diff --git a/bake/bake.go b/bake/bake.go
index 66ef0a1d55b4..e50fda4dcc5b 100644
--- a/bake/bake.go
+++ b/bake/bake.go
@@ -23,6 +23,7 @@ import (
 	"github.com/docker/buildx/bake/hclparser"
 	"github.com/docker/buildx/build"
 	"github.com/docker/buildx/util/buildflags"
+	"github.com/docker/buildx/util/osutil"
 	"github.com/docker/buildx/util/platformutil"
 	"github.com/docker/buildx/util/progress"
 	"github.com/docker/buildx/util/urlutil"
@@ -46,6 +47,10 @@ type File struct {
 	Data []byte
 }
 
+type ParseOpt struct {
+	FileRelativePaths bool
+}
+
 type Override struct {
 	Value    string
 	ArrValue []string
@@ -197,8 +202,8 @@ func ListTargets(files []File) ([]string, error) {
 	return dedupSlice(targets), nil
 }
 
-func ReadTargets(ctx context.Context, files []File, targets, overrides []string, defaults, vars map[string]string, ent *EntitlementConf) (map[string]*Target, map[string]*Group, error) {
-	c, _, err := ParseFiles(files, defaults, vars)
+func ReadTargets(ctx context.Context, files []File, targets, overrides []string, defaults, vars map[string]string, ent *EntitlementConf, opts ...ParseOpt) (map[string]*Target, map[string]*Group, error) {
+	c, _, err := ParseFiles(files, defaults, vars, opts...)
 	if err != nil {
 		return nil, nil, err
 	}
@@ -337,11 +342,13 @@ func (c Config) matchNames(pattern string) ([]string, error) {
 	return names, nil
 }
 
-func ParseFiles(files []File, defaults, vars map[string]string) (_ *Config, _ *hclparser.ParseMeta, err error) {
+func ParseFiles(files []File, defaults, vars map[string]string, opts ...ParseOpt) (_ *Config, _ *hclparser.ParseMeta, err error) {
 	defer func() {
 		err = formatHCLError(err, files)
 	}()
 
+	frel := fileRelativePaths(opts)
+
 	var c Config
 	var composeFiles []File
 	var hclFiles []*hcl.File
@@ -373,6 +380,9 @@ func ParseFiles(files []File, defaults, vars map[string]string) (_ *Config, _ *h
 		if cmperr != nil {
 			return nil, nil, errors.Wrap(cmperr, "failed to parse compose file")
 		}
+		if frel {
+			setComposeContextBase(cfg, composeFiles)
+		}
 		c = mergeConfig(c, *cfg)
 		c = dedupeConfig(c)
 	}
@@ -413,9 +423,64 @@ func ParseFiles(files []File, defaults, vars map[string]string) (_ *Config, _ *h
 		pm = *res
 	}
 
+	if frel {
+		rebaseContextPaths(&c)
+	}
+
 	return &c, &pm, nil
 }
 
+func fileRelativePaths(opts []ParseOpt) bool {
+	return slices.ContainsFunc(opts, func(opt ParseOpt) bool {
+		return opt.FileRelativePaths
+	})
+}
+
+func rebaseContextPaths(c *Config) {
+	for _, t := range c.Targets {
+		t.rebaseContextPaths()
+	}
+}
+
+func (t *Target) rebaseContextPaths() {
+	if t.Context != nil {
+		if t.hasContextBase {
+			contextPath := rebaseContextPath(t.contextBase, *t.Context)
+			t.Context = &contextPath
+		}
+	} else if t.hasDefaultContextBase {
+		contextPath := rebaseContextPath(t.defaultContextBase, ".")
+		t.Context = &contextPath
+	}
+	for k, v := range t.Contexts {
+		if base, ok := t.contextsBase[k]; ok {
+			t.Contexts[k] = rebaseContextPath(base, v)
+		}
+	}
+}
+
+func localFileDir(name string) (string, bool) {
+	if name == "" || name == "-" || urlutil.IsRemoteURL(name) {
+		return "", false
+	}
+	return filepath.Dir(name), true
+}
+
+func rebaseContextPath(base, p string) string {
+	if base == "" || p == "" || isSpecialContextPath(p) || filepath.IsAbs(p) {
+		return p
+	}
+	return osutil.SanitizePath(filepath.Join(base, filepath.FromSlash(p)))
+}
+
+func isSpecialContextPath(p string) bool {
+	return strings.HasPrefix(p, "cwd://") ||
+		strings.HasPrefix(p, "target:") ||
+		strings.HasPrefix(p, "docker-image:") ||
+		strings.HasPrefix(p, "oci-layout://") ||
+		urlutil.IsRemoteURL(p)
+}
+
 func dedupeConfig(c Config) Config {
 	c2 := c
 	c2.Groups = make([]*Group, 0, len(c2.Groups))
@@ -781,6 +846,12 @@ type Target struct {
 
 	// linked is a private field to mark a target used as a linked one
 	linked bool
+
+	defaultContextBase    string
+	hasDefaultContextBase bool
+	contextBase           string
+	hasContextBase        bool
+	contextsBase          map[string]string
 }
 
 func (t *Target) MarshalJSON() ([]byte, error) {
@@ -829,10 +900,46 @@ func (t *Target) MarshalJSON() ([]byte, error) {
 var (
 	_ hclparser.WithEvalContexts = &Target{}
 	_ hclparser.WithGetName      = &Target{}
+	_ hclparser.WithBlockSource  = &Target{}
 	_ hclparser.WithEvalContexts = &Group{}
 	_ hclparser.WithGetName      = &Group{}
 )
 
+func (t *Target) SetBlockSource(block *hcl.Block) {
+	base, _ := localFileDir(block.DefRange.Filename)
+	t.defaultContextBase = base
+	t.hasDefaultContextBase = true
+
+	content, _, diags := block.Body.PartialContent(&hcl.BodySchema{
+		Attributes: []hcl.AttributeSchema{
+			{Name: "context"},
+			{Name: "contexts"},
+		},
+	})
+	if diags.HasErrors() {
+		return
+	}
+	if _, ok := content.Attributes["context"]; ok {
+		t.contextBase = base
+		t.hasContextBase = true
+	}
+	if _, ok := content.Attributes["contexts"]; ok {
+		t.setContextsBase(base)
+	}
+}
+
+func (t *Target) setContextsBase(base string) {
+	if len(t.Contexts) == 0 {
+		return
+	}
+	if t.contextsBase == nil {
+		t.contextsBase = map[string]string{}
+	}
+	for k := range t.Contexts {
+		t.contextsBase[k] = base
+	}
+}
+
 func (t *Target) normalize() {
 	t.Annotations = removeDupesStr(t.Annotations)
 	t.Attest = t.Attest.Normalize()
@@ -863,8 +970,14 @@ func (t *Target) normalize() {
 }
 
 func (t *Target) Merge(t2 *Target) {
+	if t2.hasDefaultContextBase {
+		t.defaultContextBase = t2.defaultContextBase
+		t.hasDefaultContextBase = true
+	}
 	if t2.Context != nil {
 		t.Context = t2.Context
+		t.contextBase = t2.contextBase
+		t.hasContextBase = t2.hasContextBase
 	}
 	if t2.Dockerfile != nil {
 		t.Dockerfile = t2.Dockerfile
@@ -886,6 +999,14 @@ func (t *Target) Merge(t2 *Target) {
 			t.Contexts = map[string]string{}
 		}
 		t.Contexts[k] = v
+		if t.contextsBase == nil {
+			t.contextsBase = map[string]string{}
+		}
+		if base, ok := t2.contextsBase[k]; ok {
+			t.contextsBase[k] = base
+		} else {
+			delete(t.contextsBase, k)
+		}
 	}
 	for k, v := range t2.Labels {
 		if v == nil {
diff --git a/bake/bake_test.go b/bake/bake_test.go
index de3fb9636e06..3e3b516b11ee 100644
--- a/bake/bake_test.go
+++ b/bake/bake_test.go
@@ -763,6 +763,169 @@ func TestHCLDockerfileCwdPrefix(t *testing.T) {
 	assert.Equal(t, ".", bo["app"].Inputs.ContextPath)
 }
 
+func TestContextPathRebase(t *testing.T) {
+	fp := File{
+		Name: filepath.Join("subdir", "docker-bake.hcl"),
+		Data: []byte(`
+target "base" {
+  context = "base"
+}
+
+target "app" {
+  context = "."
+  dockerfile = "Dockerfile.app"
+  contexts = {
+    shared = "../shared"
+    cwd = "cwd://local"
+    linked = "target:base"
+    image = "docker-image://alpine:latest"
+    layout = "oci-layout://layout"
+  }
+}`),
+	}
+
+	m, _, err := ReadTargets(context.TODO(), []File{fp}, []string{"app"}, nil, nil, nil, &EntitlementConf{}, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	require.Equal(t, filepath.ToSlash(filepath.Clean("subdir")), *m["app"].Context)
+	require.Equal(t, "Dockerfile.app", *m["app"].Dockerfile)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("shared")), m["app"].Contexts["shared"])
+	require.Equal(t, "cwd://local", m["app"].Contexts["cwd"])
+	require.Equal(t, "target:base", m["app"].Contexts["linked"])
+	require.Equal(t, "docker-image://alpine:latest", m["app"].Contexts["image"])
+	require.Equal(t, "oci-layout://layout", m["app"].Contexts["layout"])
+	require.Equal(t, filepath.ToSlash(filepath.Clean("subdir/base")), *m["base"].Context)
+
+	bo, err := TargetsToBuildOpt(m, &Input{})
+	require.NoError(t, err)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("subdir")), bo["app"].Inputs.ContextPath)
+	require.Equal(t, filepath.Join("subdir", "Dockerfile.app"), bo["app"].Inputs.DockerfilePath)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("shared")), bo["app"].Inputs.NamedContexts["shared"].Path)
+}
+
+func TestDefaultContextRebase(t *testing.T) {
+	fp := File{
+		Name: filepath.Join("definitions", "docker-bake.hcl"),
+		Data: []byte(`
+target "app" {
+  dockerfile-inline = <<EOT
+FROM scratch
+EOT
+}`),
+	}
+
+	m, _, err := ReadTargets(context.TODO(), []File{fp}, []string{"app"}, nil, nil, nil, &EntitlementConf{}, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	require.Equal(t, filepath.ToSlash(filepath.Clean("definitions")), *m["app"].Context)
+
+	bo, err := TargetsToBuildOpt(m, &Input{})
+	require.NoError(t, err)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("definitions")), bo["app"].Inputs.ContextPath)
+}
+
+func TestDefinitionPathBase(t *testing.T) {
+	fp1 := File{
+		Name: filepath.Join("one", "docker-bake.hcl"),
+		Data: []byte(`
+target "app" {
+  context = "."
+  contexts = {
+    shared = "../shared"
+  }
+}
+
+target "implicit" {
+  dockerfile-inline = <<EOT
+FROM scratch
+EOT
+}`),
+	}
+	fp2 := File{
+		Name: filepath.Join("two", "docker-bake.hcl"),
+		Data: []byte(`
+target "app" {
+  tags = ["app:latest"]
+}
+
+target "other" {
+  context = "."
+}`),
+	}
+
+	m, _, err := ReadTargets(context.TODO(), []File{fp1, fp2}, []string{"app", "implicit", "other"}, nil, nil, nil, &EntitlementConf{}, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	require.Equal(t, filepath.ToSlash(filepath.Clean("one")), *m["app"].Context)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("shared")), m["app"].Contexts["shared"])
+	require.Equal(t, []string{"app:latest"}, m["app"].Tags)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("one")), *m["implicit"].Context)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("two")), *m["other"].Context)
+}
+
+func TestOverridesNotRebased(t *testing.T) {
+	fp := File{
+		Name: filepath.Join("subdir", "docker-bake.hcl"),
+		Data: []byte(`
+target "app" {
+  context = "."
+  contexts = {
+    shared = "../shared"
+  }
+}`),
+	}
+
+	m, _, err := ReadTargets(context.TODO(), []File{fp}, []string{"app"}, []string{
+		"app.context=override",
+		"app.contexts.shared=override-shared",
+	}, nil, nil, &EntitlementConf{}, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	require.Equal(t, "override", *m["app"].Context)
+	require.Equal(t, "override-shared", m["app"].Contexts["shared"])
+}
+
+func TestComposePathRebase(t *testing.T) {
+	fp := File{
+		Name: filepath.Join("tests", "docker-compose.yml"),
+		Data: []byte(`
+services:
+  debian:
+    build:
+      context: ./dockerfiles/debian
+      additional_contexts:
+        shared: ../shared
+  implicit:
+    build:
+      dockerfile_inline: |
+        FROM scratch
+`),
+	}
+
+	m, _, err := ReadTargets(context.TODO(), []File{fp}, []string{"debian", "implicit"}, nil, nil, nil, &EntitlementConf{}, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	require.Equal(t, filepath.ToSlash(filepath.Clean("tests/dockerfiles/debian")), *m["debian"].Context)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("shared")), m["debian"].Contexts["shared"])
+	require.Equal(t, filepath.ToSlash(filepath.Clean("tests")), *m["implicit"].Context)
+
+	bo, err := TargetsToBuildOpt(m, &Input{})
+	require.NoError(t, err)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("tests/dockerfiles/debian")), bo["debian"].Inputs.ContextPath)
+	require.Equal(t, filepath.Join("tests", "dockerfiles", "debian", "Dockerfile"), bo["debian"].Inputs.DockerfilePath)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("tests")), bo["implicit"].Inputs.ContextPath)
+}
+
 func TestOverrideMerge(t *testing.T) {
 	fp := File{
 		Name: "docker-bake.hcl",
diff --git a/bake/compose.go b/bake/compose.go
index 528e1fd05a2b..c6eabcb31a4c 100644
--- a/bake/compose.go
+++ b/bake/compose.go
@@ -21,11 +21,23 @@ import (
 	"go.yaml.in/yaml/v3"
 )
 
-func ParseComposeFiles(fs []File, envOverrides map[string]string) (*Config, error) {
+func ParseComposeFiles(fs []File, envOverrides map[string]string, opts ...ParseOpt) (*Config, error) {
 	envs, err := composeEnv(envOverrides)
 	if err != nil {
 		return nil, err
 	}
+	cfg, err := parseComposeFiles(fs, envs)
+	if err != nil {
+		return nil, err
+	}
+	if fileRelativePaths(opts) {
+		setComposeContextBase(cfg, fs)
+		rebaseContextPaths(cfg)
+	}
+	return cfg, nil
+}
+
+func parseComposeFiles(fs []File, envs map[string]string) (*Config, error) {
 	var cfgs []composetypes.ConfigFile
 	for _, f := range fs {
 		cfgs = append(cfgs, composetypes.ConfigFile{
@@ -36,6 +48,25 @@ func ParseComposeFiles(fs []File, envOverrides map[string]string) (*Config, erro
 	return ParseCompose(cfgs, envs)
 }
 
+func setComposeContextBase(c *Config, files []File) {
+	if len(files) == 0 {
+		return
+	}
+	base, ok := localFileDir(files[0].Name)
+	if !ok {
+		return
+	}
+	for _, t := range c.Targets {
+		t.defaultContextBase = base
+		t.hasDefaultContextBase = true
+		if t.Context != nil {
+			t.contextBase = base
+			t.hasContextBase = true
+		}
+		t.setContextsBase(base)
+	}
+}
+
 func ParseCompose(cfgs []composetypes.ConfigFile, envs map[string]string) (*Config, error) {
 	cfg, err := loadComposeFiles(cfgs, envs)
 	if err != nil {
diff --git a/bake/compose_test.go b/bake/compose_test.go
index da8ba2cfa9f1..3782e2eeaaec 100644
--- a/bake/compose_test.go
+++ b/bake/compose_test.go
@@ -174,6 +174,45 @@ services:
 	require.Equal(t, "webapp", *c.Targets[1].Target)
 }
 
+func TestComposeProjectBase(t *testing.T) {
+	fp := File{
+		Name: filepath.Join("project", "compose.yml"),
+		Data: []byte(`
+services:
+  app:
+    build:
+      context: ./app
+`),
+	}
+	fp2 := File{
+		Name: filepath.Join("overrides", "compose.yml"),
+		Data: []byte(`
+services:
+  app:
+    build:
+      additional_contexts:
+        shared: ./shared
+  other:
+    build:
+      context: ./other
+`),
+	}
+
+	c, err := ParseComposeFiles([]File{fp, fp2}, nil, ParseOpt{
+		FileRelativePaths: true,
+	})
+	require.NoError(t, err)
+
+	targets := map[string]*Target{}
+	for _, t := range c.Targets {
+		targets[t.Name] = t
+	}
+
+	require.Equal(t, filepath.ToSlash(filepath.Clean("project/app")), *targets["app"].Context)
+	require.Equal(t, filepath.ToSlash(filepath.Clean("project/shared")), targets["app"].Contexts["shared"])
+	require.Equal(t, filepath.ToSlash(filepath.Clean("project/other")), *targets["other"].Context)
+}
+
 func TestBuildArgEnvCompose(t *testing.T) {
 	dt := []byte(`
 version: "3.8"
diff --git a/bake/hclparser/hclparser.go b/bake/hclparser/hclparser.go
index 6b62efad0521..ec7bf19036e0 100644
--- a/bake/hclparser/hclparser.go
+++ b/bake/hclparser/hclparser.go
@@ -91,6 +91,10 @@ type WithGetName interface {
 	GetName(ectx *hcl.EvalContext, block *hcl.Block, loadDeps func(hcl.Expression) hcl.Diagnostics) (string, error)
 }
 
+type WithBlockSource interface {
+	SetBlockSource(block *hcl.Block)
+}
+
 // errUndefined is returned when a variable or function is not defined.
 type errUndefined struct{}
 
@@ -944,6 +948,10 @@ func Parse(b hcl.Body, opt Opt, val any) (*ParseMeta, hcl.Diagnostics) {
 
 		vvs := p.blockValues[b]
 		for _, vv := range vvs {
+			if v, ok := vv.Interface().(WithBlockSource); ok {
+				v.SetBlockSource(b)
+			}
+
 			t := types[b.Type]
 			lblIndex, lblExists := getNameIndex(vv)
 			lblName, _ := getName(vv)
diff --git a/commands/bake.go b/commands/bake.go
index 76a077525593..6fcde330d1fd 100644
--- a/commands/bake.go
+++ b/commands/bake.go
@@ -12,6 +12,7 @@ import (
 	"os"
 	"slices"
 	"sort"
+	"strconv"
 	"strings"
 	"sync"
 	"text/tabwriter"
@@ -48,6 +49,7 @@ import (
 const (
 	bakeEnvFileSeparator = "BUILDX_BAKE_PATH_SEPARATOR"
 	bakeEnvFilePath      = "BUILDX_BAKE_FILE"
+	bakeEnvFileRelative  = "BUILDX_BAKE_FILE_RELATIVE_PATHS"
 )
 
 type bakeOptions struct {
@@ -225,9 +227,16 @@ func runBake(ctx context.Context, dockerCli command.Cli, targets []string, in ba
 	if err != nil {
 		return err
 	}
+	fileRelativePaths, err := bakeFileRelativePaths()
+	if err != nil {
+		return err
+	}
+	parseOpt := bake.ParseOpt{
+		FileRelativePaths: fileRelativePaths,
+	}
 
 	if in.list != "" {
-		cfg, pm, err := bake.ParseFiles(files, defaults, vars)
+		cfg, pm, err := bake.ParseFiles(files, defaults, vars, parseOpt)
 		if err != nil {
 			return err
 		}
@@ -246,7 +255,7 @@ func runBake(ctx context.Context, dockerCli command.Cli, targets []string, in ba
 		}
 	}
 
-	tgts, grps, err := bake.ReadTargets(ctx, files, targets, overrides, defaults, vars, &ent)
+	tgts, grps, err := bake.ReadTargets(ctx, files, targets, overrides, defaults, vars, &ent, parseOpt)
 	if err != nil {
 		return err
 	}
@@ -674,6 +683,18 @@ func bakeArgs(args []string) (url, cmdContext string, targets []string) {
 	return url, cmdContext, targets
 }
 
+func bakeFileRelativePaths() (bool, error) {
+	v := strings.TrimSpace(os.Getenv(bakeEnvFileRelative))
+	if v == "" {
+		return false, nil
+	}
+	enabled, err := strconv.ParseBool(v)
+	if err != nil {
+		return false, errors.Wrapf(err, "failed to parse %s value %q", bakeEnvFileRelative, v)
+	}
+	return enabled, nil
+}
+
 func readBakeFiles(ctx context.Context, nodes []builder.Node, url string, names []string, stdin io.Reader, pw progress.Writer, filesFromEnv bool) (files []bake.File, inp *bake.Input, err error) {
 	var lnames []string // local
 	var rnames []string // remote
diff --git a/docs/bake-reference.md b/docs/bake-reference.md
index e473b2d1ba30..800e0abbc383 100644
--- a/docs/bake-reference.md
+++ b/docs/bake-reference.md
@@ -416,6 +416,11 @@ target "app" {
 ```
 
 This resolves to the current working directory (`"."`) by default.
+Set `BUILDX_BAKE_FILE_RELATIVE_PATHS=1` to resolve local directory paths in
+`target.context` and `target.contexts` relative to the Bake file that defines
+each path. Compose files use the first Compose file directory as the base, which
+matches Compose project directory semantics. Use `cwd://` for paths that should
+remain relative to the current working directory when this opt-in is enabled.
 
 ```console
 $ docker buildx bake --print -f - <<< 'target "default" {}'
diff --git a/docs/reference/buildx_bake.md b/docs/reference/buildx_bake.md
index 8c8633e322e8..683a06c6fb74 100644
--- a/docs/reference/buildx_bake.md
+++ b/docs/reference/buildx_bake.md
@@ -153,6 +153,14 @@ This is mutually exclusive with `-f` / `--file`; if both are specified, the envi
 Multiple definitions can be specified by separating them with the system's path separator
 (typically `;` on Windows and `:` elsewhere), but can be changed with `BUILDX_BAKE_PATH_SEPARATOR`.
 
+By default, local directory build contexts in Bake files are resolved from the
+current working directory. To opt in to resolving local directory build contexts
+from the Bake file that defines each path, set
+`BUILDX_BAKE_FILE_RELATIVE_PATHS=1`. Compose files use the first Compose file
+directory as the base, which matches Compose project directory semantics. Use
+the `cwd://` prefix for paths that should remain relative to the current working
+directory.
+
 You can pass the names of the targets to build, to build only specific target(s).
 The following example builds the `db` and `webapp-release` targets that are
 defined in the `docker-bake.dev.hcl` file:
diff --git a/tests/bake.go b/tests/bake.go
index c8a1d1ee4dd4..032d962c148c 100644
--- a/tests/bake.go
+++ b/tests/bake.go
@@ -45,6 +45,7 @@ var bakeTests = []func(t *testing.T, sb integration.Sandbox){
 	testBakePrintRemoteContextSubdir,
 	testBakeLocal,
 	testBakeLocalMulti,
+	testBakeFileRelativePaths,
 	testBakeLocalExportDeleteMode,
 	testBakeRemote,
 	testBakeRemoteAuth,
@@ -674,6 +675,147 @@ services:
 	require.FileExists(t, filepath.Join(dirDest2, "foo"))
 }
 
+func testBakeFileRelativePaths(t *testing.T, sb integration.Sandbox) {
+	t.Run("compose context", func(t *testing.T) {
+		dockerfile := []byte(`
+FROM scratch
+COPY marker /marker
+COPY --from=shared shared-marker /shared-marker
+`)
+		composefile := []byte(`
+services:
+  debian:
+    build:
+      context: ./dockerfiles/debian
+      additional_contexts:
+        shared: ../shared
+`)
+
+		dir := tmpdir(
+			t,
+			fstest.CreateDir("tests", 0700),
+			fstest.CreateDir("tests/dockerfiles", 0700),
+			fstest.CreateDir("tests/dockerfiles/debian", 0700),
+			fstest.CreateDir("shared", 0700),
+			fstest.CreateFile("tests/docker-compose.yml", composefile, 0600),
+			fstest.CreateFile("tests/dockerfiles/debian/Dockerfile", dockerfile, 0600),
+			fstest.CreateFile("tests/dockerfiles/debian/marker", []byte("marker"), 0600),
+			fstest.CreateFile("shared/shared-marker", []byte("shared"), 0600),
+		)
+		dirDest := t.TempDir()
+
+		out, err := bakeCmd(
+			sb,
+			withDir(dir),
+			withArgs("--file", "tests/docker-compose.yml", "--set", "*.output=type=local,dest="+dirDest),
+			withEnv("BUILDX_BAKE_FILE_RELATIVE_PATHS=1"),
+		)
+		require.NoError(t, err, out)
+		require.FileExists(t, filepath.Join(dirDest, "marker"))
+		require.FileExists(t, filepath.Join(dirDest, "shared-marker"))
+	})
+
+	t.Run("compose project", func(t *testing.T) {
+		composefile := []byte(`
+services:
+  app:
+    build:
+      context: ./app
+      dockerfile_inline: |
+        FROM scratch
+        COPY marker /marker
+        COPY --from=shared shared-marker /shared-marker
+`)
+		overridefile := []byte(`
+services:
+  app:
+    build:
+      additional_contexts:
+        shared: ./shared
+`)
+
+		dir := tmpdir(
+			t,
+			fstest.CreateDir("project", 0700),
+			fstest.CreateDir("project/app", 0700),
+			fstest.CreateDir("project/shared", 0700),
+			fstest.CreateDir("overrides", 0700),
+			fstest.CreateFile("project/compose.yml", composefile, 0600),
+			fstest.CreateFile("project/app/marker", []byte("marker"), 0600),
+			fstest.CreateFile("project/shared/shared-marker", []byte("shared"), 0600),
+			fstest.CreateFile("overrides/compose.yml", overridefile, 0600),
+		)
+		dirDest := t.TempDir()
+
+		out, err := bakeCmd(
+			sb,
+			withDir(dir),
+			withArgs("--file", "project/compose.yml", "--file", "overrides/compose.yml", "--set", "app.output=type=local,dest="+dirDest),
+			withEnv("BUILDX_BAKE_FILE_RELATIVE_PATHS=1"),
+		)
+		require.NoError(t, err, out)
+		require.FileExists(t, filepath.Join(dirDest, "marker"))
+		require.FileExists(t, filepath.Join(dirDest, "shared-marker"))
+	})
+
+	t.Run("default context", func(t *testing.T) {
+		bakefile := []byte(`
+target "default" {
+  dockerfile-inline = <<EOT
+FROM scratch
+COPY marker /marker
+EOT
+}
+`)
+
+		dir := tmpdir(
+			t,
+			fstest.CreateDir("definitions", 0700),
+			fstest.CreateFile("definitions/docker-bake.hcl", bakefile, 0600),
+			fstest.CreateFile("definitions/marker", []byte("marker"), 0600),
+		)
+		dirDest := t.TempDir()
+
+		out, err := bakeCmd(
+			sb,
+			withDir(dir),
+			withArgs("--file", "definitions/docker-bake.hcl", "--set", "*.output=type=local,dest="+dirDest),
+			withEnv("BUILDX_BAKE_FILE_RELATIVE_PATHS=1"),
+		)
+		require.NoError(t, err, out)
+		require.FileExists(t, filepath.Join(dirDest, "marker"))
+	})
+
+	t.Run("cwd prefix", func(t *testing.T) {
+		bakefile := []byte(`
+target "default" {
+  context = "cwd://."
+  dockerfile-inline = <<EOT
+FROM scratch
+COPY root-marker /root-marker
+EOT
+}
+`)
+
+		dir := tmpdir(
+			t,
+			fstest.CreateDir("definitions", 0700),
+			fstest.CreateFile("definitions/docker-bake.hcl", bakefile, 0600),
+			fstest.CreateFile("root-marker", []byte("root"), 0600),
+		)
+		dirDest := t.TempDir()
+
+		out, err := bakeCmd(
+			sb,
+			withDir(dir),
+			withArgs("--file", "definitions/docker-bake.hcl", "--set", "*.output=type=local,dest="+dirDest),
+			withEnv("BUILDX_BAKE_FILE_RELATIVE_PATHS=1"),
+		)
+		require.NoError(t, err, out)
+		require.FileExists(t, filepath.Join(dirDest, "root-marker"))
+	})
+}
+
 func testBakeLocalExportDeleteMode(t *testing.T, sb integration.Sandbox) {
 	dockerfile := []byte(`
 FROM scratch