diff --git a/cli/lsp/language_server.rs b/cli/lsp/language_server.rs
index 10bb0478e4..9e4e6af149 100644
--- a/cli/lsp/language_server.rs
+++ b/cli/lsp/language_server.rs
@@ -447,7 +447,15 @@ impl Inner {
         ))
       }?;
 
-      let config_file = ConfigFile::read(config_url.path())?;
+      let config_file = {
+        let buffer = config_url
+          .to_file_path()
+          .map_err(|_| anyhow!("Bad uri: \"{}\"", config_url))?;
+        let path = buffer
+          .to_str()
+          .ok_or_else(|| anyhow!("Bad uri: \"{}\"", config_url))?;
+        ConfigFile::read(path)?
+      };
       let (value, maybe_ignored_options) = config_file.as_compiler_options()?;
       tsconfig.merge(&value);
       self.maybe_config_uri = Some(config_url);
diff --git a/cli/tests/integration_tests_lsp.rs b/cli/tests/integration_tests_lsp.rs
index 10797a326e..b6d9cde547 100644
--- a/cli/tests/integration_tests_lsp.rs
+++ b/cli/tests/integration_tests_lsp.rs
@@ -31,7 +31,10 @@ fn init(init_path: &str) -> LspClient {
   client
 }
 
-fn did_open<V>(client: &mut LspClient, params: V)
+fn did_open<V>(
+  client: &mut LspClient,
+  params: V,
+) -> Vec<lsp::PublishDiagnosticsParams>
 where
   V: Serialize,
 {
@@ -45,12 +48,16 @@ where
     .write_response(id, json!({ "enable": true }))
     .unwrap();
 
-  let (method, _) = client.read_notification::<Value>().unwrap();
-  assert_eq!(method, "textDocument/publishDiagnostics");
-  let (method, _) = client.read_notification::<Value>().unwrap();
-  assert_eq!(method, "textDocument/publishDiagnostics");
-  let (method, _) = client.read_notification::<Value>().unwrap();
-  assert_eq!(method, "textDocument/publishDiagnostics");
+  let mut diagnostics = vec![];
+  for _ in 0..3 {
+    let (method, response) = client
+      .read_notification::<lsp::PublishDiagnosticsParams>()
+      .unwrap();
+    assert_eq!(method, "textDocument/publishDiagnostics");
+    diagnostics.push(response.unwrap());
+  }
+
+  diagnostics
 }
 
 fn shutdown(client: &mut LspClient) {
@@ -66,6 +73,47 @@ fn lsp_startup_shutdown() {
   shutdown(&mut client);
 }
 
+#[test]
+fn lsp_init_tsconfig() {
+  let temp_dir = TempDir::new().expect("could not create temp dir");
+  let mut params: lsp::InitializeParams =
+    serde_json::from_value(load_fixture("initialize_params.json")).unwrap();
+  let tsconfig =
+    serde_json::to_vec_pretty(&load_fixture("lib.tsconfig.json")).unwrap();
+  fs::write(temp_dir.path().join("lib.tsconfig.json"), tsconfig).unwrap();
+
+  params.root_uri = Some(Url::from_file_path(temp_dir.path()).unwrap());
+  if let Some(Value::Object(mut map)) = params.initialization_options {
+    map.insert("config".to_string(), json!("./lib.tsconfig.json"));
+    params.initialization_options = Some(Value::Object(map));
+  }
+
+  let deno_exe = deno_exe_path();
+  let mut client = LspClient::new(&deno_exe).unwrap();
+  client
+    .write_request::<_, _, Value>("initialize", params)
+    .unwrap();
+
+  client.write_notification("initialized", json!({})).unwrap();
+
+  let diagnostics = did_open(
+    &mut client,
+    json!({
+      "textDocument": {
+        "uri": "file:///a/file.ts",
+        "languageId": "typescript",
+        "version": 1,
+        "text": "location.pathname;\n"
+      }
+    }),
+  );
+
+  let diagnostics = diagnostics.into_iter().flat_map(|x| x.diagnostics);
+  assert_eq!(diagnostics.count(), 0);
+
+  shutdown(&mut client);
+}
+
 #[test]
 fn lsp_hover() {
   let mut client = init("initialize_params.json");
diff --git a/cli/tests/lsp/lib.tsconfig.json b/cli/tests/lsp/lib.tsconfig.json
new file mode 100644
index 0000000000..8d2ae8a8b3
--- /dev/null
+++ b/cli/tests/lsp/lib.tsconfig.json
@@ -0,0 +1,5 @@
+{
+  "compilerOptions": {
+    "lib": ["deno.ns", "deno.unstable", "dom"]
+  }
+}