diff --git a/LICENSE b/LICENSE
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--- /dev/null
+++ b/LICENSE
@@ -0,0 +1,30 @@
+Copyright (c) 2013, Nickolay Kudasov
+
+All rights reserved.
+
+Redistribution and use in source and binary forms, with or without
+modification, are permitted provided that the following conditions are met:
+
+    * Redistributions of source code must retain the above copyright
+      notice, this list of conditions and the following disclaimer.
+
+    * Redistributions in binary form must reproduce the above
+      copyright notice, this list of conditions and the following
+      disclaimer in the documentation and/or other materials provided
+      with the distribution.
+
+    * Neither the name of Nickolay Kudasov nor the names of other
+      contributors may be used to endorse or promote products derived
+      from this software without specific prior written permission.
+
+THIS SOFTWARE IS PROVIDED BY THE COPYRIGHT HOLDERS AND CONTRIBUTORS
+"AS IS" AND ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT
+LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
+A PARTICULAR PURPOSE ARE DISCLAIMED. IN NO EVENT SHALL THE COPYRIGHT
+OWNER OR CONTRIBUTORS BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL,
+SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT
+LIMITED TO, PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES; LOSS OF USE,
+DATA, OR PROFITS; OR BUSINESS INTERRUPTION) HOWEVER CAUSED AND ON ANY
+THEORY OF LIABILITY, WHETHER IN CONTRACT, STRICT LIABILITY, OR TORT
+(INCLUDING NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY OUT OF THE USE
+OF THIS SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
diff --git a/Setup.hs b/Setup.hs
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--- /dev/null
+++ b/Setup.hs
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+import Distribution.Simple
+main = defaultMain
diff --git a/demarcate.cabal b/demarcate.cabal
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+++ b/demarcate.cabal
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+Name:                   demarcate
+Version:                0.1.0
+Author:                 Nickolay Kudasov<nickolay.kudasov@gmail.com>
+Maintainer:             Nickolay Kudasov<nickolay.kudasov@gmail.com>
+License:                BSD3
+License-File:           LICENSE
+Synopsis:               Demarcating transformed monad.
+Description:
+  This library provides 'Demarcate' type constructor which makes
+  possible transformations of @t m a@ monadic values.
+Cabal-Version:          >= 1.10
+Build-Type:             Simple
+Stability:              experimental
+Homepage:               https://github.com/fizruk/demarcate
+Bug-Reports:            https://github.com/fizruk/demarcate/issues
+Category:               Control
+
+Library
+  Default-Language:     Haskell2010
+  Default-Extensions:   Trustworthy
+  HS-Source-Dirs:       src
+  GHC-Options:          -Wall
+  Exposed-Modules:      Control.Monad.Trans.Demarcate
+                        Control.Monad.Trans.Demarcate.Internal
+  Build-Depends:        base >= 4 && < 5
+                      , free >= 3.4.2
+                      , transformers >= 0.3
+
+Test-Suite spec
+  Type:                 exitcode-stdio-1.0
+  Default-Language:     Haskell2010
+  Hs-Source-Dirs:       test
+  Ghc-Options:          -Wall
+  Main-Is:              Spec.hs
+  Build-Depends:        base
+                      , hspec
+
+Source-Repository head
+  Type:                 git
+  Location:             https://github.com/fizruk/demarcate.git
diff --git a/src/Control/Monad/Trans/Demarcate.hs b/src/Control/Monad/Trans/Demarcate.hs
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--- /dev/null
+++ b/src/Control/Monad/Trans/Demarcate.hs
@@ -0,0 +1,23 @@
+---------------------------------------------------------------------------
+-- | 
+-- Module      :  Control.Monad.Trans.Demarcate
+-- Copyright   :  (c) 2013 Nickolay Kudasov
+-- License     :  BSD-style (see the file LICENSE)
+-- 
+-- Maintainer  :  nickolay.kudasov@gmail.com
+-- Stability   :  experimental
+-- Portability :  ghc
+--
+-- Interface for 'Demarcate' monad transformer.
+---------------------------------------------------------------------------
+module Control.Monad.Trans.Demarcate
+(
+    Demarcate,
+    demarcateM, demarcateT,
+    execDemarcate,
+    wrapT,
+    transformDemarcateM, transformDemarcateFree,
+    hoistDemarcateT,
+) where
+
+import Control.Monad.Trans.Demarcate.Internal
diff --git a/src/Control/Monad/Trans/Demarcate/Internal.hs b/src/Control/Monad/Trans/Demarcate/Internal.hs
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--- /dev/null
+++ b/src/Control/Monad/Trans/Demarcate/Internal.hs
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+{-# LANGUAGE Rank2Types #-}
+{-# LANGUAGE ExistentialQuantification #-}
+{-# LANGUAGE MultiParamTypeClasses #-}
+---------------------------------------------------------------------------
+-- |
+-- Module      :  Control.Monad.Trans.Demarcate.Internal
+-- Copyright   :  (c) Nickolay Kudasov 2013
+-- License     :  BSD-style (see the file LICENSE)
+-- 
+-- Maintainer  :  nickolay.kudasov@gmail.com
+-- Stability   :  experimental
+-- Portability :  ghc
+--
+-- Internals of the 'Demarcate' monad transformer.
+---------------------------------------------------------------------------
+module Control.Monad.Trans.Demarcate.Internal where
+
+import Control.Monad.Free
+import Control.Monad.Trans.Class
+import Control.Monad (join)
+
+-- | Demarcate functor.
+data DemarcateF t m next
+    = forall a. DemarcateMonad (  m a) (a -> next)  -- ^ Unlifted monadic computation.
+    | forall a. DemarcateTrans (t m a) (a -> next)  -- ^ Transformed monadic computation.
+
+instance Functor (DemarcateF t m) where
+    fmap f (DemarcateMonad m g) = DemarcateMonad m (f . g)
+    fmap f (DemarcateTrans m g) = DemarcateTrans m (f . g)
+
+-- | Demarcate monad transformer.
+newtype Demarcate t m a = Demarcate
+    { unDemarcate :: Free (DemarcateF t m) a }
+
+instance Functor (Demarcate t m) where
+    fmap f = Demarcate . fmap f . unDemarcate
+
+instance Monad (Demarcate t m) where
+    return  = Demarcate . return
+    m >>= f = Demarcate $ unDemarcate m >>= unDemarcate . f
+
+instance MonadFree (DemarcateF t m) (Demarcate t m) where
+    wrap = Demarcate . wrap . fmap unDemarcate
+
+instance MonadTrans (Demarcate t) where
+    lift m = liftF $ DemarcateMonad m id
+
+-- | Lift pure monadic computation into @Demarcate t m a@
+demarcateM :: m a -> Demarcate t m a
+demarcateM m = liftF $ DemarcateMonad m id
+
+-- | Lift transformed monadic computation into @Demarcate t m a@
+demarcateT :: t m a -> Demarcate t m a
+demarcateT m = liftF $ DemarcateTrans m id
+
+-- | Execute demarcated computation.
+execDemarcate :: (Monad (t m), Monad m, MonadTrans t) => Demarcate t m a -> t m a
+execDemarcate = iterM execDemarcateF . unDemarcate
+  where
+    execDemarcateF (DemarcateMonad m next) = lift m >>= next
+    execDemarcateF (DemarcateTrans m next) = m >>= next
+
+-- | Subsitute monad transformer.
+hoistDemarcateT :: (forall b. t m b -> t' m b) -> Demarcate t m a -> Demarcate t' m a
+hoistDemarcateT phi = iterM hoistDemarcateF . unDemarcate
+  where
+    hoistDemarcateF (DemarcateMonad m next) = demarcateM m >>= next
+    hoistDemarcateF (DemarcateTrans m next) = demarcateT (phi m) >>= next
+
+-- | Substitute monad computations with demarcated.
+transformDemarcateM :: (forall b. m b -> Demarcate t m b) -> Demarcate t m a -> Demarcate t m a
+transformDemarcateM phi = iterM transformF . unDemarcate
+  where
+    transformF (DemarcateMonad m next) = phi m >>= next
+    transformF (DemarcateTrans m next) = demarcateT m >>= next
+
+-- | Substitute free monad actions with demarcated monad computations.
+transformDemarcateFree :: (Functor f) =>
+  (forall b. f (Demarcate t (Free f) b) -> Demarcate t (Free f) b) -> Demarcate t (Free f) a -> Demarcate t (Free f) a
+transformDemarcateFree phi = transformDemarcateM (iterM phi)
+
+-- | Helper function (useful with @transformDemarcateFree@).
+-- I believe it should be somewhere in @Control.Monad.Free@
+wrapT :: (Functor f, MonadFree f m, MonadTrans t, Monad (t m)) => f (t m a) -> t m a
+wrapT = join . lift . liftF
+
diff --git a/test/Spec.hs b/test/Spec.hs
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+++ b/test/Spec.hs
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+{-# OPTIONS_GHC -F -pgmF hspec-discover #-}