diff --git a/packages/babel-core/src/config/config-chain.js b/packages/babel-core/src/config/config-chain.js
index cf0e3eaf01..2ca2a5c3bf 100644
--- a/packages/babel-core/src/config/config-chain.js
+++ b/packages/babel-core/src/config/config-chain.js
@@ -13,6 +13,7 @@ import {
 const debug = buildDebug("babel:config:config-chain");
 
 import {
+  findPackageData,
   findRelativeConfig,
   loadConfig,
   type ConfigFile,
@@ -125,15 +126,17 @@ export function buildRootChain(
   );
   if (!programmaticChain) return null;
 
-  let ignore, babelrc;
+  const pkgData =
+    typeof context.filename === "string"
+      ? findPackageData(context.filename)
+      : null;
 
+  let ignore, babelrc;
   const fileChain = emptyChain();
   // resolve all .babelrc files
-  if (opts.babelrc !== false && context.filename !== null) {
-    const filename = context.filename;
-
+  if (opts.babelrc !== false && pkgData) {
     ({ ignore, config: babelrc } = findRelativeConfig(
-      filename,
+      pkgData,
       context.envName,
     ));
 
diff --git a/packages/babel-core/src/config/files/configuration.js b/packages/babel-core/src/config/files/configuration.js
index c1a55cc598..ccc300ae48 100644
--- a/packages/babel-core/src/config/files/configuration.js
+++ b/packages/babel-core/src/config/files/configuration.js
@@ -5,45 +5,33 @@ import path from "path";
 import fs from "fs";
 import json5 from "json5";
 import resolve from "resolve";
-import { makeStrongCache, type CacheConfigurator } from "../caching";
+import {
+  makeStrongCache,
+  makeWeakCache,
+  type CacheConfigurator,
+} from "../caching";
 import makeAPI from "../helpers/config-api";
+import { makeStaticFileCache } from "./utils";
+import type { FilePackageData, RelativeConfig, ConfigFile } from "./types";
 
 const debug = buildDebug("babel:config:loading:files:configuration");
 
-export type ConfigFile = {
-  filepath: string,
-  dirname: string,
-  options: {},
-};
-
-export type IgnoreFile = {
-  filepath: string,
-  dirname: string,
-  ignore: Array<string>,
-};
-
-export type RelativeConfig = {
-  config: ConfigFile | null,
-  ignore: IgnoreFile | null,
-};
-
 const BABELRC_FILENAME = ".babelrc";
 const BABELRC_JS_FILENAME = ".babelrc.js";
-const PACKAGE_FILENAME = "package.json";
 const BABELIGNORE_FILENAME = ".babelignore";
 
 export function findRelativeConfig(
-  filepath: string,
+  packageData: FilePackageData,
   envName: string,
 ): RelativeConfig {
   let config = null;
   let ignore = null;
 
-  const dirname = path.dirname(filepath);
-  let loc = dirname;
-  while (true) {
+  const dirname = path.dirname(packageData.filepath);
+
+  for (const loc of packageData.directories) {
     if (!config) {
-      config = [BABELRC_FILENAME, BABELRC_JS_FILENAME, PACKAGE_FILENAME].reduce(
+      config = [BABELRC_FILENAME, BABELRC_JS_FILENAME].reduce(
         (previousConfig: ConfigFile | null, name) => {
           const filepath = path.join(loc, name);
           const config = readConfig(filepath, envName);
@@ -62,6 +50,23 @@ export function findRelativeConfig(
         null,
       );
 
+      const pkgConfig =
+        packageData.pkg && packageData.pkg.dirname === loc
+          ? packageToBabelConfig(packageData.pkg)
+          : null;
+
+      if (pkgConfig) {
+        if (config) {
+          throw new Error(
+            `Multiple configuration files found. Please remove one:\n` +
+              ` - ${path.basename(pkgConfig.filepath)}#babel\n` +
+              ` - ${path.basename(config.filepath)}\n` +
+              `from ${loc}`,
+          );
+        }
+        config = pkgConfig;
+      }
+
       if (config) {
         debug("Found configuration %o from %o.", config.filepath, dirname);
       }
@@ -75,10 +80,6 @@ export function findRelativeConfig(
         debug("Found ignore %o from %o.", ignore.filepath, dirname);
       }
     }
-
-    const nextLoc = path.dirname(loc);
-    if (loc === nextLoc) break;
-    loc = nextLoc;
   }
 
   return { config, ignore };
@@ -107,7 +108,7 @@ export function loadConfig(
 function readConfig(filepath, envName): ConfigFile | null {
   return path.extname(filepath) === ".js"
     ? readConfigJS(filepath, { envName })
-    : readConfigFile(filepath);
+    : readConfigJSON5(filepath);
 }
 
 const LOADING_CONFIGS = new Set();
@@ -180,27 +181,34 @@ const readConfigJS = makeStrongCache(
   },
 );
 
-const readConfigFile = makeStaticFileCache((filepath, content) => {
-  let options;
-  if (path.basename(filepath) === PACKAGE_FILENAME) {
-    try {
-      options = JSON.parse(content).babel;
-    } catch (err) {
-      err.message = `${filepath}: Error while parsing JSON - ${err.message}`;
-      throw err;
-    }
-    if (!options) return null;
-  } else {
-    try {
-      options = json5.parse(content);
-    } catch (err) {
-      err.message = `${filepath}: Error while parsing config - ${err.message}`;
-      throw err;
+const packageToBabelConfig = makeWeakCache(
+  (file: ConfigFile): ConfigFile | null => {
+    if (typeof file.options.babel === "undefined") return null;
+    const babel = file.options.babel;
+
+    if (typeof babel !== "object" || Array.isArray(babel) || babel === null) {
+      throw new Error(`${file.filepath}: .babel property must be an object`);
     }
 
-    if (!options) throw new Error(`${filepath}: No config detected`);
+    return {
+      filepath: file.filepath,
+      dirname: file.dirname,
+      options: babel,
+    };
+  },
+);
+
+const readConfigJSON5 = makeStaticFileCache((filepath, content) => {
+  let options;
+  try {
+    options = json5.parse(content);
+  } catch (err) {
+    err.message = `${filepath}: Error while parsing config - ${err.message}`;
+    throw err;
   }
 
+  if (!options) throw new Error(`${filepath}: No config detected`);
+
   if (typeof options !== "object") {
     throw new Error(`${filepath}: Config returned typeof ${typeof options}`);
   }
@@ -228,27 +236,6 @@ const readIgnoreConfig = makeStaticFileCache((filepath, content) => {
   };
 });
 
-function makeStaticFileCache<T>(fn: (string, string) => T): string => T | null {
-  return makeStrongCache((filepath, cache) => {
-    if (cache.invalidate(() => fileMtime(filepath)) === null) {
-      cache.forever();
-      return null;
-    }
-
-    return fn(filepath, fs.readFileSync(filepath, "utf8"));
-  });
-}
-
-function fileMtime(filepath: string): number | null {
-  try {
-    return +fs.statSync(filepath).mtime;
-  } catch (e) {
-    if (e.code !== "ENOENT") throw e;
-  }
-
-  return null;
-}
-
 function throwConfigError() {
   throw new Error(`\
 Caching was left unconfigured. Babel's plugins, presets, and .babelrc.js files can be configured
diff --git a/packages/babel-core/src/config/files/index-browser.js b/packages/babel-core/src/config/files/index-browser.js
index 4e5cb5fe62..9805b9676c 100644
--- a/packages/babel-core/src/config/files/index-browser.js
+++ b/packages/babel-core/src/config/files/index-browser.js
@@ -1,17 +1,35 @@
 // @flow
 
-import type { ConfigFile, IgnoreFile, RelativeConfig } from "./configuration";
+import type {
+  ConfigFile,
+  IgnoreFile,
+  RelativeConfig,
+  FilePackageData,
+} from "./types";
 
-export type { ConfigFile, IgnoreFile, RelativeConfig };
+export type { ConfigFile, IgnoreFile, RelativeConfig, FilePackageData };
 
-export function findRelativeConfig(
-  filepath: string,
-  envName: string, // eslint-disable-line no-unused-vars
-): RelativeConfig {
-  return { config: null, ignore: null };
+export function findPackageData(filepath: string): FilePackageData {
+  return {
+    filepath,
+    directories: [],
+    pkg: null,
+    isPackage: false,
+  };
 }
 
-export function loadConfig(name: string, dirname: string): ConfigFile {
+export function findRelativeConfig(
+  pkgData: FilePackageData,
+  envName: string, // eslint-disable-line no-unused-vars
+): RelativeConfig {
+  return { pkg: null, config: null, ignore: null };
+}
+
+export function loadConfig(
+  name: string,
+  dirname: string,
+  envName: string, // eslint-disable-line no-unused-vars
+): ConfigFile {
   throw new Error(`Cannot load ${name} relative to ${dirname} in a browser`);
 }
 
diff --git a/packages/babel-core/src/config/files/index.js b/packages/babel-core/src/config/files/index.js
index c7e61ad469..06e8ce1fb2 100644
--- a/packages/babel-core/src/config/files/index.js
+++ b/packages/babel-core/src/config/files/index.js
@@ -7,5 +7,18 @@ import typeof * as indexType from "./index";
 // exports of index-browser, since this file may be replaced at bundle time with index-browser.
 ((({}: any): $Exact<indexBrowserType>): $Exact<indexType>);
 
-export * from "./configuration";
-export * from "./plugins";
+export { findPackageData } from "./package";
+
+export { findRelativeConfig, loadConfig } from "./configuration";
+export type {
+  ConfigFile,
+  IgnoreFile,
+  RelativeConfig,
+  FilePackageData,
+} from "./types";
+export {
+  resolvePlugin,
+  resolvePreset,
+  loadPlugin,
+  loadPreset,
+} from "./plugins";
diff --git a/packages/babel-core/src/config/files/package.js b/packages/babel-core/src/config/files/package.js
new file mode 100644
index 0000000000..8e370a472d
--- /dev/null
+++ b/packages/babel-core/src/config/files/package.js
@@ -0,0 +1,60 @@
+// @flow
+
+import path from "path";
+import { makeStaticFileCache } from "./utils";
+
+import type { ConfigFile, FilePackageData } from "./types";
+
+const PACKAGE_FILENAME = "package.json";
+
+/**
+ * Find metadata about the package that this file is inside of. Resolution
+ * of Babel's config requires general package information to decide when to
+ * search for .babelrc files
+ */
+export function findPackageData(filepath: string): FilePackageData {
+  let pkg = null;
+  const directories = [];
+  let isPackage = true;
+
+  let dirname = path.dirname(filepath);
+  while (!pkg && path.basename(dirname) !== "node_modules") {
+    directories.push(dirname);
+
+    pkg = readConfigPackage(path.join(dirname, PACKAGE_FILENAME));
+
+    const nextLoc = path.dirname(dirname);
+    if (dirname === nextLoc) {
+      isPackage = false;
+      break;
+    }
+    dirname = nextLoc;
+  }
+
+  return { filepath, directories, pkg, isPackage };
+}
+
+const readConfigPackage = makeStaticFileCache(
+  (filepath, content): ConfigFile => {
+    let options;
+    try {
+      options = JSON.parse(content);
+    } catch (err) {
+      err.message = `${filepath}: Error while parsing JSON - ${err.message}`;
+      throw err;
+    }
+
+    if (typeof options !== "object") {
+      throw new Error(`${filepath}: Config returned typeof ${typeof options}`);
+    }
+    if (Array.isArray(options)) {
+      throw new Error(`${filepath}: Expected config object but found array`);
+    }
+
+    return {
+      filepath,
+      dirname: path.dirname(filepath),
+      options,
+    };
+  },
+);
diff --git a/packages/babel-core/src/config/files/types.js b/packages/babel-core/src/config/files/types.js
new file mode 100644
index 0000000000..fa9d96fe5d
--- /dev/null
+++ b/packages/babel-core/src/config/files/types.js
@@ -0,0 +1,38 @@
+// @flow
+
+export type ConfigFile = {
+  filepath: string,
+  dirname: string,
+  options: {},
+};
+
+export type IgnoreFile = {
+  filepath: string,
+  dirname: string,
+  ignore: Array<string>,
+};
+
+export type RelativeConfig = {
+  // The actual config, either from package.json#babel, .babelrc, or
+  // .babelrc.js, if there was one.
+  config: ConfigFile | null,
+
+  // The .babelignore, if there was one.
+  ignore: IgnoreFile | null,
+};
+
+export type FilePackageData = {
+  // The file in the package.
+  filepath: string,
+
+  // Any ancestor directories of the file that are within the package.
+  directories: Array<string>,
+
+  // The contents of the package.json. May not be found if the package just
+  // terminated at a node_modules folder without finding one.
+  pkg: ConfigFile | null,
+
+  // True if a package.json or node_modules folder was found while traversing
+  // the directory structure.
+  isPackage: boolean,
+};
diff --git a/packages/babel-core/src/config/files/utils.js b/packages/babel-core/src/config/files/utils.js
new file mode 100644
index 0000000000..db202259d5
--- /dev/null
+++ b/packages/babel-core/src/config/files/utils.js
@@ -0,0 +1,27 @@
+// @flow
+
+import fs from "fs";
+import { makeStrongCache } from "../caching";
+
+export function makeStaticFileCache<T>(
+  fn: (string, string) => T,
+): string => T | null {
+  return makeStrongCache((filepath, cache) => {
+    if (cache.invalidate(() => fileMtime(filepath)) === null) {
+      cache.forever();
+      return null;
+    }
+
+    return fn(filepath, fs.readFileSync(filepath, "utf8"));
+  });
+}
+
+function fileMtime(filepath: string): number | null {
+  try {
+    return +fs.statSync(filepath).mtime;
+  } catch (e) {
+    if (e.code !== "ENOENT" && e.code !== "ENOTDIR") throw e;
+  }
+
+  return null;
+}