diff --git a/plinth/cfg.py b/plinth/cfg.py
index cc2538189..b2ad72b42 100644
--- a/plinth/cfg.py
+++ b/plinth/cfg.py
@@ -53,9 +53,8 @@ config_files = []
 def get_develop_config_path():
     """Return config path of current source folder for development mode."""
     root_directory = os.path.dirname(os.path.realpath(__file__))
-    root_directory = os.path.join(root_directory, '..')
     root_directory = os.path.realpath(root_directory)
-    config_path = os.path.join(root_directory, 'plinth.config')
+    config_path = os.path.join(root_directory, 'develop.config')
     return config_path
 
 
@@ -79,9 +78,13 @@ def read_file(config_path):
     # Keep a note of configuration files read.
     config_files.append(config_path)
 
-    parser = configparser.ConfigParser(defaults={
-        'parent_dir': pathlib.Path(config_path).parent.resolve(),
-    })
+    parser = configparser.ConfigParser(
+        defaults={
+            'parent_dir':
+                pathlib.Path(config_path).parent.resolve(),
+            'parent_parent_dir':
+                pathlib.Path(config_path).parent.parent.resolve(),
+        })
     parser.read(config_path)
 
     config_items = (
diff --git a/plinth.config b/plinth/develop.config
similarity index 96%
rename from plinth.config
rename to plinth/develop.config
index 8b21b06d6..2c0791032 100644
--- a/plinth.config
+++ b/plinth/develop.config
@@ -1,6 +1,6 @@
 [Path]
 # directory locations
-file_root = %(parent_dir)s
+file_root = %(parent_parent_dir)s
 config_dir = %(file_root)s/data/etc/plinth
 data_dir = %(file_root)s/data/var/lib/plinth
 server_dir = /plinth
diff --git a/plinth/tests/test_cfg.py b/plinth/tests/test_cfg.py
index d4ea490dd..922a22354 100644
--- a/plinth/tests/test_cfg.py
+++ b/plinth/tests/test_cfg.py
@@ -54,7 +54,8 @@ def test_read_develop_config_file():
     """Verify that the correct develop config file is used."""
     test_dir = os.path.dirname(os.path.realpath(__file__))
     develop_root = os.path.realpath(os.path.join(test_dir, '..', '..'))
-    develop_config_file = os.path.join(develop_root, 'plinth.config')
+    develop_config_file = os.path.join(develop_root, 'plinth',
+                                       'develop.config')
     config_path = cfg.get_develop_config_path()
     cfg.read_file(config_path)
     assert cfg.config_files[-1] == develop_config_file