How to set working directory for projects in PyCharm?

I'm unable to use relative paths in my code while using PyCharm. For instance, a simple open('test.txt', 'r') will not work - whereupon I am sure the file exists in the same level as the running py file. PyCharm will return this error.

FileNotFoundError: [Errno 2] No such file or directory:

After reading answers online on Stack Overflow, I have tried multiple options including:

Changing test.txt to ./test.txt
Closing project, deleting the .idea folder, open the folder with code.
Reinstalling as well as installing the latest version of PyCharm.
Invalidating caches and restarting.

None of these options have worked for me. Is there someway I can tell PyCharm to refresh the current working directory (or even to see where it thinks the current working directory is)?

Running the script in a terminal window will work. This appears to be a problem with PyCharm and not the script.

Solution

I have Pycharm 4.5, so things might have changed a bit.

Try going to Settings > Project > Project Structure

On this dialog, click your folder that has the source code in it, and then click the blue folder in the menu to note it as "source" folder. I believe this fixes a lot of the path issues in Pycharm

Here is the link to "content roots": https://www.jetbrains.com/pycharm/help/content-root.html