diff --git a/src/server/editorServices.ts b/src/server/editorServices.ts
index f7d220b789461..00f9f4a73e29b 100644
--- a/src/server/editorServices.ts
+++ b/src/server/editorServices.ts
@@ -1141,7 +1141,7 @@ namespace ts.server {
 
             const project = this.getOrCreateInferredProjectForProjectRootPathIfEnabled(info, projectRootPath) ||
                 this.getOrCreateSingleInferredProjectIfEnabled() ||
-                this.getOrCreateSingleInferredWithoutProjectRoot(info.isDynamic ? this.currentDirectory : getDirectoryPath(info.path));
+                this.getOrCreateSingleInferredWithoutProjectRoot(info.isDynamic ? projectRootPath || this.currentDirectory : getDirectoryPath(info.path));
 
             project.addRoot(info);
             if (info.containingProjects[0] !== project) {
@@ -1503,6 +1503,8 @@ namespace ts.server {
 
             Debug.assert(!isOpenScriptInfo(info) || this.openFiles.has(info.path));
             const projectRootPath = this.openFiles.get(info.path);
+            const scriptInfo = Debug.assertDefined(this.getScriptInfo(info.path));
+            if (scriptInfo.isDynamic) return undefined;
 
             let searchPath = asNormalizedPath(getDirectoryPath(info.fileName));
             const isSearchPathInProjectRoot = () => containsPath(projectRootPath!, searchPath, this.currentDirectory, !this.host.useCaseSensitiveFileNames);
@@ -1943,7 +1945,9 @@ namespace ts.server {
         }
 
         private getOrCreateInferredProjectForProjectRootPathIfEnabled(info: ScriptInfo, projectRootPath: NormalizedPath | undefined): InferredProject | undefined {
-            if (info.isDynamic || !this.useInferredProjectPerProjectRoot) {
+            if (!this.useInferredProjectPerProjectRoot ||
+                // Its a dynamic info opened without project root
+                (info.isDynamic && projectRootPath === undefined)) {
                 return undefined;
             }
 
@@ -2228,7 +2232,7 @@ namespace ts.server {
                 const isDynamic = isDynamicFileName(fileName);
                 Debug.assert(isRootedDiskPath(fileName) || isDynamic || openedByClient, "", () => `${JSON.stringify({ fileName, currentDirectory, hostCurrentDirectory: this.currentDirectory, openKeys: arrayFrom(this.openFilesWithNonRootedDiskPath.keys()) })}\nScript info with non-dynamic relative file name can only be open script info or in context of host currentDirectory`);
                 Debug.assert(!isRootedDiskPath(fileName) || this.currentDirectory === currentDirectory || !this.openFilesWithNonRootedDiskPath.has(this.toCanonicalFileName(fileName)), "", () => `${JSON.stringify({ fileName, currentDirectory, hostCurrentDirectory: this.currentDirectory, openKeys: arrayFrom(this.openFilesWithNonRootedDiskPath.keys()) })}\nOpen script files with non rooted disk path opened with current directory context cannot have same canonical names`);
-                Debug.assert(!isDynamic || this.currentDirectory === currentDirectory, "", () => `${JSON.stringify({ fileName, currentDirectory, hostCurrentDirectory: this.currentDirectory, openKeys: arrayFrom(this.openFilesWithNonRootedDiskPath.keys()) })}\nDynamic files must always have current directory context since containing external project name will always match the script info name.`);
+                Debug.assert(!isDynamic || this.currentDirectory === currentDirectory || this.useInferredProjectPerProjectRoot, "", () => `${JSON.stringify({ fileName, currentDirectory, hostCurrentDirectory: this.currentDirectory, openKeys: arrayFrom(this.openFilesWithNonRootedDiskPath.keys()) })}\nDynamic files must always be opened with service's current directory or service should support inferred project per projectRootPath.`);
                 // If the file is not opened by client and the file doesnot exist on the disk, return
                 if (!openedByClient && !isDynamic && !(hostToQueryFileExistsOn || this.host).fileExists(fileName)) {
                     return;
@@ -2239,7 +2243,7 @@ namespace ts.server {
                 if (!openedByClient) {
                     this.watchClosedScriptInfo(info);
                 }
-                else if (!isRootedDiskPath(fileName) && !isDynamic) {
+                else if (!isRootedDiskPath(fileName) && (!isDynamic || this.currentDirectory !== currentDirectory)) {
                     // File that is opened by user but isn't rooted disk path
                     this.openFilesWithNonRootedDiskPath.set(this.toCanonicalFileName(fileName), info);
                 }
diff --git a/src/testRunner/unittests/tsserver/projects.ts b/src/testRunner/unittests/tsserver/projects.ts
index 56bbe989bfc7d..bd724bd77e3d8 100644
--- a/src/testRunner/unittests/tsserver/projects.ts
+++ b/src/testRunner/unittests/tsserver/projects.ts
@@ -1131,6 +1131,62 @@ var x = 10;`
             checkProjectActualFiles(project, [file.path, libFile.path]);
         });
 
+        describe("dynamic file with projectRootPath", () => {
+            const file: File = {
+                path: "^walkThroughSnippet:/Users/UserName/projects/someProject/out/someFile#1.js",
+                content: "var x = 10;"
+            };
+            const configFile: File = {
+                path: `${projectRoot}/tsconfig.json`,
+                content: "{}"
+            };
+            const configProjectFile: File = {
+                path: `${projectRoot}/a.ts`,
+                content: "let y = 10;"
+            };
+            it("with useInferredProjectPerProjectRoot", () => {
+                const host = createServerHost([libFile, configFile, configProjectFile], { useCaseSensitiveFileNames: true });
+                const session = createSession(host, { useInferredProjectPerProjectRoot: true });
+                openFilesForSession([{ file: file.path, projectRootPath: projectRoot }], session);
+
+                const projectService = session.getProjectService();
+                checkNumberOfProjects(projectService, { inferredProjects: 1 });
+                checkProjectActualFiles(projectService.inferredProjects[0], [file.path, libFile.path]);
+
+                session.executeCommandSeq<protocol.OutliningSpansRequest>({
+                    command: protocol.CommandTypes.GetOutliningSpans,
+                    arguments: {
+                        file: file.path
+                    }
+                });
+
+                // Without project root
+                const file2Path = file.path.replace("#1", "#2");
+                projectService.openClientFile(file2Path, file.content);
+                checkNumberOfProjects(projectService, { inferredProjects: 2 });
+                checkProjectActualFiles(projectService.inferredProjects[0], [file.path, libFile.path]);
+                checkProjectActualFiles(projectService.inferredProjects[1], [file2Path, libFile.path]);
+            });
+
+            it("fails when useInferredProjectPerProjectRoot is false", () => {
+                const host = createServerHost([libFile, configFile, configProjectFile], { useCaseSensitiveFileNames: true });
+                const projectService = createProjectService(host);
+                try {
+                    projectService.openClientFile(file.path, file.content, /*scriptKind*/ undefined, projectRoot);
+                }
+                catch (e) {
+                    assert.strictEqual(
+                        e.message.replace(/\r?\n/, "\n"),
+                        `Debug Failure. False expression: \nVerbose Debug Information: {"fileName":"^walkThroughSnippet:/Users/UserName/projects/someProject/out/someFile#1.js","currentDirectory":"/user/username/projects/myproject","hostCurrentDirectory":"/","openKeys":[]}\nDynamic files must always be opened with service's current directory or service should support inferred project per projectRootPath.`
+                    );
+                }
+                const file2Path = file.path.replace("#1", "#2");
+                projectService.openClientFile(file2Path, file.content);
+                projectService.checkNumberOfProjects({ inferredProjects: 1 });
+                checkProjectActualFiles(projectService.inferredProjects[0], [file2Path, libFile.path]);
+            });
+        });
+
         it("files opened, closed affecting multiple projects", () => {
             const file: File = {
                 path: "/a/b/projects/config/file.ts",