diff --git a/.changeset/friendly-taxis-shave.md b/.changeset/friendly-taxis-shave.md
new file mode 100644
index 0000000000..fc6c7c53cb
--- /dev/null
+++ b/.changeset/friendly-taxis-shave.md
@@ -0,0 +1,5 @@
+---
+"@pnpm/resolve-dependencies": patch
+---
+
+The workspace protocol should work in subdependencies.
diff --git a/packages/resolve-dependencies/src/resolveDependencies.ts b/packages/resolve-dependencies/src/resolveDependencies.ts
index b71bab0712..3f23a34e2b 100644
--- a/packages/resolve-dependencies/src/resolveDependencies.ts
+++ b/packages/resolve-dependencies/src/resolveDependencies.ts
@@ -117,7 +117,6 @@ export interface ChildrenByParentDepPath {
 }
 
 export interface ResolutionContext {
-  alwaysTryWorkspacePackages?: boolean
   defaultTag: string
   dryRun: boolean
   forceFullResolution: boolean
@@ -351,8 +350,6 @@ async function resolveChildren (
     ).length
   )
   const wantedDependencies = getNonDevWantedDependencies(parentPkg.pkg)
-  workspacePackages = workspacePackages && ctx.linkWorkspacePackagesDepth > parentDepth
-    ? workspacePackages : undefined
   const children = await resolveDependencies(ctx, preferredVersions, wantedDependencies,
     {
       currentDepth: parentDepth + 1,
@@ -589,7 +586,7 @@ async function resolveDependency (
   let pkgResponse!: PackageResponse
   try {
     pkgResponse = await ctx.storeController.requestPackage(wantedDependency, {
-      alwaysTryWorkspacePackages: ctx.alwaysTryWorkspacePackages,
+      alwaysTryWorkspacePackages: ctx.linkWorkspacePackagesDepth >= options.currentDepth,
       currentPackageId: currentPkg.pkgId,
       currentResolution: currentPkg.resolution,
       defaultTag: ctx.defaultTag,
diff --git a/packages/resolve-dependencies/src/resolveDependencyTree.ts b/packages/resolve-dependencies/src/resolveDependencyTree.ts
index 163fec2f24..4354803136 100644
--- a/packages/resolve-dependencies/src/resolveDependencyTree.ts
+++ b/packages/resolve-dependencies/src/resolveDependencyTree.ts
@@ -75,7 +75,6 @@ export default async function<T> (
 
   const wantedToBeSkippedPackageIds = new Set<string>()
   const ctx = {
-    alwaysTryWorkspacePackages: (opts.linkWorkspacePackagesDepth ?? -1) >= 0,
     childrenByParentDepPath: {} as ChildrenByParentDepPath,
     currentLockfile: opts.currentLockfile,
     defaultTag: opts.tag,
diff --git a/packages/supi/test/install/multipleImporters.ts b/packages/supi/test/install/multipleImporters.ts
index 1a9e4285a6..eec8beea88 100644
--- a/packages/supi/test/install/multipleImporters.ts
+++ b/packages/supi/test/install/multipleImporters.ts
@@ -975,6 +975,7 @@ test('remove dependencies of a project that was removed from the workspace (duri
 })
 
 test('do not resolve a subdependency from the workspace by default', async () => {
+  await addDistTag('dep-of-pkg-with-1-dep', '100.1.0', 'latest')
   preparePackages([
     {
       location: 'project',
@@ -1162,3 +1163,76 @@ test('resolve a subdependency from the workspace and use it as a peer', async ()
   expect(wantedLockfile.packages['/abc-parent-with-ab/1.0.0'].dependencies?.['peer-a']).toBe('link:peer-a')
   expect(wantedLockfile.packages['/abc/1.0.0_peer-a@1.0.1+peer-b@1.0.0'].dependencies?.['peer-a']).toBe('link:peer-a')
 })
+
+test('resolve a subdependency from the workspace, when it uses the workspace protocol', async () => {
+  preparePackages([
+    {
+      location: '.',
+      package: {
+        pnpm: {
+          overrides: {
+            'dep-of-pkg-with-1-dep': 'workspace:*',
+          },
+        },
+      },
+    },
+    {
+      location: 'project',
+      package: { name: 'project' },
+    },
+    {
+      location: 'dep-of-pkg-with-1-dep',
+      package: { name: 'dep-of-pkg-with-1-dep' },
+    },
+  ])
+
+  const importers: MutatedProject[] = [
+    {
+      buildIndex: 0,
+      manifest: {
+        name: 'project',
+        version: '1.0.0',
+
+        dependencies: {
+          'pkg-with-1-dep': '100.0.0',
+        },
+      },
+      mutation: 'install',
+      rootDir: path.resolve('project'),
+    },
+    {
+      buildIndex: 0,
+      manifest: {
+        name: 'dep-of-pkg-with-1-dep',
+        version: '100.1.0',
+      },
+      mutation: 'install',
+      rootDir: path.resolve('dep-of-pkg-with-1-dep'),
+    },
+  ]
+  const workspacePackages = {
+    'dep-of-pkg-with-1-dep': {
+      '100.1.0': {
+        dir: path.resolve('dep-of-pkg-with-1-dep'),
+        manifest: {
+          name: 'dep-of-pkg-with-1-dep',
+          version: '100.1.0',
+        },
+      },
+    },
+  }
+  await mutateModules(importers, await testDefaults({ linkWorkspacePackagesDepth: -1, workspacePackages }))
+
+  const project = assertProject(process.cwd())
+
+  const wantedLockfile = await project.readLockfile()
+  expect(wantedLockfile.packages['/pkg-with-1-dep/100.0.0'].dependencies?.['dep-of-pkg-with-1-dep']).toBe('link:dep-of-pkg-with-1-dep')
+
+  await rimraf('node_modules')
+
+  // Testing that headless installation does not fail with links in subdeps
+  await mutateModules(importers, await testDefaults({
+    frozenLockfile: true,
+    workspacePackages,
+  }))
+})