diff --git a/src/lib/autocomplete/autocomplete-trigger.ts b/src/lib/autocomplete/autocomplete-trigger.ts
index 1b93e64e8b1f..b1ae2efd0c00 100644
--- a/src/lib/autocomplete/autocomplete-trigger.ts
+++ b/src/lib/autocomplete/autocomplete-trigger.ts
@@ -365,13 +365,7 @@ export class MatAutocompleteTrigger implements ControlValueAccessor, OnDestroy {
       event.preventDefault();
     }
 
-    // Close when pressing ESCAPE or ALT + UP_ARROW, based on the a11y guidelines.
-    // See: https://www.w3.org/TR/wai-aria-practices-1.1/#textbox-keyboard-interaction
-    if (this.panelOpen && (keyCode === ESCAPE || (keyCode === UP_ARROW && event.altKey))) {
-      this._resetActiveItem();
-      this._closeKeyEventStream.next();
-      event.stopPropagation();
-    } else if (this.activeOption && keyCode === ENTER && this.panelOpen) {
+    if (this.activeOption && keyCode === ENTER && this.panelOpen) {
       this.activeOption._selectViaInteraction();
       this._resetActiveItem();
       event.preventDefault();
@@ -574,6 +568,17 @@ export class MatAutocompleteTrigger implements ControlValueAccessor, OnDestroy {
       this._portal = new TemplatePortal(this.autocomplete.template, this._viewContainerRef);
       this._overlayRef = this._overlay.create(this._getOverlayConfig());
 
+      // Use the `keydownEvents` in order to take advantage of
+      // the overlay event targeting provided by the CDK overlay.
+      this._overlayRef.keydownEvents().subscribe(event => {
+        // Close when pressing ESCAPE or ALT + UP_ARROW, based on the a11y guidelines.
+        // See: https://www.w3.org/TR/wai-aria-practices-1.1/#textbox-keyboard-interaction
+        if (event.keyCode === ESCAPE || (event.keyCode === UP_ARROW && event.altKey)) {
+          this._resetActiveItem();
+          this._closeKeyEventStream.next();
+        }
+      });
+
       if (this._viewportRuler) {
         this._viewportSubscription = this._viewportRuler.change().subscribe(() => {
           if (this.panelOpen && this._overlayRef) {
diff --git a/src/lib/autocomplete/autocomplete.spec.ts b/src/lib/autocomplete/autocomplete.spec.ts
index 12a3f16c613a..068086914261 100644
--- a/src/lib/autocomplete/autocomplete.spec.ts
+++ b/src/lib/autocomplete/autocomplete.spec.ts
@@ -8,6 +8,7 @@ import {
   dispatchKeyboardEvent,
   MockNgZone,
   typeInElement,
+  dispatchEvent,
 } from '@angular/cdk/testing';
 import {
   ChangeDetectionStrategy,
@@ -1043,8 +1044,6 @@ describe('MatAutocomplete', () => {
 
     it('should close the panel when pressing escape', fakeAsync(() => {
       const trigger = fixture.componentInstance.trigger;
-      const escapeEvent = createKeyboardEvent('keydown', ESCAPE);
-      const stopPropagationSpy = spyOn(escapeEvent, 'stopPropagation').and.callThrough();
 
       input.focus();
       flush();
@@ -1053,12 +1052,11 @@ describe('MatAutocomplete', () => {
       expect(document.activeElement).toBe(input, 'Expected input to be focused.');
       expect(trigger.panelOpen).toBe(true, 'Expected panel to be open.');
 
-      trigger._handleKeydown(escapeEvent);
+      dispatchKeyboardEvent(document.body, 'keydown', ESCAPE);
       fixture.detectChanges();
 
       expect(document.activeElement).toBe(input, 'Expected input to continue to be focused.');
       expect(trigger.panelOpen).toBe(false, 'Expected panel to be closed.');
-      expect(stopPropagationSpy).toHaveBeenCalled();
     }));
 
     it('should prevent the default action when pressing escape', fakeAsync(() => {
@@ -1080,7 +1078,7 @@ describe('MatAutocomplete', () => {
       expect(document.activeElement).toBe(input, 'Expected input to be focused.');
       expect(trigger.panelOpen).toBe(true, 'Expected panel to be open.');
 
-      trigger._handleKeydown(upArrowEvent);
+      dispatchEvent(document.body, upArrowEvent);
       fixture.detectChanges();
 
       expect(document.activeElement).toBe(input, 'Expected input to continue to be focused.');
@@ -1125,7 +1123,7 @@ describe('MatAutocomplete', () => {
       // from crashing when trying to stringify the option if the test fails.
       expect(!!trigger.activeOption).toBe(true, 'Expected to find an active option.');
 
-      trigger._handleKeydown(createKeyboardEvent('keydown', ESCAPE));
+      dispatchKeyboardEvent(document.body, 'keydown', ESCAPE);
       tick();
 
       expect(!!trigger.activeOption).toBe(false, 'Expected no active options.');
@@ -1782,10 +1780,8 @@ describe('MatAutocomplete', () => {
     });
 
     it('should close the panel when pressing escape', () => {
-      const escapeEvent = createKeyboardEvent('keydown', ESCAPE);
-
       expect(closingActionSpy).not.toHaveBeenCalled();
-      trigger._handleKeydown(escapeEvent);
+      dispatchKeyboardEvent(document.body, 'keydown', ESCAPE);
       expect(closingActionSpy).toHaveBeenCalledWith(null);
     });
   });