diff -u a/entityreference.module b/entityreference.module
--- a/entityreference.module	Tue Mar 20 21:43:37 2012
+++ b/entityreference.module	Tue May 01 15:32:26 2012
@@ -378,6 +378,26 @@
     '#limit_validation_errors' => array(),
   );
 
+  // Option to remove field values when the entity they reference is deleted.
+  $cleanup_options = array(
+    0 => t('Leave invalid references around when entities are deleted.'),
+    1 => t('Delete references in this field when a referenced entity is deleted.'),
+    );
+  $form['dereference_on_delete'] = array(
+    '#type' => 'radios',
+    '#title' => t('Cleanup'),
+    '#title_display' => 'before',
+    '#description' => t('What to do when a referenced entity is deleted. Note that the second option may cause timeouts or memory issues when deleting large amounts of entities or references.'),
+    '#options' => $cleanup_options,
+    '#default_value' => isset($field['settings']['dereference_on_delete']) ? $field['settings']['dereference_on_delete'] : 0,
+    '#ajax' => array(
+      'callback' => 'entityreference_settings_ajax',
+      'wrapper' => $form['#id'],
+      'element' => $form['#array_parents'],
+    ),
+    '#limit_validation_errors' => array(),
+  );
+
   ctools_include('plugins');
   $handlers = ctools_get_plugins('entityreference', 'selection');
   uasort($handlers, 'ctools_plugin_sort');
@@ -989,4 +1009,107 @@
     'api' => 3,
     'path' => drupal_get_path('module', 'entityreference') . '/views',
   );
+}
+
+/*
+ * Implements hook_entity_delete().
+*/
+function entityreference_entity_delete($entity, $type) {
+  // Get id of entity.
+  list($entity_id, , ) = entity_extract_ids($type, $entity);
+  // Retrieve info for all entityreference fields.
+  $conditions = array('type' => 'entityreference');
+  $include_additional = array('include_inactive' => TRUE);
+  $fields = field_read_fields($conditions, $include_additional);
+  $references = array();
+  // Loop through the fields.
+  foreach ($fields as $field) {
+    // Determine the target type of the field.
+    $target_type = $field['settings']['target_type'];
+    $cleanup_enabled = (isset($field['settings']['dereference_on_delete']) && $field['settings']['dereference_on_delete']);
+    // Check if cleanup is enabled and the field references the same type as the referenced entity.
+    if ($cleanup_enabled && $target_type == $type) {
+      $query = new EntityFieldQuery();
+      // Select on the entity id in the target_id column.
+      $query->fieldCondition($field, 'target_id', $entity_id);
+      $results = $query->execute();
+      // Loop through the found entity types and ids.
+      foreach ($results as $referencing_type => $entities) {
+        if (!isset($references[$referencing_type]['ids'])) {
+          $references[$referencing_type]['ids'] = array();
+        }
+        $references[$referencing_type]['fields'][$field['field_name']] = $field['field_name'];
+        $references[$referencing_type]['ids'] += array_keys($entities);
+      }
+    }
+  }
+  // Remove references from each entity type.
+  foreach ($references as $referencing_type => $data) {
+    entityreference_dereference($entity_id, $referencing_type, $data['ids'], $data['fields'], 40);
+  }
+}
+
+/**
+ * Remove references to an entity from specific fields on specific entities.
+ * @param int $entity_id Id of entity to dereference.
+ * @param string $entity_type What type of entity to remove references from.
+ * @param array $ids Ids of the entities to process.
+ * @param array $fields Names of fields that should be processed.
+ * @return number of processed entities.
+ */
+function entityreference_dereference($entity_id, $entity_type, $ids, $fields, $threshold = NULL) {
+  if (!empty($ids)) {
+    $threshold = $threshold ? $threshold : variable_get('queue_bulk_threshold', 20);
+    // Split large datasets into smaller subsets for processing.
+    if (count($ids) > $threshold) {
+      $subsets = array_chunk($ids, $threshold);
+      $ids = array_shift($subsets);
+      foreach ($subsets as $subset) {
+        DrupalQueue::get('entityreference_workers', TRUE)
+          ->createItem(array('callback' => 'entityreference_dereference', 'arguments' => array($entity_id, $entity_type, $subset, $fields)));
+      }
+    }
+    // Load referencing entities of this type.
+    $referencing_entities = entity_load($entity_type, $ids);
+    foreach ($referencing_entities as $referencing_entity) {
+      // Loop through the fields for which references were found.
+      foreach ($fields as $field_name) {
+        // Get all the values in the field.
+        foreach ($referencing_entity->{$field_name} as $language => $items) {
+          // Loop through them to delete the specific value of the field that references the deleted entity.
+          foreach($items as $delta => $value) {
+            if ($value['target_id'] == $entity_id) {
+              unset($referencing_entity->{$field_name}[$language][$delta]);
+            }
+          }
+        }
+      }
+      // Store the modified entity. This should take care of all modules wanting to know about
+      // the changes and of flushing the relevant caches.
+      entity_save($entity_type, $referencing_entity);
+    }
+    // Return the number of entities from which the references have been removed.
+    return count($ids);
+  }
+  // No entities were passed to dereference from.
+  return 0;
+}
+
+/**
+ * Runs a simple job queue worker.
+ */
+function entityreference_queue_worker($data) {
+  return call_user_func_array($data['callback'], $data['arguments']);
+}
+
+/**
+ * Implements hook_cron_queue_info().
+ */
+function entityreference_cron_queue_info() {
+  $queues['entityreference_workers'] = array(
+    'worker callback' => 'entityreference_queue_worker',
+    'time' => 30,
+    'reliable' => TRUE,
+  );
+  return $queues;
 }