diff --git a/entityreference.module b/entityreference.module
index 3bcfb8d..8858ade 100644
--- a/entityreference.module
+++ b/entityreference.module
@@ -538,6 +538,9 @@ function _entityreference_element_validate_filter(&$element, &$form_state) {
 function _entityreference_field_settings_validate($form, &$form_state) {
   // Store the new values in the form state.
   $field = $form['#field'];
+
+  $handler = entityreference_get_selection_handler($field);
+  $handler->settingsFormValidate($form, $form_state);
   if (isset($form_state['values']['field'])) {
     $field['settings'] = $form_state['values']['field']['settings'];
   }
@@ -924,8 +927,6 @@ function _entityreference_autocomplete_validate($element, &$form_state, $form) {
     else {
       // Try to get a match from the input string when the user didn't use the
       // autocomplete but filled in a value manually.
-      $field = field_info_field($element['#field_name']);
-      $handler = entityreference_get_selection_handler($field);
       $field_name = $element['#field_name'];
       $field = field_info_field($field_name);
       $instance = field_info_instance($element['#entity_type'], $field_name, $element['#bundle']);
@@ -949,22 +950,29 @@ function _entityreference_autocomplete_tags_validate($element, &$form_state, $fo
     foreach ($entities as $entity) {
       // Take "label (entity id)', match the id from parenthesis.
       if (preg_match("/.+\((\d+)\)/", $entity, $matches)) {
-        $value[] = array(
-          'target_id' => $matches[1],
-        );
+        $value[] = array('target_id' => $matches[1]);
       }
       else {
         // Try to get a match from the input string when the user didn't use the
         // autocomplete but filled in a value manually.
         $field = field_info_field($element['#field_name']);
         $handler = entityreference_get_selection_handler($field);
-        $value[] = array(
-          'target_id' => $handler->validateAutocompleteInput($entity, $element, $form_state, $form),
-        );
+        $target_id = $handler->validateAutocompleteInput($entity, $element, $form_state, $form);
+
+        // Do we create?
+        if (empty($target_id) && !empty($handler->field['settings']['handler_settings']['create'])) {
+          if (!($target_id = $handler->createEntity($field, $entity))) {
+            form_error($element, t('Unable to create referenced entity.'));
+          }
+        }
+
+        if ($target_id) {
+          $value[] = array('target_id' => $target_id);
+        }
       }
     }
   }
-  // Update the value of this element so the field can validate the product IDs.
+  // Update the value of this element so the field can validate the entity IDs.
   form_set_value($element, $value, $form_state);
 }
 
@@ -1091,7 +1099,7 @@ function entityreference_autocomplete_callback_get_matches($type, $field, $insta
     // Get an array of matching entities.
     $entity_labels = $handler->getReferencableEntities($tag_last, $instance['widget']['settings']['match_operator'], 10);
 
-    // Loop through the products and convert them into autocomplete output.
+    // Loop through the entities and convert them into autocomplete output.
     foreach ($entity_labels as $values) {
       foreach ($values as $entity_id => $label) {
         $key = "$label ($entity_id)";
diff --git a/plugins/selection/EntityReference_SelectionHandler_Generic.class.php b/plugins/selection/EntityReference_SelectionHandler_Generic.class.php
index e0dff00..20db492 100644
--- a/plugins/selection/EntityReference_SelectionHandler_Generic.class.php
+++ b/plugins/selection/EntityReference_SelectionHandler_Generic.class.php
@@ -73,6 +73,13 @@ class EntityReference_SelectionHandler_Generic implements EntityReference_Select
       );
     }
 
+    $form['create'] = array(
+      '#type' => 'checkbox',
+      '#title' => "Create entities if they don't exist.",
+      '#default_value' => !empty($field['settings']['handler_settings']['create']),
+      '#description' => t('You must have only one bundle selected above.'),
+    );
+
     $form['sort']['type'] = array(
       '#type' => 'select',
       '#title' => t('Sort by'),
@@ -152,6 +159,15 @@ class EntityReference_SelectionHandler_Generic implements EntityReference_Select
     return $form;
   }
 
+  public static function settingsFormValidate($form, &$form_state) {
+    if (!empty($form_state['values']['field']['settings']['handler_settings']['create'])) {
+      if (count($form_state['values']['field']['settings']['handler_settings']['target_bundles']) > 1) {
+        $msg = t('Can not create entities if multiple target bundles are selected.');
+        form_set_error('field][settings][handler_settings][create', $msg);
+      }
+    }
+  }
+
   /**
    * Implements EntityReferenceHandler::getReferencableEntities().
    */
@@ -213,9 +229,18 @@ class EntityReference_SelectionHandler_Generic implements EntityReference_Select
       foreach($bundled_entities as $entities_list) {
         $entities += $entities_list;
       }
+      $field = field_info_field($element['#field_name']);
+      $handler = entityreference_get_selection_handler($field);
+
       if (empty($entities)) {
-        // Error if there are no entities available for a required field.
-        form_error($element, t('There are no entities matching "%value"', array('%value' => $input)));
+        if (!empty($handler->field['settings']['handler_settings']['create'])) {
+          // We create the term so no error.
+          return $entities;
+        }
+        else {
+          // Error if there are no entities available and no entity creation for a required field.
+          form_error($element, t('There are no entities matching "%value"', array('%value' => $input)));
+        }
       }
       elseif (count($entities) > 5) {
         // Error if there are more than 5 matching entities.
@@ -240,7 +265,7 @@ class EntityReference_SelectionHandler_Generic implements EntityReference_Select
   }
 
   /**
-   * Build an EntityFieldQuery to get referencable entities.
+   * Build an EntityFieldQuery to get referenceable entities.
    */
   protected function buildEntityFieldQuery($match = NULL, $match_operator = 'CONTAINS') {
     $query = new EntityFieldQuery();
@@ -276,6 +301,23 @@ class EntityReference_SelectionHandler_Generic implements EntityReference_Select
     return $query;
   }
 
+  public function createEntity($field, $label) {
+    $entity_type = $this->field['settings']['target_type'];
+    $entity_info = entity_get_info($entity_type);
+
+    $entity = array();
+    if (isset($info['entity keys']['bundle']) && $key = $info['entity keys']['bundle']) {
+      $entity += array($key => reset($this->field['settings']['handler_settings']['target_bundles']));
+    }
+    if (isset($info['entity keys']['label']) && $key = $info['entity keys']['label']) {
+      $entity += array($key => NULL);
+    }
+    $fn = (!empty($info['creation callback']) ? $info['creation callback'] : 'entity_metadata_create_object');
+    $entity = $fn($entity); // create
+    $fn = (!empty($info['save callback']) ? $info['save callback'] : 'entity_save');
+    return $fn($entity_type, $entity);
+  }
+
   /**
    * Implements EntityReferenceHandler::entityFieldQueryAlter().
    */
@@ -508,6 +550,23 @@ class EntityReference_SelectionHandler_Generic_file extends EntityReference_Sele
  * This only exists to workaround core bugs.
  */
 class EntityReference_SelectionHandler_Generic_taxonomy_term extends EntityReference_SelectionHandler_Generic {
+  public function createEntity($field, $label) {
+    $bundle = reset($this->field['settings']['handler_settings']['target_bundles']);
+
+    $term = new stdClass();
+    $v = taxonomy_vocabulary_machine_name_load($bundle);
+    if ($v !== FALSE){
+      $term->vid = $v->vid;
+      $term->name = $label;
+      $res = taxonomy_term_save($term);
+
+      if($res == SAVED_NEW || $res == SAVED_UPDATED){
+        return $term->tid;
+      }
+    }
+    return FALSE;
+  }
+
   public function entityFieldQueryAlter(SelectQueryInterface $query) {
     // The Taxonomy module doesn't implement any proper taxonomy term access,
     // and as a consequence doesn't make sure that taxonomy terms cannot be viewed
diff --git a/plugins/selection/EntityReference_SelectionHandler_Views.class.php b/plugins/selection/EntityReference_SelectionHandler_Views.class.php
index 68e6a6d..066ae37 100644
--- a/plugins/selection/EntityReference_SelectionHandler_Views.class.php
+++ b/plugins/selection/EntityReference_SelectionHandler_Views.class.php
@@ -18,6 +18,10 @@ class EntityReference_SelectionHandler_Views implements EntityReference_Selectio
     $this->entity = $entity;
   }
 
+  public function createEntity($field, $label) {
+    return FALSE;
+  }
+
   /**
    * Implements EntityReferenceHandler::settingsForm().
    */
@@ -91,6 +95,8 @@ class EntityReference_SelectionHandler_Views implements EntityReference_Selectio
     return $form;
   }
 
+  public static function settingsFormValidate($form, &$form_state) {}
+
   protected function initializeView($match = NULL, $match_operator = 'CONTAINS', $limit = 0, $ids = NULL) {
     $view_name = $this->field['settings']['handler_settings']['view']['view_name'];
     $display_name = $this->field['settings']['handler_settings']['view']['display_name'];
diff --git a/plugins/selection/abstract.inc b/plugins/selection/abstract.inc
index a4805b1..e31a048 100644
--- a/plugins/selection/abstract.inc
+++ b/plugins/selection/abstract.inc
@@ -55,6 +55,16 @@ interface EntityReference_SelectionHandler {
   public function validateAutocompleteInput($input, &$element, &$form_state, $form);
 
   /**
+   * @param $field
+   *   A field data structure.
+   * @param $label
+   *   Label to use for the new entity.
+   * @return
+   *   The new entity's ID or FALSE if a new entity was not created.
+   */
+  public function createEntity($field, $label);
+
+  /**
    * Give the handler a chance to alter the SelectQuery generated by EntityFieldQuery.
    */
   public function entityFieldQueryAlter(SelectQueryInterface $query);
@@ -68,6 +78,11 @@ interface EntityReference_SelectionHandler {
    * Generate a settings form for this handler.
    */
   public static function settingsForm($field, $instance);
+
+  /**
+   * Validate the settings form for this handler.
+   */
+  public static function settingsFormValidate($form, &$form_state);
 }
 
 /**
@@ -90,6 +105,8 @@ class EntityReference_SelectionHandler_Broken implements EntityReference_Selecti
     return $form;
   }
 
+  public static function settingsFormValidate($form, &$form_state) {}
+
   public function getReferencableEntities($match = NULL, $match_operator = 'CONTAINS', $limit = 0) {
     return array();
   }
@@ -106,6 +123,10 @@ class EntityReference_SelectionHandler_Broken implements EntityReference_Selecti
     return NULL;
   }
 
+  public function createEntity($field, $label) {
+    return FALSE;
+  }
+
   public function entityFieldQueryAlter(SelectQueryInterface $query) {}
 
   public function getLabel($entity) {
diff --git a/tests/entityreference.handlers.test b/tests/entityreference.handlers.test
index 2256932..2f4868b 100644
--- a/tests/entityreference.handlers.test
+++ b/tests/entityreference.handlers.test
@@ -199,6 +199,7 @@ class EntityReferenceHandlersTestCase extends DrupalWebTestCase {
     $handler = entityreference_get_selection_handler($field);
     $element = array(
       '#parents' => array('element_name'),
+      '#field_name' => $field['field_name']
     );
     $form_state = array();
     $form = array();