diff --git a/src/harness/unittests/tsserverProjectSystem.ts b/src/harness/unittests/tsserverProjectSystem.ts
index e960a8cbb88..5f04b643a35 100644
--- a/src/harness/unittests/tsserverProjectSystem.ts
+++ b/src/harness/unittests/tsserverProjectSystem.ts
@@ -4074,11 +4074,11 @@ namespace ts.projectSystem {
             // Open file1 -> configFile
             verifyConfigFileName(file1, "/a", configFile);
             verifyConfigFileName(file1, "/a/b", configFile);
-            verifyConfigFileName(file1, "/a/B", useCaseSensitiveFileNames ? undefined : configFile);
+            verifyConfigFileName(file1, "/a/B", configFile);
 
             // Open file2 use root "/a/b"
             verifyConfigFileName(file2, "/a", useCaseSensitiveFileNames ? configFile2 : configFile);
-            verifyConfigFileName(file2, "/a/b", useCaseSensitiveFileNames ? undefined : configFile);
+            verifyConfigFileName(file2, "/a/b", useCaseSensitiveFileNames ? configFile2 : configFile);
             verifyConfigFileName(file2, "/a/B", useCaseSensitiveFileNames ? undefined : configFile);
 
             function verifyConfigFileName(file: FileOrFolder, projectRoot: string, expectedConfigFile: FileOrFolder | undefined) {
@@ -5607,6 +5607,88 @@ namespace ts.projectSystem {
             checkWatchedDirectories(host, [], /*recursive*/ false);
             checkWatchedDirectories(host, getTypeRootsFromLocation(projectDir), /*recursive*/ true);
         });
+
+        describe("when the opened file is not from project root", () => {
+            const projectRoot = "/a/b/projects/project";
+            const file: FileOrFolder = {
+                path: `${projectRoot}/src/index.ts`,
+                content: "let y = 10"
+            };
+            const tsconfig: FileOrFolder = {
+                path: `${projectRoot}/tsconfig.json`,
+                content: "{}"
+            };
+            const files = [file, libFile];
+            const filesWithConfig = files.concat(tsconfig);
+            const dirOfFile = getDirectoryPath(file.path);
+
+            function openClientFile(files: FileOrFolder[]) {
+                const host = createServerHost(files);
+                const projectService = createProjectService(host);
+
+                projectService.openClientFile(file.path, /*fileContent*/ undefined, /*scriptKind*/ undefined, "/a/b/projects/proj");
+                return { host, projectService };
+            }
+
+            function verifyConfiguredProject(host: TestServerHost, projectService: TestProjectService, orphanInferredProject?: boolean) {
+                projectService.checkNumberOfProjects({ configuredProjects: 1, inferredProjects: orphanInferredProject ? 1 : 0 });
+                const project = projectService.configuredProjects.get(tsconfig.path);
+                assert.isDefined(project);
+
+                if (orphanInferredProject) {
+                    const inferredProject = projectService.inferredProjects[0];
+                    assert.isTrue(inferredProject.isOrphan());
+                }
+
+                checkProjectActualFiles(project, [file.path, libFile.path, tsconfig.path]);
+                checkWatchedFiles(host, [libFile.path, tsconfig.path]);
+                checkWatchedDirectories(host, emptyArray, /*recursive*/ false);
+                checkWatchedDirectories(host, (orphanInferredProject ? [projectRoot, `${dirOfFile}/node_modules/@types`] : [projectRoot]).concat(getTypeRootsFromLocation(projectRoot)), /*recursive*/ true);
+            }
+
+            function verifyInferredProject(host: TestServerHost, projectService: TestProjectService) {
+                projectService.checkNumberOfProjects({ inferredProjects: 1 });
+                const project = projectService.inferredProjects[0];
+                assert.isDefined(project);
+
+                const filesToWatch = [libFile.path];
+                forEachAncestorDirectory(dirOfFile, ancestor => {
+                    filesToWatch.push(combinePaths(ancestor, "tsconfig.json"));
+                    filesToWatch.push(combinePaths(ancestor, "jsconfig.json"));
+                });
+
+                checkProjectActualFiles(project, [file.path, libFile.path]);
+                checkWatchedFiles(host, filesToWatch);
+                checkWatchedDirectories(host, emptyArray, /*recursive*/ false);
+                checkWatchedDirectories(host, getTypeRootsFromLocation(dirOfFile), /*recursive*/ true);
+            }
+
+            it("tsconfig for the file exists", () => {
+                const { host, projectService } = openClientFile(filesWithConfig);
+                verifyConfiguredProject(host, projectService);
+
+                host.reloadFS(files);
+                host.runQueuedTimeoutCallbacks();
+                verifyInferredProject(host, projectService);
+
+                host.reloadFS(filesWithConfig);
+                host.runQueuedTimeoutCallbacks();
+                verifyConfiguredProject(host, projectService, /*orphanInferredProject*/ true);
+            });
+
+            it("tsconfig for the file does not exist", () => {
+                const { host, projectService } = openClientFile(files);
+                verifyInferredProject(host, projectService);
+
+                host.reloadFS(filesWithConfig);
+                host.runQueuedTimeoutCallbacks();
+                verifyConfiguredProject(host, projectService, /*orphanInferredProject*/ true);
+
+                host.reloadFS(files);
+                host.runQueuedTimeoutCallbacks();
+                verifyInferredProject(host, projectService);
+            });
+        });
     });
 
     describe("tsserverProjectSystem cancellationToken", () => {
diff --git a/src/server/editorServices.ts b/src/server/editorServices.ts
index 2f53faae2cf..4a91b287986 100644
--- a/src/server/editorServices.ts
+++ b/src/server/editorServices.ts
@@ -1197,8 +1197,11 @@ namespace ts.server {
             const projectRootPath = this.openFiles.get(info.path);
 
             let searchPath = asNormalizedPath(getDirectoryPath(info.fileName));
+            const isSearchPathInProjectRoot = () => containsPath(projectRootPath, searchPath, this.currentDirectory, !this.host.useCaseSensitiveFileNames);
 
-            while (!projectRootPath || containsPath(projectRootPath, searchPath, this.currentDirectory, !this.host.useCaseSensitiveFileNames)) {
+            // If projectRootPath doesnt contain info.path, then do normal search for config file
+            const anySearchPathOk = !projectRootPath || !isSearchPathInProjectRoot();
+            do {
                 const canonicalSearchPath = normalizedPathToPath(searchPath, this.currentDirectory, this.toCanonicalFileName);
                 const tsconfigFileName = asNormalizedPath(combinePaths(searchPath, "tsconfig.json"));
                 let result = action(tsconfigFileName, combinePaths(canonicalSearchPath, "tsconfig.json"));
@@ -1217,7 +1220,7 @@ namespace ts.server {
                     break;
                 }
                 searchPath = parentPath;
-            }
+            } while (anySearchPathOk || isSearchPathInProjectRoot());
 
             return undefined;
         }
@@ -1235,7 +1238,7 @@ namespace ts.server {
             this.logger.info(`Search path: ${getDirectoryPath(info.fileName)}`);
             const configFileName = this.forEachConfigFileLocation(info,
                 (configFileName, canonicalConfigFilePath) =>
-                    this.configFileExists(configFileName, canonicalConfigFilePath, info),
+                    this.configFileExists(configFileName, canonicalConfigFilePath, info)
             );
             if (configFileName) {
                 this.logger.info(`For info: ${info.fileName} :: Config file name: ${configFileName}`);