diff --git a/.github/workflows/test_action.yml b/.github/workflows/test_action.yml
index 03f837f..ed3a72c 100644
--- a/.github/workflows/test_action.yml
+++ b/.github/workflows/test_action.yml
@@ -44,3 +44,17 @@ jobs:
           pure_python_wheel: true
           test_extras: recommended
           test_command: python -c 'import test_package'
+
+  custom_source_directory:
+    name: Test action (custom source-directory)
+    runs-on: ubuntu-latest
+
+    steps:
+      - uses: actions/checkout@v6
+      - id: build
+        uses: ./
+        with:
+          source-directory: packages/subpackage
+          pure_python_wheel: true
+          test_extras: test
+          test_command: pytest --pyargs subpackage
diff --git a/README.md b/README.md
index 50d852c..20ce577 100644
--- a/README.md
+++ b/README.md
@@ -68,6 +68,26 @@ jobs:
           test_command: pytest --pyargs test_package
 ```
 
+## Custom source directory
+
+By default, the action builds from the repository root. If your package is in a
+subdirectory (e.g., in a monorepo or non-standard project layout), use the
+`source-directory` input:
+
+```yaml
+jobs:
+  build_sdist:
+    name: Build source distribution
+    runs-on: ubuntu-latest
+    steps:
+      - uses: actions/checkout@v2
+      - id: build
+        uses: OpenAstronomy/build-python-dist@v1
+        with:
+          source-directory: packages/my-package
+          test_command: pytest --pyargs my_package
+```
+
 ## Custom Python version
 
 By default, the [`actions/setup-python`](https://github.com/actions/setup-python) action will install the latest Python 3 version for building and testing, however, the `OpenAstronomy/build-python-dist` action accepts a `python-version` string input to select a specific version,
diff --git a/action.yml b/action.yml
index 608d9e7..4b24975 100644
--- a/action.yml
+++ b/action.yml
@@ -29,6 +29,11 @@ inputs:
     required: false
     default: '3.x'
     type: string
+  source-directory:
+    description: The directory containing the package to build, relative to the repository root
+    required: false
+    default: '.'
+    type: string
 runs:
   using: "composite"
   steps:
@@ -47,7 +52,7 @@ runs:
 
   - name: Build source distribution
     shell: bash
-    run: python -m build --sdist .
+    run: python -m build --sdist --outdir dist ${{ inputs.source-directory }}
 
   - name: Create and activate a virtual environment
     shell: bash
@@ -80,7 +85,7 @@ runs:
 
   - name: Build pure Python wheel distribution
     shell: bash
-    run: python -m build --wheel .
+    run: python -m build --wheel --outdir dist ${{ inputs.source-directory }}
     if: ${{ inputs.pure_python_wheel == 'true' }}
 
   - name: Verify that one pure Python wheel was built
diff --git a/packages/subpackage/pyproject.toml b/packages/subpackage/pyproject.toml
new file mode 100644
index 0000000..de91142
--- /dev/null
+++ b/packages/subpackage/pyproject.toml
@@ -0,0 +1,19 @@
+[build-system]
+requires = ["setuptools>=61.2"]
+build-backend = "setuptools.build_meta"
+
+[project]
+name = "subpackage"
+version = "0.1.0"
+
+[project.optional-dependencies]
+test = ["pytest"]
+
+[dependency-groups]
+test = ["pytest>=8.0.0"]
+
+[tool.setuptools]
+include-package-data = false
+
+[tool.setuptools.packages]
+find = {namespaces = false}
diff --git a/packages/subpackage/subpackage/__init__.py b/packages/subpackage/subpackage/__init__.py
new file mode 100644
index 0000000..3dc1f76
--- /dev/null
+++ b/packages/subpackage/subpackage/__init__.py
@@ -0,0 +1 @@
+__version__ = "0.1.0"
diff --git a/packages/subpackage/subpackage/tests/__init__.py b/packages/subpackage/subpackage/tests/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/packages/subpackage/subpackage/tests/test_subpackage.py b/packages/subpackage/subpackage/tests/test_subpackage.py
new file mode 100644
index 0000000..68ada71
--- /dev/null
+++ b/packages/subpackage/subpackage/tests/test_subpackage.py
@@ -0,0 +1,3 @@
+def test_import():
+    import subpackage
+    assert subpackage.__version__ == "0.1.0"