diff --git a/test/BUILD b/test/BUILD
index f399903..c60fb82 100644
--- a/test/BUILD
+++ b/test/BUILD
@@ -34,3 +34,24 @@ haskell_doctest(
     name = "doctest-test",
     deps = [":DoctestExample"],
 )
+
+load("//:third_party/cabal2bazel/bzl/cabal_paths.bzl", "cabal_paths")
+
+cabal_paths(
+    name = "foo-paths",
+    package = "foo",
+    version = [
+        1,
+        2,
+    ],
+)
+
+haskell_test(
+    name = "PathsTest",
+    srcs = ["PathsTest.hs"],
+    deps = [
+        ":foo-paths",
+        hazel_library("base"),
+        hazel_library("filepath"),
+    ],
+)
diff --git a/test/PathsTest.hs b/test/PathsTest.hs
new file mode 100644
index 0000000..29cc1d4
--- /dev/null
+++ b/test/PathsTest.hs
@@ -0,0 +1,23 @@
+-- Copyright 2018 Google LLC
+--
+-- Licensed under the Apache License, Version 2.0 (the "License");
+-- you may not use this file except in compliance with the License.
+-- You may obtain a copy of the License at
+--
+--    https://www.apache.org/licenses/LICENSE-2.0
+--
+-- Unless required by applicable law or agreed to in writing, software
+-- distributed under the License is distributed on an "AS IS" BASIS,
+-- WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+-- See the License for the specific language governing permissions and
+-- limitations under the License.
+
+module Main where
+
+import qualified Paths_foo
+
+import Data.Version (versionBranch)
+import Control.Exception (assert)
+
+main = do
+    assert (versionBranch Paths_foo.version == [1, 2]) $ return ()
diff --git a/third_party/cabal2bazel/bzl/cabal_paths.bzl b/third_party/cabal2bazel/bzl/cabal_paths.bzl
index ce99516..874b227 100644
--- a/third_party/cabal2bazel/bzl/cabal_paths.bzl
+++ b/third_party/cabal2bazel/bzl/cabal_paths.bzl
@@ -34,19 +34,31 @@ def _impl_path_module_gen(ctx):
       ctx.attr.data_dir if ctx.attr.data_dir else ""
   )
 
-  ctx.template_action(
+  # If workspace_root is not empty, we have an external repo.
+  # We need to relativize the paths.
+  if ctx.label.workspace_root != "":
+    ctx.template_action(
       template=ctx.file._template,
       output=paths_file,
       substitutions={
-          "%{module}": ctx.attr.module,
-          "%{base_dir}": paths.join(
-              # TODO: this probably won't work for packages not in external
-              # repositories.  See:
-              # https://github.com/bazelbuild/bazel/wiki/Updating-the-runfiles-tree-structure
-              "..", paths.relativize(ctx.label.workspace_root, "external"), base_dir),
-          "%{version}": str(ctx.attr.version),
+        "%{module}": ctx.attr.module,
+        "%{base_dir}": paths.join(
+          # https://github.com/bazelbuild/bazel/wiki/Updating-the-runfiles-tree-structure
+          "..", paths.relativize(ctx.label.workspace_root, "external"), base_dir),
+        "%{version}": str(ctx.attr.version),
       },
-  )
+    )
+  else: # Otherwise this is a local directory, and we can use relative paths.
+    ctx.template_action(
+      template=ctx.file._template,
+      output=paths_file,
+      substitutions={
+        "%{module}": ctx.attr.module,
+        "%{base_dir}": base_dir,
+        "%{version}": str(ctx.attr.version),
+      },
+    )
+
   return struct(files=depset([paths_file]))
 
 
@@ -96,7 +108,7 @@ def cabal_paths(name=None, package=None, data_dir='',data=[], version=[], **kwar
     data: The data files that this package depends on to run.
     version: The version number of this package (list of ints)
   """
-  module_name = "Paths_" + package
+  module_name = "Paths_" + package.replace("-", "_")
   paths_file = module_name + ".hs"
   _path_module_gen(
       name = paths_file,