diff --git a/Engine/Commands/InvokeScriptAnalyzerCommand.cs b/Engine/Commands/InvokeScriptAnalyzerCommand.cs
index 4a7a61413..b8a2e9d7f 100644
--- a/Engine/Commands/InvokeScriptAnalyzerCommand.cs
+++ b/Engine/Commands/InvokeScriptAnalyzerCommand.cs
@@ -38,6 +38,10 @@ namespace Microsoft.Windows.PowerShell.ScriptAnalyzer.Commands
         HelpUri = "http://go.microsoft.com/fwlink/?LinkId=525914")]
     public class InvokeScriptAnalyzerCommand : PSCmdlet, IOutputWriter
     {
+        #region Private variables
+        List<string> processedPaths;
+        #endregion // Private variables
+
         #region Parameters
         /// <summary>
         /// Path: The path to the file or folder to invoke PSScriptAnalyzer on.
@@ -218,9 +222,63 @@ protected override void BeginProcessing()
 
             string[] rulePaths = Helper.ProcessCustomRulePaths(customRulePath,
                 this.SessionState, recurseCustomRulePath);
+            if (IsFileParameterSet())
+            {
+                ProcessPath();
+            }
+
+            var settingFileHasErrors = false;
+            if (settings == null
+                && processedPaths != null
+                && processedPaths.Count == 1)
+            {
+                // add a directory separator character because if there is no trailing separator character, it will return the parent
+                var directory = processedPaths[0].TrimEnd(System.IO.Path.DirectorySeparatorChar);
+                if (File.Exists(directory))
+                {
+                    // if given path is a file, get its directory
+                    directory = System.IO.Path.GetDirectoryName(directory);
+                }
+
+                this.WriteVerbose(
+                    String.Format(
+                        "Settings not provided. Will look for settings file in the given path {0}.",
+                        path));
+                var settingsFileAutoDiscovered = false;
+                if (Directory.Exists(directory))
+                {
+                    // if settings are not provided explicitly, look for it in the given path
+                    // check if pssasettings.psd1 exists
+                    var settingsFilename = "PSScriptAnalyzerSettings.psd1";
+                    var settingsFilepath = System.IO.Path.Combine(directory, settingsFilename);
+                    if (File.Exists(settingsFilepath))
+                    {
+                        settingsFileAutoDiscovered = true;
+                        this.WriteVerbose(
+                            String.Format(
+                                "Found {0} in {1}. Will use it to provide settings for this invocation.",
+                                settingsFilename,
+                                directory));
+                        settingFileHasErrors = !ScriptAnalyzer.Instance.ParseProfile(settingsFilepath, this.SessionState.Path, this);
+                    }
+                }
 
-            if (!ScriptAnalyzer.Instance.ParseProfile(this.settings, this.SessionState.Path, this))
+                if (!settingsFileAutoDiscovered)
+                {
+                    this.WriteVerbose(
+                        String.Format(
+                            "Cannot find a settings file in the given path {0}.",
+                            path));
+                }
+            }
+            else
             {
+                settingFileHasErrors = !ScriptAnalyzer.Instance.ParseProfile(this.settings, this.SessionState.Path, this);
+            }
+
+            if (settingFileHasErrors)
+            {
+                this.WriteWarning("Cannot parse settings. Will abort the invocation.");
                 stopProcessing = true;
                 return;
             }
@@ -287,15 +345,11 @@ protected override void StopProcessing()
         private void ProcessInput()
         {
             IEnumerable<DiagnosticRecord> diagnosticsList = Enumerable.Empty<DiagnosticRecord>();
-            if (String.Equals(this.ParameterSetName, "File", StringComparison.OrdinalIgnoreCase))
+            if (IsFileParameterSet())
             {
-                // throws Item Not Found Exception
-                Collection<PathInfo> paths = this.SessionState.Path.GetResolvedPSPathFromPSPath(path);
-                foreach (PathInfo p in paths)
+                foreach (var p in processedPaths)
                 {
-                    diagnosticsList = ScriptAnalyzer.Instance.AnalyzePath(
-                        this.SessionState.Path.GetUnresolvedProviderPathFromPSPath(p.Path),
-                        this.recurse);
+                    diagnosticsList = ScriptAnalyzer.Instance.AnalyzePath(p, this.recurse);
                     WriteToOutput(diagnosticsList);
                 }
             }
@@ -316,6 +370,21 @@ private void WriteToOutput(IEnumerable<DiagnosticRecord> diagnosticRecords)
                 }
             }
         }
+
+        private void ProcessPath()
+        {
+            Collection<PathInfo> paths = this.SessionState.Path.GetResolvedPSPathFromPSPath(path);
+            processedPaths = new List<string>();
+            foreach (PathInfo p in paths)
+            {
+                processedPaths.Add(this.SessionState.Path.GetUnresolvedProviderPathFromPSPath(p.Path));
+            }
+        }
+
+        private bool IsFileParameterSet()
+        {
+            return String.Equals(this.ParameterSetName, "File", StringComparison.OrdinalIgnoreCase);
+        }
 #endregion
     }
 }
\ No newline at end of file
diff --git a/README.md b/README.md
index 2d96b73d7..0ac2c6db2 100644
--- a/README.md
+++ b/README.md
@@ -174,15 +174,15 @@ Param(
 Settings Support in ScriptAnalyzer
 ========================================
 Settings that describe ScriptAnalyzer rules to include/exclude based on `Severity` can be created and supplied to
-`Invoke-ScriptAnalyzer` using the `Setting` parameter. This enables a user to create a custom configuration for a specific environment.
+`Invoke-ScriptAnalyzer` using the `Setting` parameter. This enables a user to create a custom configuration for a specific environment. We support the following modes for specifying the settings file.
 
-Using Settings support:
+## Explicit
 
 The following example excludes two rules from the default set of rules and any rule
 that does not output an Error or Warning diagnostic record.
 
 ``` PowerShell
-# ScriptAnalyzerSettings.psd1
+# PSScriptAnalyzerSettings.psd1
 @{
     Severity=@('Error','Warning')
     ExcludeRules=@('PSAvoidUsingCmdletAliases',
@@ -199,7 +199,7 @@ Invoke-ScriptAnalyzer -Path MyScript.ps1 -Setting ScriptAnalyzerSettings.psd1
 The next example selects a few rules to execute instead of all the default rules.
 
 ``` PowerShell
-# ScriptAnalyzerSettings.psd1
+# PSScriptAnalyzerSettings.psd1
 @{
     IncludeRules=@('PSAvoidUsingPlainTextForPassword',
                 'PSAvoidUsingConvertToSecureStringWithPlainText')
@@ -211,6 +211,15 @@ Then invoke that settings file when using:
 Invoke-ScriptAnalyzer -Path MyScript.ps1 -Setting ScriptAnalyzerSettings.psd1
 ```
 
+## Implicit
+If you place a PSScriptAnayzer settings file named `PSScriptAnalyzerSettings.psd1` in your project root, PSScriptAnalyzer will discover it if you pass the project root as the `Path` parameter.
+
+```PowerShell
+Invoke-ScriptAnalyzer -Path "C:\path\to\project" -Recurse
+```
+
+Note that providing settings explicitly takes higher precedence over this implicit mode. Sample settings files are provided [here](https://github.com/PowerShell/PSScriptAnalyzer/tree/master/Engine/Settings).
+
 ScriptAnalyzer as a .NET library
 ================================
 
diff --git a/Tests/Engine/Settings.tests.ps1 b/Tests/Engine/Settings.tests.ps1
new file mode 100644
index 000000000..56f6f7c55
--- /dev/null
+++ b/Tests/Engine/Settings.tests.ps1
@@ -0,0 +1,31 @@
+if (!(Get-Module PSScriptAnalyzer))
+{
+	Import-Module PSScriptAnalyzer
+}
+
+$directory = Split-Path $MyInvocation.MyCommand.Path
+Describe "Settings Precedence" {
+    $settingsTestDirectory = [System.IO.Path]::Combine($directory, "SettingsTest")
+	$project1Root = [System.IO.Path]::Combine($settingsTestDirectory, "Project1")
+    $project2Root = [System.IO.Path]::Combine($settingsTestDirectory, "Project2")
+    Context "settings object is explicit" {
+        It "runs rules from the explicit setting file" {
+              $settingsFilepath = [System.IO.Path]::Combine($project1Root, "ExplicitSettings.psd1")
+              $violations = Invoke-ScriptAnalyzer -Path $project1Root -Settings $settingsFilepath -Recurse
+              $violations.Count | Should Be 1
+              $violations[0].RuleName | Should Be "PSAvoidUsingWriteHost"
+        }
+	}
+	Context "settings file is implicit" {
+        It "runs rules from the implicit setting file" {
+              $violations = Invoke-ScriptAnalyzer -Path $project1Root -Recurse
+              $violations.Count | Should Be 1
+              $violations[0].RuleName | Should Be "PSAvoidUsingCmdletAliases"
+        }
+
+        It "cannot find file if not named PSScriptAnalyzerSettings.psd1" {
+              $violations = Invoke-ScriptAnalyzer -Path $project2Root -Recurse
+              $violations.Count | Should Be 2
+        }
+	}
+}
\ No newline at end of file
diff --git a/Tests/Engine/SettingsTest/Project1/ExplicitSettings.psd1 b/Tests/Engine/SettingsTest/Project1/ExplicitSettings.psd1
new file mode 100644
index 000000000..9ad44a11c
--- /dev/null
+++ b/Tests/Engine/SettingsTest/Project1/ExplicitSettings.psd1
@@ -0,0 +1,3 @@
+@{
+    "IncludeRules" = @("PSAvoidUsingWriteHost")
+}
\ No newline at end of file
diff --git a/Tests/Engine/SettingsTest/Project1/PSScriptAnalyzerSettings.psd1 b/Tests/Engine/SettingsTest/Project1/PSScriptAnalyzerSettings.psd1
new file mode 100644
index 000000000..f7aac9573
--- /dev/null
+++ b/Tests/Engine/SettingsTest/Project1/PSScriptAnalyzerSettings.psd1
@@ -0,0 +1,3 @@
+@{
+    "IncludeRules" = @("PSAvoidUsingCmdletAliases")
+}
\ No newline at end of file
diff --git a/Tests/Engine/SettingsTest/Project1/project1.ps1 b/Tests/Engine/SettingsTest/Project1/project1.ps1
new file mode 100644
index 000000000..a5f744449
--- /dev/null
+++ b/Tests/Engine/SettingsTest/Project1/project1.ps1
@@ -0,0 +1,2 @@
+gci
+Write-Host "Do not use write-host"
\ No newline at end of file
diff --git a/Tests/Engine/SettingsTest/Project2/RandomNameSettings.psd1 b/Tests/Engine/SettingsTest/Project2/RandomNameSettings.psd1
new file mode 100644
index 000000000..9ad44a11c
--- /dev/null
+++ b/Tests/Engine/SettingsTest/Project2/RandomNameSettings.psd1
@@ -0,0 +1,3 @@
+@{
+    "IncludeRules" = @("PSAvoidUsingWriteHost")
+}
\ No newline at end of file
diff --git a/Tests/Engine/SettingsTest/Project2/project2.ps1 b/Tests/Engine/SettingsTest/Project2/project2.ps1
new file mode 100644
index 000000000..a5f744449
--- /dev/null
+++ b/Tests/Engine/SettingsTest/Project2/project2.ps1
@@ -0,0 +1,2 @@
+gci
+Write-Host "Do not use write-host"
\ No newline at end of file