Fix env use behavior with the virtualenvs.in-project setting

poetry/utils/env.py

@@ -208,6 +208,24 @@ def activate(self, python, io):  # type: (str, IO) -> Env
         patch = python_version.text
 
         create = False
+        is_root_venv = self._poetry.config.get("virtualenvs.in-project")
+        # If we are required to create the virtual environment in the root folder,
+        # create or recreate it if needed
+        if is_root_venv:
+            create = False
+            venv = self._poetry.file.parent / ".venv"
+            if venv.exists():
+                # We need to check if the patch version is correct
+                _venv = VirtualEnv(venv)
+                current_patch = ".".join(str(v) for v in _venv.version_info[:3])
+
+                if patch != current_patch:
+                    create = True
+
+            self.create_venv(io, executable=python, force=create)
+
+            return self.get(reload=True)
+
         envs = tomlkit.document()
         base_env_name = self.generate_env_name(self._poetry.package.name, str(cwd))
         if envs_file.exists():

tests/utils/test_env.py

@@ -661,3 +661,38 @@ def test_create_venv_does_not_try_to_find_compatible_versions_with_executable(
 
     assert expected_message == str(e.value)
     assert 0 == m.call_count
+
+
+def test_activate_with_in_project_setting_does_not_fail_if_no_venvs_dir(
+    manager, poetry, config, tmp_dir, mocker
+):
+    if "VIRTUAL_ENV" in os.environ:
+        del os.environ["VIRTUAL_ENV"]
+
+    config.merge(
+        {
+            "virtualenvs": {
+                "path": str(Path(tmp_dir) / "virtualenvs"),
+                "in-project": True,
+            }
+        }
+    )
+
+    mocker.patch(
+        "poetry.utils._compat.subprocess.check_output",
+        side_effect=check_output_wrapper(),
+    )
+    mocker.patch(
+        "poetry.utils._compat.subprocess.Popen.communicate",
+        side_effect=[("/prefix", None), ("/prefix", None)],
+    )
+    m = mocker.patch("poetry.utils.env.EnvManager.build_venv")
+
+    manager.activate("python3.7", NullIO())
+
+    m.assert_called_with(
+        os.path.join(str(poetry.file.parent), ".venv"), executable="python3.7"
+    )
+
+    envs_file = TomlFile(Path(tmp_dir) / "virtualenvs" / "envs.toml")
+    assert not envs_file.exists()