diff --git a/django/test/utils.py b/django/test/utils.py
index dbb1c20163..88da9d54c5 100644
--- a/django/test/utils.py
+++ b/django/test/utils.py
@@ -194,8 +194,8 @@ class override_settings(object):
         self.disable()
 
     def __call__(self, test_func):
-        from django.test import TestCase
-        if isinstance(test_func, type) and issubclass(test_func, TestCase):
+        from django.test import TransactionTestCase
+        if isinstance(test_func, type) and issubclass(test_func, TransactionTestCase):
             class inner(test_func):
                 def _pre_setup(innerself):
                     self.enable()
diff --git a/tests/regressiontests/settings_tests/tests.py b/tests/regressiontests/settings_tests/tests.py
index 369ab30aa4..9715046bd4 100644
--- a/tests/regressiontests/settings_tests/tests.py
+++ b/tests/regressiontests/settings_tests/tests.py
@@ -1,10 +1,22 @@
 from __future__ import with_statement
 import os
 from django.conf import settings, global_settings
-from django.test import TestCase, signals
+from django.test import TransactionTestCase, TestCase, signals
 from django.test.utils import override_settings
 
 
+# @override_settings(TEST='override')
+class FullyDecoratedTranTestCase(TransactionTestCase):
+
+    def test_override(self):
+        self.assertEqual(settings.TEST, 'override')
+
+    @override_settings(TEST='override2')
+    def test_method_override(self):
+        self.assertEqual(settings.TEST, 'override2')
+
+FullyDecoratedTranTestCase = override_settings(TEST='override')(FullyDecoratedTranTestCase)
+
 # @override_settings(TEST='override')
 class FullyDecoratedTestCase(TestCase):