diff --git a/Cargo.toml b/Cargo.toml
index 2c852c9..a4ed83b 100644
--- a/Cargo.toml
+++ b/Cargo.toml
@@ -17,3 +17,6 @@ members = ["xtask"]
 [dependencies]
 once_cell = "1"
 dissimilar = "1"
+
+[dev-dependencies]
+tempfile = "3"
diff --git a/src/lib.rs b/src/lib.rs
index 1e93a3b..69d5c1e 100644
--- a/src/lib.rs
+++ b/src/lib.rs
@@ -644,17 +644,23 @@ fn to_abs_ws_path(path: &Path) -> PathBuf {
     static WORKSPACE_ROOT: OnceCell<PathBuf> = OnceCell::new();
     WORKSPACE_ROOT
         .get_or_try_init(|| {
-            let my_manifest = env::var("CARGO_MANIFEST_DIR")?;
+            let manifest_dir = env::var("CARGO_MANIFEST_DIR")?;
 
             // Heuristic, see https://github.com/rust-lang/cargo/issues/3946
-            let workspace_root = Path::new(&my_manifest)
+            let workspace_root = Path::new(&manifest_dir)
                 .ancestors()
-                .filter(|it| it.join("Cargo.toml").exists())
-                .last()
-                .unwrap()
-                .to_path_buf();
-
-            Ok(workspace_root)
+                .filter(|it| match fs::read_to_string(it.join("Cargo.toml")) {
+                    Ok(cargo_toml) => cargo_toml.lines().any(|line| line.trim() == "[workspace]"),
+                    Err(_) => false, // no Cargo.toml
+                })
+                .next();
+
+            // Check if we found a workspace or if we should use
+            // manifest_dir.
+            match workspace_root {
+                Some(workspace_root) => Ok(workspace_root.to_path_buf()),
+                None => Ok(PathBuf::from(manifest_dir)),
+            }
         })
         .unwrap_or_else(|_: env::VarError| {
             panic!("No CARGO_MANIFEST_DIR env var and the path is relative: {}", path.display())
@@ -867,4 +873,27 @@ line1
             "#\"#\"#",
         ];
     }
+
+    #[test]
+    fn test_nested_workspaces1() -> Result<(), std::io::Error> {
+        let dir = tempfile::tempdir()?;
+
+        let outer = dir.path().join("Cargo.toml");
+        let nested = dir.path().join("nested");
+        let inner = nested.join("Cargo.toml");
+
+        std::fs::write(outer, r#"[package]\nname = "foo""#)?;
+
+        std::fs::create_dir(&nested)?;
+        std::fs::write(&inner, r#"[package]\nname = "bar"\n[workspace]\n"#)?;
+
+        let old_manifest_dir = env::var("CARGO_MANIFEST_DIR").unwrap();
+        env::set_var("CARGO_MANIFEST_DIR", nested.as_os_str());
+        let nested_bar = to_abs_ws_path(&Path::new("bar.txt"));
+        env::set_var("CARGO_MANIFEST_DIR", old_manifest_dir);
+
+        assert_eq!(nested_bar, nested.join("bar.txt"));
+
+        Ok(())
+    }
 }