diff --git a/src/vs/platform/environment/node/environmentService.ts b/src/vs/platform/environment/node/environmentService.ts
index f8f7bce47c82a..0d154c16f329a 100644
--- a/src/vs/platform/environment/node/environmentService.ts
+++ b/src/vs/platform/environment/node/environmentService.ts
@@ -36,7 +36,7 @@ export interface INativeEnvironmentService extends IEnvironmentService {
 	installSourcePath: string;
 
 	extensionsPath?: string;
-	extensionsDownloadPath?: string;
+	extensionsDownloadPath: string;
 	builtinExtensionsPath: string;
 
 	globalStorageHome: string;
@@ -151,8 +151,13 @@ export class EnvironmentService implements INativeEnvironmentService {
 		}
 	}
 
-	get extensionsDownloadPath(): string | undefined {
-		return parsePathArg(this._args['extensions-download-dir'], process);
+	get extensionsDownloadPath(): string {
+		const fromArgs = parsePathArg(this._args['extensions-download-dir'], process);
+		if (fromArgs) {
+			return fromArgs;
+		} else {
+			return path.join(this.userDataPath, 'CachedExtensionVSIXs');
+		}
 	}
 
 	@memoize
diff --git a/src/vs/platform/extensionManagement/node/extensionDownloader.ts b/src/vs/platform/extensionManagement/node/extensionDownloader.ts
index bde78e8d80beb..62f1a29044401 100644
--- a/src/vs/platform/extensionManagement/node/extensionDownloader.ts
+++ b/src/vs/platform/extensionManagement/node/extensionDownloader.ts
@@ -3,7 +3,6 @@
  *  Licensed under the MIT License. See License.txt in the project root for license information.
  *--------------------------------------------------------------------------------------------*/
 
-import { tmpdir } from 'os';
 import { Disposable } from 'vs/base/common/lifecycle';
 import { IFileService, IFileStatWithMetadata } from 'vs/platform/files/common/files';
 import { IExtensionGalleryService, IGalleryExtension, InstallOperation } from 'vs/platform/extensionManagement/common/extensionManagement';
@@ -20,9 +19,9 @@ const ExtensionIdVersionRegex = /^([^.]+\..+)-(\d+\.\d+\.\d+)$/;
 
 export class ExtensionsDownloader extends Disposable {
 
-	private readonly extensionsDownloadDir: URI = URI.file(tmpdir());
-	private readonly cache: number = 0;
-	private readonly cleanUpPromise: Promise<void> = Promise.resolve();
+	private readonly extensionsDownloadDir: URI;
+	private readonly cache: number;
+	private readonly cleanUpPromise: Promise<void>;
 
 	constructor(
 		@IEnvironmentService environmentService: INativeEnvironmentService,
@@ -31,11 +30,9 @@ export class ExtensionsDownloader extends Disposable {
 		@ILogService private readonly logService: ILogService,
 	) {
 		super();
-		if (environmentService.extensionsDownloadPath) {
-			this.extensionsDownloadDir = URI.file(environmentService.extensionsDownloadPath);
-			this.cache = 20; // Cache 20 downloads
-			this.cleanUpPromise = this.cleanUp();
-		}
+		this.extensionsDownloadDir = URI.file(environmentService.extensionsDownloadPath);
+		this.cache = 20; // Cache 20 downloads
+		this.cleanUpPromise = this.cleanUp();
 	}
 
 	async downloadExtension(extension: IGalleryExtension, operation: InstallOperation): Promise<URI> {
@@ -46,10 +43,7 @@ export class ExtensionsDownloader extends Disposable {
 	}
 
 	async delete(location: URI): Promise<void> {
-		// Delete immediately if caching is disabled
-		if (!this.cache) {
-			await this.fileService.del(location);
-		}
+		// noop as caching is enabled always
 	}
 
 	private async download(extension: IGalleryExtension, location: URI, operation: InstallOperation): Promise<void> {