diff --git a/aws_lambda_builders/workflows/nodejs_npm_esbuild/workflow.py b/aws_lambda_builders/workflows/nodejs_npm_esbuild/workflow.py
index 3c6a005db..f2e41d7b2 100644
--- a/aws_lambda_builders/workflows/nodejs_npm_esbuild/workflow.py
+++ b/aws_lambda_builders/workflows/nodejs_npm_esbuild/workflow.py
@@ -92,6 +92,7 @@ def __init__(self, source_dir, artifacts_dir, scratch_dir, manifest_path, runtim
                     subprocess_npm=self.subprocess_npm,
                     osutils=self.osutils,
                     build_options=self.options,
+                    install_links=self.build_dir == self.source_dir,
                 )
             )
 
diff --git a/tests/integration/workflows/nodejs_npm_esbuild/test_nodejs_npm_with_esbuild.py b/tests/integration/workflows/nodejs_npm_esbuild/test_nodejs_npm_with_esbuild.py
index 914d562a0..43f9b40dd 100644
--- a/tests/integration/workflows/nodejs_npm_esbuild/test_nodejs_npm_with_esbuild.py
+++ b/tests/integration/workflows/nodejs_npm_esbuild/test_nodejs_npm_with_esbuild.py
@@ -463,3 +463,31 @@ def test_esbuild_can_build_in_source(self, runtime):
         expected_files = {"included.js"}
         output_files = set(os.listdir(self.artifacts_dir))
         self.assertEqual(expected_files, output_files)
+
+    @parameterized.expand([("nodejs12.x",), ("nodejs14.x",), ("nodejs16.x",), ("nodejs18.x",)])
+    def test_esbuild_can_build_in_source_with_local_dependency(self, runtime):
+        self.source_dir = os.path.join(self.TEST_DATA_FOLDER, "with-local-dependency")
+
+        options = {"entry_points": ["included.js"]}
+
+        self.builder.build(
+            self.source_dir,
+            self.artifacts_dir,
+            self.scratch_dir,
+            os.path.join(self.source_dir, "package.json"),
+            runtime=runtime,
+            options=options,
+            executable_search_paths=[self.binpath],
+            build_in_source=True,
+        )
+
+        # dependencies installed in source folder
+        self.assertIn("node_modules", os.listdir(self.source_dir))
+
+        # dependencies not in scratch
+        self.assertNotIn("node_modules", os.listdir(self.scratch_dir))
+
+        # bundle is in artifacts
+        expected_files = {"included.js"}
+        output_files = set(os.listdir(self.artifacts_dir))
+        self.assertEqual(expected_files, output_files)
diff --git a/tests/integration/workflows/nodejs_npm_esbuild/testdata/no-deps-esbuild/package.json b/tests/integration/workflows/nodejs_npm_esbuild/testdata/no-deps-esbuild/package.json
index ab4db07b6..cd04e668b 100644
--- a/tests/integration/workflows/nodejs_npm_esbuild/testdata/no-deps-esbuild/package.json
+++ b/tests/integration/workflows/nodejs_npm_esbuild/testdata/no-deps-esbuild/package.json
@@ -5,6 +5,7 @@
   "keywords": [],
   "author": "",
   "license": "APACHE2.0",
+  "main": "included.js",
   "devDependencies": {
     "esbuild": "^0.14.36"
   }
diff --git a/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/excluded.js b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/excluded.js
new file mode 100644
index 000000000..8bf8be437
--- /dev/null
+++ b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/excluded.js
@@ -0,0 +1,2 @@
+//excluded
+const x = 1;
diff --git a/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/included.js b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/included.js
new file mode 100644
index 000000000..13e87e2dc
--- /dev/null
+++ b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/included.js
@@ -0,0 +1,5 @@
+//included
+const localdep = require('local-dependency');
+exports.handler = async (event, context) => {
+	return localdep;
+};
diff --git a/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/package.json b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/package.json
new file mode 100644
index 000000000..6ac1c7f10
--- /dev/null
+++ b/tests/integration/workflows/nodejs_npm_esbuild/testdata/with-local-dependency/package.json
@@ -0,0 +1,15 @@
+{
+  "name": "with-local-dependency",
+  "version": "1.0.0",
+  "description": "",
+  "keywords": [],
+  "author": "",
+  "license": "APACHE2.0",
+  "main": "included.js",
+  "dependencies": {
+    "local-dependency": "file:../no-deps-esbuild"
+  },
+  "devDependencies": {
+    "esbuild": "^0.11.23"
+  }
+}
diff --git a/tests/unit/workflows/nodejs_npm_esbuild/test_workflow.py b/tests/unit/workflows/nodejs_npm_esbuild/test_workflow.py
index 0c08a317a..6a06f3536 100644
--- a/tests/unit/workflows/nodejs_npm_esbuild/test_workflow.py
+++ b/tests/unit/workflows/nodejs_npm_esbuild/test_workflow.py
@@ -304,7 +304,12 @@ def test_workflow_uses_production_npm_version(self, get_workflow_mock):
         self.assertIsInstance(workflow.actions[2], EsbuildBundleAction)
 
         get_workflow_mock.get_install_action.assert_called_with(
-            source_dir="source", install_dir="scratch_dir", subprocess_npm=ANY, osutils=ANY, build_options=None
+            source_dir="source",
+            install_dir="scratch_dir",
+            subprocess_npm=ANY,
+            osutils=ANY,
+            build_options=None,
+            install_links=False,
         )
 
     @patch("aws_lambda_builders.workflows.nodejs_npm_esbuild.workflow.NodejsNpmEsbuildWorkflow._get_esbuild_subprocess")