diff --git a/docs/roadmap.md b/docs/roadmap.md
index c1d3313ae0..9a2284cca9 100644
--- a/docs/roadmap.md
+++ b/docs/roadmap.md
@@ -10,8 +10,8 @@
   - [x] compiled packages (`npm i node-sass`)
   - [x] bundled dependencies (`npm i fsevents@1.0.6`)
   - [ ] git-hosted packages (`npm i rstacruz/scourjs`)
-  - [ ] optional dependencies (`npm i escodegen@1.8.0` wants `source-map@~0.2.0`)
-  - [ ] file packages (`npm i file:../path`)
+  - [x] optional dependencies (`npm i escodegen@1.8.0` wants `source-map@~0.2.0`)
+  - [x] file packages (`npm i file:../path`)
   - [x] windows support
   - [x] bin executables
   - [ ] `--global` installs
diff --git a/lib/fetch.js b/lib/fetch.js
index c7272baf3e..6942a89d38 100644
--- a/lib/fetch.js
+++ b/lib/fetch.js
@@ -3,14 +3,18 @@ var got = require('./got')
 var crypto = require('crypto')
 var gunzip = require('gunzip-maybe')
 var tar = require('tar-fs')
+var fs = require('fs')
 
 /*
  * Fetches a tarball `tarball` and extracts it into `dir`
  */
 
-module.exports = function fetch (dir, tarball, shasum, log) {
-  return got.getStream(tarball)
-    .then(stream => fetchStream(dir, tarball, shasum, log, stream))
+module.exports = function fetch (dir, dist, log) {
+  if (!dist.local) {
+    return got.getStream(dist.tarball)
+      .then(stream => fetchStream(dir, dist.tarball, dist.shasum, log, stream))
+  }
+  return unpackStream(fs.createReadStream(dist.tarball), dir)
 }
 
 function fetchStream (dir, tarball, shasum, log, stream) {
@@ -19,13 +23,12 @@ function fetchStream (dir, tarball, shasum, log, stream) {
     var size
     var downloaded = 0
 
-    stream
-      .on('response', start)
-      .on('data', _ => { actualShasum.update(_) })
-      .on('error', reject)
-      .pipe(gunzip()).on('error', reject)
-      .pipe(tar.extract(dir, { strip: 1 })).on('error', reject)
-      .on('finish', finish)
+    unpackStream(
+      stream
+        .on('response', start)
+        .on('data', _ => { actualShasum.update(_) })
+        .on('error', reject), dir
+    ).then(finish)
 
     function start (res) {
       if (res.statusCode !== 200) {
@@ -53,3 +56,12 @@ function fetchStream (dir, tarball, shasum, log, stream) {
     }
   })
 }
+
+function unpackStream (stream, dir) {
+  return new Promise((resolve, reject) => {
+    stream
+      .pipe(gunzip()).on('error', reject)
+      .pipe(tar.extract(dir, { strip: 1 })).on('error', reject)
+      .on('finish', resolve)
+  })
+}
diff --git a/lib/install.js b/lib/install.js
index 77673b0396..a4df812db5 100644
--- a/lib/install.js
+++ b/lib/install.js
@@ -95,7 +95,7 @@ module.exports = function install (ctx, pkgSpec, modules, options) {
     .then(_ => _
       ? saveCachedResolution()
         .then(data => log('package.json', data))
-      : resolve(pkg.spec, log)
+      : resolve(Object.assign({}, pkg.spec, {root: ctx.root}), log)
         .then(saveResolution)
         .then(_ => log('resolved', pkg))
         .then(_ => buildToStoreCached(ctx, paths, pkg, log))
@@ -186,7 +186,8 @@ function fetchToStore (ctx, paths, pkg, log) {
     .then(_ => mkdirp(ctx.store))
     .then(_ => mkdirp(join(paths.tmp, '_')))
     .then(_ => fs.writeFile(join(paths.tmp, '.pnpm_inprogress'), '', 'utf-8'))
-    .then(_ => fetch(join(paths.tmp, '_'), pkg.dist.tarball, pkg.dist.shasum, log))
+    .then(_ => fetch(join(paths.tmp, '_'), pkg.dist, log))
+    .then(_ => pkg.dist.local ? fs.unlink(pkg.dist.tarball) : Promise.resolve())
 
     // TODO: this is the point it becomes partially useable.
     // ie, it can now be symlinked into .store/foo@1.0.0.
diff --git a/lib/resolve.js b/lib/resolve.js
index 5044ede009..d4d0d6b8e4 100644
--- a/lib/resolve.js
+++ b/lib/resolve.js
@@ -1,6 +1,7 @@
 var resolveNpm = require('./resolve/npm')
 var resolveTarball = require('./resolve/tarball')
 var resolveGithub = require('./resolve/github')
+var resolveLocal = require('./resolve/local')
 
 /**
  * Resolves a package in the NPM registry. Done as part of `install()`.
@@ -23,6 +24,8 @@ module.exports = function resolve (pkg, log) {
     return resolveTarball(pkg, log)
   } else if (pkg.type === 'hosted' && pkg.hosted.type === 'github') {
     return resolveGithub(pkg, log)
+  } else if (pkg.type === 'local') {
+    return resolveLocal(pkg, log)
   } else {
     throw new Error('' + pkg.rawSpec + ': ' + pkg.type + ' packages not supported')
   }
diff --git a/lib/resolve/github.js b/lib/resolve/github.js
index 5c21267a67..c39396e130 100644
--- a/lib/resolve/github.js
+++ b/lib/resolve/github.js
@@ -11,7 +11,7 @@ module.exports = function resolveGithub (pkg) {
   return resolveRef(spec).then(function (ref) {
     spec.ref = ref
     return resolvePackageName(spec).then(function (name) {
-      var fullname = name + ['@github', spec.owner, spec.repo, spec.ref].join('!')
+      var fullname = name.replace('/', '!') + ['@github', spec.owner, spec.repo, spec.ref].join('!')
       return {
         name: name,
         fullname: fullname,
diff --git a/lib/resolve/local.js b/lib/resolve/local.js
new file mode 100644
index 0000000000..bc42051980
--- /dev/null
+++ b/lib/resolve/local.js
@@ -0,0 +1,42 @@
+var resolve = require('path').resolve
+var spawn = require('child_process').spawn
+
+/**
+ * Resolves a package hosted on the local filesystem
+ */
+
+module.exports = function resolveLocal (pkg) {
+  var dependencyPath = resolve(pkg.root, pkg.spec)
+
+  return new Promise((resolve, reject) => {
+    var proc = spawn('sh', ['-c', 'npm pack'], {
+      cwd: dependencyPath
+    })
+
+    proc.on('error', reject)
+
+    proc.on('close', code => {
+      if (code > 0) return reject(new Error('Exit code ' + code))
+      return resolve()
+    })
+  })
+  .then(_ => {
+    var localPkg = require(resolve(dependencyPath, 'package.json'))
+    var tgzFilename = localPkg.name + '-' + localPkg.version + '.tgz'
+    return {
+      name: localPkg.name,
+      fullname: localPkg.name.replace('/', '!') + [
+        '@file',
+        escapePkgPath(dependencyPath)
+      ].join('!'),
+      dist: {
+        local: true,
+        tarball: resolve(dependencyPath, tgzFilename)
+      }
+    }
+  })
+}
+
+function escapePkgPath (pkgPath) {
+  return pkgPath.replace(/[/\\]/g, '!').replace(/^!/, '')
+}
diff --git a/test/index.js b/test/index.js
index b83d2a3cfd..f4bbe998fc 100644
--- a/test/index.js
+++ b/test/index.js
@@ -184,6 +184,20 @@ test('tarballs (is-array-1.0.1.tgz)', function (t) {
   }, t.end)
 })
 
+test('local file', function (t) {
+  prepare()
+  var localPkgPath = join(__dirname, 'local-pkg')
+  install(['file:' + localPkgPath], { quiet: true })
+  .then(function () {
+    var localPkg = require(
+      join(process.cwd(), 'node_modules', 'local-pkg'))
+
+    t.ok(localPkg, 'localPkg() is available')
+
+    t.end()
+  }, t.end)
+})
+
 test('shrinkwrap compatibility', function (t) {
   prepare()
   fs.writeFileSync('package.json',
diff --git a/test/local-pkg/index.js b/test/local-pkg/index.js
new file mode 100644
index 0000000000..37d7332f73
--- /dev/null
+++ b/test/local-pkg/index.js
@@ -0,0 +1 @@
+module.exports = function () {}
diff --git a/test/local-pkg/package.json b/test/local-pkg/package.json
new file mode 100644
index 0000000000..e7362abbe8
--- /dev/null
+++ b/test/local-pkg/package.json
@@ -0,0 +1,4 @@
+{
+  "name": "local-pkg",
+  "version": "1.0.0"
+}