diff --git a/index.html b/index.html
index f38ffa8ab..ef0018e75 100644
--- a/index.html
+++ b/index.html
@@ -3,7 +3,7 @@
 <head>
   <meta http-equiv="content-type" content="text/html;charset=UTF-8" />
   <meta http-equiv="X-UA-Compatible" content="chrome=1">
-  <link rel="shortcut icon" href="favicon.ico" type="image/x-icon" />  
+  <link rel="shortcut icon" href="favicon.ico" type="image/x-icon" />
   <title>Underscore.js</title>
   <style>
     body {
@@ -1335,7 +1335,7 @@ _.result(object, 'stuff');
 =&gt; "nonsense"</pre>
 
       <p id="template">
-        <b class="header">template</b><code>_.template(templateString, [context])</code>
+        <b class="header">template</b><code>_.template(templateString, [data], [settings])</code>
         <br />
         Compiles JavaScript templates into functions that can be evaluated
         for rendering. Useful for rendering complicated bits of HTML from JSON
@@ -1343,11 +1343,13 @@ _.result(object, 'stuff');
         <tt>&lt;%= &hellip; %&gt;</tt>, as well as execute arbitrary JavaScript code, with
         <tt>&lt;% &hellip; %&gt;</tt>. If you wish to interpolate a value, and have
         it be HTML-escaped, use <tt>&lt;%- &hellip; %&gt;</tt> When you evaluate a template function, pass in a
-        <b>context</b> object that has properties corresponding to the template's free
-        variables. If you're writing a one-off, you can pass the <b>context</b>
+        <b>data</b> object that has properties corresponding to the template's free
+        variables. If you're writing a one-off, you can pass the <b>data</b>
         object as the second parameter to <b>template</b> in order to render
-        immediately instead of returning a template function.
+        immediately instead of returning a template function.  The <b>settings</b> argument
+        should be a hash containing any <tt>_.templateSettings</tt> that should be overriden.
       </p>
+
       <pre>
 var compiled = _.template("hello: &lt;%= name %&gt;");
 compiled({name : 'moe'});
@@ -1393,6 +1395,16 @@ var template = _.template("Hello {{ name }}!");
 template({name : "Mustache"});
 =&gt; "Hello Mustache!"</pre>
 
+      <p>
+        By default, <b>template</b> places the values from your data in the local scope
+        via the <tt>with</tt> statement.  However, you can specify a single variable name
+        with the <b>variable</b> setting.
+      </p>
+
+      <pre>
+_.template("<%= data.hasWith %>", {hasWith: 'no'}, {variable: 'data'});
+=&gt; "no"</pre>
+
       <p>
         Precompiling your templates can be a big help when debugging errors you can't
         reproduce.  This is because precompiled templates can provide line numbers and
@@ -1570,8 +1582,8 @@ _([1, 2, 3]).value();
         <b class="header">1.2.4</b> &mdash; <small><i>Jan. 4, 2012</i></small><br />
         <ul>
           <li>
-            You now can (and probably should, as it's simpler) 
-            write <tt>_.chain(list)</tt> 
+            You now can (and probably should, as it's simpler)
+            write <tt>_.chain(list)</tt>
             instead of <tt>_(list).chain()</tt>.
           </li>
           <li>
diff --git a/test/utility.js b/test/utility.js
index da374b59d..a367dc1cf 100644
--- a/test/utility.js
+++ b/test/utility.js
@@ -1,9 +1,13 @@
 $(document).ready(function() {
 
-  var templateSettings = _.templateSettings;
+  var templateSettings;
 
   module("Utility", {
 
+    setup: function() {
+      templateSettings = _.clone(_.templateSettings);
+    },
+
     teardown: function() {
       _.templateSettings = templateSettings;
     }
@@ -174,4 +178,12 @@ $(document).ready(function() {
     strictEqual(_.result(null, 'x'), null);
   });
 
+  test('_.templateSettings.variable', function() {
+    var s = '<%=data.x%>';
+    var data = {x: 'x'};
+    strictEqual(_.template(s, data, {variable: 'data'}), 'x')
+    _.templateSettings.variable = 'data';
+    strictEqual(_.template(s)(data), 'x')
+  });
+
 });
diff --git a/underscore.js b/underscore.js
index 3b6e4b990..5cf516b80 100644
--- a/underscore.js
+++ b/underscore.js
@@ -951,30 +951,43 @@
   // JavaScript micro-templating, similar to John Resig's implementation.
   // Underscore templating handles arbitrary delimiters, preserves whitespace,
   // and correctly escapes quotes within interpolated code.
-  _.template = function(str, data) {
-    var settings  = _.templateSettings;
-    var source = 'var __p=[],print=function(){__p.push.apply(__p,arguments);};' +
-      'with(obj||{}){__p.push(\'' +
-      str
-        .replace(escaper, function(match) {
-          return '\\' + escapes[match];
-        })
-        .replace(settings.escape || noMatch, function(match, code) {
-          return "',\n_.escape(" + unescape(code) + "),\n'";
-        })
-        .replace(settings.interpolate || noMatch, function(match, code) {
-          return "',\n" + unescape(code) + ",\n'";
-        })
-        .replace(settings.evaluate || noMatch, function(match, code) {
-          return "');\n" + unescape(code) + "\n;__p.push('";
-        })
-        + "');\n}\nreturn __p.join('');";
-    var render = new Function('obj', '_', source);
+  _.template = function(text, data, settings) {
+    settings = _.extend(_.templateSettings, settings);
+
+    // Compile the template source, taking care to escape characters that
+    // cannot be included in a string literal and then unescape them in code
+    // blocks.
+    var source = "__p.push('" + text
+      .replace(escaper, function(match) {
+        return '\\' + escapes[match];
+      })
+      .replace(settings.escape || noMatch, function(match, code) {
+        return "',\n_.escape(" + unescape(code) + "),\n'";
+      })
+      .replace(settings.interpolate || noMatch, function(match, code) {
+        return "',\n" + unescape(code) + ",\n'";
+      })
+      .replace(settings.evaluate || noMatch, function(match, code) {
+        return "');\n" + unescape(code) + "\n;__p.push('";
+      }) + "');\n";
+
+    // If a variable is not specified, place data values in local scope.
+    if (!settings.variable) source = 'with(obj||{}){\n' + source + '}\n';
+
+    source = 'var __p=[],print=function(){__p.push.apply(__p,arguments);};\n' +
+      source + "return __p.join('');\n";
+
+    var render = new Function(settings.variable || 'obj', '_', source);
     if (data) return render(data, _);
     var template = function(data) {
       return render.call(this, data, _);
     };
-    template.source = 'function(obj){\n' + source + '\n}';
+
+    // Provide the compiled function source as a convenience for build time
+    // precompilation.
+    template.source = 'function(' + (settings.variable || 'obj') + '){\n' +
+      source + '\n}';
+
     return template;
   };
 
