diff --git a/modules/taxonomy/taxonomy.module b/modules/taxonomy/taxonomy.module
index e147c1c..18f1fe6 100644
--- a/modules/taxonomy/taxonomy.module
+++ b/modules/taxonomy/taxonomy.module
@@ -1731,8 +1731,21 @@ function taxonomy_term_title($term) {
  */
 function taxonomy_field_widget_form(&$form, &$form_state, $field, $instance, $langcode, $items, $delta, $element) {
   $tags = array();
+  $autocreates = 0;
   foreach ($items as $item) {
-    $tags[$item['tid']] = isset($item['taxonomy_term']) ? $item['taxonomy_term'] : taxonomy_term_load($item['tid']);
+    // Default values from the field instance settings are not passed through
+    // taxonomy_field_presave(). So we need to deal with untransformed
+    // autocreate values. The actual transformation to terms is handled in
+    // in taxonomy_field_insert/update() once the field items are saved.
+    if ($item['tid'] == 'autocreate') {
+      $tags['autocreate' . $autocreates++] = (object) $item;
+    }
+    elseif (isset($item['taxonomy_term'])) {
+      $tags[$item['tid']] = $item['taxonomy_term'];
+    }
+    else {
+      $tags[$item['tid']] = taxonomy_term_load($item['tid']);
+    }
   }
 
   $element += array(
@@ -1891,11 +1904,9 @@ function taxonomy_rdf_mapping() {
  */
 
 /**
- * Implements hook_field_presave().
- *
- * Create any new terms defined in a freetagging vocabulary.
+ * Create all autocreate terms and store their actual tids.
  */
-function taxonomy_field_presave($entity_type, $entity, $field, $instance, $langcode, &$items) {
+function _taxonomy_field_create_autocreate_terms(&$items) {
   foreach ($items as $delta => $item) {
     if ($item['tid'] == 'autocreate') {
       $term = (object) $item;
@@ -1907,6 +1918,28 @@ function taxonomy_field_presave($entity_type, $entity, $field, $instance, $langc
 }
 
 /**
+ * Implements hook_field_update().
+ *
+ * Create any new terms defined in a freetagging vocabulary.
+ * This needs to be done in update/insert because presave isn't
+ * run for instance default values.
+ */
+function taxonomy_field_update($entity_type, $entity, $field, $instance, $langcode, &$items) {
+  _taxonomy_field_create_autocreate_terms($items);
+}
+
+/**
+ * Implements hook_field_insert().
+ *
+ * Create any new terms defined in a freetagging vocabulary.
+ * This needs to be done in update/insert because presave isn't
+ * run for instance default values.
+ */
+function taxonomy_field_insert($entity_type, $entity, $field, $instance, $langcode, &$items) {
+  _taxonomy_field_create_autocreate_terms($items);
+}
+
+/**
  * Implements hook_node_insert().
  */
 function taxonomy_node_insert($node) {
diff --git a/modules/taxonomy/taxonomy.test b/modules/taxonomy/taxonomy.test
index fdf354b..02436db 100644
--- a/modules/taxonomy/taxonomy.test
+++ b/modules/taxonomy/taxonomy.test
@@ -1613,6 +1613,85 @@ class TaxonomyTermFieldTestCase extends TaxonomyWebTestCase {
 }
 
 /**
+ * Test the autocreate widget.
+ */
+class TaxonomyAutocompleteWidgetTestCase extends TaxonomyWebTestCase {
+  protected $instance;
+  protected $vocabulary;
+
+  public static function getInfo() {
+    return array(
+      'name' => 'Taxonomy autocomplete widget',
+      'description' => 'Test autocreating terms in various situations.',
+      'group' => 'Taxonomy',
+    );
+  }
+
+  function setUp() {
+    parent::setUp('field_test');
+
+    $web_user = $this->drupalCreateUser(array('access field_test content', 'administer field_test content', 'administer taxonomy'));
+    $this->drupalLogin($web_user);
+    $this->vocabulary = $this->createVocabulary();
+
+    // Setup a field and instance.
+    $this->field_name = drupal_strtolower($this->randomName());
+    $this->field = array(
+      'field_name' => $this->field_name,
+      'type' => 'taxonomy_term_reference',
+      'settings' => array(
+        'allowed_values' => array(
+          array(
+            'vocabulary' => $this->vocabulary->machine_name,
+            'parent' => '0',
+          ),
+        ),
+      )
+    );
+    field_create_field($this->field);
+    $this->instance = array(
+      'field_name' => $this->field_name,
+      'entity_type' => 'test_entity',
+      'bundle' => 'test_bundle',
+      'widget' => array(
+        'type' => 'taxonomy_autocomplete',
+        'module' => 'taxonomy',
+      ),
+      'display' => array(
+        'full' => array(
+          'type' => 'taxonomy_term_reference_link',
+        ),
+      ),
+      'default_value' => array(
+        array(
+          'tid' => 'autocreate',
+          'vid' => $this->vocabulary->vid,
+          'vocabulary_machinevname' => $this->vocabulary->name,
+          'name' => 'testterm',
+        ),
+      ),
+    );
+    field_create_instance($this->instance);
+  }
+
+  /**
+   * Test programmatic creation of entity with default values.
+   */
+  function testCreateEmptyEntity() {
+    $entity = (object) array('fttype' => 'test_bundle');
+    field_test_entity_save($entity);
+  }
+
+  /**
+   * Test creation of entity via form with default values.
+   */
+  function testCreateDefaultEntity() {
+    $this->drupalGet('test-entity/add/test-bundle');
+    $this->drupalPost(NULL, array(), t('Save'));
+  }
+}
+
+/**
  * Tests a taxonomy term reference field that allows multiple vocabularies.
  */
 class TaxonomyTermFieldMultipleVocabularyTestCase extends TaxonomyWebTestCase {