diff --git a/lib/install/inflate-shrinkwrap.js b/lib/install/inflate-shrinkwrap.js
index 5da9418bbdb7a..b0b71ef6b1323 100644
--- a/lib/install/inflate-shrinkwrap.js
+++ b/lib/install/inflate-shrinkwrap.js
@@ -167,7 +167,7 @@ function makeFakeChild (name, topPath, tree, sw, requested) {
   }
   const child = createChild({
     package: pkg,
-    loaded: false,
+    loaded: true,
     parent: tree,
     children: [],
     fromShrinkwrap: requested,
diff --git a/test/tap/install-from-local-multipath.js b/test/tap/install-from-local-multipath.js
new file mode 100644
index 0000000000000..83dbdadde9e55
--- /dev/null
+++ b/test/tap/install-from-local-multipath.js
@@ -0,0 +1,182 @@
+var fs = require('graceful-fs')
+var path = require('path')
+
+var mkdirp = require('mkdirp')
+var osenv = require('osenv')
+var rimraf = require('rimraf')
+var test = require('tap').test
+
+var common = require('../common-tap')
+
+var root = common.pkg
+// Allow running this test on older commits (useful for bisecting)
+if (!root) {
+  var main = require.main.filename
+  root = path.resolve(path.dirname(main), path.basename(main, '.js'))
+}
+var pkg = path.join(root, 'parent')
+
+var EXEC_OPTS = { cwd: pkg }
+
+var parent = {
+  name: 'parent',
+  version: '0.0.0',
+  dependencies: {
+    'child-1-1': 'file:../children/child-1-1',
+    'child-1-2': 'file:../children/child-1-2',
+    'child-2': 'file:../children/child-2'
+  }
+}
+
+var parentLock = {
+  'name': 'parent',
+  'version': '1.0.0',
+  'lockfileVersion': 1,
+  'requires': true,
+  'dependencies': {
+    'child-1-1': {
+      'version': 'file:../children/child-1-1',
+      'requires': {
+        'child-2': 'file:../children/child-2'
+      }
+    },
+    'child-1-2': {
+      'version': 'file:../children/child-1-2',
+      'requires': {
+        'child-1-1': 'file:../children/child-1-1',
+        'child-2': 'file:../children/child-2'
+      }
+    },
+    'child-2': {
+      'version': 'file:../children/child-2'
+    }
+  }
+}
+
+var child11 = {
+  name: 'parent',
+  version: '0.0.0',
+  'dependencies': {
+    'child-2': 'file:../child-2'
+  }
+}
+
+var child11Lock = {
+  'name': 'child-1-1',
+  'version': '1.0.0',
+  'lockfileVersion': 1,
+  'requires': true,
+  'dependencies': {
+    'child-2': {
+      'version': 'file:../child-2'
+    }
+  }
+}
+
+var child12 = {
+  'name': 'child-1-2',
+  'version': '1.0.0',
+  'dependencies': {
+    'child-1-1': 'file:../child-1-1',
+    'child-2': 'file:../child-2'
+  }
+}
+
+var child12Lock = {
+  'name': 'child-1-2',
+  'version': '1.0.0',
+  'lockfileVersion': 1,
+  'requires': true,
+  'dependencies': {
+    'child-1-1': {
+      'version': 'file:../child-1-1',
+      'requires': {
+        'child-2': 'file:../child-2'
+      }
+    },
+    'child-2': {
+      'version': 'file:../child-2'
+    }
+  }
+}
+
+var child2 = {
+  'name': 'child-2',
+  'version': '1.0.0',
+  'dependencies': {}
+}
+
+var child2Lock = {
+  'name': 'child-2',
+  'version': '1.0.0',
+  'lockfileVersion': 1,
+  'requires': true,
+  'dependencies': {}
+}
+
+test('setup', function (t) {
+  rimraf.sync(pkg)
+  mkdirp.sync(pkg)
+  fs.writeFileSync(
+    path.join(pkg, 'package.json'),
+    JSON.stringify(parent, null, 2)
+  )
+
+  fs.writeFileSync(
+    path.join(pkg, 'package-lock.json'),
+    JSON.stringify(parentLock, null, 2)
+  )
+
+  mkdirp.sync(path.join(root, 'children', 'child-1-1'))
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-1-1', 'package.json'),
+    JSON.stringify(child11, null, 2)
+  )
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-1-1', 'package-lock.json'),
+    JSON.stringify(child11Lock, null, 2)
+  )
+
+  mkdirp.sync(path.join(root, 'children', 'child-1-2'))
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-1-2', 'package.json'),
+    JSON.stringify(child12, null, 2)
+  )
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-1-2', 'package-lock.json'),
+    JSON.stringify(child12Lock, null, 2)
+  )
+
+  mkdirp.sync(path.join(root, 'children', 'child-2'))
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-2', 'package.json'),
+    JSON.stringify(child2, null, 2)
+  )
+  fs.writeFileSync(
+    path.join(root, 'children', 'child-2', 'package-lock.json'),
+    JSON.stringify(child2Lock, null, 2)
+  )
+
+  process.chdir(pkg)
+  t.end()
+})
+
+test('\'npm install\' should install local packages', function (t) {
+  common.npm(
+    [
+      'install', '.'
+    ],
+    EXEC_OPTS,
+    function (err, code) {
+      t.ifError(err, 'error should not exist')
+      t.notOk(code, 'npm install exited with code 0')
+      t.end()
+    }
+  )
+})
+
+test('cleanup', function (t) {
+  process.chdir(osenv.tmpdir())
+  rimraf.sync(root)
+  t.end()
+})