diff --git a/packages/db-vercel-postgres/src/connect.ts b/packages/db-vercel-postgres/src/connect.ts
index 364859401d3..ace38f443d3 100644
--- a/packages/db-vercel-postgres/src/connect.ts
+++ b/packages/db-vercel-postgres/src/connect.ts
@@ -4,6 +4,7 @@ import type { Connect } from 'payload'
 import { pushDevSchema } from '@payloadcms/drizzle'
 import { sql, VercelPool } from '@vercel/postgres'
 import { drizzle } from 'drizzle-orm/node-postgres'
+import pg from 'pg'
 
 import type { VercelPostgresAdapter } from './types.js'
 
@@ -24,10 +25,30 @@ export const connect: Connect = async function connect(
 
   try {
     const logger = this.logger || false
+
+    let client: pg.Pool | VercelPool
+
+    const connectionString = this.poolOptions?.connectionString ?? process.env.POSTGRES_URL
+
+    // Use non-vercel postgres for local database
+    if (
+      !this.disableUsePgForLocalDatabase &&
+      connectionString &&
+      ['127.0.0.1', 'localhost'].includes(new URL(connectionString).hostname)
+    ) {
+      client = new pg.Pool(
+        this.poolOptions ?? {
+          connectionString,
+        },
+      )
+    } else {
+      client = this.poolOptions ? new VercelPool(this.poolOptions) : sql
+    }
+
     // Passed the poolOptions if provided,
     // else have vercel/postgres detect the connection string from the environment
     this.drizzle = drizzle({
-      client: this.poolOptions ? new VercelPool(this.poolOptions) : sql,
+      client,
       logger,
       schema: this.schema,
     })
diff --git a/packages/db-vercel-postgres/src/index.ts b/packages/db-vercel-postgres/src/index.ts
index 0aad626561b..1ab885618b5 100644
--- a/packages/db-vercel-postgres/src/index.ts
+++ b/packages/db-vercel-postgres/src/index.ts
@@ -95,6 +95,7 @@ export function vercelPostgresAdapter(args: Args = {}): DatabaseAdapterObj<Verce
       createExtensions,
       defaultDrizzleSnapshot,
       disableCreateDatabase: args.disableCreateDatabase ?? false,
+      disableUsePgForLocalDatabase: args.disableUsePgForLocalDatabase ?? false,
       drizzle: undefined,
       enums: {},
       extensions,
diff --git a/packages/db-vercel-postgres/src/types.ts b/packages/db-vercel-postgres/src/types.ts
index 85b90722edb..be3c43857e4 100644
--- a/packages/db-vercel-postgres/src/types.ts
+++ b/packages/db-vercel-postgres/src/types.ts
@@ -30,6 +30,13 @@ export type Args = {
    * @default false
    */
   disableCreateDatabase?: boolean
+  /**
+   * By default, we connect to a local database using the `pg` module instead of `@vercel/postgres`.
+   * This is because `@vercel/postgres` doesn't work with local databases.
+   * If you still want to use `@vercel/postgres` even locally you can pass `true` here
+   * and you'd to spin up the database with a special Neon's Docker Compose setup - https://vercel.com/docs/storage/vercel-postgres/local-development#option-2:-local-postgres-instance-with-docker
+   */
+  disableUsePgForLocalDatabase?: boolean
   extensions?: string[]
   idType?: 'serial' | 'uuid'
   localesSuffix?: string
@@ -58,6 +65,7 @@ export type Args = {
 }
 
 export type VercelPostgresAdapter = {
+  disableUsePgForLocalDatabase: boolean
   pool?: VercelPool
   poolOptions?: Args['pool']
 } & BasePostgresAdapter
diff --git a/test/generateDatabaseAdapter.ts b/test/generateDatabaseAdapter.ts
index 07254be6d1a..82c94f8f501 100644
--- a/test/generateDatabaseAdapter.ts
+++ b/test/generateDatabaseAdapter.ts
@@ -27,6 +27,14 @@ export const allDatabaseAdapters = {
       connectionString: process.env.POSTGRES_URL || 'postgres://127.0.0.1:5432/payloadtests',
     },
   })`,
+  'postgres-vercel': `
+  import { vercelPostgresAdapter } from '@payloadcms/db-vercel-postgres'
+
+  export const databaseAdapter = vercelPostgresAdapter({
+    pool: {
+      connectionString: process.env.POSTGRES_URL || 'postgres://127.0.0.1:5432/payloadtests',
+    },
+  })`,
   'postgres-custom-schema': `
   import { postgresAdapter } from '@payloadcms/db-postgres'