diff --git a/src/compiler/program.ts b/src/compiler/program.ts
index d70d1f8f60d9e..a254b04d17410 100644
--- a/src/compiler/program.ts
+++ b/src/compiler/program.ts
@@ -1066,19 +1066,15 @@ namespace ts {
         return resolutions;
     }
 
-    function getInferredTypesRoot(options: CompilerOptions, rootFiles: string[], host: CompilerHost) {
-        return computeCommonSourceDirectoryOfFilenames(rootFiles, host.getCurrentDirectory(), f => host.getCanonicalFileName(f));
-    }
-
     /**
-      * Given a set of options and a set of root files, returns the set of type directive names
+      * Given a set of options, returns the set of type directive names
       *   that should be included for this program automatically.
       * This list could either come from the config file,
       *   or from enumerating the types root + initial secondary types lookup location.
       * More type directives might appear in the program later as a result of loading actual source files;
       *   this list is only the set of defaults that are implicitly included.
       */
-    export function getAutomaticTypeDirectiveNames(options: CompilerOptions, rootFiles: string[], host: CompilerHost): string[] {
+    export function getAutomaticTypeDirectiveNames(options: CompilerOptions, host: ModuleResolutionHost): string[] {
         // Use explicit type list from tsconfig.json
         if (options.types) {
             return options.types;
@@ -1091,7 +1087,10 @@ namespace ts {
             if (typeRoots) {
                 for (const root of typeRoots) {
                     if (host.directoryExists(root)) {
-                        result = result.concat(host.getDirectories(root));
+                        for (const typeDirectivePath of host.getDirectories(root)) {
+                            // Return just the type directive names
+                            result = result.concat(getBaseFileName(normalizePath(typeDirectivePath)));
+                        }
                     }
                 }
             }
@@ -1166,11 +1165,11 @@ namespace ts {
             forEach(rootNames, name => processRootFile(name, /*isDefaultLib*/ false));
 
             // load type declarations specified via 'types' argument or implicitly from types/ and node_modules/@types folders
-            const typeReferences: string[] = getAutomaticTypeDirectiveNames(options, rootNames, host);
+            const typeReferences: string[] = getAutomaticTypeDirectiveNames(options, host);
 
             if (typeReferences) {
-                const inferredRoot = getInferredTypesRoot(options, rootNames, host);
-                const containingFilename = combinePaths(inferredRoot, "__inferred type names__.ts");
+                // This containingFilename needs to match with the one used in managed-side
+                const containingFilename = combinePaths(host.getCurrentDirectory(), "__inferred type names__.ts");
                 const resolutions = resolveTypeReferenceDirectiveNamesWorker(typeReferences, containingFilename);
                 for (let i = 0; i < typeReferences.length; i++) {
                     processTypeReferenceDirective(typeReferences[i], resolutions[i]);
diff --git a/src/compiler/types.ts b/src/compiler/types.ts
index 981c9db96f2bb..b1bbd24b0337c 100644
--- a/src/compiler/types.ts
+++ b/src/compiler/types.ts
@@ -2872,6 +2872,7 @@ namespace ts {
         directoryExists?(directoryName: string): boolean;
         realpath?(path: string): string;
         getCurrentDirectory?(): string;
+        getDirectories?(path: string): string[];
     }
 
     export interface ResolvedModule {
diff --git a/src/services/services.ts b/src/services/services.ts
index b03cc932d2a9b..65c816eeae59e 100644
--- a/src/services/services.ts
+++ b/src/services/services.ts
@@ -1794,7 +1794,7 @@ namespace ts {
         };
     }
 
-    // Cache host information about scrip Should be refreshed
+    // Cache host information about script should be refreshed
     // at each language service public entry point, since we don't know when
     // set of scripts handled by the host changes.
     class HostCache {
diff --git a/src/services/shims.ts b/src/services/shims.ts
index e8b9b59b3cdad..2f6b958d37a92 100644
--- a/src/services/shims.ts
+++ b/src/services/shims.ts
@@ -72,8 +72,13 @@ namespace ts {
         directoryExists(directoryName: string): boolean;
     }
 
-    /** Public interface of the the of a config service shim instance.*/
-    export interface CoreServicesShimHost extends Logger, ModuleResolutionHost {
+    /** Public interface of the core-services host instance used in managed side */
+    export interface CoreServicesShimHost extends Logger {
+        directoryExists(directoryName: string): boolean;
+        fileExists(fileName: string): boolean;
+        getCurrentDirectory(): string;
+        getDirectories(path: string): string;
+
         /**
          * Returns a JSON-encoded value of the type: string[]
          *
@@ -81,9 +86,14 @@ namespace ts {
          *  when enumerating the directory.
          */
         readDirectory(rootDir: string, extension: string, basePaths?: string, excludeEx?: string, includeFileEx?: string, includeDirEx?: string, depth?: number): string;
-        useCaseSensitiveFileNames?(): boolean;
-        getCurrentDirectory(): string;
+
+        /**
+         * Read arbitary text files on disk, i.e. when resolution procedure needs the content of 'package.json' to determine location of bundled typings for node modules
+         */
+        readFile(fileName: string): string;
+        realpath?(path: string): string;
         trace(s: string): void;
+        useCaseSensitiveFileNames?(): boolean;
     }
 
     ///
@@ -240,6 +250,7 @@ namespace ts {
     }
 
     export interface CoreServicesShim extends Shim {
+        getAutomaticTypeDirectiveNames(compilerOptionsJson: string): string;
         getPreProcessedFileInfo(fileName: string, sourceText: IScriptSnapshot): string;
         getTSConfigFileInfo(fileName: string, sourceText: IScriptSnapshot): string;
         getDefaultCompilationSettings(): string;
@@ -492,6 +503,10 @@ namespace ts {
         private readDirectoryFallback(rootDir: string, extension: string, exclude: string[]) {
             return JSON.parse(this.shimHost.readDirectory(rootDir, extension, JSON.stringify(exclude)));
         }
+
+        public getDirectories(path: string): string[] {
+            return JSON.parse(this.shimHost.getDirectories(path));
+        }
     }
 
     function simpleForwardCall(logger: Logger, actionDescription: string, action: () => any, logPerformance: boolean): any {
@@ -1003,7 +1018,7 @@ namespace ts {
 
         public getPreProcessedFileInfo(fileName: string, sourceTextSnapshot: IScriptSnapshot): string {
             return this.forwardJSONCall(
-                "getPreProcessedFileInfo('" + fileName + "')",
+                `getPreProcessedFileInfo('${fileName}')`,
                 () => {
                     // for now treat files as JavaScript
                     const result = preProcessFile(sourceTextSnapshot.getText(0, sourceTextSnapshot.getLength()), /* readImportFiles */ true, /* detectJavaScriptImports */ true);
@@ -1017,6 +1032,16 @@ namespace ts {
                 });
         }
 
+        public getAutomaticTypeDirectiveNames(compilerOptionsJson: string): string {
+            return this.forwardJSONCall(
+                `getAutomaticTypeDirectiveNames('${compilerOptionsJson}')`,
+                () => {
+                    const compilerOptions = <CompilerOptions>JSON.parse(compilerOptionsJson);
+                    return getAutomaticTypeDirectiveNames(compilerOptions, this.host);
+                }
+            );
+        }
+
         private convertFileReferences(refs: FileReference[]): IFileReference[] {
             if (!refs) {
                 return undefined;
diff --git a/tests/baselines/reference/library-reference-13.trace.json b/tests/baselines/reference/library-reference-13.trace.json
index d8dfb57c2a66f..a23f0ef0ca56e 100644
--- a/tests/baselines/reference/library-reference-13.trace.json
+++ b/tests/baselines/reference/library-reference-13.trace.json
@@ -1,5 +1,5 @@
 [
-    "======== Resolving type reference directive 'jquery', containing file '/a/b/__inferred type names__.ts', root directory '/a/types'. ========",
+    "======== Resolving type reference directive 'jquery', containing file '/__inferred type names__.ts', root directory '/a/types'. ========",
     "Resolving with primary search path '/a/types'",
     "File '/a/types/jquery/package.json' does not exist.",
     "File '/a/types/jquery/index.d.ts' exist - use it as a name resolution result.",
diff --git a/tests/baselines/reference/library-reference-14.trace.json b/tests/baselines/reference/library-reference-14.trace.json
index d8dfb57c2a66f..fb3a2bb7da48d 100644
--- a/tests/baselines/reference/library-reference-14.trace.json
+++ b/tests/baselines/reference/library-reference-14.trace.json
@@ -1,5 +1,5 @@
 [
-    "======== Resolving type reference directive 'jquery', containing file '/a/b/__inferred type names__.ts', root directory '/a/types'. ========",
+    "======== Resolving type reference directive 'jquery', containing file '/a/__inferred type names__.ts', root directory '/a/types'. ========",
     "Resolving with primary search path '/a/types'",
     "File '/a/types/jquery/package.json' does not exist.",
     "File '/a/types/jquery/index.d.ts' exist - use it as a name resolution result.",
diff --git a/tests/baselines/reference/library-reference-15.trace.json b/tests/baselines/reference/library-reference-15.trace.json
index 3e9d7dba1d21d..e23517976b0e4 100644
--- a/tests/baselines/reference/library-reference-15.trace.json
+++ b/tests/baselines/reference/library-reference-15.trace.json
@@ -1,5 +1,5 @@
 [
-    "======== Resolving type reference directive 'jquery', containing file '/a/b/__inferred type names__.ts', root directory 'types'. ========",
+    "======== Resolving type reference directive 'jquery', containing file '/a/__inferred type names__.ts', root directory 'types'. ========",
     "Resolving with primary search path 'types'",
     "File 'types/jquery/package.json' does not exist.",
     "File 'types/jquery/index.d.ts' exist - use it as a name resolution result.",
diff --git a/tests/baselines/reference/library-reference-2.trace.json b/tests/baselines/reference/library-reference-2.trace.json
index c26f7d2763d7f..64cdd8091832f 100644
--- a/tests/baselines/reference/library-reference-2.trace.json
+++ b/tests/baselines/reference/library-reference-2.trace.json
@@ -5,7 +5,7 @@
     "'package.json' has 'types' field 'jquery.d.ts' that references '/types/jquery/jquery.d.ts'.",
     "File '/types/jquery/jquery.d.ts' exist - use it as a name resolution result.",
     "======== Type reference directive 'jquery' was successfully resolved to '/types/jquery/jquery.d.ts', primary: true. ========",
-    "======== Resolving type reference directive 'jquery', containing file '/__inferred type names__.ts', root directory '/types'. ========",
+    "======== Resolving type reference directive 'jquery', containing file 'test/__inferred type names__.ts', root directory '/types'. ========",
     "Resolving with primary search path '/types'",
     "Found 'package.json' at '/types/jquery/package.json'.",
     "'package.json' has 'types' field 'jquery.d.ts' that references '/types/jquery/jquery.d.ts'.",
diff --git a/tests/baselines/reference/library-reference-6.trace.json b/tests/baselines/reference/library-reference-6.trace.json
index 48fb49e6c7fb9..fd83c1431b438 100644
--- a/tests/baselines/reference/library-reference-6.trace.json
+++ b/tests/baselines/reference/library-reference-6.trace.json
@@ -4,7 +4,7 @@
     "File '/node_modules/@types/alpha/package.json' does not exist.",
     "File '/node_modules/@types/alpha/index.d.ts' exist - use it as a name resolution result.",
     "======== Type reference directive 'alpha' was successfully resolved to '/node_modules/@types/alpha/index.d.ts', primary: true. ========",
-    "======== Resolving type reference directive 'alpha', containing file '/src/__inferred type names__.ts', root directory '/node_modules/@types'. ========",
+    "======== Resolving type reference directive 'alpha', containing file '/__inferred type names__.ts', root directory '/node_modules/@types'. ========",
     "Resolving with primary search path '/node_modules/@types'",
     "File '/node_modules/@types/alpha/package.json' does not exist.",
     "File '/node_modules/@types/alpha/index.d.ts' exist - use it as a name resolution result.",
diff --git a/tests/baselines/reference/typeReferenceDirectives1.js b/tests/baselines/reference/typeReferenceDirectives1.js
index 775af9c5283f3..a621081993126 100644
--- a/tests/baselines/reference/typeReferenceDirectives1.js
+++ b/tests/baselines/reference/typeReferenceDirectives1.js
@@ -2,7 +2,6 @@
 
 //// [index.d.ts]
 
-
 interface $ { x }
 
 //// [app.ts]
diff --git a/tests/baselines/reference/typeReferenceDirectives1.symbols b/tests/baselines/reference/typeReferenceDirectives1.symbols
index 55c17b219ecaa..a33a2aba4082d 100644
--- a/tests/baselines/reference/typeReferenceDirectives1.symbols
+++ b/tests/baselines/reference/typeReferenceDirectives1.symbols
@@ -9,8 +9,7 @@ interface A {
 }
 === /types/lib/index.d.ts ===
 
-
 interface $ { x }
 >$ : Symbol($, Decl(index.d.ts, 0, 0))
->x : Symbol($.x, Decl(index.d.ts, 2, 13))
+>x : Symbol($.x, Decl(index.d.ts, 1, 13))
 
diff --git a/tests/baselines/reference/typeReferenceDirectives1.types b/tests/baselines/reference/typeReferenceDirectives1.types
index 05080e05651dd..be789a08ddc5c 100644
--- a/tests/baselines/reference/typeReferenceDirectives1.types
+++ b/tests/baselines/reference/typeReferenceDirectives1.types
@@ -9,7 +9,6 @@ interface A {
 }
 === /types/lib/index.d.ts ===
 
-
 interface $ { x }
 >$ : $
 >x : any
diff --git a/tests/cases/compiler/typeReferenceDirectives1.ts b/tests/cases/compiler/typeReferenceDirectives1.ts
index e17e498b9784d..13c84c7ae5e9b 100644
--- a/tests/cases/compiler/typeReferenceDirectives1.ts
+++ b/tests/cases/compiler/typeReferenceDirectives1.ts
@@ -2,7 +2,7 @@
 // @traceResolution: true
 // @declaration: true
 // @typeRoots: /types
-
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 interface $ { x }
diff --git a/tests/cases/compiler/typeReferenceDirectives10.ts b/tests/cases/compiler/typeReferenceDirectives10.ts
index 61971ba44b2ad..1eb796d03fd25 100644
--- a/tests/cases/compiler/typeReferenceDirectives10.ts
+++ b/tests/cases/compiler/typeReferenceDirectives10.ts
@@ -2,6 +2,7 @@
 // @declaration: true
 // @typeRoots: /types
 // @traceResolution: true
+// @currentDirectory: /
 
 // @filename: /ref.d.ts
 export interface $ { x }
diff --git a/tests/cases/compiler/typeReferenceDirectives11.ts b/tests/cases/compiler/typeReferenceDirectives11.ts
index 2d93e22bdcf23..8b56459cd697f 100644
--- a/tests/cases/compiler/typeReferenceDirectives11.ts
+++ b/tests/cases/compiler/typeReferenceDirectives11.ts
@@ -4,6 +4,7 @@
 // @traceResolution: true
 // @types: lib
 // @out: output.js
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 
diff --git a/tests/cases/compiler/typeReferenceDirectives12.ts b/tests/cases/compiler/typeReferenceDirectives12.ts
index efdb1e8312b6f..f1abe27f05f36 100644
--- a/tests/cases/compiler/typeReferenceDirectives12.ts
+++ b/tests/cases/compiler/typeReferenceDirectives12.ts
@@ -3,6 +3,7 @@
 // @typeRoots: /types
 // @traceResolution: true
 // @out: output.js
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 
diff --git a/tests/cases/compiler/typeReferenceDirectives13.ts b/tests/cases/compiler/typeReferenceDirectives13.ts
index 124c31274ace4..f9dede73267bd 100644
--- a/tests/cases/compiler/typeReferenceDirectives13.ts
+++ b/tests/cases/compiler/typeReferenceDirectives13.ts
@@ -2,6 +2,7 @@
 // @declaration: true
 // @typeRoots: /types
 // @traceResolution: true
+// @currentDirectory: /
 
 // @filename: /ref.d.ts
 export interface $ { x }
diff --git a/tests/cases/compiler/typeReferenceDirectives2.ts b/tests/cases/compiler/typeReferenceDirectives2.ts
index 31a01a0b8e4bc..44218683a5a99 100644
--- a/tests/cases/compiler/typeReferenceDirectives2.ts
+++ b/tests/cases/compiler/typeReferenceDirectives2.ts
@@ -3,6 +3,7 @@
 // @declaration: true
 // @typeRoots: /types
 // @types: lib
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 interface $ { x }
diff --git a/tests/cases/compiler/typeReferenceDirectives3.ts b/tests/cases/compiler/typeReferenceDirectives3.ts
index 4c2729ab389b3..1baf0bdac9d28 100644
--- a/tests/cases/compiler/typeReferenceDirectives3.ts
+++ b/tests/cases/compiler/typeReferenceDirectives3.ts
@@ -2,6 +2,7 @@
 // @declaration: true
 // @typeRoots: /types
 // @traceResolution: true
+// @currentDirectory: /
 
 // $ comes from d.ts file - no need to add type reference directive
 
diff --git a/tests/cases/compiler/typeReferenceDirectives4.ts b/tests/cases/compiler/typeReferenceDirectives4.ts
index ac7346895ef7d..dfa87b651387b 100644
--- a/tests/cases/compiler/typeReferenceDirectives4.ts
+++ b/tests/cases/compiler/typeReferenceDirectives4.ts
@@ -2,6 +2,7 @@
 // @traceResolution: true
 // @declaration: true
 // @typeRoots: /types
+// @currentDirectory: /
 
 // $ comes from d.ts file - no need to add type reference directive
 
diff --git a/tests/cases/compiler/typeReferenceDirectives5.ts b/tests/cases/compiler/typeReferenceDirectives5.ts
index bb24b82b32466..e81ae663e24f6 100644
--- a/tests/cases/compiler/typeReferenceDirectives5.ts
+++ b/tests/cases/compiler/typeReferenceDirectives5.ts
@@ -2,6 +2,7 @@
 // @traceResolution: true
 // @declaration: true
 // @typeRoots: /types
+// @currentDirectory: /
 
 // @filename: /ref.d.ts
 export interface $ { x }
diff --git a/tests/cases/compiler/typeReferenceDirectives6.ts b/tests/cases/compiler/typeReferenceDirectives6.ts
index 7154963f1efa3..edf2ece7e06dc 100644
--- a/tests/cases/compiler/typeReferenceDirectives6.ts
+++ b/tests/cases/compiler/typeReferenceDirectives6.ts
@@ -2,6 +2,7 @@
 // @traceResolution: true
 // @declaration: true
 // @typeRoots: /types
+// @currentDirectory: /
 
 // $ comes from type declaration file - type reference directive should be added
 
diff --git a/tests/cases/compiler/typeReferenceDirectives7.ts b/tests/cases/compiler/typeReferenceDirectives7.ts
index 79d42fa701853..e9335b0708209 100644
--- a/tests/cases/compiler/typeReferenceDirectives7.ts
+++ b/tests/cases/compiler/typeReferenceDirectives7.ts
@@ -2,6 +2,7 @@
 // @traceResolution: true
 // @declaration: true
 // @typeRoots: /types
+// @currentDirectory: /
 
 // local value shadows global - no need to add type reference directive 
    
diff --git a/tests/cases/compiler/typeReferenceDirectives8.ts b/tests/cases/compiler/typeReferenceDirectives8.ts
index c7725a3aab1ab..bed69cbf35739 100644
--- a/tests/cases/compiler/typeReferenceDirectives8.ts
+++ b/tests/cases/compiler/typeReferenceDirectives8.ts
@@ -3,6 +3,7 @@
 // @typeRoots: /types
 // @traceResolution: true
 // @types: lib
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 
diff --git a/tests/cases/compiler/typeReferenceDirectives9.ts b/tests/cases/compiler/typeReferenceDirectives9.ts
index 610c7173c898b..1ad1aa522885b 100644
--- a/tests/cases/compiler/typeReferenceDirectives9.ts
+++ b/tests/cases/compiler/typeReferenceDirectives9.ts
@@ -2,6 +2,7 @@
 // @declaration: true
 // @typeRoots: /types
 // @traceResolution: true
+// @currentDirectory: /
 
 // @filename: /types/lib/index.d.ts
 
diff --git a/tests/cases/conformance/references/library-reference-13.ts b/tests/cases/conformance/references/library-reference-13.ts
index 92b4b259ba4a9..419643d9d0d90 100644
--- a/tests/cases/conformance/references/library-reference-13.ts
+++ b/tests/cases/conformance/references/library-reference-13.ts
@@ -1,5 +1,6 @@
 // @noImplicitReferences: true
 // @traceResolution: true
+// @currentDirectory: /
 
 // load type declarations from types section of tsconfig
 
diff --git a/tests/cases/conformance/typings/typingsLookup1.ts b/tests/cases/conformance/typings/typingsLookup1.ts
index 555d4569af34d..150deef992ac1 100644
--- a/tests/cases/conformance/typings/typingsLookup1.ts
+++ b/tests/cases/conformance/typings/typingsLookup1.ts
@@ -1,5 +1,6 @@
 // @traceResolution: true
 // @noImplicitReferences: true
+// @currentDirectory: /
 
 // @filename: /tsconfig.json
 { "files": "a.ts" }