diff --git a/dist/compiler/taglib-loader/json-file-reader.js b/dist/compiler/taglib-loader/json-file-reader.js
index 7e6f092721..b97a5de1f7 100644
--- a/dist/compiler/taglib-loader/json-file-reader.js
+++ b/dist/compiler/taglib-loader/json-file-reader.js
@@ -1,12 +1,17 @@
-var fs = require("fs");
+var nativeFS = require("fs");
 var virtualFS = require("../../vfs");
 var stripJsonComments = require("strip-json-comments");
 var fsReadOptions = { encoding: "utf8" };
+var fs = nativeFS;
 
 exports.readFileSync = function (path) {
+
+    //Checking "generated" keyword to allow other lookups. Must be a better way to do this.
     var vfs = virtualFS.getVirtualFileSystem();
-    if (vfs) {
+    if (vfs && path.indexOf("generated/") > -1) {
         fs = vfs;
+    } else {
+        fs = nativeFS;
     }
 
     var json = fs.readFileSync(path, fsReadOptions);
diff --git a/dist/compiler/taglib-loader/loadTagFromProps.js b/dist/compiler/taglib-loader/loadTagFromProps.js
index 8c7be43343..614d027859 100644
--- a/dist/compiler/taglib-loader/loadTagFromProps.js
+++ b/dist/compiler/taglib-loader/loadTagFromProps.js
@@ -4,6 +4,7 @@ var ok = require("assert").ok;
 var propertyHandlers = require("property-handlers");
 var isObjectEmpty = require("raptor-util/isObjectEmpty");
 var nodePath = require("path");
+var virtualFS = require("../../vfs");
 var markoModules = require("../modules"); // NOTE: different implementation for browser
 var bodyFunctionRegExp = /^([A-Za-z_$][A-Za-z0-9_]*)(?:\(([^)]*)\))?$/;
 var safeVarName = /^[A-Za-z_$][A-Za-z0-9_]*$/;
@@ -325,9 +326,11 @@ class TagLoader {
     template(value) {
         var tag = this.tag;
         var dirname = this.dirname;
-
         var path = nodePath.resolve(dirname, value);
-        if (!exists(path)) {
+        var vfs = virtualFS.getVirtualFileSystem();
+        var fileExists = vfs ? vfs.realpathSync(path) : exists(path);
+
+        if (!fileExists) {
             throw new Error('Template at path "' + path + '" does not exist.');
         }
         tag.template = path;
diff --git a/dist/compiler/taglib-loader/scanTagsDir.js b/dist/compiler/taglib-loader/scanTagsDir.js
index a16be98734..3c6c169e13 100644
--- a/dist/compiler/taglib-loader/scanTagsDir.js
+++ b/dist/compiler/taglib-loader/scanTagsDir.js
@@ -1,13 +1,15 @@
 "use strict";
 
+const nativeFS = require("fs");
+const virtualFS = require("../../vfs");
 const nodePath = require("path");
-const fs = require("fs");
 const stripJsonComments = require("strip-json-comments");
 const tagDefFromCode = require("./tag-def-from-code");
 const loaders = require("./loaders");
 const fsReadOptions = { encoding: "utf8" };
 const extend = require("raptor-util/extend");
 const types = require("./types");
+let fs = nativeFS;
 
 const tagFileTypes = ["template", "renderer", "transformer", "code-generator", "node-factory"];
 
@@ -97,6 +99,14 @@ module.exports = function scanTagsDir(tagsConfigPath, tagsConfigDirname, dir, ta
         prefix = "";
     }
 
+    //Checking "generated" keyword to allow other lookups. Must be a better way to do this.
+    var vfs = virtualFS.getVirtualFileSystem();
+    if (vfs && dir.indexOf("generated/") > -1) {
+        fs = vfs;
+    } else {
+        fs = nativeFS;
+    }
+
     dir = nodePath.resolve(tagsConfigDirname, dir);
     let children = fs.readdirSync(dir);
 
diff --git a/package.json b/package.json
index 1e96118969..cb52c2dafc 100644
--- a/package.json
+++ b/package.json
@@ -86,6 +86,7 @@
         "lasso-resolve-from": "^1.2.0",
         "lint-staged": "^7.0.0",
         "marko-widgets": "^7.0.1",
+        "memfs": "^2.9.0",
         "micromatch": "^3.0.4",
         "mkdirp": "^0.5.1",
         "mocha": "^5.0.1",
diff --git a/src/compiler/taglib-loader/json-file-reader.js b/src/compiler/taglib-loader/json-file-reader.js
index c9ddc135bf..dd029fa693 100644
--- a/src/compiler/taglib-loader/json-file-reader.js
+++ b/src/compiler/taglib-loader/json-file-reader.js
@@ -1,12 +1,16 @@
-var fs = require("fs");
+var nativeFS = require("fs");
 var virtualFS = require("../../vfs");
 var stripJsonComments = require("strip-json-comments");
 var fsReadOptions = { encoding: "utf8" };
+var fs = nativeFS;
 
 exports.readFileSync = function(path) {
+    //Checking "generated" keyword to allow other lookups. Must be a better way to do this.
     var vfs = virtualFS.getVirtualFileSystem();
-    if (vfs) {
+    if (vfs && path.indexOf("generated/") > -1) {
         fs = vfs;
+    } else {
+        fs = nativeFS;
     }
 
     var json = fs.readFileSync(path, fsReadOptions);
diff --git a/src/compiler/taglib-loader/scanTagsDir.js b/src/compiler/taglib-loader/scanTagsDir.js
index c9133d6c9e..8934b36047 100644
--- a/src/compiler/taglib-loader/scanTagsDir.js
+++ b/src/compiler/taglib-loader/scanTagsDir.js
@@ -1,6 +1,6 @@
 "use strict";
 
-let fs = require("fs");
+const nativeFS = require("fs");
 const virtualFS = require("../../vfs");
 const nodePath = require("path");
 const stripJsonComments = require("strip-json-comments");
@@ -9,6 +9,7 @@ const loaders = require("./loaders");
 const fsReadOptions = { encoding: "utf8" };
 const extend = require("raptor-util/extend");
 const types = require("./types");
+let fs = nativeFS;
 
 const tagFileTypes = [
     "template",
@@ -119,9 +120,12 @@ module.exports = function scanTagsDir(
         prefix = "";
     }
 
+    //Checking "generated" keyword to allow other lookups. Must be a better way to do this.
     var vfs = virtualFS.getVirtualFileSystem();
-    if (vfs) {
+    if (vfs && dir.indexOf("generated/") > -1) {
         fs = vfs;
+    } else {
+        fs = nativeFS;
     }
 
     dir = nodePath.resolve(tagsConfigDirname, dir);
diff --git a/vfs-usage.js b/vfs-usage.js
new file mode 100644
index 0000000000..919da486f8
--- /dev/null
+++ b/vfs-usage.js
@@ -0,0 +1,68 @@
+var compiler = require("./compiler");
+var { fs, vol } = require("memfs");
+
+var componentCode =
+    "<div> \
+  <p>Hello ${input.name}!</p> \
+  <button if(input.renderBody)> \
+     <include(input.renderBody)/> \
+  </button> \
+</div>";
+
+var sourceCode = `class {
+    onCreate() {
+        this.state = {
+            mounted: false
+        };
+    }
+    onMount() {
+        this.state.mounted = true;
+    }
+}
+
+<div>
+    <p if(state.mounted)>
+        UI component successfully mounted!
+        <ContentBox name='Frank'> Shop Now </ContentBox>
+    </p>
+</div>`;
+
+/* Configure the VFS */
+compiler.configureVFS(fs);
+
+var cwd = process.cwd();
+vol.mkdirpSync(cwd + "/src/generated/components/ContentBox/");
+fs.writeFileSync(
+    cwd + "/src/generated/components/ContentBox/index.marko",
+    componentCode,
+    "utf8"
+);
+
+var tab_json = {
+    "tags-dir": [cwd + "/src/generated/components"]
+};
+
+// var tab_json = {
+//   "<ContentBox>": { "template": cwd + "/src/generated/components/ContentBox/index.marko"}
+// }
+
+fs.writeFileSync(cwd + "/src/generated/marko.json", JSON.stringify(tab_json));
+compiler.registerTaglib(cwd + "/src/generated/marko.json");
+
+vol.mkdirpSync(cwd + "/src/generated/templates/example01/");
+var filePath = cwd + "/src/generated/templates/example01/index.marko";
+fs.writeFileSync(filePath, sourceCode);
+
+var compiled = compiler.compileFile(filePath, {
+    output: "vdom",
+    browser: true,
+    writeVersionComment: false,
+    sourceOnly: false,
+    meta: false
+});
+
+var compiledSrc = compiled.code;
+fs.writeFileSync(
+    cwd + "/src/generated/templates/example01/index.marko.js",
+    compiledSrc
+);