diff --git a/cue/format/format_test.go b/cue/format/format_test.go
index ced3ed1..2935933 100644
--- a/cue/format/format_test.go
+++ b/cue/format/format_test.go
@@ -463,7 +463,7 @@
 	t.Skip()
 	const src = `
 `
-	b, err := format([]byte(src), 0)
+	b, err := format([]byte(src), simplify)
 	if err != nil {
 		t.Error(err)
 	}
diff --git a/cue/format/node.go b/cue/format/node.go
index 2c19f74..734a2a7 100644
--- a/cue/format/node.go
+++ b/cue/format/node.go
@@ -28,18 +28,32 @@
 func printNode(node interface{}, f *printer) error {
 	s := newFormatter(f)
 
+	ls := labelSimplifier{scope: map[string]bool{}}
+
 	// format node
 	f.allowed = nooverride // gobble initial whitespace.
 	switch x := node.(type) {
 	case *ast.File:
+		if f.cfg.simplify {
+			ls.markReferences(x)
+		}
 		s.file(x)
 	case ast.Expr:
+		if f.cfg.simplify {
+			ls.markReferences(x)
+		}
 		s.expr(x)
 	case ast.Decl:
+		if f.cfg.simplify {
+			ls.markReferences(x)
+		}
 		s.decl(x)
 	// case ast.Node: // TODO: do we need this?
 	// 	s.walk(x)
 	case []ast.Decl:
+		if f.cfg.simplify {
+			ls.processDecls(x)
+		}
 		s.walkDeclList(x)
 	default:
 		goto unsupported
@@ -397,18 +411,6 @@
 		f.print(n.NamePos, name)
 
 	case *ast.BasicLit:
-		if f.cfg.simplify && n.Kind == token.STRING && len(n.Value) > 2 {
-			s := n.Value
-			unquoted, err := strconv.Unquote(s)
-			if err == nil {
-				// TODO: only do this when requested and
-				// if this doesn't unshadow anything.
-				if isValidIdent(unquoted) {
-					f.print(n.ValuePos, unquoted)
-					break
-				}
-			}
-		}
 		str := n.Value
 		// Allow any CUE string in the AST, but ensure it is formatted
 		// according to spec.
diff --git a/cue/format/simplify.go b/cue/format/simplify.go
new file mode 100644
index 0000000..410911b
--- /dev/null
+++ b/cue/format/simplify.go
@@ -0,0 +1,113 @@
+// Copyright 2019 CUE Authors
+//
+// Licensed under the Apache License, Version 2.0 (the "License");
+// you may not use this file except in compliance with the License.
+// You may obtain a copy of the License at
+//
+//     http://www.apache.org/licenses/LICENSE-2.0
+//
+// Unless required by applicable law or agreed to in writing, software
+// distributed under the License is distributed on an "AS IS" BASIS,
+// WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+// See the License for the specific language governing permissions and
+// limitations under the License.
+
+package format
+
+import (
+	"strconv"
+	"strings"
+
+	"cuelang.org/go/cue/ast"
+	"cuelang.org/go/cue/ast/astutil"
+)
+
+// labelSimplifier rewrites string labels to identifiers if
+// no identifiers will subsequently bind to the exposed label.
+// In other words, string labels are only replaced if this does
+// not change the semantics of the CUE code.
+type labelSimplifier struct {
+	parent *labelSimplifier
+	scope  map[string]bool
+}
+
+func (s *labelSimplifier) processDecls(decls []ast.Decl) {
+	sc := labelSimplifier{parent: s, scope: map[string]bool{}}
+	for _, d := range decls {
+		switch x := d.(type) {
+		case *ast.Field:
+			ast.Walk(x.Label, sc.markStrings, nil)
+		}
+	}
+
+	for _, d := range decls {
+		switch x := d.(type) {
+		case *ast.Field:
+			ast.Walk(x.Value, sc.markReferences, nil)
+		default:
+			ast.Walk(x, sc.markReferences, nil)
+		}
+	}
+
+	for _, d := range decls {
+		switch x := d.(type) {
+		case *ast.Field:
+			x.Label = astutil.Apply(x.Label, sc.replace, nil).(ast.Label)
+		}
+	}
+}
+
+func (s *labelSimplifier) markReferences(n ast.Node) bool {
+	// Record strings at this level.
+	switch x := n.(type) {
+	case *ast.File:
+		s.processDecls(x.Decls)
+		return false
+
+	case *ast.StructLit:
+		s.processDecls(x.Elts)
+		return false
+
+	case *ast.SelectorExpr:
+		ast.Walk(x.X, s.markReferences, nil)
+		return false
+
+	case *ast.Ident:
+		for c := s; c != nil; c = c.parent {
+			if _, ok := c.scope[x.Name]; ok {
+				c.scope[x.Name] = false
+				break
+			}
+		}
+	}
+	return true
+}
+
+func (s *labelSimplifier) markStrings(n ast.Node) bool {
+	switch x := n.(type) {
+	case *ast.BasicLit:
+		str, err := strconv.Unquote(x.Value)
+		if err != nil || !ast.IsValidIdent(str) || strings.HasPrefix(str, "_") {
+			return false
+		}
+		s.scope[str] = true
+
+	case *ast.Ident:
+		s.scope[x.Name] = true
+
+	case *ast.ListLit:
+		return false
+	}
+	return true
+}
+
+func (s *labelSimplifier) replace(c astutil.Cursor) bool {
+	switch x := c.Node().(type) {
+	case *ast.BasicLit:
+		str, err := strconv.Unquote(x.Value)
+		if err == nil && s.scope[str] && !strings.HasPrefix(str, "_") {
+			c.Replace(ast.NewIdent(str))
+		}
+	}
+	return true
+}
diff --git a/cue/format/testdata/simplify.golden b/cue/format/testdata/simplify.golden
index 0b5c393..929063b 100644
--- a/cue/format/testdata/simplify.golden
+++ b/cue/format/testdata/simplify.golden
@@ -1,3 +1,5 @@
+import "time"
+
 foo: bar: "str"
 
 a: B: 42
@@ -5,3 +7,32 @@
 "a.b": "foo-": cc_dd: x
 
 a: b: c: 3
+
+// references to bar are all shadowed and this can be safely turned into
+// an identifier.
+bar: "str"
+
+// These references would be directly referred to if turned into an identifier.
+// The quotes should therefore not be removed.
+"baz1": 3
+"baz2": 3
+"baz3": 3 // TODO: could be simplified.
+
+// These string labels may be turned into an identifier.
+qux:  4
+quux: 5
+
+// TODO(legacy): Don't simplify "hidden" fields for now.
+"_foo": 3
+
+x: {
+	r1: baz1
+	bar: r2: bar
+	r3:           bar
+	E=quux:       3
+	r4:           quux
+	[baz2="str"]: 4
+	r5:           baz2
+	[baz3="bar"]: name: baz3 // TODO: treat baz3 as shadowed.
+	Time: time.Time
+}
diff --git a/cue/format/testdata/simplify.input b/cue/format/testdata/simplify.input
index c743830..4bb466a 100644
--- a/cue/format/testdata/simplify.input
+++ b/cue/format/testdata/simplify.input
@@ -1,10 +1,41 @@
-"foo" "bar": "str"
+import "time"
 
-a "B": 42
+"foo": "bar": "str"
 
-"a.b" "foo-" "cc_dd": x
+a: "B": 42
+
+"a.b": "foo-": "cc_dd": x
 
 
 a:
     b:
-        c: 3
\ No newline at end of file
+        c: 3
+
+// references to bar are all shadowed and this can be safely turned into
+// an identifier.
+"bar": "str"
+
+// These references would be directly referred to if turned into an identifier.
+// The quotes should therefore not be removed.
+"baz1": 3
+"baz2": 3
+"baz3": 3 // TODO: could be simplified.
+
+// These string labels may be turned into an identifier.
+"qux": 4
+"quux": 5
+
+// TODO(legacy): Don't simplify "hidden" fields for now.
+"_foo": 3
+
+x: {
+    r1: baz1
+    bar: r2: bar
+    r3: bar
+    E=quux: 3
+    r4: quux
+    [baz2="str"]: 4
+    r5: baz2
+    [baz3="bar"]: name: baz3 // TODO: treat baz3 as shadowed.
+    "Time": time.Time
+}
\ No newline at end of file
diff --git a/cue/resolve_test.go b/cue/resolve_test.go
index 394490e..d764502 100644
--- a/cue/resolve_test.go
+++ b/cue/resolve_test.go
@@ -2835,6 +2835,16 @@
 		out: `<0>{` +
 			`c1: <1>{bar: <2>{baz: 2}, baz: 2}, ` +
 			`c2: _|_(<3>{bar: 1<3>.bar}:cannot embed value 1 of type int in struct)}`,
+	}, {
+		desc: "don't bind to string labels",
+		in: `
+			x: 1
+			y: {
+				"x": 2
+				z: x
+			}
+			`,
+		out: `<0>{x: 1, y: <1>{x: 2, z: 1}}`,
 	}}
 	rewriteHelper(t, testCases, evalFull)
 }