diff --git a/doc/guix.texi b/doc/guix.texi
index d188f06a435b4ce53c59b7528f315719c7ee2de5..661aa41785d81db3e42dfea878d1d56db8c724dd 100644
--- a/doc/guix.texi
+++ b/doc/guix.texi
@@ -7684,10 +7684,13 @@ content is directly passed as a string.
 
 @deffn {Scheme Procedure} local-file @var{file} [@var{name}] @
    [#:recursive? #f] [#:select? (const #t)]
-Return an object representing local file @var{file} to add to the store; this
-object can be used in a gexp.  If @var{file} is a relative file name, it is looked
-up relative to the source file where this form appears.  @var{file} will be added to
-the store under @var{name}--by default the base name of @var{file}.
+Return an object representing local file @var{file} to add to the store;
+this object can be used in a gexp.  If @var{file} is a literal string
+denoting a relative file name, it is looked up relative to the source
+file where it appears; if @var{file} is not a literal string, it is
+looked up relative to the current working directory at run time.
+@var{file} will be added to the store under @var{name}--by default the
+base name of @var{file}.
 
 When @var{recursive?} is true, the contents of @var{file} are added recursively; if @var{file}
 designates a flat file and @var{recursive?} is true, its contents are added, and its
diff --git a/guix/gexp.scm b/guix/gexp.scm
index b640c079e4216758121e67cb182bc9c39c645e9e..a96592ac76f8fe3829a3df7e898f320dea5fa217 100644
--- a/guix/gexp.scm
+++ b/guix/gexp.scm
@@ -320,9 +320,16 @@ (define-syntax local-file
 appears."
     (syntax-case s ()
       ((_ file rest ...)
+       (string? (syntax->datum #'file))
+       ;; FILE is a literal, so resolve it relative to the source directory.
        #'(%local-file file
                       (delay (absolute-file-name file (current-source-directory)))
                       rest ...))
+      ((_ file rest ...)
+       ;; Resolve FILE relative to the current directory.
+       #'(%local-file file
+                      (delay (absolute-file-name file (getcwd)))
+                      rest ...))
       ((_)
        #'(syntax-error "missing file name"))
       (id
diff --git a/tests/gexp.scm b/tests/gexp.scm
index 50d09486599d94a5af234755255b94d8275cd47e..84c16422c28a6f7d03f42008a9aea2fe515bb2e2 100644
--- a/tests/gexp.scm
+++ b/tests/gexp.scm
@@ -170,6 +170,14 @@ (define %extension-package
         (let ((file (local-file "../guix/base32.scm")))
           (local-file-absolute-file-name file)))))
 
+(test-equal "local-file, non-literal relative file name"
+  (canonicalize-path (search-path %load-path "guix/base32.scm"))
+  (let ((directory (dirname (search-path %load-path
+                                         "guix/build-system/gnu.scm"))))
+    (with-directory-excursion directory
+      (let ((file (local-file (string-copy "../base32.scm"))))
+        (local-file-absolute-file-name file)))))
+
 (test-assertm "local-file, #:select?"
   (mlet* %store-monad ((select? -> (lambda (file stat)
                                      (member (basename file)