diff --git a/src/main.js b/src/main.js
index 839f5b226a96f5e43f4ac16edcfc9ff8a59c6a6a..362345c3ff19c0189113d9cfcae97582abb666fa 100644
--- a/src/main.js
+++ b/src/main.js
@@ -95,13 +95,16 @@ function getNLSConfiguration() {
 	return { locale: initialLocale, availableLanguages: {} };
 }
 
-// Change cwd if given via env variable
+// Update cwd based on environment and platform
 try {
-	if (process.env.VSCODE_CWD) {
+	if (process.platform === 'win32') {
+		process.env.VSCODE_CWD = process.cwd(); // remember as environment variable
+		process.chdir(path.dirname(app.getPath('exe'))); // always set application folder as cwd
+	} else if (process.env.VSCODE_CWD) {
 		process.chdir(process.env.VSCODE_CWD);
 	}
 } catch (err) {
-	// noop
+	console.error(err);
 }
 
 // Set path according to being built or not
@@ -121,12 +124,12 @@ args.forEach(function (arg) {
 // Mac: when someone drops a file to the not-yet running VSCode, the open-file event fires even before
 // the app-ready event. We listen very early for open-file and remember this upon startup as path to open.
 global.macOpenFiles = [];
-app.on('open-file', function(event, path) {
+app.on('open-file', function (event, path) {
 	global.macOpenFiles.push(path);
 });
 
 // Load our code once ready
-app.once('ready', function() {
+app.once('ready', function () {
 	var nlsConfig = getNLSConfiguration();
 	process.env['VSCODE_NLS_CONFIG'] = JSON.stringify(nlsConfig);
 	require('./bootstrap-amd').bootstrap('vs/workbench/electron-main/main');
diff --git a/src/vs/workbench/electron-main/env.ts b/src/vs/workbench/electron-main/env.ts
index 0b6c8a0c0fb07b4d2628ebe2c4e94e79f6312480..0c2265893e37fe9fe0ac0f8d04e4934fe835cdc7 100644
--- a/src/vs/workbench/electron-main/env.ts
+++ b/src/vs/workbench/electron-main/env.ts
@@ -64,6 +64,8 @@ export const isBuilt = !process.env.VSCODE_DEV;
 
 export const appRoot = path.dirname(uri.parse(require.toUrl('')).fsPath);
 
+export const currentWorkingDirectory = process.env.VSCODE_CWD || process.cwd();
+
 let productContents: IProductConfiguration;
 try {
 	productContents = JSON.parse(fs.readFileSync(path.join(appRoot, 'product.json'), 'utf8'));
@@ -280,7 +282,7 @@ function parsePathArguments(argv: string[], gotoLineMode?: boolean): string[] {
 					}
 
 					if (pathCandidate) {
-						pathCandidate = massagePath(pathCandidate);
+						pathCandidate = preparePath(pathCandidate);
 					}
 
 					let realPath: string;
@@ -289,7 +291,7 @@ function parsePathArguments(argv: string[], gotoLineMode?: boolean): string[] {
 					} catch (error) {
 						// in case of an error, assume the user wants to create this file
 						// if the path is relative, we join it to the cwd
-						realPath = path.normalize(path.isAbsolute(pathCandidate) ? pathCandidate : path.join(process.cwd(), pathCandidate));
+						realPath = path.normalize(path.isAbsolute(pathCandidate) ? pathCandidate : path.join(currentWorkingDirectory, pathCandidate));
 					}
 
 					if (!paths.isValidBasename(path.basename(realPath))) {
@@ -310,30 +312,32 @@ function parsePathArguments(argv: string[], gotoLineMode?: boolean): string[] {
 	);
 }
 
-function massagePath(path: string): string {
+function preparePath(p: string): string {
+
+	// Trim trailing quotes
 	if (platform.isWindows) {
-		path = strings.rtrim(path, '"'); // https://github.com/Microsoft/vscode/issues/1498
+		p = strings.rtrim(p, '"'); // https://github.com/Microsoft/vscode/issues/1498
 	}
 
 	// Trim whitespaces
-	path = strings.trim(strings.trim(path, ' '), '\t');
+	p = strings.trim(strings.trim(p, ' '), '\t');
 
-	// Trim '.' chars on Windows to prevent invalid file names
 	if (platform.isWindows) {
-		path = strings.rtrim(resolvePath(path), '.');
+
+		// Resolve the path against cwd if it is relative
+		p = path.resolve(currentWorkingDirectory, p);
+
+		// Trim trailing '.' chars on Windows to prevent invalid file names
+		p = strings.rtrim(p, '.');
 	}
 
-	return path;
+	return p;
 }
 
 function normalizePath(p?: string): string {
 	return p ? path.normalize(p) : p;
 }
 
-function resolvePath(p?: string): string {
-	return p ? path.resolve(p): p;
-}
-
 function parseNumber(argv: string[], key: string, defaultValue?: number, fallbackValue?: number): number {
 	let value: number;