diff --git a/CHANGELOG.markdown b/CHANGELOG.markdown
index 538d174d45..8428c00bac 100644
--- a/CHANGELOG.markdown
+++ b/CHANGELOG.markdown
@@ -1,3 +1,7 @@
+Next Release
+=================
+* [#181](https://github.com/intridea/grape/pull/181): Fix: Corrected JSON serialization of nested hashes containing `Grape::Entity` instances - [@benrosenblum](https://github.com/benrosenblum).
+
 0.2.1 (7/11/2012)
 =================
 
diff --git a/lib/grape/entity.rb b/lib/grape/entity.rb
index 890cf83849..a505005e1c 100644
--- a/lib/grape/entity.rb
+++ b/lib/grape/entity.rb
@@ -259,7 +259,17 @@ def serializable_hash(runtime_options = {})
       return nil if object.nil?
       opts = options.merge(runtime_options || {})
       exposures.inject({}) do |output, (attribute, exposure_options)|
-        output[key_for(attribute)] = value_for(attribute, opts) if conditions_met?(exposure_options, opts)
+        partial_output = value_for(attribute, opts) if conditions_met?(exposure_options, opts)
+        
+        output[key_for(attribute)] =
+          if partial_output.respond_to? :serializable_hash
+            partial_output.serializable_hash(runtime_options)
+          elsif partial_output.kind_of?(Array) && !partial_output.map {|o| o.respond_to? :serializable_hash}.include?(false)
+            partial_output.map {|o| o.serializable_hash}
+          else
+            partial_output
+          end
+        
         output
       end
     end
diff --git a/lib/grape/middleware/base.rb b/lib/grape/middleware/base.rb
index be7de38648..9413c3c593 100644
--- a/lib/grape/middleware/base.rb
+++ b/lib/grape/middleware/base.rb
@@ -110,20 +110,32 @@ def decode_json(object)
           MultiJson.load(object)
         end
 
-        def encode_json(object)
-          return object if object.is_a?(String)
+        def serializable?(object)
+         object.respond_to?(:serializable_hash) ||
+           object.kind_of?(Array) && !object.map {|o| o.respond_to? :serializable_hash }.include?(false) ||
+           object.kind_of?(Hash)
+        end
 
+        def serialize(object)
           if object.respond_to? :serializable_hash
-            MultiJson.dump(object.serializable_hash)
+            object.serializable_hash
           elsif object.kind_of?(Array) && !object.map {|o| o.respond_to? :serializable_hash }.include?(false)
-            MultiJson.dump(object.map {|o| o.serializable_hash })
-          elsif object.respond_to? :to_json
-            object.to_json
+            object.map {|o| o.serializable_hash }
+          elsif object.kind_of?(Hash)
+            object.inject({}) { |h,(k,v)| h[k] = serialize(v); h }
           else
-            MultiJson.dump(object)
+            object
           end
         end
 
+        def encode_json(object)
+          return object if object.is_a?(String)
+          return MultiJson.dump(serialize(object)) if serializable?(object)
+          return object.to_json if object.respond_to?(:to_json)
+
+          MultiJson.dump(object)
+        end
+
         def encode_txt(object)
           object.respond_to?(:to_txt) ? object.to_txt : object.to_s
         end
diff --git a/spec/grape/entity_spec.rb b/spec/grape/entity_spec.rb
index 305806724d..fe241d39ac 100644
--- a/spec/grape/entity_spec.rb
+++ b/spec/grape/entity_spec.rb
@@ -257,6 +257,50 @@
         fresh_class.expose :name
         expect{ fresh_class.new(nil).serializable_hash }.not_to raise_error
       end
+
+      it 'should serialize embedded objects which respond to #serializable_hash' do
+        class EmbeddedExample
+          def serializable_hash(opts = {})
+            {:abc => 'def'}
+          end
+        end
+
+        class SimpleExample
+          def name
+            "abc"
+          end
+
+          def embedded
+            EmbeddedExample.new
+          end
+        end
+
+        fresh_class.expose :name, :embedded
+        presenter = fresh_class.new(SimpleExample.new)
+        presenter.serializable_hash.should == {:name => "abc", :embedded => {:abc => "def"}}
+      end
+
+      it 'should serialize embedded arrays of objects which respond to #serializable_hash' do
+        class EmbeddedExample
+          def serializable_hash(opts = {})
+            {:abc => 'def'}
+          end
+        end
+
+        class SimpleExample
+          def name
+            "abc"
+          end
+
+          def embedded
+            [EmbeddedExample.new, EmbeddedExample.new]
+          end
+        end
+
+        fresh_class.expose :name, :embedded
+        presenter = fresh_class.new(SimpleExample.new)
+        presenter.serializable_hash.should == {:name => "abc", :embedded => [{:abc => "def"}, {:abc => "def"}]}
+      end
     end
 
     describe '#value_for' do
diff --git a/spec/grape/middleware/formatter_spec.rb b/spec/grape/middleware/formatter_spec.rb
index 4461b1ff77..fa58a4dc0d 100644
--- a/spec/grape/middleware/formatter_spec.rb
+++ b/spec/grape/middleware/formatter_spec.rb
@@ -48,6 +48,18 @@ def serializable_hash
       subject.call({'PATH_INFO' => '/somewhere', 'HTTP_ACCEPT' => 'application/json'}).last.each{|b| b.should == '{"abc":"def"}'}
     end
 
+    it 'should serialize objects that respond to #serializable_hash if there is a root element' do
+      class SimpleExample
+        def serializable_hash
+          {:abc => 'def'}
+        end
+      end
+
+      @body = {"root" => SimpleExample.new}
+
+      subject.call({'PATH_INFO' => '/somewhere', 'HTTP_ACCEPT' => 'application/json'}).last.each{|b| b.should == '{"root":{"abc":"def"}}'}
+    end
+
     it 'should call #to_xml if the content type is xml' do
       @body = "string"
       @body.instance_eval do