absolute

HTML

<div class="layer layer1">container should expand to the bottom of the child.
    <div class="layer layer2" contentEditable>Child with<br/>editable text.</div>
</div>

CSS

div.layer { position: absolute }
div.layer1 { width: 400px; border: 1px solid #ccc }
div.layer2 { top: 15px; left: 100px; width: 100px; border: 1px solid blue }

JavaScript

var layer1 = document.getElementsByClassName('layer1'),
    i = 0, len = layer1.length, childHeight;
for(; i < len; i++) {
    childHeight = layer1[i].getElementsByClassName('layer')[0].clientHeight;
    layer1[i].style.height = childHeight + 'px';
}
document.addEventListener('keyup', function(e) {
    if(e.target.className.indexOf('layer2') !== false) {
        e.target.parentNode.style.height = e.target.clientHeight + 'px';
    }
});