diff --git a/packages/@angular/cli/commands/generate.ts b/packages/@angular/cli/commands/generate.ts
index 211589a314fc..ea728c16d3d3 100644
--- a/packages/@angular/cli/commands/generate.ts
+++ b/packages/@angular/cli/commands/generate.ts
@@ -137,15 +137,18 @@ export default Command.extend({
       dryRun: commandOptions.dryRun
     };
     const parsedPath = dynamicPathParser(dynamicPathOptions);
-    const root = appConfig.root + path.sep;
     commandOptions.sourceDir = appConfig.root;
-    commandOptions.appRoot = parsedPath.appRoot.startsWith(root)
-      ? parsedPath.appRoot.substr(root.length)
-      : parsedPath.appRoot;
+    const root = appConfig.root + path.sep;
+    commandOptions.appRoot = parsedPath.appRoot === appConfig.root ? '' :
+      parsedPath.appRoot.startsWith(root)
+        ? parsedPath.appRoot.substr(root.length)
+        : parsedPath.appRoot;
+
     commandOptions.path = parsedPath.dir.replace(separatorRegEx, '/');
-    if (parsedPath.dir.startsWith(root)) {
-      commandOptions.path = commandOptions.path.substr(root.length);
-    }
+    commandOptions.path = parsedPath.dir === appConfig.root ? '' :
+      parsedPath.dir.startsWith(root)
+        ? commandOptions.path.substr(root.length)
+        : commandOptions.path;
 
     const cwd = this.project.root;
     const schematicName = rawArgs[0];
diff --git a/packages/@angular/cli/lib/config/schema.json b/packages/@angular/cli/lib/config/schema.json
index af5c8d521ef0..3ba988cb8f08 100644
--- a/packages/@angular/cli/lib/config/schema.json
+++ b/packages/@angular/cli/lib/config/schema.json
@@ -33,6 +33,11 @@
             "type": "string",
             "description": "Name of the app."
           },
+          "appRoot": {
+            "type": "string",
+            "description": "Directory where app files are placed.",
+            "default": "app"
+          },
           "root": {
             "type": "string",
             "description": "The root directory of the app."
diff --git a/packages/@angular/cli/utilities/dynamic-path-parser.ts b/packages/@angular/cli/utilities/dynamic-path-parser.ts
index fd0b259bc4ea..c41f5e06ff78 100644
--- a/packages/@angular/cli/utilities/dynamic-path-parser.ts
+++ b/packages/@angular/cli/utilities/dynamic-path-parser.ts
@@ -13,7 +13,9 @@ export interface DynamicPathOptions {
 export function dynamicPathParser(options: DynamicPathOptions) {
   const projectRoot = options.project.root;
   const sourceDir = options.appConfig.root;
-  const appRoot = path.join(sourceDir, 'app');
+
+  const p = options.appConfig.appRoot === undefined ? 'app' : options.appConfig.appRoot;
+  const appRoot = path.join(sourceDir, p);
   const cwd = process.env.PWD;
 
   const rootPath = path.join(projectRoot, appRoot);
diff --git a/tests/acceptance/dynamic-path-parser.spec.ts b/tests/acceptance/dynamic-path-parser.spec.ts
index e694751b509a..48556791ea1c 100644
--- a/tests/acceptance/dynamic-path-parser.spec.ts
+++ b/tests/acceptance/dynamic-path-parser.spec.ts
@@ -50,6 +50,32 @@ describe('dynamic path parser', () => {
     expect(result.name).toBe(entityName);
   });
 
+  it('respects the appRoot configuration', () => {
+    process.env.PWD = project.root;
+    const options = {
+      project,
+      entityName,
+      appConfig: {...appConfig, appRoot: 'other'},
+      dryRun: false
+    };
+    const result = dynamicPathParser(options);
+    expect(result.dir).toBe(`src${path.sep}other`);
+    expect(result.name).toBe(entityName);
+  });
+
+  it('respects the empty appRoot configuration', () => {
+    process.env.PWD = project.root;
+    const options = {
+      project,
+      entityName,
+      appConfig: <any>{...appConfig, appRoot: ''},
+      dryRun: false
+    };
+    const result = dynamicPathParser(options);
+    expect(result.dir).toBe(`src`);
+    expect(result.name).toBe(entityName);
+  });
+
   it('parse from proj src dir', () => {
     process.env.PWD = path.join(project.root, 'src');
     const options = {
diff --git a/tests/acceptance/generate-component.spec.ts b/tests/acceptance/generate-component.spec.ts
index a98b03ee0a62..3d37213c78d6 100644
--- a/tests/acceptance/generate-component.spec.ts
+++ b/tests/acceptance/generate-component.spec.ts
@@ -345,5 +345,22 @@ describe('Acceptance: ng generate component', () => {
         })
         .then(done, done.fail);
     });
+
+    describe('should generate components in apps with empty appRoot', () => {
+      it('should work', (done) => {
+        const appRoot = path.join(root, 'tmp/foo');
+        mkdirsSync(path.join(appRoot, 'other', 'src'));
+
+        return ng(['generate', 'module', 'm', '--app', 'other']).then(() => {
+          const expectedModule = path.join(appRoot, 'other', 'src', 'm', 'm.module.ts');
+          expect(pathExistsSync(expectedModule)).toBe(true);
+
+          return ng(['generate', 'component', 'm/c', '--app', 'other', '--module', 'm']).then(() => {
+            expect(pathExistsSync(path.join(appRoot, 'other', 'src', 'm', 'c', 'c.component.ts'))).toBe(true);
+            expect(readFileSync(expectedModule, 'utf-8')).toContain(`import { CComponent } from './c/c.component'`);
+          });
+        }).then(done, done.fail);
+      });
+    });
   });
 });
diff --git a/tests/helpers/index.ts b/tests/helpers/index.ts
index acb42494d57d..bf2c9e0be9bf 100644
--- a/tests/helpers/index.ts
+++ b/tests/helpers/index.ts
@@ -1,3 +1,5 @@
+import * as path from 'path';
+import {writeFile, readFile} from 'fs-extra';
 import { ng } from './ng';
 import { setup, teardown } from './tmp';
 
@@ -10,6 +12,7 @@ export function setupProject() {
     setup('./tmp')
       .then(() => process.chdir('./tmp'))
       .then(() => ng(['new', 'foo', '--skip-install']))
+      .then(() => addAppToProject())
       .then(done, done.fail);
   }, 10000);
 
@@ -17,3 +20,14 @@ export function setupProject() {
     teardown('./tmp').then(done, done.fail);
   });
 }
+
+function addAppToProject(): Promise<any> {
+  const cliJson = path.join(path.join(process.cwd()), '.angular-cli.json');
+  return readFile(cliJson, 'utf-8').then(content => {
+    const json = JSON.parse(content);
+    json.apps.push(({name: 'other', root: 'other/src', appRoot: ''}));
+    return json;
+  }).then(json => {
+    return writeFile(cliJson, JSON.stringify(json, null, 2))
+  });
+}