diff --git a/cmd/kubebuilder/create/resource/run.go b/cmd/kubebuilder/create/resource/run.go
index cb22a450b5c..08965e050c7 100644
--- a/cmd/kubebuilder/create/resource/run.go
+++ b/cmd/kubebuilder/create/resource/run.go
@@ -21,12 +21,13 @@ import (
 	"log"
 	"os"
 
+	"strings"
+
 	createutil "github.com/kubernetes-sigs/kubebuilder/cmd/kubebuilder/create/util"
 	generatecmd "github.com/kubernetes-sigs/kubebuilder/cmd/kubebuilder/generate"
 	"github.com/kubernetes-sigs/kubebuilder/cmd/kubebuilder/util"
 	"github.com/markbates/inflect"
 	"github.com/spf13/cobra"
-	"strings"
 )
 
 var nonNamespacedKind bool
diff --git a/cmd/kubebuilder/initproject/init.go b/cmd/kubebuilder/initproject/init.go
index 23291833641..2d3f91eba77 100644
--- a/cmd/kubebuilder/initproject/init.go
+++ b/cmd/kubebuilder/initproject/init.go
@@ -62,7 +62,6 @@ func runInitRepo(cmd *cobra.Command, args []string) {
 	cr := util.GetCopyright(copyright)
 
 	fmt.Printf("Initializing project structure...\n")
-	RunVendorInstall(nil, nil)
 	if bazel {
 		createBazelWorkspace()
 	}
@@ -87,6 +86,7 @@ func runInitRepo(cmd *cobra.Command, args []string) {
 	doInject(cr)
 	doArgs(cr)
 	//os.MkdirAll("bin", 0700)
+	RunVendorInstall(nil, nil)
 
 	createBoilerplate()
 	fmt.Printf("Next: Define a resource with:\n" +
diff --git a/cmd/kubebuilder/initproject/vendor.go b/cmd/kubebuilder/initproject/vendor.go
index 7e83f9fb916..031968e5f7c 100644
--- a/cmd/kubebuilder/initproject/vendor.go
+++ b/cmd/kubebuilder/initproject/vendor.go
@@ -17,25 +17,27 @@ limitations under the License.
 package initproject
 
 import (
-	"archive/tar"
-	"compress/gzip"
 	"fmt"
-	"io/ioutil"
-	"log"
+	"io"
 	"os"
-	"path/filepath"
+	"os/exec"
 
 	"github.com/spf13/cobra"
 
+	"github.com/kubernetes-sigs/kubebuilder/cmd/kubebuilder/util"
 	"github.com/kubernetes-sigs/kubebuilder/cmd/kubebuilder/version"
 )
 
+const (
+	depManifestFile = "Gopkg.toml"
+)
+
 var vendorInstallCmd = &cobra.Command{
 	Use:   "dep",
-	Short: "Install Gopkg.toml, Gopkg.lock and vendor/.",
-	Long:  `Install Gopkg.toml, Gopkg.lock and vendor/.`,
-	Example: `# Bootstrap vendor/ from the src packaged with kubebuilder
-kubebuilder init dep
+	Short: "Install Gopkg.toml and update vendor dependencies.",
+	Long:  `Install Gopkg.toml and update vendor dependencies.`,
+	Example: `Update the vendor dependencies:
+kubebuilder update vendor
 `,
 	Run: RunVendorInstall,
 }
@@ -43,146 +45,222 @@ kubebuilder init dep
 var builderCommit string
 var Update bool
 
-// deleteOld delete all the versions for all packages it is going to untar
-func deleteOld() {
-	// Move up two directories from the location of the `kubebuilder`
-	// executable to find the `vendor` directory we package with our
-	// releases.
-	e, err := os.Executable()
-	if err != nil {
-		log.Fatal("unable to get directory of kubebuilder tools")
-	}
-
-	e = filepath.Dir(filepath.Dir(e))
-
-	// read the file
-	f := filepath.Join(e, "bin", "vendor.tar.gz")
-	fr, err := os.Open(f)
-	if err != nil {
-		log.Fatalf("failed to read vendor tar file %s %v", f, err)
+func RunVendorInstall(cmd *cobra.Command, args []string) {
+	if Update {
+		backupFilename := fmt.Sprintf("%s.bkp", depManifestFile)
+		if err := copyFile(depManifestFile, backupFilename); err != nil {
+			fmt.Printf("Error taking back up of existing Gopkg.toml file: %v \n", err)
+			return
+		}
+		fmt.Printf("Previous Gopkg.toml file has been saved at '%s'\n", backupFilename)
 	}
-	defer fr.Close()
-
-	// setup gzip of tar
-	gr, err := gzip.NewReader(fr)
-	if err != nil {
-		log.Fatalf("failed to read vendor tar file %s %v", f, err)
+	depTmplArgs := map[string]string{
+		"Version": version.GetVersion().KubeBuilderVersion,
 	}
-	defer gr.Close()
-
-	// setup tar reader
-	tr := tar.NewReader(gr)
-
-	for file, err := tr.Next(); err == nil; file, err = tr.Next() {
-		p := filepath.Join(".", file.Name)
-		// Delete existing directory first if upgrading
-		if filepath.Dir(p) != "." {
-			dir := filepath.Base(filepath.Dir(p))
-			parent := filepath.Base(filepath.Dir(filepath.Dir(p)))
-			gparent := filepath.Base(filepath.Dir(filepath.Dir(filepath.Dir(p))))
-
-			// Delete the directory if it is a repo or package in a repo
-			if dir != "vendor" && parent != "vendor" && !(gparent == "vendor" && parent == "github.com") {
-				os.RemoveAll(filepath.Dir(p))
-			}
-		}
+	util.Write(depManifestFile, "dep-manifest-file", depManifestTmpl, depTmplArgs)
+	if err := runDepEnsure(); err != nil {
+		fmt.Printf("Error running 'dep ensure': %s\n", err)
 	}
+	return
 }
 
-func RunVendorInstall(cmd *cobra.Command, args []string) {
-	fmt.Printf("\t%s/\n", filepath.Join("vendor"))
-
-	// Delete old versions of the packages we manage before installing the new ones
-	if Update {
-		deleteOld()
-	}
-
-	// Get the executable directory
-	e, err := os.Executable()
+func runDepEnsure() error {
+	fmt.Printf("Updating vendor dependencies. Running 'dep ensure'....\n")
+	cmd := exec.Command("dep", "ensure")
+	o, err := cmd.CombinedOutput()
 	if err != nil {
-		log.Fatal("unable to get directory of kubebuilder tools")
+		fmt.Printf("Failed to run 'dep ensure': %s\n", string(o))
+		return err
 	}
-	e = filepath.Dir(e)
+	fmt.Printf("Updated vendor dependencies successfully.\n")
+	return nil
+}
 
-	// read the file
-	f := filepath.Join(e, "vendor.tar.gz")
-	fr, err := os.Open(f)
+// TODO(droot): may be move to util fn ?
+func copyFile(src, dst string) error {
+	from, err := os.Open(src)
 	if err != nil {
-		log.Fatalf("failed to read vendor tar file %s %v", f, err)
+		return err
 	}
-	defer fr.Close()
+	defer from.Close()
 
-	// setup gzip of tar
-	gr, err := gzip.NewReader(fr)
+	to, err := os.OpenFile(dst, os.O_RDWR|os.O_CREATE, 0666)
 	if err != nil {
-		log.Fatalf("failed to read vendor tar file %s %v", f, err)
-	}
-	defer gr.Close()
-
-	// setup tar reader
-	tr := tar.NewReader(gr)
-
-	for file, err := tr.Next(); err == nil; file, err = tr.Next() {
-		if file.FileInfo().IsDir() {
-			continue
-		}
-		p := filepath.Join(".", file.Name)
-		if Update && filepath.Dir(p) == "." {
-			continue
-		}
-
-		err := os.MkdirAll(filepath.Dir(p), 0700)
-		if err != nil {
-			log.Fatalf("Could not create directory %s: %v", filepath.Dir(p), err)
-		}
-		b, err := ioutil.ReadAll(tr)
-		if err != nil {
-			log.Fatalf("Could not read file %s: %v", file.Name, err)
-		}
-		err = ioutil.WriteFile(p, b, os.FileMode(file.Mode))
-		if err != nil {
-			log.Fatalf("Could not write file %s: %v", p, err)
-		}
+		return err
 	}
+	defer to.Close()
 
-	err = updateDepConfig()
+	_, err = io.Copy(to, from)
 	if err != nil {
-		log.Fatalf("Could not update Gopkg.toml file: %v", err)
+		return err
 	}
+	return nil
 }
 
-// updateDepConfig updates the Dep config Gopkg.toml to include Kubebuilder
-// project dependency. It uses the Kubebuilder version to determine whether
-// to include branch or version in the contraint stanza.
-func updateDepConfig() error {
-	var depConstraint string
+// template for dep's manifest file (Gopkg.toml). This is generated using
+// scripts/generate_dep_manifest.sh scripts.
+const depManifestTmpl = `
+#  
+#  Note: Stanzas below are generated by Kubebuilder.
+#  DO NOT MODIFY.
+#  
+
+required=[
+		"sigs.k8s.io/testing_frameworks/integration",
+		"k8s.io/client-go/plugin/pkg/client/auth",
+		"github.com/spf13/pflag",
+		"github.com/onsi/ginkgo"
+		]
 
-	kbVersion := version.GetVersion().KubeBuilderVersion
-	if kbVersion == "unknown" {
-		// KB is built from master branch
-		depConstraint = `
-[[constraint]]
-  branch = "master"
-  name = "github.com/kubernetes-sigs/kubebuilder"
-`
-	} else {
-		depConstraint = fmt.Sprintf(`
 [[constraint]]
-  version = "%s"
   name = "github.com/kubernetes-sigs/kubebuilder"
-`, kbVersion)
-	}
+  {{ if eq .Version "unknown" -}}
+  branch = "master" 
+  {{ else -}}
+  version = "v{{.Version}}"
+  {{ end }}
 
-	f, err := os.OpenFile("Gopkg.toml", os.O_APPEND|os.O_WRONLY, 0644)
-	if err != nil {
-		return err
-	}
+[[override]]
+name="k8s.io/api"
+version="kubernetes-1.10.0"
 
-	defer f.Close()
+[[override]]
+name="k8s.io/apiextensions-apiserver"
+version="kubernetes-1.10.1"
 
-	if _, err = f.WriteString(depConstraint); err != nil {
-		return err
-	}
+[[override]]
+name="k8s.io/apimachinery"
+version="kubernetes-1.10.0"
 
-	return nil
-}
+[[override]]
+name="k8s.io/kube-aggregator"
+version="kubernetes-1.10.1"
+
+[[override]]
+name="k8s.io/client-go"
+version="kubernetes-1.10.1"
+
+[[override]]
+name="cloud.google.com/go"
+version="v0.21.0"
+
+[[override]]
+name="github.com/davecgh/go-spew"
+version="v1.1.0"
+
+[[override]]
+name="github.com/ghodss/yaml"
+version="v1.0.0"
+
+[[override]]
+name="github.com/gogo/protobuf"
+version="v1.0.0"
+
+[[override]]
+name="github.com/golang/glog"
+revision="23def4e6c14b4da8ac2ed8007337bc5eb5007998"
+
+[[override]]
+name="github.com/golang/groupcache"
+revision="66deaeb636dff1ac7d938ce666d090556056a4b0"
+
+[[override]]
+name="github.com/golang/protobuf"
+version="v1.1.0"
+
+[[override]]
+name="github.com/google/gofuzz"
+revision="24818f796faf91cd76ec7bddd72458fbced7a6c1"
+
+[[override]]
+name="github.com/googleapis/gnostic"
+version="v0.1.0"
+
+[[override]]
+name="github.com/hashicorp/golang-lru"
+revision="0fb14efe8c47ae851c0034ed7a448854d3d34cf3"
+
+[[override]]
+name="github.com/howeyc/gopass"
+revision="bf9dde6d0d2c004a008c27aaee91170c786f6db8"
+
+[[override]]
+name="github.com/imdario/mergo"
+version="v0.3.4"
+
+[[override]]
+name="github.com/json-iterator/go"
+version="1.1.3"
+
+[[override]]
+name="github.com/kubernetes-sigs/kubebuilder"
+revision="7b3f6cec863d676b3d1f133107426360b7ef20fc"
+
+[[override]]
+name="github.com/modern-go/concurrent"
+version="1.0.3"
+
+[[override]]
+name="github.com/modern-go/reflect2"
+version="1.0.0"
+
+[[override]]
+name="github.com/onsi/ginkgo"
+version="v1.4.0"
+
+[[override]]
+name="github.com/onsi/gomega"
+version="v1.3.0"
+
+[[override]]
+name="github.com/spf13/pflag"
+version="v1.0.1"
+
+[[override]]
+name="golang.org/x/crypto"
+revision="4ec37c66abab2c7e02ae775328b2ff001c3f025a"
+
+[[override]]
+name="golang.org/x/net"
+revision="640f4622ab692b87c2f3a94265e6f579fe38263d"
+
+[[override]]
+name="golang.org/x/oauth2"
+revision="cdc340f7c179dbbfa4afd43b7614e8fcadde4269"
+
+[[override]]
+name="golang.org/x/sys"
+revision="7db1c3b1a98089d0071c84f646ff5c96aad43682"
+
+[[override]]
+name="golang.org/x/text"
+version="v0.3.0"
+
+[[override]]
+name="golang.org/x/time"
+revision="fbb02b2291d28baffd63558aa44b4b56f178d650"
+
+[[override]]
+name="google.golang.org/appengine"
+version="v1.0.0"
+
+[[override]]
+name="gopkg.in/inf.v0"
+version="v0.9.1"
+
+[[override]]
+name="gopkg.in/yaml.v2"
+version="v2.2.1"
+
+[[override]]
+name="k8s.io/kube-openapi"
+revision="f08db293d3ef80052d6513ece19792642a289fea"
+
+[[override]]
+name="sigs.k8s.io/testing_frameworks"
+revision="f53464b8b84b4507805a0b033a8377b225163fea"
+
+[prune]
+  go-tests = true
+  #unused-packages = true
+`
diff --git a/scripts/generate_dep_manifest.sh b/scripts/generate_dep_manifest.sh
new file mode 100755
index 00000000000..b368cd2ae36
--- /dev/null
+++ b/scripts/generate_dep_manifest.sh
@@ -0,0 +1,42 @@
+#!/bin/bash
+
+#
+# Script to generate Gopkg.toml file with override stanzas 
+# Script assumes you have run 'dep ensure' on the project and it is
+# in compilable state.
+#
+# Notes about generating override stanza:
+# Create a project using Kubebuilder
+# Remove all the override stanzas except the k8s one.
+# Run 'dep ensure' to update the dependencies and then
+# run this script.
+# Give preference to version if found else pin it to the revision
+#
+#
+
+tmp_file="/tmp/dep.txt"
+dep status -json|jq '.[]|.ProjectRoot,.Revision, .Version' > $tmp_file
+while read name ; do 
+	read revision; read version; 
+	# strip quotes
+	myver=$(echo "$version" | tr -d '"')
+	if [ "$myver" = "branch master" ] || [ -z "$myver" ]; then
+		printf "\n[[override]]\nname=$name\nrevision=$revision\n" ; 
+	else
+		printf "\n[[override]]\nname=$name\nversion=$version\n" ; 
+	fi
+done < $tmp_file
+
+cat << EOF
+[[constraint]]
+  {{ if eq .Version "unknown" }}
+  branch = "master"
+  {{ else }}
+  version = "{{.Version}}"
+  {{ end }}
+  name = "github.com/kubernetes-sigs/kubebuilder"
+
+[prune]
+  go-tests = true
+  unused-packages = true
+EOF
diff --git a/test.sh b/test.sh
index e73b4e1da1a..0e9b32e4c36 100755
--- a/test.sh
+++ b/test.sh
@@ -74,7 +74,6 @@ rc=0
 tmp_root=/tmp
 
 kb_root_dir=$tmp_root/kubebuilder
-kb_vendor_dir=$tmp_root/vendor
 
 # Skip fetching and untaring the tools by setting the SKIP_FETCH_TOOLS variable
 # in your environment to any value:
@@ -126,19 +125,6 @@ function build_kb {
   go build -o $tmp_root/kubebuilder/bin/kubebuilder-gen ./cmd/kubebuilder-gen
 }
 
-function prepare_vendor_deps {
-  header_text "preparing vendor dependencies"
-  # TODO(droot): clean up this function
-  rm -rf $kb_vendor_dir && rm -f $tmp_root/Gopkg.toml && rm -f $tmp_root/Gopkg.lock
-  mkdir -p $kb_vendor_dir/github.com/kubernetes-sigs/kubebuilder/pkg/ || echo ""
-  cp -r pkg/* $kb_vendor_dir/github.com/kubernetes-sigs/kubebuilder/pkg/
-  cp LICENSE $kb_vendor_dir/github.com/kubernetes-sigs/kubebuilder/LICENSE
-  cp Gopkg.toml Gopkg.lock $tmp_root/
-  cp -a vendor/* $kb_vendor_dir/
-  cd $tmp_root 
-  tar -czf $kb_root_dir/bin/vendor.tar.gz vendor/ Gopkg.lock  Gopkg.toml
-}
-
 function prepare_testdir_under_gopath {
   kb_test_dir=$GOPATH/src/github.com/kubernetes-sigs/kubebuilder-test
   header_text "preparing test directory $kb_test_dir"
@@ -233,13 +219,8 @@ function run_dep_ensure {
 prepare_staging_dir
 fetch_tools
 build_kb
-prepare_vendor_deps
 prepare_testdir_under_gopath
 
 generate_crd_resources
 test_generated_controller
-run_dep_ensure
-# Run controller tests after running dep ensure because we want ensure code
-# compiles and tests pass after user ran dep ensure on the generated project.
-test_generated_controller
 exit $rc