diff --git a/api.js b/api.js
index 92ccfcebd..68b121102 100644
--- a/api.js
+++ b/api.js
@@ -118,10 +118,13 @@ Api.prototype._setupPrecompiler = function (files) {
 	var cacheDir = uniqueTempDir();
 
 	if (isCacheEnabled) {
-		cacheDir = findCacheDir({
+		var foundDir = findCacheDir({
 			name: 'ava',
 			files: files
 		});
+		if (foundDir !== null) {
+			cacheDir = foundDir;
+		}
 	}
 
 	this.options.cacheDir = cacheDir;
diff --git a/lib/cli.js b/lib/cli.js
index 31e66ac0c..a5efea564 100644
--- a/lib/cli.js
+++ b/lib/cli.js
@@ -22,7 +22,9 @@ Promise.longStackTraces();
 
 exports.run = function () {
 	var conf = pkgConf.sync('ava');
-	var pkgDir = path.dirname(pkgConf.filepath(conf));
+
+	var filepath = pkgConf.filepath(conf);
+	var pkgDir = filepath === null ? process.cwd() : path.dirname(filepath);
 
 	var cli = meow([
 		'Usage',
diff --git a/test/cli.js b/test/cli.js
index 1430823b0..fc9119fb0 100644
--- a/test/cli.js
+++ b/test/cli.js
@@ -12,6 +12,8 @@ var mkdirp = require('mkdirp');
 var touch = require('touch');
 var proxyquire = require('proxyquire');
 var sinon = require('sinon');
+var uniqueTempDir = require('unique-temp-dir');
+var execa = require('execa');
 
 var cliPath = path.join(__dirname, '../cli.js');
 
@@ -371,6 +373,17 @@ test('prefers local version of ava', function (t) {
 	t.end();
 });
 
+test('use current working directory if `package.json` is not found', function () {
+	var cwd = uniqueTempDir({create: true});
+	var testFilePath = path.join(cwd, 'test.js');
+	var cliPath = require.resolve('../cli.js');
+	var avaPath = require.resolve('../');
+
+	fs.writeFileSync(testFilePath, 'import test from ' + JSON.stringify(avaPath) + ';\ntest(t => { t.pass(); });');
+
+	return execa(process.execPath, [cliPath], {cwd: cwd});
+});
+
 test('workers ensure test files load the same version of ava', function (t) {
 	var target = path.join(__dirname, 'fixture', 'ava-paths', 'target');