Recently got issue from our client in which only one web site was having issue accessing all pages under /_layouts/ directory.
Error that pops up: /_layouts/_layouts/application.master does not exist
Issue we figured out was caused by a novice developer who used SharePoint Designer to change few pages under Layouts Directory on production box!
Issue Resolution that worked for us :)
1. Go to IIS Web Site that is having this issue and make sure that layouts Folder under web site has below icon:
If it is a Gear Icon then you can right click and check this setting under Virtual Directory Tab:
Hope this helps to avoid entire reconfiguration!