diff --git a/RELEASE.md b/RELEASE.md
index e221882e36..3e71110b71 100644
--- a/RELEASE.md
+++ b/RELEASE.md
@@ -20,6 +20,7 @@
 * Relaxed the bounds on the `plotly` requirement for `plotly.PlotlyDataSet`.
 * `kedro pipeline package <pipeline>` now raises an error if the `<pipeline>` argument doesn't look like a valid Python module path (e.g. has `/` instead of `.`).
 * Fixed slow startup because of catalog processing by reducing the exponential growth of extra processing during `_FrozenDatasets` creations.
+* Removed `.coveragerc` from the Kedro project template. `coverage` settings are now given in `pyproject.toml`.
 * Fixed a bug where packaging or pulling a modular pipeline with the same name as the project's package name would throw an error (or silently pass without including the pipeline source code in the wheel file).
 
 ## Minor breaking changes to the API
diff --git a/docs/source/03_tutorial/02_tutorial_template.md b/docs/source/03_tutorial/02_tutorial_template.md
index ded3e58015..96b702382b 100644
--- a/docs/source/03_tutorial/02_tutorial_template.md
+++ b/docs/source/03_tutorial/02_tutorial_template.md
@@ -42,7 +42,7 @@ jupyter_client>=5.1.0, <7.0 # Used to open a Kedro-session in Jupyter Notebook &
 jupyterlab~=3.0 # Used to open a Kedro-session in Jupyter Lab
 kedro==0.17.5
 nbstripout~=0.4 # Strips the output of a Jupyter Notebook and writes the outputless version to the original file
-pytest-cov~=2.5 # Produces test coverage reports
+pytest-cov~=3.0 # Produces test coverage reports
 pytest-mock>=1.7.1, <2.0 # Wrapper around the mock package for easier use with pytest
 pytest~=6.2 # Testing framework for Python code
 wheel>=0.35, <0.37 # The reference implementation of the Python wheel packaging standard
diff --git a/features/steps/test_starter/{{ cookiecutter.repo_name }}/.coveragerc b/features/steps/test_starter/{{ cookiecutter.repo_name }}/.coveragerc
deleted file mode 100644
index 003c131200..0000000000
--- a/features/steps/test_starter/{{ cookiecutter.repo_name }}/.coveragerc	
+++ /dev/null
@@ -1,6 +0,0 @@
-[report]
-fail_under=0
-show_missing=True
-exclude_lines =
-    pragma: no cover
-    raise NotImplementedError
diff --git a/features/steps/test_starter/{{ cookiecutter.repo_name }}/pyproject.toml b/features/steps/test_starter/{{ cookiecutter.repo_name }}/pyproject.toml
index ab5d8cdbae..4009d0c909 100644
--- a/features/steps/test_starter/{{ cookiecutter.repo_name }}/pyproject.toml	
+++ b/features/steps/test_starter/{{ cookiecutter.repo_name }}/pyproject.toml	
@@ -15,3 +15,8 @@ known_third_party = "kedro"
 addopts = """
 --cov-report term-missing \
 --cov src/{{ cookiecutter.python_package }} -ra"""
+
+[tool.coverage.report]
+fail_under = 0
+show_missing = true
+exclude_lines = ["pragma: no cover", "raise NotImplementedError"]
diff --git a/features/steps/test_starter/{{ cookiecutter.repo_name }}/src/requirements.txt b/features/steps/test_starter/{{ cookiecutter.repo_name }}/src/requirements.txt
index a9940fa0f4..0833d99f63 100644
--- a/features/steps/test_starter/{{ cookiecutter.repo_name }}/src/requirements.txt	
+++ b/features/steps/test_starter/{{ cookiecutter.repo_name }}/src/requirements.txt	
@@ -8,7 +8,7 @@ jupyterlab~=3.0
 kedro[pandas.CSVDataSet]=={{ cookiecutter.kedro_version }}
 kedro-telemetry~=0.1.0
 nbstripout~=0.4
-pytest-cov~=2.5
+pytest-cov~=3.0
 pytest-mock>=1.7.1, <2.0
 pytest~=6.2
 wheel>=0.35, <0.37
diff --git a/kedro/templates/project/{{ cookiecutter.repo_name }}/.coveragerc b/kedro/templates/project/{{ cookiecutter.repo_name }}/.coveragerc
deleted file mode 100644
index 003c131200..0000000000
--- a/kedro/templates/project/{{ cookiecutter.repo_name }}/.coveragerc	
+++ /dev/null
@@ -1,6 +0,0 @@
-[report]
-fail_under=0
-show_missing=True
-exclude_lines =
-    pragma: no cover
-    raise NotImplementedError
diff --git a/kedro/templates/project/{{ cookiecutter.repo_name }}/pyproject.toml b/kedro/templates/project/{{ cookiecutter.repo_name }}/pyproject.toml
index bf58e6fac0..2901bf019a 100644
--- a/kedro/templates/project/{{ cookiecutter.repo_name }}/pyproject.toml	
+++ b/kedro/templates/project/{{ cookiecutter.repo_name }}/pyproject.toml	
@@ -15,3 +15,8 @@ known_third_party = "kedro"
 addopts = """
 --cov-report term-missing \
 --cov src/{{ cookiecutter.python_package }} -ra"""
+
+[tool.coverage.report]
+fail_under = 0
+show_missing = true
+exclude_lines = ["pragma: no cover", "raise NotImplementedError"]
diff --git a/kedro/templates/project/{{ cookiecutter.repo_name }}/src/requirements.txt b/kedro/templates/project/{{ cookiecutter.repo_name }}/src/requirements.txt
index c66089d7e3..48e23902e9 100644
--- a/kedro/templates/project/{{ cookiecutter.repo_name }}/src/requirements.txt	
+++ b/kedro/templates/project/{{ cookiecutter.repo_name }}/src/requirements.txt	
@@ -8,7 +8,7 @@ jupyterlab~=3.0
 kedro=={{ cookiecutter.kedro_version }}
 kedro-telemetry~=0.1.0
 nbstripout~=0.4
-pytest-cov~=2.5
+pytest-cov~=3.0
 pytest-mock>=1.7.1, <2.0
 pytest~=6.2
 wheel>=0.35, <0.37
diff --git a/test_requirements.txt b/test_requirements.txt
index 3cd681b911..50e6c1aa1e 100644
--- a/test_requirements.txt
+++ b/test_requirements.txt
@@ -6,7 +6,6 @@ biopython~=1.73
 black==21.5b1
 blacken-docs==1.9.2
 compress-pickle[lz4]~=1.2.0
-coverage[toml]
 dask[complete]~=2.6
 dill~=0.3.1
 gcsfs>=2021.04, <2022.01  # Upper bound set arbitrarily, to be reassessed in early 2022
@@ -33,7 +32,7 @@ pyarrow>=0.12.0, <4.0
 pylint>=2.5.2, <3.0
 pyproj>=2.2.0, <3.0  # pyproj 3.0 requires proj>=7.2 but that conflicts with fiona which requires proj<7.2.
 pyspark>=2.2, <4.0
-pytest-cov~=2.5
+pytest-cov~=3.0
 pytest-mock>=1.7.1, <2.0
 pytest-xdist[psutil]~=2.2.1
 pytest~=6.2
diff --git a/tests/framework/cli/test_starters.py b/tests/framework/cli/test_starters.py
index 0399dbdfed..a022b90a0f 100644
--- a/tests/framework/cli/test_starters.py
+++ b/tests/framework/cli/test_starters.py
@@ -42,7 +42,7 @@
 from kedro import __version__ as version
 from kedro.framework.cli.starters import _STARTER_ALIASES, TEMPLATE_PATH
 
-FILES_IN_TEMPLATE = 36
+FILES_IN_TEMPLATE = 35
 
 
 @pytest.fixture