoengine.connection import get_connection, get_db
@@ -4185,6 +4185,41 @@ class QuerySetTest(unittest.TestCase):
                                     Organization))
         self.assertTrue(isinstance(qs.first().organization, Organization))
 
+    def test_no_dereference_embedded_doc(self):
+
+        class User(Document):
+            name = StringField()
+
+        class Member(EmbeddedDocument):
+            name = StringField()
+            user = ReferenceField(User)
+
+        class Organization(Document):
+            name = StringField()
+            members = ListField(EmbeddedDocumentField(Member))
+            ceo = ReferenceField(User)
+            member = EmbeddedDocumentField(Member)
+            admin = ListField(ReferenceField(User))
+
+        Organization.drop_collection()
+        User.drop_collection()
+
+        user = User(name="Flash")
+        user.save()
+
+        member = Member(name="Flash", user=user)
+
+        company = Organization(name="Mongo Inc", ceo=user, member=member)
+        company.admin.append(user)
+        company.members.append(member)
+        company.save()
+
+        result = Organization.objects().no_dereference().first()
+
+        self.assertTrue(isinstance(result.admin[0], (DBRef, ObjectId)))
+        self.assertTrue(isinstance(result.member.user, (DBRef, ObjectId)))
+        self.assertTrue(isinstance(result.members[0].user, (DBRef, ObjectId)))
+
     def test_cached_queryset(self):
         class Person(Document):
             name = StringField()