diff --git a/xml/tests/src/com/intellij/xml/XmlModificationsTest.java b/xml/tests/src/com/intellij/xml/XmlModificationsTest.java
index 4c647e73d416..5d828498fc91 100644
--- a/xml/tests/src/com/intellij/xml/XmlModificationsTest.java
+++ b/xml/tests/src/com/intellij/xml/XmlModificationsTest.java
@@ -3,6 +3,7 @@ package com.intellij.xml;
 
 import com.intellij.psi.XmlElementFactory;
 import com.intellij.psi.xml.XmlTag;
+import com.intellij.psi.xml.XmlText;
 import com.intellij.testFramework.PsiTestCase;
 
 public class XmlModificationsTest extends PsiTestCase {
@@ -42,4 +43,12 @@ public class XmlModificationsTest extends PsiTestCase {
     tag.add(tag.createChildTag("b", "", null, false));
     assertEquals("<a><b/></a>", tag.getText());
   }
+
+  public void testSetText() {
+    final XmlTag tag = myFactory.createTagFromText("<a>foo</a>");
+    XmlText[] elements = tag.getValue().getTextElements();
+    assertEquals(1, elements.length);
+    elements[0].setValue("");
+    assertEquals("<a></a>", tag.getText());
+  }
 }
diff --git a/xml/xml-psi-impl/src/com/intellij/psi/impl/source/xml/behavior/DefaultXmlPsiPolicy.java b/xml/xml-psi-impl/src/com/intellij/psi/impl/source/xml/behavior/DefaultXmlPsiPolicy.java
index a371ed1a933b..b2f963774178 100644
--- a/xml/xml-psi-impl/src/com/intellij/psi/impl/source/xml/behavior/DefaultXmlPsiPolicy.java
+++ b/xml/xml-psi-impl/src/com/intellij/psi/impl/source/xml/behavior/DefaultXmlPsiPolicy.java
@@ -36,6 +36,9 @@ public class DefaultXmlPsiPolicy implements XmlPsiPolicy{
 
   @Override
   public ASTNode encodeXmlTextContents(String displayText, PsiElement text) {
+    if (displayText.isEmpty()) {
+      return null;
+    }
     CharTable charTable = SharedImplUtil.findCharTableByTree(text.getNode());
     final FileElement dummyParent = DummyHolderFactory.createHolder(text.getManager(), null, charTable).getTreeElement();
     final XmlTag rootTag =