diff --git a/packages/monaco/src/browser/monaco-text-model-service.ts b/packages/monaco/src/browser/monaco-text-model-service.ts
index 2ede3881a36f7..a9d2fb27abc0d 100644
--- a/packages/monaco/src/browser/monaco-text-model-service.ts
+++ b/packages/monaco/src/browser/monaco-text-model-service.ts
@@ -17,13 +17,20 @@
 import { inject, injectable } from 'inversify';
 import { MonacoToProtocolConverter, ProtocolToMonacoConverter } from 'monaco-languageclient';
 import URI from '@theia/core/lib/common/uri';
-import { ResourceProvider, ReferenceCollection, Event } from '@theia/core';
+import { CommandRegistry, ResourceProvider, ReferenceCollection, Event } from '@theia/core';
 import { EditorPreferences, EditorPreferenceChange } from '@theia/editor/lib/browser';
 import { MonacoEditorModel } from './monaco-editor-model';
+import { MessageClient, MessageType } from '@theia/core/lib/common';
+import { FileSystem, FileStat } from '@theia/filesystem/lib/common/filesystem';
+import { WorkspaceService } from '@theia/workspace/lib/browser/workspace-service';
 
 @injectable()
 export class MonacoTextModelService implements monaco.editor.ITextModelService {
 
+    @inject(FileSystem) protected readonly fileSystem: FileSystem;
+    @inject(WorkspaceService) protected readonly workspaceService: WorkspaceService;
+    @inject(CommandRegistry) protected readonly commands: CommandRegistry;
+
     protected readonly _models = new ReferenceCollection<string, MonacoEditorModel>(
         uri => this.loadModel(new URI(uri))
     );
@@ -40,6 +47,9 @@ export class MonacoTextModelService implements monaco.editor.ITextModelService {
     @inject(ProtocolToMonacoConverter)
     protected readonly p2m: ProtocolToMonacoConverter;
 
+    @inject(MessageClient)
+    protected readonly messages: MessageClient;
+
     get models(): MonacoEditorModel[] {
         return this._models.values();
     }
@@ -57,14 +67,48 @@ export class MonacoTextModelService implements monaco.editor.ITextModelService {
     }
 
     protected async loadModel(uri: URI): Promise<MonacoEditorModel> {
-        await this.editorPreferences.ready;
-        const resource = await this.resourceProvider(uri);
-        const model = await (new MonacoEditorModel(resource, this.m2p, this.p2m, { encoding: this.editorPreferences.get('files.encoding') }).load());
-        this.updateModel(model);
-        model.textEditorModel.onDidChangeLanguage(() => this.updateModel(model));
-        const disposable = this.editorPreferences.onPreferenceChanged(change => this.updateModel(model, change));
-        model.onDispose(() => disposable.dispose());
-        return model;
+        try {
+            await this.editorPreferences.ready;
+            const resource = await this.resourceProvider(uri);
+            const model = await (new MonacoEditorModel(resource, this.m2p, this.p2m, { encoding: this.editorPreferences.get('files.encoding') }).load());
+            this.updateModel(model);
+            model.textEditorModel.onDidChangeLanguage(() => this.updateModel(model));
+            const disposable = this.editorPreferences.onPreferenceChanged(change => this.updateModel(model, change));
+            model.onDispose(() => disposable.dispose());
+            return model;
+        } catch (error) {
+            const msg = 'Unable to open "' + uri + '": ' + error;
+            this.messages.showMessage({ type: MessageType.Error, text: msg, actions: ['CREATE'] })
+                .then(res => {
+                    if (res === 'CREATE') {
+                        this.getOrCreateDirectory(uri.parent).then(parent => {
+                            if (parent) {
+                                const parentUri = new URI(parent.uri);
+                                const name = uri.path.name;
+                                const ext = uri.path.ext;
+                                const fileUri = parentUri.resolve(name) +
+                                    (ext && ext !== null ? '.' && ext : '');
+
+                                this.fileSystem.createFile(fileUri.toString()).then(() => {
+                                    this.commands.executeCommand('vscode.open', fileUri);
+                                });
+                            }
+                        });
+                    }
+                });
+            return Promise.reject(error);
+        }
+    }
+
+    protected async getOrCreateDirectory(uri: URI): Promise<FileStat | undefined> {
+        const stat = await this.fileSystem.getFileStat(uri.toString());
+        if (stat) {
+            if (stat.isDirectory) {
+                return stat;
+            }
+            return this.getOrCreateDirectory(uri.parent);
+        }
+        return this.fileSystem.createFolder(uri.toString());
     }
 
     protected readonly modelOptions: {
diff --git a/packages/plugin-ext-vscode/src/browser/plugin-vscode-commands-contribution.ts b/packages/plugin-ext-vscode/src/browser/plugin-vscode-commands-contribution.ts
index 94661977e454e..e6a9d4e86cc07 100644
--- a/packages/plugin-ext-vscode/src/browser/plugin-vscode-commands-contribution.ts
+++ b/packages/plugin-ext-vscode/src/browser/plugin-vscode-commands-contribution.ts
@@ -76,6 +76,8 @@ export class PluginVscodeCommandsContribution implements CommandContribution {
                 if (!resource) {
                     throw new Error(`${VscodeCommands.OPEN.id} command requires at least URI argument.`);
                 }
+
+                resource = URI.parse(resource.toString());
                 if (!URI.isUri(resource)) {
                     throw new Error(`Invalid argument for ${VscodeCommands.OPEN.id} command with URI argument. Found ${resource}`);
                 }