diff --git a/spec/editor-spec.coffee b/spec/editor-spec.coffee
index 247f83e0f..aca279e2a 100644
--- a/spec/editor-spec.coffee
+++ b/spec/editor-spec.coffee
@@ -1424,7 +1424,7 @@ describe "Editor", ->
           editor.undo()
           expect(editor.getCursorBufferPosition()).toEqual [3,4]
 
-      it "indents the new line to the same indent level as the current line when editor.autoIndent is true", ->
+      it "indents the new line to the correct level when editor.autoIndent is true", ->
         atom.config.set('editor.autoIndent', true)
 
         editor.setText('  var test')
@@ -1444,6 +1444,15 @@ describe "Editor", ->
         expect(editor.lineForBufferRow(1)).toBe '  '
         expect(editor.lineForBufferRow(2)).toBe '  var test'
 
+        editor.setText('function() {\n}')
+        editor.setCursorBufferPosition([1,1])
+        editor.insertNewlineAbove()
+
+        expect(editor.getCursorBufferPosition()).toEqual [1,2]
+        expect(editor.lineForBufferRow(0)).toBe 'function() {'
+        expect(editor.lineForBufferRow(1)).toBe '  '
+        expect(editor.lineForBufferRow(2)).toBe '}'
+
     describe ".backspace()", ->
       describe "when there is a single cursor", ->
         changeScreenRangeHandler = null
diff --git a/src/editor.coffee b/src/editor.coffee
index 825c9c400..aa492db18 100644
--- a/src/editor.coffee
+++ b/src/editor.coffee
@@ -630,7 +630,9 @@ class Editor extends Model
       @moveCursorToBeginningOfLine()
       @moveCursorLeft()
       @insertNewline()
-      @setIndentationForBufferRow(bufferRow, indentLevel) if @shouldAutoIndent()
+
+      if @shouldAutoIndent() and @indentationForBufferRow(bufferRow) < indentLevel
+        @setIndentationForBufferRow(bufferRow, indentLevel)
 
       if onFirstLine
         @moveCursorUp()