diff --git a/UPDATING.md b/UPDATING.md
index d50c123cf5fe6..61a6d5c81586b 100644
--- a/UPDATING.md
+++ b/UPDATING.md
@@ -281,6 +281,19 @@ if foo is None:
 
 This changes the behaviour if you previously explicitly provided `None` as a default value. If your code expects a `KeyError` to be thrown, then don't pass the `default_var` argument. 
 
+### Removal of `airflow_home` config setting
+
+There were previously two ways of specifying the Airflow "home" directory
+(`~/airflow` by default): the `AIRFLOW_HOME` environment variable, and the
+`airflow_home` config setting in the `[core]` section.
+
+If they had two different values different parts of the code base would end up
+with different values. The config setting has been deprecated, and you should
+remove the value from the config file and set `AIRFLOW_HOME` environment
+variable if you need to use a non default value for this.
+
+(Since this setting is used to calculate what config file to load, it is not
+possible to keep just the config option)
 
 ## Airflow 1.10.2
 
diff --git a/airflow/__init__.py b/airflow/__init__.py
index c9b0bdd678ddd..e663f160f555e 100644
--- a/airflow/__init__.py
+++ b/airflow/__init__.py
@@ -37,8 +37,7 @@
 from airflow.models import DAG
 from airflow.exceptions import AirflowException
 
-if settings.DAGS_FOLDER not in sys.path:
-    sys.path.append(settings.DAGS_FOLDER)  # type: ignore
+settings.initialize()
 
 login = None
 
diff --git a/airflow/bin/cli.py b/airflow/bin/cli.py
index 487f15af63f58..d6819aa7e0aac 100644
--- a/airflow/bin/cli.py
+++ b/airflow/bin/cli.py
@@ -117,17 +117,13 @@ def setup_logging(filename):
 
 def setup_locations(process, pid=None, stdout=None, stderr=None, log=None):
     if not stderr:
-        stderr = os.path.join(os.path.expanduser(settings.AIRFLOW_HOME),
-                              'airflow-{}.err'.format(process))
+        stderr = os.path.join(settings.AIRFLOW_HOME, 'airflow-{}.err'.format(process))
     if not stdout:
-        stdout = os.path.join(os.path.expanduser(settings.AIRFLOW_HOME),
-                              'airflow-{}.out'.format(process))
+        stdout = os.path.join(settings.AIRFLOW_HOME, 'airflow-{}.out'.format(process))
     if not log:
-        log = os.path.join(os.path.expanduser(settings.AIRFLOW_HOME),
-                           'airflow-{}.log'.format(process))
+        log = os.path.join(settings.AIRFLOW_HOME, 'airflow-{}.log'.format(process))
     if not pid:
-        pid = os.path.join(os.path.expanduser(settings.AIRFLOW_HOME),
-                           'airflow-{}.pid'.format(process))
+        pid = os.path.join(settings.AIRFLOW_HOME, 'airflow-{}.pid'.format(process))
 
     return pid, stdout, stderr, log
 
diff --git a/airflow/config_templates/default_airflow.cfg b/airflow/config_templates/default_airflow.cfg
index 34d809d8ac968..c342763ca059d 100644
--- a/airflow/config_templates/default_airflow.cfg
+++ b/airflow/config_templates/default_airflow.cfg
@@ -30,9 +30,6 @@
 # ----------------------- TEMPLATE BEGINS HERE -----------------------
 
 [core]
-# The home folder for airflow, default is ~/airflow
-airflow_home = {AIRFLOW_HOME}
-
 # The folder where your airflow pipelines live, most likely a
 # subfolder in a code repository
 # This path must be absolute
diff --git a/airflow/config_templates/default_test.cfg b/airflow/config_templates/default_test.cfg
index 0429af3cad2a3..5361cffe9b9cb 100644
--- a/airflow/config_templates/default_test.cfg
+++ b/airflow/config_templates/default_test.cfg
@@ -31,7 +31,6 @@
 
 [core]
 unit_test_mode = True
-airflow_home = {AIRFLOW_HOME}
 dags_folder = {TEST_DAGS_FOLDER}
 plugins_folder = {TEST_PLUGINS_FOLDER}
 base_log_folder = {AIRFLOW_HOME}/logs
diff --git a/airflow/configuration.py b/airflow/configuration.py
index 827303d102580..c9fdf22bbd91d 100644
--- a/airflow/configuration.py
+++ b/airflow/configuration.py
@@ -544,12 +544,31 @@ def parameterized_config(template):
 
 conf.read(AIRFLOW_CONFIG)
 
-DEFAULT_WEBSERVER_CONFIG = _read_default_config_file('default_webserver_config.py')
+if conf.has_option('core', 'AIRFLOW_HOME'):
+    msg = (
+        'Specifying both AIRFLOW_HOME environment variable and airflow_home '
+        'in the config file is deprecated. Please use only the AIRFLOW_HOME '
+        'environment variable and remove the config file entry.'
+    )
+    if 'AIRFLOW_HOME' in os.environ:
+        warnings.warn(msg, category=DeprecationWarning)
+    elif conf.get('core', 'airflow_home') == AIRFLOW_HOME:
+        warnings.warn(
+            'Specifying airflow_home in the config file is deprecated. As you '
+            'have left it at the default value you should remove the setting '
+            'from your airflow.cfg and suffer no change in behaviour.',
+            category=DeprecationWarning,
+        )
+    else:
+        AIRFLOW_HOME = conf.get('core', 'airflow_home')
+        warnings.warn(msg, category=DeprecationWarning)
+
 
 WEBSERVER_CONFIG = AIRFLOW_HOME + '/webserver_config.py'
 
 if not os.path.isfile(WEBSERVER_CONFIG):
     log.info('Creating new FAB webserver config file in: %s', WEBSERVER_CONFIG)
+    DEFAULT_WEBSERVER_CONFIG = _read_default_config_file('default_webserver_config.py')
     with open(WEBSERVER_CONFIG, 'w') as f:
         f.write(DEFAULT_WEBSERVER_CONFIG)
 
diff --git a/airflow/contrib/executors/kubernetes_executor.py b/airflow/contrib/executors/kubernetes_executor.py
index 17f7e9a2331f1..38abc5ed85a08 100644
--- a/airflow/contrib/executors/kubernetes_executor.py
+++ b/airflow/contrib/executors/kubernetes_executor.py
@@ -36,7 +36,7 @@
 from airflow.models.kubernetes import KubeResourceVersion, KubeWorkerIdentifier
 from airflow.utils.state import State
 from airflow.utils.db import provide_session, create_session
-from airflow import configuration
+from airflow import configuration, settings
 from airflow.exceptions import AirflowConfigException, AirflowException
 from airflow.utils.log.logging_mixin import LoggingMixin
 
@@ -125,7 +125,7 @@ def __init__(self):
         self.core_configuration = configuration_dict['core']
         self.kube_secrets = configuration_dict.get('kubernetes_secrets', {})
         self.kube_env_vars = configuration_dict.get('kubernetes_environment_variables', {})
-        self.airflow_home = configuration.get(self.core_section, 'airflow_home')
+        self.airflow_home = settings.AIRFLOW_HOME
         self.dags_folder = configuration.get(self.core_section, 'dags_folder')
         self.parallelism = configuration.getint(self.core_section, 'PARALLELISM')
         self.worker_container_repository = configuration.get(
diff --git a/airflow/contrib/kubernetes/worker_configuration.py b/airflow/contrib/kubernetes/worker_configuration.py
index 2a1d7e58c18d7..e8bc7384a0f82 100644
--- a/airflow/contrib/kubernetes/worker_configuration.py
+++ b/airflow/contrib/kubernetes/worker_configuration.py
@@ -140,7 +140,7 @@ def _get_environment(self):
         env["AIRFLOW__CORE__EXECUTOR"] = "LocalExecutor"
 
         if self.kube_config.airflow_configmap:
-            env['AIRFLOW__CORE__AIRFLOW_HOME'] = self.worker_airflow_home
+            env['AIRFLOW_HOME'] = self.worker_airflow_home
             env['AIRFLOW__CORE__DAGS_FOLDER'] = self.worker_airflow_dags
         if (not self.kube_config.airflow_configmap and
                 'AIRFLOW__CORE__SQL_ALCHEMY_CONN' not in self.kube_config.kube_secrets):
diff --git a/airflow/lineage/__init__.py b/airflow/lineage/__init__.py
index 20c4bb64702ed..124cbabbd9a3d 100644
--- a/airflow/lineage/__init__.py
+++ b/airflow/lineage/__init__.py
@@ -21,7 +21,7 @@
 from airflow import configuration as conf
 from airflow.lineage.datasets import DataSet
 from airflow.utils.log.logging_mixin import LoggingMixin
-from airflow.utils.module_loading import import_string, prepare_classpath
+from airflow.utils.module_loading import import_string
 
 from itertools import chain
 
@@ -36,7 +36,6 @@ def _get_backend():
 
     try:
         _backend_str = conf.get("lineage", "backend")
-        prepare_classpath()
         backend = import_string(_backend_str)
     except ImportError as ie:
         log.debug("Cannot import %s due to %s", _backend_str, ie)
diff --git a/airflow/logging_config.py b/airflow/logging_config.py
index 4865f0567a571..0cf8f4db0d59b 100644
--- a/airflow/logging_config.py
+++ b/airflow/logging_config.py
@@ -23,7 +23,7 @@
 
 from airflow import configuration as conf
 from airflow.exceptions import AirflowConfigException
-from airflow.utils.module_loading import import_string, prepare_classpath
+from airflow.utils.module_loading import import_string
 
 log = logging.getLogger(__name__)
 
@@ -31,10 +31,6 @@
 def configure_logging():
     logging_class_path = ''
     try:
-        # Prepare the classpath so we are sure that the config folder
-        # is on the python classpath and it is reachable
-        prepare_classpath()
-
         logging_class_path = conf.get('core', 'logging_config_class')
     except AirflowConfigException:
         log.debug('Could not find key logging_config_class in config')
diff --git a/airflow/plugins_manager.py b/airflow/plugins_manager.py
index 3ebecd78f513c..f942ddd90cc03 100644
--- a/airflow/plugins_manager.py
+++ b/airflow/plugins_manager.py
@@ -27,11 +27,10 @@
 import inspect
 import os
 import re
-import sys
 import pkg_resources
 from typing import List, Any
 
-from airflow import configuration
+from airflow import settings
 from airflow.utils.log.logging_mixin import LoggingMixin
 
 log = LoggingMixin().log
@@ -122,20 +121,12 @@ def is_valid_plugin(plugin_obj, existing_plugins):
     return False
 
 
-plugins_folder = configuration.conf.get('core', 'plugins_folder')
-if not plugins_folder:
-    plugins_folder = configuration.conf.get('core', 'airflow_home') + '/plugins'
-plugins_folder = os.path.expanduser(plugins_folder)
-
-if plugins_folder not in sys.path:
-    sys.path.append(plugins_folder)
-
 plugins = []  # type: List[AirflowPlugin]
 
 norm_pattern = re.compile(r'[/|.]')
 
 # Crawl through the plugins folder to find AirflowPlugin derivatives
-for root, dirs, files in os.walk(plugins_folder, followlinks=True):
+for root, dirs, files in os.walk(settings.PLUGINS_FOLDER, followlinks=True):
     for f in files:
         try:
             filepath = os.path.join(root, f)
diff --git a/airflow/settings.py b/airflow/settings.py
index c8e0b77b5eed2..f176846c1f95b 100644
--- a/airflow/settings.py
+++ b/airflow/settings.py
@@ -26,13 +26,13 @@
 import logging
 import os
 import pendulum
-
+import sys
 
 from sqlalchemy import create_engine, exc
 from sqlalchemy.orm import scoped_session, sessionmaker
 from sqlalchemy.pool import NullPool
 
-from airflow import configuration as conf
+from airflow.configuration import conf, AIRFLOW_HOME, WEBSERVER_CONFIG  # NOQA F401
 from airflow.logging_config import configure_logging
 from airflow.utils.sqlalchemy import setup_event_handlers
 
@@ -67,9 +67,10 @@
 LOG_FORMAT = conf.get('core', 'log_format')
 SIMPLE_LOG_FORMAT = conf.get('core', 'simple_log_format')
 
-AIRFLOW_HOME = None
 SQL_ALCHEMY_CONN = None
 DAGS_FOLDER = None
+PLUGINS_FOLDER = None
+LOGGING_CLASS_PATH = None
 
 engine = None
 Session = None
@@ -103,13 +104,18 @@ def policy(task_instance):
 
 
 def configure_vars():
-    global AIRFLOW_HOME
     global SQL_ALCHEMY_CONN
     global DAGS_FOLDER
-    AIRFLOW_HOME = os.path.expanduser(conf.get('core', 'AIRFLOW_HOME'))
+    global PLUGINS_FOLDER
     SQL_ALCHEMY_CONN = conf.get('core', 'SQL_ALCHEMY_CONN')
     DAGS_FOLDER = os.path.expanduser(conf.get('core', 'DAGS_FOLDER'))
 
+    PLUGINS_FOLDER = conf.get(
+        'core',
+        'plugins_folder',
+        fallback=os.path.join(AIRFLOW_HOME, 'plugins')
+    )
+
 
 def configure_orm(disable_connection_pool=False):
     log.debug("Setting up DB connection pool (PID %s)" % os.getpid())
@@ -216,21 +222,44 @@ def configure_action_logging():
     pass
 
 
+def prepare_classpath():
+    """
+    Ensures that certain subfolders of AIRFLOW_HOME are on the classpath
+    """
+
+    if DAGS_FOLDER not in sys.path:
+        sys.path.append(DAGS_FOLDER)
+
+    # Add ./config/ for loading custom log parsers etc, or
+    # airflow_local_settings etc.
+    config_path = os.path.join(AIRFLOW_HOME, 'config')
+    if config_path not in sys.path:
+        sys.path.append(config_path)
+
+    if PLUGINS_FOLDER not in sys.path:
+        sys.path.append(PLUGINS_FOLDER)
+
+
 try:
     from airflow_local_settings import *  # noqa F403 F401
     log.info("Loaded airflow_local_settings.")
 except Exception:
     pass
 
-logging_class_path = configure_logging()
-configure_vars()
-configure_adapters()
-# The webservers import this file from models.py with the default settings.
-configure_orm()
-configure_action_logging()
 
-# Ensure we close DB connections at scheduler and gunicon worker terminations
-atexit.register(dispose_orm)
+def initialize():
+    configure_vars()
+    prepare_classpath()
+    global LOGGING_CLASS_PATH
+    LOGGING_CLASS_PATH = configure_logging()
+    configure_adapters()
+    # The webservers import this file from models.py with the default settings.
+    configure_orm()
+    configure_action_logging()
+
+    # Ensure we close DB connections at scheduler and gunicon worker terminations
+    atexit.register(dispose_orm)
+
 
 # Const stuff
 
diff --git a/airflow/utils/dag_processing.py b/airflow/utils/dag_processing.py
index 950c394e2649d..f0adae27b4b24 100644
--- a/airflow/utils/dag_processing.py
+++ b/airflow/utils/dag_processing.py
@@ -48,7 +48,6 @@
 from airflow.dag.base_dag import BaseDag, BaseDagBag
 from airflow.exceptions import AirflowException
 from airflow.models import errors
-from airflow.settings import logging_class_path
 from airflow.stats import Stats
 from airflow.utils import timezone
 from airflow.utils.db import provide_session
@@ -548,8 +547,9 @@ def helper():
             os.environ['CONFIG_PROCESSOR_MANAGER_LOGGER'] = 'True'
             # Replicating the behavior of how logging module was loaded
             # in logging_config.py
-            reload_module(import_module(logging_class_path.rsplit('.', 1)[0]))
+            reload_module(import_module(airflow.settings.LOGGING_CLASS_PATH.rsplit('.', 1)[0]))
             reload_module(airflow.settings)
+            airflow.settings.initialize()
             del os.environ['CONFIG_PROCESSOR_MANAGER_LOGGER']
             processor_manager = DagFileProcessorManager(dag_directory,
                                                         file_paths,
diff --git a/airflow/utils/log/file_processor_handler.py b/airflow/utils/log/file_processor_handler.py
index 8b0bc978e1aa3..fb7b2fad32013 100644
--- a/airflow/utils/log/file_processor_handler.py
+++ b/airflow/utils/log/file_processor_handler.py
@@ -21,7 +21,7 @@
 import logging
 import os
 
-from airflow import configuration as conf
+from airflow import settings
 from airflow.utils.helpers import parse_template_string
 from datetime import datetime
 
@@ -41,7 +41,7 @@ def __init__(self, base_log_folder, filename_template):
         super(FileProcessorHandler, self).__init__()
         self.handler = None
         self.base_log_folder = base_log_folder
-        self.dag_dir = os.path.expanduser(conf.get('core', 'DAGS_FOLDER'))
+        self.dag_dir = os.path.expanduser(settings.DAGS_FOLDER)
         self.filename_template, self.filename_jinja_template = \
             parse_template_string(filename_template)
 
diff --git a/airflow/utils/module_loading.py b/airflow/utils/module_loading.py
index 51c6adf4e642c..d5b4971b736dd 100644
--- a/airflow/utils/module_loading.py
+++ b/airflow/utils/module_loading.py
@@ -16,24 +16,10 @@
 # KIND, either express or implied.  See the License for the
 # specific language governing permissions and limitations
 # under the License.
-import os
-import sys
 
-from airflow import configuration as conf
 from importlib import import_module
 
 
-def prepare_classpath():
-    """
-    Ensures that the Airflow home directory is on the classpath
-    """
-    config_path = os.path.join(conf.get('core', 'airflow_home'), 'config')
-    config_path = os.path.expanduser(config_path)
-
-    if config_path not in sys.path:
-        sys.path.append(config_path)
-
-
 def import_string(dotted_path):
     """
     Import a dotted module path and return the attribute/class designated by the
diff --git a/airflow/www/app.py b/airflow/www/app.py
index f8723cc8de648..449c2d7d2e191 100644
--- a/airflow/www/app.py
+++ b/airflow/www/app.py
@@ -18,6 +18,7 @@
 # under the License.
 #
 import logging
+import os
 import socket
 from typing import Any
 
@@ -50,9 +51,7 @@ def create_app(config=None, session=None, testing=False, app_name="Airflow"):
         app.wsgi_app = ProxyFix(app.wsgi_app)
     app.secret_key = conf.get('webserver', 'SECRET_KEY')
 
-    airflow_home_path = conf.get('core', 'AIRFLOW_HOME')
-    webserver_config_path = airflow_home_path + '/webserver_config.py'
-    app.config.from_pyfile(webserver_config_path, silent=True)
+    app.config.from_pyfile(settings.WEBSERVER_CONFIG, silent=True)
     app.config['APP_NAME'] = app_name
     app.config['TESTING'] = testing
     app.config['SQLALCHEMY_TRACK_MODIFICATIONS'] = False
diff --git a/scripts/ci/airflow_travis.cfg b/scripts/ci/airflow_travis.cfg
index f9c3181407d21..f630655e3fe54 100644
--- a/scripts/ci/airflow_travis.cfg
+++ b/scripts/ci/airflow_travis.cfg
@@ -17,7 +17,6 @@
 # under the License.
 
 [core]
-airflow_home = ~/airflow
 dags_folder = ~/airflow/dags
 base_log_folder = ~/airflow/logs
 executor = LocalExecutor
diff --git a/scripts/ci/kubernetes/kube/templates/configmaps.template.yaml b/scripts/ci/kubernetes/kube/templates/configmaps.template.yaml
index 45b6f855b2b4a..e83884f012e23 100644
--- a/scripts/ci/kubernetes/kube/templates/configmaps.template.yaml
+++ b/scripts/ci/kubernetes/kube/templates/configmaps.template.yaml
@@ -21,7 +21,6 @@ metadata:
 data:
   airflow.cfg: |
     [core]
-    airflow_home = /root/airflow
     dags_folder = {{CONFIGMAP_DAGS_FOLDER}}
     base_log_folder = /root/airflow/logs
     logging_level = INFO
diff --git a/tests/cli/test_worker_initialisation.py b/tests/cli/test_worker_initialisation.py
index 8baa787a61b37..d6a8fd4404323 100644
--- a/tests/cli/test_worker_initialisation.py
+++ b/tests/cli/test_worker_initialisation.py
@@ -53,7 +53,7 @@ def test_error(self, mock_validate_session):
             cli.worker(mock_args)
         self.assertEqual(cm.exception.code, 1)
 
-    @mock.patch('airflow.configuration.getboolean')
+    @mock.patch('airflow.configuration.conf.getboolean')
     def test_worker_precheck_exception(self, mock_getboolean):
         """
         Test to check the behaviour of validate_session method
@@ -65,7 +65,7 @@ def test_worker_precheck_exception(self, mock_getboolean):
         mock_getboolean.assert_called_once_with('core', 'worker_precheck', fallback=False)
 
     @mock.patch('sqlalchemy.orm.session.Session.execute')
-    @mock.patch('airflow.configuration.getboolean')
+    @mock.patch('airflow.configuration.conf.getboolean')
     def test_validate_session_dbapi_exception(self, mock_getboolean, mock_session):
         """
         Test to validate connection failure scenario on SELECT 1 query