diff --git a/packages/angular-cli/blueprints/module/index.js b/packages/angular-cli/blueprints/module/index.js
index 03022d434651..efe2920c410d 100644
--- a/packages/angular-cli/blueprints/module/index.js
+++ b/packages/angular-cli/blueprints/module/index.js
@@ -58,8 +58,8 @@ module.exports = {
   },
 
   afterInstall: function (options) {
-    options.entity.name = path.join(this.dasherizedModuleName, this.dasherizedModuleName);
-    options.flat = true;
+    options.entity.name = path.relative(this.dynamicPath.appRoot, this.generatePath);
+    options.flat = false;
     options.route = false;
     options.inlineTemplate = false;
     options.inlineStyle = false;
diff --git a/tests/acceptance/generate-module.spec.js b/tests/acceptance/generate-module.spec.js
index 2be0d23e7ae9..e264d22ca271 100644
--- a/tests/acceptance/generate-module.spec.js
+++ b/tests/acceptance/generate-module.spec.js
@@ -56,4 +56,14 @@ describe('Acceptance: ng generate module', function () {
       expect(existsSync(path.join(testPath, 'two-word', 'two-word.module.spec.ts'))).to.equal(false);
     });
   });
+
+  it('ng generate module parent/child', function () {
+    return ng(['generate', 'module', 'parent']).then(() =>
+      ng(['generate', 'module', 'parent/child']).then(() => {
+        expect(existsSync(path.join(testPath, 'parent/child', 'child.module.ts'))).to.equal(true);
+        expect(existsSync(path.join(testPath, 'parent/child', 'child.module.spec.ts'))).to.equal(false);
+        expect(existsSync(path.join(testPath, 'parent/child', 'child.component.ts'))).to.equal(true);
+      })
+    );
+  });
 });