diff --git a/src/compiler/sys.ts b/src/compiler/sys.ts
index 350d75429b7..f930ce295fb 100644
--- a/src/compiler/sys.ts
+++ b/src/compiler/sys.ts
@@ -583,19 +583,40 @@ namespace ts {
             };
         }
 
+        function recursiveCreateDirectory(directoryPath: string, sys: System) {
+            const basePath = getDirectoryPath(directoryPath);
+            const shouldCreateParent = directoryPath !== basePath && !sys.directoryExists(basePath);
+            if (shouldCreateParent) {
+                recursiveCreateDirectory(basePath, sys);
+            }
+            if (shouldCreateParent || !sys.directoryExists(directoryPath)) {
+                sys.createDirectory(directoryPath);
+            }
+        }
+
+        let sys: System;
         if (typeof ChakraHost !== "undefined") {
-            return getChakraSystem();
+            sys = getChakraSystem();
         }
         else if (typeof WScript !== "undefined" && typeof ActiveXObject === "function") {
-            return getWScriptSystem();
+            sys = getWScriptSystem();
         }
         else if (typeof process !== "undefined" && process.nextTick && !process.browser && typeof require !== "undefined") {
             // process and process.nextTick checks if current environment is node-like
             // process.browser check excludes webpack and browserify
-            return getNodeSystem();
+            sys = getNodeSystem();
         }
-        else {
-            return undefined; // Unsupported host
+        if (sys) {
+            // patch writefile to create folder before writing the file
+            const originalWriteFile = sys.writeFile;
+            sys.writeFile = function(path, data, writeBom) {
+                const directoryPath = getDirectoryPath(normalizeSlashes(path));
+                if (!sys.directoryExists(directoryPath)) {
+                    recursiveCreateDirectory(directoryPath, sys);
+                }
+                originalWriteFile.call(sys, path, data, writeBom);
+            };
         }
+        return sys;
     })();
 }
diff --git a/src/server/builder.ts b/src/server/builder.ts
index 1c5ceaf8eb2..639c41d2b63 100644
--- a/src/server/builder.ts
+++ b/src/server/builder.ts
@@ -140,8 +140,10 @@ namespace ts.server {
 
             const { emitSkipped, outputFiles } = this.project.getFileEmitOutput(fileInfo.scriptInfo, /*emitOnlyDtsFiles*/ false);
             if (!emitSkipped) {
+                const projectRootPath = this.project.getProjectRootPath();
                 for (const outputFile of outputFiles) {
-                    writeFile(outputFile.name, outputFile.text, outputFile.writeByteOrderMark);
+                    const outputFileAbsoluteFileName = getNormalizedAbsolutePath(outputFile.name, projectRootPath ? projectRootPath : getDirectoryPath(scriptInfo.fileName));
+                    writeFile(outputFileAbsoluteFileName, outputFile.text, outputFile.writeByteOrderMark);
                 }
             }
             return !emitSkipped;
diff --git a/src/server/editorServices.ts b/src/server/editorServices.ts
index 1f82f2cbe0a..32aa40591ad 100644
--- a/src/server/editorServices.ts
+++ b/src/server/editorServices.ts
@@ -183,7 +183,7 @@ namespace ts.server {
         constructor(public readonly host: ServerHost,
             public readonly logger: Logger,
             public readonly cancellationToken: HostCancellationToken,
-            private readonly useSingleInferredProject: boolean,
+            public readonly useSingleInferredProject: boolean,
             readonly typingsInstaller: ITypingsInstaller = nullTypingsInstaller,
             private readonly eventHandler?: ProjectServiceEventHandler) {
 
diff --git a/src/server/project.ts b/src/server/project.ts
index 7708cf797f0..9b4c7619fbb 100644
--- a/src/server/project.ts
+++ b/src/server/project.ts
@@ -143,6 +143,7 @@ namespace ts.server {
         }
 
         abstract getProjectName(): string;
+        abstract getProjectRootPath(): string | undefined;
         abstract getTypingOptions(): TypingOptions;
 
         getSourceFile(path: Path) {
@@ -537,6 +538,15 @@ namespace ts.server {
             return this.inferredProjectName;
         }
 
+        getProjectRootPath() {
+            // Single inferred project does not have a project root.
+            if (this.projectService.useSingleInferredProject) {
+                return undefined;
+            }
+            const rootFiles = this.getRootFiles();
+            return getDirectoryPath(rootFiles[0]);
+        }
+
         close() {
             super.close();
 
@@ -574,6 +584,10 @@ namespace ts.server {
             super(ProjectKind.Configured, projectService, documentRegistry, hasExplicitListOfFiles, languageServiceEnabled, compilerOptions, compileOnSaveEnabled);
         }
 
+        getProjectRootPath() {
+            return getDirectoryPath(this.configFileName);
+        }
+
         setProjectErrors(projectErrors: Diagnostic[]) {
             this.projectErrors = projectErrors;
         }
@@ -662,10 +676,21 @@ namespace ts.server {
             documentRegistry: ts.DocumentRegistry,
             compilerOptions: CompilerOptions,
             languageServiceEnabled: boolean,
-            public compileOnSaveEnabled: boolean) {
+            public compileOnSaveEnabled: boolean,
+            private readonly projectFilePath?: string) {
             super(ProjectKind.External, projectService, documentRegistry, /*hasExplicitListOfFiles*/ true, languageServiceEnabled, compilerOptions, compileOnSaveEnabled);
         }
 
+        getProjectRootPath() {
+            if (this.projectFilePath) {
+                return getDirectoryPath(this.projectFilePath);
+            }
+            // if the projectFilePath is not given, we make the assumption that the project name
+            // is the path of the project file. AS the project name is provided by VS, we need to
+            // normalize slashes before using it as a file name.
+            return getDirectoryPath(normalizeSlashes(this.externalProjectName));
+        }
+
         getTypingOptions() {
             return this.typingOptions;
         }