diff --git a/npm-shrinkwrap.json b/npm-shrinkwrap.json
index 38bdf5534054ba4aeaea38af52359291c81dcd6f..0252fc587665ef9c0bbed46e77accbdcd42479ce 100644
--- a/npm-shrinkwrap.json
+++ b/npm-shrinkwrap.json
@@ -432,7 +432,7 @@
     "xterm": {
       "version": "2.2.3",
       "from": "git+https://github.com/Tyriar/xterm.js.git#vscode-release/1.9",
-      "resolved": "git+https://github.com/Tyriar/xterm.js.git#f30504b908ff9c9e1917add36353da66b176e08a"
+      "resolved": "git+https://github.com/Tyriar/xterm.js.git#27f7052106825b7e2e89358bed84bb1a285d7aaf"
     },
     "yauzl": {
       "version": "2.3.1",
diff --git a/src/vs/workbench/parts/terminal/common/terminal.ts b/src/vs/workbench/parts/terminal/common/terminal.ts
index 90d0d991f2911b228b9667f4e0ae9fcc3f291361..a1b2069f566d059b754f7cf9407d6d1c3d9e6106 100644
--- a/src/vs/workbench/parts/terminal/common/terminal.ts
+++ b/src/vs/workbench/parts/terminal/common/terminal.ts
@@ -58,7 +58,8 @@ export interface ITerminalConfiguration {
 			setLocaleVariables: boolean,
 			scrollback: number,
 			commandsToSkipShell: string[],
-			cwd: string
+			cwd: string,
+			flowControl: boolean
 		}
 	};
 }
@@ -67,6 +68,7 @@ export interface ITerminalConfigHelper {
 	getTheme(baseThemeId: string): string[];
 	getFont(): ITerminalFont;
 	getFontLigaturesEnabled(): boolean;
+	getFlowControl(): boolean;
 	getCursorBlink(): boolean;
 	getRightClickCopyPaste(): boolean;
 	getCommandsToSkipShell(): string[];
diff --git a/src/vs/workbench/parts/terminal/electron-browser/terminal.contribution.ts b/src/vs/workbench/parts/terminal/electron-browser/terminal.contribution.ts
index 1bf03a4b9e27483ecc00ec93d1e4d30b2fa87c01..06e02fe29006b4fefb72fc7cf49f8af1107d849f 100644
--- a/src/vs/workbench/parts/terminal/electron-browser/terminal.contribution.ts
+++ b/src/vs/workbench/parts/terminal/electron-browser/terminal.contribution.ts
@@ -12,7 +12,7 @@ import nls = require('vs/nls');
 import { Extensions, IConfigurationRegistry } from 'vs/platform/configuration/common/configurationRegistry';
 import { GlobalQuickOpenAction } from 'vs/workbench/browser/parts/quickopen/quickopen.contribution';
 import { ITerminalService, KEYBINDING_CONTEXT_TERMINAL_FOCUS, KEYBINDING_CONTEXT_TERMINAL_TEXT_SELECTED, TERMINAL_PANEL_ID, TERMINAL_DEFAULT_RIGHT_CLICK_COPY_PASTE, TerminalCursorStyle } from 'vs/workbench/parts/terminal/common/terminal';
-import { TERMINAL_DEFAULT_SHELL_LINUX, TERMINAL_DEFAULT_SHELL_OSX, TERMINAL_DEFAULT_SHELL_WINDOWS } from 'vs/workbench/parts/terminal/electron-browser/terminal';
+import { TERMINAL_DEFAULT_SHELL_LINUX, TERMINAL_DEFAULT_SHELL_OSX, TERMINAL_DEFAULT_SHELL_WINDOWS, TERMINAL_DEFAULT_FLOW_CONTROL } from 'vs/workbench/parts/terminal/electron-browser/terminal';
 import { IWorkbenchActionRegistry, Extensions as ActionExtensions } from 'vs/workbench/common/actionRegistry';
 import { KeyCode, KeyMod } from 'vs/base/common/keyCodes';
 import { ContextKeyExpr } from 'vs/platform/contextkey/common/contextkey';
@@ -119,6 +119,11 @@ configurationRegistry.registerConfiguration({
 			'type': 'number',
 			'default': 1000
 		},
+		'terminal.integrated.flowControl': {
+			'description': nls.localize('terminal.integrated.flowControl', "Controls the whether the terminal emulator will use flow control in order to catch up with the shell process, the main effect of this is that ^C and other signals should be much more responsive when commands give lots of output. You should this disabled if you have custom ^S or ^Q keybindings that override the XOFF and XON signals used."),
+			'type': 'boolean',
+			'default': TERMINAL_DEFAULT_FLOW_CONTROL
+		},
 		'terminal.integrated.setLocaleVariables': {
 			'description': nls.localize('terminal.integrated.setLocaleVariables', "Controls whether locale variables are set at startup of the terminal, this defaults to true on OS X, false on other platforms."),
 			'type': 'boolean',
diff --git a/src/vs/workbench/parts/terminal/electron-browser/terminal.ts b/src/vs/workbench/parts/terminal/electron-browser/terminal.ts
index e3d6eb37951b57144d12b8a9b28958e900ee52a1..1e1fff02af0dac9e34b10f5784e33818328726f6 100644
--- a/src/vs/workbench/parts/terminal/electron-browser/terminal.ts
+++ b/src/vs/workbench/parts/terminal/electron-browser/terminal.ts
@@ -5,6 +5,7 @@
 'use strict';
 
 import * as os from 'os';
+import * as path from 'path';
 import * as cp from 'child_process';
 import platform = require('vs/base/common/platform');
 import processes = require('vs/base/node/processes');
@@ -18,6 +19,11 @@ const powerShellPath = `${process.env.windir}\\${is64BitWindows ? 'Sysnative' :
 
 export const TERMINAL_DEFAULT_SHELL_WINDOWS = isAtLeastWindows10 ? powerShellPath : processes.getWindowsShell();
 
+// Terminal flow control is disabled if the shell is zsh since the popular oh-my-zsh configuration
+// overrides the ^S and ^Q keybindings which are used for flow control.
+// TODO: This should check if ~/.oh-my-zsh exists as well
+export const TERMINAL_DEFAULT_FLOW_CONTROL = path.basename(process.env.SHELL) !== 'zsh';
+
 export interface ITerminalProcessFactory {
 	create(env: { [key: string]: string }): cp.ChildProcess;
 }
diff --git a/src/vs/workbench/parts/terminal/electron-browser/terminalConfigHelper.ts b/src/vs/workbench/parts/terminal/electron-browser/terminalConfigHelper.ts
index c62cdccdcf2aeb73ba5dc62b55fbe00bc30a94b4..f9ee66c5a5037ee4b63510e6a38ad7d53a11c901 100644
--- a/src/vs/workbench/parts/terminal/electron-browser/terminalConfigHelper.ts
+++ b/src/vs/workbench/parts/terminal/electron-browser/terminalConfigHelper.ts
@@ -137,6 +137,11 @@ export class TerminalConfigHelper implements ITerminalConfigHelper {
 		return terminalConfig.terminal.integrated.fontLigatures;
 	}
 
+	public getFlowControl(): boolean {
+		const terminalConfig = this._configurationService.getConfiguration<ITerminalConfiguration>();
+		return terminalConfig.terminal.integrated.flowControl;
+	}
+
 	public getCursorBlink(): boolean {
 		const terminalConfig = this._configurationService.getConfiguration<ITerminalConfiguration>();
 		return terminalConfig.terminal.integrated.cursorBlinking;
diff --git a/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts b/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
index e1b7b7ce6be5f53caa46e20da4624332b5eebc6e..9e30d9bafe309c95820af3aeb3f17996ccb01d9e 100644
--- a/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
+++ b/src/vs/workbench/parts/terminal/electron-browser/terminalInstance.ts
@@ -543,12 +543,19 @@ export class TerminalInstance implements ITerminalInstance {
 	}
 
 	public updateConfig(): void {
+		this._setFlowControl(this._configHelper.getFlowControl());
 		this._setCursorBlink(this._configHelper.getCursorBlink());
 		this._setCursorStyle(this._configHelper.getCursorStyle());
 		this._setCommandsToSkipShell(this._configHelper.getCommandsToSkipShell());
 		this._setScrollback(this._configHelper.getScrollback());
 	}
 
+	private _setFlowControl(flowControl: boolean): void {
+		if (this._xterm && this._xterm.getOption('useFlowControl') !== flowControl) {
+			this._xterm.setOption('useFlowControl', flowControl);
+		}
+	}
+
 	private _setCursorBlink(blink: boolean): void {
 		if (this._xterm && this._xterm.getOption('cursorBlink') !== blink) {
 			this._xterm.setOption('cursorBlink', blink);