diff --git a/commands/operator-sdk/cmd/error.go b/commands/operator-sdk/cmd/error.go
index d648ccacd7..c79c430bdf 100644
--- a/commands/operator-sdk/cmd/error.go
+++ b/commands/operator-sdk/cmd/error.go
@@ -6,6 +6,9 @@ import (
 )
 
 const (
+	// http://tldp.org/LDP/abs/html/exitcodes.html
+	ExitSuccess = iota
+	ExitError
 	// ExitBadArgs is the exit error code for bad arguments.
 	ExitBadArgs = 128
 )
diff --git a/commands/operator-sdk/cmd/new.go b/commands/operator-sdk/cmd/new.go
index aaf28b3812..34e2fed530 100644
--- a/commands/operator-sdk/cmd/new.go
+++ b/commands/operator-sdk/cmd/new.go
@@ -3,6 +3,8 @@ package cmd
 import (
 	"fmt"
 
+	"github.com/coreos/operator-sdk/pkg/generator"
+
 	"github.com/spf13/cobra"
 )
 
@@ -27,8 +29,9 @@ var newCmd = &cobra.Command{
 }
 
 var (
-	apiGroup string
-	kind     string
+	apiGroup    string
+	kind        string
+	projectName string
 )
 
 func init() {
@@ -44,8 +47,21 @@ func newFunc(cmd *cobra.Command, args []string) {
 		ExitWithError(ExitBadArgs, fmt.Errorf("new command needs 1 argument."))
 	}
 	parse(args)
-	// TODO: add generation logic.
+	verifyFlags()
+	g := generator.NewGenerator(apiGroup, kind, projectName)
+	err := g.Render()
+	if err != nil {
+		ExitWithError(ExitError, fmt.Errorf("failed to create project %v: %v", projectName, err))
+	}
 }
 
 func parse(args []string) {
+	projectName = args[0]
+	if len(projectName) == 0 {
+		ExitWithError(ExitBadArgs, fmt.Errorf("project-name must not be empty"))
+	}
+}
+
+func verifyFlags() {
+	// TODO: verify format of input flags.
 }
diff --git a/pkg/generator/generator.go b/pkg/generator/generator.go
index 58ebcec46f..60022f8ef9 100644
--- a/pkg/generator/generator.go
+++ b/pkg/generator/generator.go
@@ -1,61 +1,128 @@
 package generator
 
 import (
-	"errors"
 	"os"
 	"path/filepath"
 	"strings"
 )
 
-const defaultFileMode = 0750
+const (
+	defaultFileMode = 0750
+	cmdDir          = "cmd"
+	deployDir       = "deploy"
+	configDir       = "config"
+	tmpDir          = "tmp"
+	buildDir        = tmpDir + "/build"
+	codegenDir      = tmpDir + "/codegen"
+	pkgDir          = "pkg"
+	apisDir         = pkgDir + "/apis"
+	stubDir         = pkgDir + "/stub"
+)
 
 type Generator struct {
+	apiGroup string
+	kind     string
+	// projectName is name of the new operator application
+	// and is also the name of the base directory.
+	projectName string
+}
+
+// NewGenerator creates a new scaffold Generator.
+func NewGenerator(apiGroup, kind, projectName string) *Generator {
+	return &Generator{apiGroup: apiGroup, kind: kind, projectName: projectName}
 }
 
+// Render generates the default project structure:
+//
+// ├── <projectName>
+// │   ├── cmd
+// │   │   └── <projectName>
+// │   ├── config
+// │   ├── deploy
+// │   ├── pkg
+// │   │   ├── apis
+// │   │   │   └── <api-dir-name>  // computed from apiDirName(apiGroup).
+// │   │   │       └── <api-version> // computed from apiVersion(apiGroup).
+// │   │   └── stub
+// │   └── tmp
+// │       ├── build
+// │       └── codegen
 func (g *Generator) Render() error {
-	gopath, ok := os.LookupEnv("GOPATH")
-	if !ok {
-		return errors.New("GOPATH must be set")
+	if err := g.renderCmd(); err != nil {
+		return err
 	}
-	projDir, ok := os.LookupEnv("PROJECT") // github.com/coreos/play
-	if !ok {
-		return errors.New("PROJECT must be set")
+	if err := g.renderConfig(); err != nil {
+		return err
+	}
+	if err := g.renderDeploy(); err != nil {
+		return err
 	}
-	apiGroup, ok := os.LookupEnv("APIGROUP") // play.coreos.com/v1alpha1
-	if !ok {
-		return errors.New("PROJECT must be set")
+	if err := g.renderPkg(); err != nil {
+		return err
 	}
+	return g.renderTmp()
+}
 
-	projDir = filepath.Join(gopath, "src", projDir)
-	err := os.MkdirAll(projDir, defaultFileMode)
-	if err != nil {
+func (g *Generator) renderCmd() error {
+	if err := os.MkdirAll(filepath.Join(g.projectName, cmdDir, g.projectName), defaultFileMode); err != nil {
 		return err
 	}
+	// TODO render files.
+	return nil
+}
 
-	programName := func() string {
-		splits := strings.Split(projDir, "/")
-		return splits[len(splits)-1]
-	}()
-	err = os.MkdirAll(filepath.Join(projDir, "cmd", programName), defaultFileMode)
-	if err != nil {
+func (g *Generator) renderConfig() error {
+	if err := os.MkdirAll(filepath.Join(g.projectName, configDir), defaultFileMode); err != nil {
 		return err
 	}
+	// TODO render files.
+	return nil
+}
 
-	// pkg/apis/
-	groupName, apiVersion := func() (string, string) {
-		splits := strings.Split(apiGroup, "/")
-		return strings.Split(splits[0], ".")[0], splits[1]
-	}()
-	err = os.MkdirAll(filepath.Join(projDir, "pkg/apis", groupName, apiVersion), defaultFileMode)
-	if err != nil {
+func (g *Generator) renderDeploy() error {
+	if err := os.MkdirAll(filepath.Join(g.projectName, deployDir), defaultFileMode); err != nil {
 		return err
 	}
+	// TODO render files.
+	return nil
+}
 
-	// pkg/controller/
-	err = os.MkdirAll(filepath.Join(projDir, "pkg/controller"), defaultFileMode)
-	if err != nil {
+func (g *Generator) renderTmp() error {
+	if err := os.MkdirAll(filepath.Join(g.projectName, buildDir), defaultFileMode); err != nil {
 		return err
 	}
+	if err := os.MkdirAll(filepath.Join(g.projectName, codegenDir), defaultFileMode); err != nil {
+		return err
+	}
+	// TODO render files.
+	return nil
+}
 
+func (g *Generator) renderPkg() error {
+	if err := os.MkdirAll(filepath.Join(g.projectName, apisDir, apiDirName(g.apiGroup), apiVersion(g.apiGroup)), defaultFileMode); err != nil {
+		return err
+	}
+	if err := os.MkdirAll(filepath.Join(g.projectName, stubDir), defaultFileMode); err != nil {
+		return err
+	}
+	// TODO render files.
 	return nil
 }
+
+// apiVersion extracts api version from the given apiGroup.
+func apiVersion(apiGroup string) string {
+	return strings.Split(apiGroup, "/")[1]
+}
+
+// groupName extracts the group name from the givem apiGroup.
+func groupName(apiGroup string) string {
+	return strings.Split(apiGroup, "/")[0]
+}
+
+// apiDirName extracts the name of api directory under ../apis/ from the apiGroup.
+// it uses the first word separated with "." of the groupName as the api directory name.
+// for example,
+//  apiDirName("app.example.com/v1alpha1") => "app".
+func apiDirName(apiGroup string) string {
+	return strings.Split(groupName(apiGroup), ".")[0]
+}