diff --git a/packages/create-instance/create-instance.js b/packages/create-instance/create-instance.js
index b96872853..ea0cc8af3 100644
--- a/packages/create-instance/create-instance.js
+++ b/packages/create-instance/create-instance.js
@@ -6,7 +6,7 @@ import { addEventLogger } from './log-events'
 import { createComponentStubs } from 'shared/stub-components'
 import { throwError, warn, vueVersion } from 'shared/util'
 import { compileTemplate } from 'shared/compile-template'
-import deleteMountingOptions from './delete-mounting-options'
+import extractInstanceOptions from './extract-instance-options'
 import createFunctionalComponent from './create-functional-component'
 import { componentNeedsCompiling } from 'shared/validators'
 import { validateSlots } from './validate-slots'
@@ -20,6 +20,18 @@ export default function createInstance (
   // Remove cached constructor
   delete component._Ctor
 
+  // mounting options are vue-test-utils specific
+  //
+  // instance options are options that are passed to the
+  // root instance when it's instantiated
+  //
+  // component options are the root components options
+  const componentOptions = typeof component === 'function'
+    ? component.extendOptions
+    : component
+
+  const instanceOptions = extractInstanceOptions(options)
+
   if (options.mocks) {
     addMocks(options.mocks, _Vue)
   }
@@ -40,12 +52,6 @@ export default function createInstance (
 
   addEventLogger(_Vue)
 
-  const instanceOptions = {
-    ...options
-  }
-
-  deleteMountingOptions(instanceOptions)
-
   const stubComponents = createComponentStubs(
     // $FlowIgnore
     component.components,
@@ -67,9 +73,9 @@ export default function createInstance (
       )
     }
   })
-  Object.keys(component.components || {}).forEach(c => {
+  Object.keys(componentOptions.components || {}).forEach(c => {
     if (
-      component.components[c].extendOptions &&
+      componentOptions.components[c].extendOptions &&
       !instanceOptions.components[c]
     ) {
       if (options.logModifiedComponents) {
@@ -82,7 +88,9 @@ export default function createInstance (
           `option.`
         )
       }
-      instanceOptions.components[c] = _Vue.extend(component.components[c])
+      instanceOptions.components[c] = _Vue.extend(
+        componentOptions.components[c]
+      )
     }
   })
 
diff --git a/packages/create-instance/delete-mounting-options.js b/packages/create-instance/delete-mounting-options.js
deleted file mode 100644
index 45c38a8c8..000000000
--- a/packages/create-instance/delete-mounting-options.js
+++ /dev/null
@@ -1,12 +0,0 @@
-export default function deleteMountingOptions (options) {
-  delete options.attachToDocument
-  delete options.mocks
-  delete options.slots
-  delete options.localVue
-  delete options.stubs
-  delete options.context
-  delete options.clone
-  delete options.attrs
-  delete options.listeners
-  delete options.propsData
-}
diff --git a/packages/create-instance/extract-instance-options.js b/packages/create-instance/extract-instance-options.js
new file mode 100644
index 000000000..f72851ba2
--- /dev/null
+++ b/packages/create-instance/extract-instance-options.js
@@ -0,0 +1,20 @@
+const MOUNTING_OPTIONS = [
+  'attachToDocument',
+  'mocks',
+  'slots',
+  'localVue',
+  'stubs',
+  'context',
+  'clone',
+  'attrs',
+  'listeners',
+  'propsData'
+]
+
+export default function extractInstanceOptions (options) {
+  const instanceOptions = { ...options }
+  MOUNTING_OPTIONS.forEach(mountingOption => {
+    delete instanceOptions[mountingOption]
+  })
+  return instanceOptions
+}
diff --git a/test/specs/mounting-options/localVue.spec.js b/test/specs/mounting-options/localVue.spec.js
index 2f51b8e20..a638a577e 100644
--- a/test/specs/mounting-options/localVue.spec.js
+++ b/test/specs/mounting-options/localVue.spec.js
@@ -70,6 +70,21 @@ describeWithMountingMethods('options.localVue', mountingMethod => {
     }
   })
 
+  it('is applies to child extended components', () => {
+    const ChildComponent = Vue.extend({
+      template: '<div>{{$route.params}}</div>'
+    })
+    const TestComponent = Vue.extend({
+      template: '<child-component />',
+      components: { ChildComponent }
+    })
+    const localVue = createLocalVue()
+    localVue.prototype.$route = {}
+    mountingMethod(TestComponent, {
+      localVue
+    })
+  })
+
   it('does not add created mixin to localVue', () => {
     const localVue = createLocalVue()
     mountingMethod({ render: () => {} }, {