Perceptual grouping can lead observers to perceive a multielement scene as a smaller number of hierarchical units. Past work has shown that grouping enables more elements to be stored in visual working memory (WM). Although this may appear to contradict so-called discrete resource models that argue for fixed item limits in WM storage, it is also possible that grouping reduces the effective number of "items" in the display. To test this hypothesis, we examined how mnemonic resolution declined as the number of items to be stored increased. Discrete resource models predict that precision will reach a stable plateau at relatively early set sizes, because no further items can be stored once putative item limits are exceeded. Thus, we examined whether the precision by set size function was bilinear when storage was enhanced via perceptual grouping. In line with the hypothesis that each perceptual group counted as a single "item," precision still reached a clear plateau at a set size determined by the number of stored groups. Moreover, the maximum number of elements stored was doubled, and electrophysiological measures showed that selection and storage-related neural responses were the same for a single element and a multielement perceptual group. Thus, perceptual grouping allows more elements to be held in working memory while storage is still constrained by a discrete item limit. (Contains 7 figures.)