diff --git a/bin/bitbake-setup b/bin/bitbake-setup
index 50b7f1488..a9674a527 100755
--- a/bin/bitbake-setup
+++ b/bin/bitbake-setup
@@ -461,7 +461,7 @@ def init_config(top_dir, settings, args, d):
     print("\nRun 'bitbake-setup init --non-interactive {}' to select this configuration non-interactively.\n".format(" ".join(upstream_config['non-interactive-cmdline-options'])))
 
     setupdir = os.path.join(os.path.abspath(top_dir), args.setup_dir_name or "{}-{}".format(upstream_config['name']," ".join(upstream_config['non-interactive-cmdline-options'][1:]).replace(" ","-").replace("/","_")))
-    if os.path.exists(os.path.join(setupdir, "layers")):
+    if os.path.exists(os.path.join(setupdir, "sources")):
         print(f"Setup already initialized in:\n    {setupdir}\nUse 'bitbake-setup status' to check if it needs to be updated, or 'bitbake-setup update' to perform the update.\nIf you would like to start over and re-initialize in this directory, remove it, and run 'bitbake-setup init' again.")
         return
 
@@ -475,7 +475,7 @@ def init_config(top_dir, settings, args, d):
     os.makedirs(setupdir, exist_ok=True)
 
     confdir = os.path.join(setupdir, "config")
-    layerdir = os.path.join(setupdir, "layers")
+    layerdir = os.path.join(setupdir, "sources")
 
     os.makedirs(confdir)
     os.makedirs(layerdir)
@@ -535,7 +535,7 @@ def build_status(top_dir, settings, args, d, update=False):
     setupdir = args.setup_dir
 
     confdir = os.path.join(setupdir, "config")
-    layerdir = os.path.join(setupdir, "layers")
+    layerdir = os.path.join(setupdir, "sources")
 
     current_upstream_config = json.load(open(os.path.join(confdir, "config-upstream.json")))
 
@@ -648,7 +648,7 @@ def install_buildtools(top_dir, settings, args, d):
             return
         shutil.rmtree(buildtools_install_dir)
 
-    install_buildtools = os.path.join(args.setup_dir, 'layers/oe-scripts/install-buildtools')
+    install_buildtools = os.path.join(args.setup_dir, 'sources/oe-scripts/install-buildtools')
     buildtools_download_dir = os.path.join(args.setup_dir, 'buildtools-downloads/{}'.format(time.strftime("%Y%m%d%H%M%S")))
     print("Buildtools archive is downloaded into {} and its content installed into {}".format(buildtools_download_dir, buildtools_install_dir))
     subprocess.check_call("{} -d {} --downloads-directory {}".format(install_buildtools, buildtools_install_dir, buildtools_download_dir), shell=True)
diff --git a/lib/bb/tests/setup.py b/lib/bb/tests/setup.py
index b8a5a03ad..9eebd709e 100644
--- a/lib/bb/tests/setup.py
+++ b/lib/bb/tests/setup.py
@@ -181,7 +181,7 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
     def check_setupdir_files(self, setuppath, test_file_content):
         with open(os.path.join(setuppath, 'config', "config-upstream.json")) as f:
             config_upstream = json.load(f)
-        with open(os.path.join(setuppath, 'layers', 'test-repo', 'test-file')) as f:
+        with open(os.path.join(setuppath, 'sources', 'test-repo', 'test-file')) as f:
             self.assertEqual(f.read(), test_file_content)
         bitbake_config = config_upstream["bitbake-config"]
         bb_build_path = os.path.join(setuppath, 'build')
@@ -205,7 +205,7 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
             with open(os.path.join(bb_conf_path, 'bblayers.conf')) as f:
                 bblayers = f.read()
                 for l in bitbake_config["bb-layers-in-sources"]:
-                    self.assertIn(os.path.join(setuppath, "layers", l), bblayers)
+                    self.assertIn(os.path.join(setuppath, "sources", l), bblayers)
                 for l in bitbake_config.get("bb-layers-in-this-dir") or []:
                     thisdir_layer = os.path.join(
                             os.path.dirname(config_upstream["path"]),
@@ -328,7 +328,7 @@ print("BBPATH is {{}}".format(os.environ["BBPATH"]))
             setuppath = os.path.join(self.tempdir, 'bitbake-builds', 'test-config-1-{}'.format(c))
             os.environ['BBPATH'] = os.path.join(setuppath, 'build')
             out = self.runbbsetup("status")
-            self.assertIn("Layer repository file://{} checked out into {}/layers/test-repo updated revision master from".format(self.testrepopath, setuppath), out[0])
+            self.assertIn("Layer repository file://{} checked out into {}/sources/test-repo updated revision master from".format(self.testrepopath, setuppath), out[0])
             out = self.runbbsetup("update")
             if c in ('gadget', 'gizmo'):
                 self.assertIn("Existing bitbake configuration directory renamed to {}/build/conf-backup.".format(setuppath), out[0])