diff --git a/python/src/com/jetbrains/python/testing/PyTestsShared.kt b/python/src/com/jetbrains/python/testing/PyTestsShared.kt
index ef5a95496295..4b3df52a074b 100644
--- a/python/src/com/jetbrains/python/testing/PyTestsShared.kt
+++ b/python/src/com/jetbrains/python/testing/PyTestsShared.kt
@@ -59,6 +59,7 @@ import com.jetbrains.python.run.targetBasedConfiguration.TargetWithVariant
 import com.jetbrains.python.run.targetBasedConfiguration.createRefactoringListenerIfPossible
 import com.jetbrains.python.run.targetBasedConfiguration.targetAsPsiElement
 import com.jetbrains.python.sdk.PythonSdkUtil
+import com.jetbrains.python.sdk.baseDir
 import com.jetbrains.python.testing.doctest.PythonDocTestUtil
 import jetbrains.buildServer.messages.serviceMessages.ServiceMessage
 import jetbrains.buildServer.messages.serviceMessages.TestStdErr
@@ -801,7 +802,7 @@ internal class PyTestsConfigurationProducer : AbstractPythonTestConfigurationPro
           val module = configuration.module ?: return null
 
           val elementFile = element.containingFile as? PyFile ?: return null
-          val workingDirectory = getDirectoryForFileToBeImportedFrom(elementFile) ?: return null
+          val workingDirectory = getDirectoryForFileToBeImportedFrom(elementFile, module) ?: return null
           val context = QNameResolveContext(ModuleBasedContextAnchor(module),
                                             evalContext = TypeEvalContext.userInitiated(configuration.project,
                                                                                         null),
@@ -814,7 +815,7 @@ internal class PyTestsConfigurationProducer : AbstractPythonTestConfigurationPro
           val virtualFile = element.virtualFile
 
           val workingDirectory: VirtualFile = when (element) {
-                                                is PyFile -> getDirectoryForFileToBeImportedFrom(element)?.virtualFile
+                                                is PyFile -> getDirectoryForFileToBeImportedFrom(element, configuration.module)?.virtualFile
                                                 is PsiDirectory -> virtualFile
                                                 else -> return null
                                               } ?: return null
@@ -828,11 +829,15 @@ internal class PyTestsConfigurationProducer : AbstractPythonTestConfigurationPro
      * Returns test root for this file. Either it is specified explicitly or calculated using following strategy:
      * Inspect file relative imports, find farthest and return folder with imported file
      */
-    private fun getDirectoryForFileToBeImportedFrom(file: PyFile): PsiDirectory? {
+    private fun getDirectoryForFileToBeImportedFrom(file: PyFile, module: Module?): PsiDirectory? {
       getExplicitlyConfiguredTestRoot(file)?.let {
         return PsiManager.getInstance(file.project).findDirectory(it)
       }
 
+      module?.baseDir?.let {
+        return file.manager.findDirectory(it)
+      }
+
       val maxRelativeLevel = file.fromImports.map { it.relativeLevel }.maxOrNull() ?: 0
       var elementFolder = file.parent ?: return null
       for (i in 1..maxRelativeLevel) {
diff --git a/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/pyproject.toml b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/pyproject.toml
new file mode 100644
index 000000000000..a9ffff9bd28d
--- /dev/null
+++ b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/pyproject.toml
@@ -0,0 +1 @@
+[tool.pytest.ini_options]
\ No newline at end of file
diff --git a/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/conftest.py b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/conftest.py
new file mode 100644
index 000000000000..03d54c9e27a6
--- /dev/null
+++ b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/conftest.py
@@ -0,0 +1,6 @@
+import pytest
+
+
+@pytest.fixture
+def myfixture():
+    return 42
diff --git a/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/subdir/test_test.py b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/subdir/test_test.py
new file mode 100644
index 000000000000..bd8fa7576c54
--- /dev/null
+++ b/python/testData/testRunner/env/createConfigurationTest/conftest_in_parent_dir/tests/subdir/test_test.py
@@ -0,0 +1,2 @@
+def test_myfixture(myfixture):
+    assert myfixture == 42
diff --git a/python/testSrc/com/jetbrains/env/python/testing/PythonPyTestingTest.java b/python/testSrc/com/jetbrains/env/python/testing/PythonPyTestingTest.java
index 7c39f1bb546e..4416342042bc 100644
--- a/python/testSrc/com/jetbrains/env/python/testing/PythonPyTestingTest.java
+++ b/python/testSrc/com/jetbrains/env/python/testing/PythonPyTestingTest.java
@@ -33,6 +33,7 @@ import com.jetbrains.python.sdk.InvalidSdkException;
 import com.jetbrains.python.testing.*;
 import com.jetbrains.python.tools.sdkTools.SdkCreationType;
 import org.hamcrest.Matcher;
+import org.hamcrest.MatcherAssert;
 import org.hamcrest.Matchers;
 import org.jdom.Element;
 import org.jdom.JDOMException;
@@ -653,6 +654,32 @@ public final class PythonPyTestingTest extends PyEnvTestCase {
     });
   }
 
+  /**
+   * New configuration should have the module root as the working directory in the absence of an explicit test root
+   */
+  @Test
+  public void testWorkDirIsModuleRoot() {
+    runPythonTest(new CreateConfigurationTestTask<>(getFrameworkId(), PyTestConfiguration.class) {
+      @NotNull
+      @Override
+      protected List<PsiElement> getPsiElementsToRightClickOn() {
+        myFixture.configureByFile("conftest_in_parent_dir/tests/subdir/test_test.py");
+        final PyFunction test = myFixture.findElementByText("test_myfixture", PyFunction.class);
+        assert test != null;
+        return Collections.singletonList(test);
+      }
+
+      @Override
+      protected void checkConfiguration(@NotNull PyTestConfiguration configuration, @NotNull PsiElement elementToRightClickOn) {
+        super.checkConfiguration(configuration, elementToRightClickOn);
+        final String moduleRoot = myFixture.getTempDirPath();
+        MatcherAssert.assertThat("Wrong configuration directory set on new config",
+                                 configuration.getWorkingDirectory(),
+                                 Matchers.equalTo(moduleRoot));
+      }
+    });
+  }
+
   /**
    * In case when workdir is not set we should use closest src
    */