diff --git a/packages/installation-tests/installation-tests.sh b/packages/installation-tests/installation-tests.sh
index 0fab37ceba..7c599e4262 100755
--- a/packages/installation-tests/installation-tests.sh
+++ b/packages/installation-tests/installation-tests.sh
@@ -15,14 +15,22 @@ unset PLAYWRIGHT_SKIP_BROWSER_DOWNLOAD
 export PLAYWRIGHT_BROWSERS_PATH=0
 
 # Pack all packages and put them in our output folder.
+echo "Building packages..."
 PACKAGE_BUILDER="../../../packages/build_package.js"
 PLAYWRIGHT_CORE_TGZ="$(node ${PACKAGE_BUILDER} playwright-core ./playwright-core.tgz)"
+echo "playwright-core built"
 PLAYWRIGHT_TGZ="$(node ${PACKAGE_BUILDER} playwright ./playwright.tgz)"
+echo "playwright built"
 PLAYWRIGHT_CHROMIUM_TGZ="$(node ${PACKAGE_BUILDER} playwright-chromium ./playwright-chromium.tgz)"
+echo "playwright-chromium built"
 PLAYWRIGHT_WEBKIT_TGZ="$(node ${PACKAGE_BUILDER} playwright-webkit ./playwright-webkit.tgz)"
+echo "playwright-webkit built"
 PLAYWRIGHT_FIREFOX_TGZ="$(node ${PACKAGE_BUILDER} playwright-firefox ./playwright-firefox.tgz)"
+echo "playwright-firefox built"
 PLAYWRIGHT_ELECTRON_TGZ="$(node ${PACKAGE_BUILDER} playwright-electron ./playwright-electron.tgz)"
+echo "playwright-electron built"
 PLAYWRIGHT_ANDROID_TGZ="$(node ${PACKAGE_BUILDER} playwright-android ./playwright-android.tgz)"
+echo "playwright-android built"
 
 SCRIPTS_PATH="$(pwd -P)/.."
 TEST_ROOT="$(pwd -P)"
@@ -47,6 +55,8 @@ function run_tests {
   test_skip_browser_download
   test_playwright_global_installation_subsequent_installs
   test_playwright_should_work
+  test_playwright_should_work_with_relative_home_path
+  test_playwright_should_work_with_relative_browsers_path
   test_playwright_chromium_should_work
   test_playwright_webkit_should_work
   test_playwright_firefox_should_work
@@ -210,6 +220,31 @@ function test_playwright_should_work {
   echo "${FUNCNAME[0]} success"
 }
 
+function test_playwright_should_work_with_relative_home_path {
+  initialize_test "${FUNCNAME[0]}"
+  PLAYWRIGHT_BROWSERS_PATH="" HOME=. npm install ${PLAYWRIGHT_TGZ}
+  copy_test_scripts
+  echo "Running sanity.js"
+  # Firefox does not work with relative HOME.
+  PLAYWRIGHT_BROWSERS_PATH="" HOME=. node sanity.js playwright chromium webkit
+  echo "${FUNCNAME[0]} success"
+}
+
+function test_playwright_should_work_with_relative_browsers_path {
+  initialize_test "${FUNCNAME[0]}"
+
+  # Make sure that browsers path is resolved relative to the `npm install` call location.
+  mkdir foo
+  cd foo
+  PLAYWRIGHT_BROWSERS_PATH="../relative" npm install ${PLAYWRIGHT_TGZ}
+  cd ..
+
+  copy_test_scripts
+  echo "Running sanity.js"
+  PLAYWRIGHT_BROWSERS_PATH="./relative" node sanity.js playwright
+  echo "${FUNCNAME[0]} success"
+}
+
 function test_playwright_chromium_should_work {
   initialize_test "${FUNCNAME[0]}"
 
diff --git a/packages/installation-tests/sanity.js b/packages/installation-tests/sanity.js
index 8a548edd5e..42138e120a 100644
--- a/packages/installation-tests/sanity.js
+++ b/packages/installation-tests/sanity.js
@@ -23,8 +23,10 @@ let success = {
 }[requireName];
 if (process.argv[3] === 'none')
   success = [];
-if (process.argv[3] === 'all')
+else if (process.argv[3] === 'all')
   success = ['chromium', 'firefox', 'webkit'];
+else if (process.argv[3])
+  success = process.argv.slice(3)
 
 const playwright = require(requireName);
 
@@ -54,6 +56,7 @@ const installer = require(requireName + '/lib/install/installer');
       process.exit(1);
     } catch (e) {
       // All good.
+      console.log(`Expected error while launching ${browserType}: ${e}`);
     }
   }
   console.log(`require SUCCESS`);
diff --git a/src/server/firefox/firefox.ts b/src/server/firefox/firefox.ts
index dc6b5b583a..93fa665a3d 100644
--- a/src/server/firefox/firefox.ts
+++ b/src/server/firefox/firefox.ts
@@ -40,6 +40,8 @@ export class Firefox extends BrowserType {
   }
 
   _amendEnvironment(env: Env, userDataDir: string, executable: string, browserArguments: string[]): Env {
+    if (!path.isAbsolute(os.homedir()))
+      throw new Error(`Cannot launch Firefox with relative home directory. Did you set ${os.platform() === 'win32' ? 'USERPROFILE' : 'HOME'} to a relative path?`);
     return os.platform() === 'linux' ? {
       ...env,
       // On linux Juggler ships the libstdc++ it was linked against.
diff --git a/src/utils/registry.ts b/src/utils/registry.ts
index 86203e235e..610966e34e 100644
--- a/src/utils/registry.ts
+++ b/src/utils/registry.ts
@@ -158,12 +158,35 @@ export const hostPlatform = ((): BrowserPlatform => {
 })();
 
 export const registryDirectory = (() => {
+  let result: string;
+
   const envDefined = getFromENV('PLAYWRIGHT_BROWSERS_PATH');
-  if (envDefined === '0')
-    return path.join(__dirname, '..', '..', '.local-browsers');
-  if (envDefined)
-    return path.resolve(process.cwd(), envDefined);
-  return path.join(cacheDirectory(), 'ms-playwright');
+  if (envDefined === '0') {
+    result = path.join(__dirname, '..', '..', '.local-browsers');
+  } else if (envDefined) {
+    result = envDefined;
+  } else {
+    let cacheDirectory: string;
+    if (process.platform === 'linux')
+      cacheDirectory = process.env.XDG_CACHE_HOME || path.join(os.homedir(), '.cache');
+    else if (process.platform === 'darwin')
+      cacheDirectory = path.join(os.homedir(), 'Library', 'Caches');
+    else if (process.platform === 'win32')
+      cacheDirectory = process.env.LOCALAPPDATA || path.join(os.homedir(), 'AppData', 'Local');
+    else
+      throw new Error('Unsupported platform: ' + process.platform);
+    result = path.join(cacheDirectory, 'ms-playwright');
+  }
+
+  if (!path.isAbsolute(result)) {
+    // It is important to resolve to the absolute path:
+    //   - for unzipping to work correctly;
+    //   - so that registry directory matches between installation and execution.
+    // INIT_CWD points to the root of `npm/yarn install` and is probably what
+    // the user meant when typing the relative path.
+    result = path.resolve(getFromENV('INIT_CWD') || process.cwd(), result);
+  }
+  return result;
 })();
 
 export function isBrowserDirectory(browserDirectory: string): boolean {
@@ -255,16 +278,3 @@ export class Registry {
     return !!browser && browser.download !== false;
   }
 }
-
-function cacheDirectory() {
-  if (process.platform === 'linux')
-    return process.env.XDG_CACHE_HOME || path.join(os.homedir(), '.cache');
-
-  if (process.platform === 'darwin')
-    return path.join(os.homedir(), 'Library', 'Caches');
-
-  if (process.platform === 'win32')
-    return process.env.LOCALAPPDATA || path.join(os.homedir(), 'AppData', 'Local');
-  throw new Error('Unsupported platform: ' + process.platform);
-}
-