diff --git a/src/iisnode/cnodeprocess.cpp b/src/iisnode/cnodeprocess.cpp
index b67cf74..0edbc1d 100644
--- a/src/iisnode/cnodeprocess.cpp
+++ b/src/iisnode/cnodeprocess.cpp
@@ -55,6 +55,10 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 	DWORD environmentSize;
 	DWORD flags;
 	HANDLE job;
+	PWSTR currentDirectory = NULL;
+	PSTR currentDirectoryA = NULL;
+	DWORD currentDirectorySize = 0;
+	DWORD currentDirectorySizeA = 0;
 
 	RtlZeroMemory(&processInformation, sizeof processInformation);
 	RtlZeroMemory(&startupInfo, sizeof startupInfo);
@@ -91,7 +95,6 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 
 	// create the environment block for the node.js process - pass in the named pipe name; 
 	// this is a zero terminated list of zero terminated strings of the form <var>=<value>
-
 	ErrorIf(NULL == (currentEnvironment = GetEnvironmentStrings()), GetLastError());
 	environmentSize = 0;
 	do {
@@ -104,6 +107,16 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 	FreeEnvironmentStrings(currentEnvironment);
 	currentEnvironment = NULL;
 
+	// establish the current directory for node.exe process to be the same as the location of the *.js file
+
+	currentDirectory = (PWSTR)context->GetPhysicalPath(&currentDirectorySize);
+	while (currentDirectorySize && currentDirectory[currentDirectorySize] != L'\\' && currentDirectory[currentDirectorySize] != L'/')
+		currentDirectorySize--;
+	ErrorIf(0 == (currentDirectorySizeA = WideCharToMultiByte(CP_ACP, 0, currentDirectory, currentDirectorySize, NULL, 0, NULL, NULL)), E_FAIL);
+	ErrorIf(NULL == (currentDirectoryA = new char[currentDirectorySize + 1]), ERROR_NOT_ENOUGH_MEMORY);
+	ErrorIf(currentDirectorySizeA != WideCharToMultiByte(CP_ACP, 0, currentDirectory, currentDirectorySize, currentDirectoryA, currentDirectorySizeA, NULL, NULL), E_FAIL);
+	currentDirectoryA[currentDirectorySizeA] = '\0';
+
 	// create startup info for the node.js process
 
 	RtlZeroMemory(&this->startupInfo, sizeof this->startupInfo);
@@ -137,7 +150,7 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 			TRUE,
 			flags,
 			newEnvironment,
-			NULL,
+			currentDirectoryA,
 			&this->startupInfo,
 			&processInformation
 		), GetLastError());
@@ -189,6 +202,8 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 
 	// clean up
 
+	delete [] currentDirectoryA;
+	currentDirectoryA = NULL;
 	delete [] newEnvironment;
 	newEnvironment = NULL;
 	delete [] fullCommandLine;
@@ -199,6 +214,12 @@ HRESULT CNodeProcess::Initialize(IHttpContext* context)
 	return S_OK;
 Error:
 
+	if (currentDirectoryA)
+	{
+		delete [] currentDirectoryA;
+		currentDirectoryA = NULL;
+	}
+
 	if (suuid != NULL)
 	{
 		RpcStringFree(&suuid);
diff --git a/src/iisnode/iisnode.vcxproj b/src/iisnode/iisnode.vcxproj
index e9b1c40..9e6ddb9 100644
--- a/src/iisnode/iisnode.vcxproj
+++ b/src/iisnode/iisnode.vcxproj
@@ -229,6 +229,7 @@ copy /y $(SolutionDir)\..\config\* $(SolutionDir)\..\..\build\$(Configuration)\$
     <None Include="..\..\test\functional\tests\104_echo.js" />
     <None Include="..\..\test\functional\tests\105_logging.js" />
     <None Include="..\..\test\functional\tests\106_autoupdate.bat" />
+    <None Include="..\..\test\functional\tests\107_filesystem.js" />
     <None Include="..\..\test\functional\tests\200_samples.bat" />
     <None Include="..\..\test\functional\tests\node_modules\iisnodeassert.js" />
     <None Include="..\..\test\functional\tests\parts\106_autoupdate_first.js" />
@@ -249,6 +250,9 @@ copy /y $(SolutionDir)\..\config\* $(SolutionDir)\..\..\build\$(Configuration)\$
     <None Include="..\..\test\functional\www\106_autoupdate\hello_first.js" />
     <None Include="..\..\test\functional\www\106_autoupdate\hello_second.js" />
     <None Include="..\..\test\functional\www\106_autoupdate\web.config" />
+    <None Include="..\..\test\functional\www\107_filesystem\file.txt" />
+    <None Include="..\..\test\functional\www\107_filesystem\hello.js" />
+    <None Include="..\..\test\functional\www\107_filesystem\web.config" />
     <None Include="..\config\iisnode_schema.xml" />
     <None Include="..\config\iisnode_schema_x64.xml" />
     <None Include="..\samples\configuration\hello.js" />
diff --git a/src/iisnode/iisnode.vcxproj.filters b/src/iisnode/iisnode.vcxproj.filters
index bacb296..2eebdb8 100644
--- a/src/iisnode/iisnode.vcxproj.filters
+++ b/src/iisnode/iisnode.vcxproj.filters
@@ -82,6 +82,9 @@
     <Filter Include="Tests\functional\scripts">
       <UniqueIdentifier>{f69631ee-6910-4fa3-9e6f-36786970c51e}</UniqueIdentifier>
     </Filter>
+    <Filter Include="Tests\functional\www\107_filesystem">
+      <UniqueIdentifier>{cc6d4108-5cc9-4576-adf4-6ddc7d186998}</UniqueIdentifier>
+    </Filter>
   </ItemGroup>
   <ItemGroup>
     <ClCompile Include="main.cpp">
@@ -346,5 +349,17 @@
     <None Include="..\config\iisnode_schema_x64.xml">
       <Filter>Config</Filter>
     </None>
+    <None Include="..\..\test\functional\tests\107_filesystem.js">
+      <Filter>Tests\functional\tests</Filter>
+    </None>
+    <None Include="..\..\test\functional\www\107_filesystem\file.txt">
+      <Filter>Tests\functional\www\107_filesystem</Filter>
+    </None>
+    <None Include="..\..\test\functional\www\107_filesystem\hello.js">
+      <Filter>Tests\functional\www\107_filesystem</Filter>
+    </None>
+    <None Include="..\..\test\functional\www\107_filesystem\web.config">
+      <Filter>Tests\functional\www\107_filesystem</Filter>
+    </None>
   </ItemGroup>
 </Project>
\ No newline at end of file
diff --git a/test/functional/tests/107_filesystem.js b/test/functional/tests/107_filesystem.js
new file mode 100644
index 0000000..9097c3a
--- /dev/null
+++ b/test/functional/tests/107_filesystem.js
@@ -0,0 +1,9 @@
+/*
+Current directory of node.exe process is set to the same location as the applications's *.js file.
+*/
+
+var iisnodeassert = require("iisnodeassert");
+
+iisnodeassert.sequence([
+    iisnodeassert.get(10000, "/107_filesystem/hello.js", 200, "Contents of a file")
+]);
\ No newline at end of file
diff --git a/test/functional/www/107_filesystem/file.txt b/test/functional/www/107_filesystem/file.txt
new file mode 100644
index 0000000..2c60580
--- /dev/null
+++ b/test/functional/www/107_filesystem/file.txt
@@ -0,0 +1 @@
+Contents of a file
\ No newline at end of file
diff --git a/test/functional/www/107_filesystem/hello.js b/test/functional/www/107_filesystem/hello.js
new file mode 100644
index 0000000..87fb510
--- /dev/null
+++ b/test/functional/www/107_filesystem/hello.js
@@ -0,0 +1,10 @@
+var http = require('http');
+var fs = require('fs');
+
+http.createServer(function (req, res) {
+    fs.readFile('file.txt', function (e, d) {
+        if (e) throw e;
+        res.writeHead(200, { 'Content-Type': 'text/html' });
+        res.end(d);
+    });
+}).listen(process.env.PORT);  
\ No newline at end of file
diff --git a/test/functional/www/107_filesystem/web.config b/test/functional/www/107_filesystem/web.config
new file mode 100644
index 0000000..ae902f5
--- /dev/null
+++ b/test/functional/www/107_filesystem/web.config
@@ -0,0 +1,7 @@
+<configuration>
+  <system.webServer>
+    <handlers>
+      <add name="iisnode" path="hello.js" verb="*" modules="iisnode" />
+    </handlers>
+  </system.webServer>
+</configuration>