diff --git a/dvc/cache.py b/dvc/cache.py
index a211c5916..d6ced0a8f 100644
--- a/dvc/cache.py
+++ b/dvc/cache.py
@@ -11,29 +11,40 @@ class Cache(object):
         if not os.path.exists(self.cache_dir):
             os.mkdir(self.cache_dir)
 
+        for subdir in self._cache_subdirs:
+            if not os.path.exists(subdir):
+                os.mkdir(subdir)
+
     @staticmethod
     def init(dvc_dir):
         cache_dir = os.path.join(dvc_dir, Cache.CACHE_DIR)
         os.mkdir(cache_dir)
         return Cache(dvc_dir)
 
+    @property
+    def _cache_subdirs(self):
+        dirs = []
+        for x in range(0x00, 0xFF):
+            dirs.append(os.path.join(self.cache_dir, format(x, '02x')))
+        return dirs
+
     def all(self):
         clist = []
-        for cache in os.listdir(self.cache_dir):
-            path = os.path.join(self.cache_dir, cache)
-            if os.path.isfile(path):
+        for subdir in self._cache_subdirs:
+            for cache in os.listdir(subdir):
+                path = os.path.join(subdir, cache)
                 clist.append(path)
         return clist
 
     def get(self, md5):
-        return os.path.join(self.cache_dir, md5)
+        return os.path.join(self.cache_dir, md5[0:2], md5[2:])
 
     def find_cache(self, files):
         file_set = set(files)
         cached = {}
         for cache_file in self.all():
             cached_files = list(filter(lambda f: System.samefile(cache_file, f), file_set))
-            cached.update(dict((f, os.path.basename(cache_file)) for f in cached_files))
+            cached.update(dict((f, os.path.basename(os.path.dirname(cache_file)) + os.path.basename(cache_file)) for f in cached_files))
             file_set = file_set - set(cached_files)
         return cached
 
diff --git a/dvc/cloud/base.py b/dvc/cloud/base.py
index a846ee792..cc5ea654e 100644
--- a/dvc/cloud/base.py
+++ b/dvc/cloud/base.py
@@ -75,7 +75,7 @@ class DataCloudBase(object):
 
     def cache_file_key(self, fname):
         """ Key of a file within the bucket """
-        relpath = os.path.relpath(fname, self._cloud_settings.cache_dir)
+        relpath = os.path.relpath(fname, self._cloud_settings.cache.cache_dir)
         relpath.replace('\\', '/')
         return '{}/{}'.format(self.storage_prefix, relpath).strip('/')
 
@@ -107,7 +107,7 @@ class DataCloudBase(object):
                 with open(p, 'r') as fd:
                     d = yaml.safe_load(fd)
                 md5 = d[Output.PARAM_MD5]
-                cache = os.path.join(self._cloud_settings.cache_dir, md5)
+                cache = self._cloud_settings.cache.get(md5)
                 res.append(self._push(cache))
         return res
 
@@ -159,7 +159,7 @@ class DataCloudBase(object):
                 d = yaml.safe_load(fd)
             md5 = d[Output.PARAM_MD5]
 
-            cache = os.path.join(self._cloud_settings.cache_dir, md5)
+            cache = self._cloud_settings.cache.get(md5)
             cache_key = self._get_key(cache)
             if not cache_key:
                 Logger.error("File '{}' does not exist in the cloud".format(path))
@@ -202,7 +202,7 @@ class DataCloudBase(object):
                 d = yaml.safe_load(fd)
             md5 = d[Output.PARAM_MD5]
 
-            cache = os.path.join(self._cloud_settings.cache_dir, md5)
+            cache = self._cloud_settings.cache.get(md5)
             cache_key = self._get_key(cache)
             res.append(self._status(cache_key, cache))
 
diff --git a/dvc/cloud/data_cloud.py b/dvc/cloud/data_cloud.py
index 5298855ea..f97c701ac 100644
--- a/dvc/cloud/data_cloud.py
+++ b/dvc/cloud/data_cloud.py
@@ -24,7 +24,7 @@ class DataCloud(object):
         ''      : 'LOCAL',
     }
 
-    def __init__(self, cache_dir, config):
+    def __init__(self, cache, config):
         self._config = config
 
         cloud_type = self._config['Global'].get('Cloud', '').strip().upper()
@@ -34,7 +34,7 @@ class DataCloud(object):
         if cloud_type not in self._config.keys():
             raise ConfigError('Can\'t find cloud section \'[%s]\' in config' % cloud_type)
 
-        cloud_settings = self.get_cloud_settings(cache_dir,
+        cloud_settings = self.get_cloud_settings(cache,
                                                  self._config,
                                                  cloud_type)
 
@@ -44,7 +44,7 @@ class DataCloud(object):
         self.sanity_check()
 
     @staticmethod
-    def get_cloud_settings(cache_dir, config, cloud_type):
+    def get_cloud_settings(cache, config, cloud_type):
         """
         Obtain cloud settings from config.
         """
@@ -53,7 +53,7 @@ class DataCloud(object):
         else:
             cloud_config = config[cloud_type]
         global_storage_path = config['Global'].get('StoragePath', None)
-        cloud_settings = CloudSettings(cache_dir, global_storage_path, cloud_config)
+        cloud_settings = CloudSettings(cache, global_storage_path, cloud_config)
         return cloud_settings
 
     def sanity_check(self):
diff --git a/dvc/cloud/instance_manager.py b/dvc/cloud/instance_manager.py
index 014b421e7..e8c1db151 100644
--- a/dvc/cloud/instance_manager.py
+++ b/dvc/cloud/instance_manager.py
@@ -1,5 +1,5 @@
 class CloudSettings(object):
-    def __init__(self, cache_dir, global_storage_path, cloud_config):
-        self.cache_dir = cache_dir
+    def __init__(self, cache, global_storage_path, cloud_config):
+        self.cache = cache
         self.cloud_config = cloud_config
         self.global_storage_path = global_storage_path
diff --git a/dvc/cloud/local.py b/dvc/cloud/local.py
index ab7471f15..b100784f2 100644
--- a/dvc/cloud/local.py
+++ b/dvc/cloud/local.py
@@ -24,7 +24,7 @@ class DataCloudLOCAL(DataCloudBase):
     Driver for local storage.
     """
     def cache_file_key(self, path):
-        return os.path.relpath(os.path.abspath(path), self._cloud_settings.cache_dir)
+        return os.path.relpath(os.path.abspath(path), self._cloud_settings.cache.cache_dir)
 
     def _cmp_checksum(self, key, path):
         return filecmp.cmp(path, key.path)
diff --git a/dvc/project.py b/dvc/project.py
index 811f68a08..4674accdb 100644
--- a/dvc/project.py
+++ b/dvc/project.py
@@ -38,7 +38,7 @@ class Project(object):
         self.state = State(self.root_dir, self.dvc_dir)
         self.config = Config(self.dvc_dir)
         self.logger = Logger(self.config._config)
-        self.cloud = DataCloud(self.cache.cache_dir, self.config._config)
+        self.cloud = DataCloud(self.cache, self.config._config)
 
     @staticmethod
     def init(root_dir=os.curdir):
diff --git a/tests/test_cache.py b/tests/test_cache.py
index a501161dd..1d82fb3d1 100644
--- a/tests/test_cache.py
+++ b/tests/test_cache.py
@@ -9,8 +9,10 @@ from tests.basic_env import TestDvc
 class TestCache(TestDvc):
     def setUp(self):
         super(TestCache, self).setUp()
-        self.cache1 = os.path.join(self.dvc.cache.cache_dir, '1')
-        self.cache2 = os.path.join(self.dvc.cache.cache_dir, '2')
+        self.cache1_md5 = '123'
+        self.cache2_md5 = '234'
+        self.cache1 = os.path.join(self.dvc.cache.cache_dir, self.cache1_md5[0:2], self.cache1_md5[2:])
+        self.cache2 = os.path.join(self.dvc.cache.cache_dir, self.cache2_md5[0:2], self.cache2_md5[2:])
         self.create(self.cache1, '1')
         self.create(self.cache2, '2')
 
@@ -21,14 +23,14 @@ class TestCache(TestDvc):
         self.assertTrue(self.cache2 in flist)
 
     def test_get(self):
-        cache = Cache(self.dvc.dvc_dir).get(os.path.basename(self.cache1))
+        cache = Cache(self.dvc.dvc_dir).get(self.cache1_md5)
         self.assertEquals(cache, self.cache1)
 
     def test_find_cache(self):
         fname1 = os.path.basename(self.cache1)
-        fname1_md5 = fname1
+        fname1_md5 = self.cache1_md5
         fname2 = os.path.basename(self.cache2)
-        fname2_md5 = fname2
+        fname2_md5 = self.cache2_md5
         fname3 = 'non_existing'
 
         System.hardlink(self.cache1, fname1)
diff --git a/tests/test_data_cloud.py b/tests/test_data_cloud.py
index e86efa961..9bb794d31 100644
--- a/tests/test_data_cloud.py
+++ b/tests/test_data_cloud.py
@@ -154,7 +154,7 @@ class TestDataCloudGCP(TestDataCloudBase):
         # Setup cloud
         config = {'StoragePath': repo,
                   'Region': self.TEST_REPO_GCP_PROJECT}
-        cloud_settings = CloudSettings(self.dvc.cache.cache_dir, None, config)
+        cloud_settings = CloudSettings(self.dvc.cache, None, config)
         self.cloud = DataCloudGCP(cloud_settings)
 
     def test(self):
@@ -172,7 +172,7 @@ class TestDataCloudLOCAL(TestDataCloudBase):
         self.dname = 'cloud'
         os.mkdir(self.dname)
         config = {'StoragePath': self.dname}
-        cloud_settings = CloudSettings(self.dvc.cache.cache_dir, None, config)
+        cloud_settings = CloudSettings(self.dvc.cache, None, config)
         self.cloud = DataCloudLOCAL(cloud_settings)
 
     def test(self):
diff --git a/tests/test_fsck.py b/tests/test_fsck.py
index d20e8761a..fcfa3f5d0 100644
--- a/tests/test_fsck.py
+++ b/tests/test_fsck.py
@@ -71,7 +71,7 @@ class TestFsck(TestDvc):
             if out.dvc_path == self.FOO:
                 md5 = out.md5
 
-        foo_cache_file = os.path.join(self.dvc.cache.cache_dir, md5)
+        foo_cache_file = os.path.join(self.dvc.cache.cache_dir, md5[0:2], md5[2:])
         self.assertTrue(os.path.exists(foo_cache_file))
 
         os.chmod(foo_cache_file, 0o777)
diff --git a/tests/test_gc.py b/tests/test_gc.py
index e24e5bfee..253d67c23 100644
--- a/tests/test_gc.py
+++ b/tests/test_gc.py
@@ -21,8 +21,8 @@ class TestGC(TestDvc):
         self.good_cache = self.dvc.cache.all()
 
         self.bad_cache = []
-        for i in ['1', '2', '3']:
-            path = os.path.join(self.dvc.cache.cache_dir, i)
+        for i in ['123', '234', '345']:
+            path = os.path.join(self.dvc.cache.cache_dir, i[0:2], i[2:])
             self.create(path, i)
             self.bad_cache.append(path)