diff --git a/src/utils.ts b/src/utils.ts
index b33478c..3e9f4f0 100644
--- a/src/utils.ts
+++ b/src/utils.ts
@@ -82,6 +82,18 @@ export async function findProjectDir(
     pkgJsonPath: null,
   },
 ): Promise<ProjectInfo> {
+  // Ensure we check for `package.json` first as this defines
+  // the root project location.
+  if (result.pkgJsonPath === null) {
+    const pkgJsonPath = path.join(dir, "package.json");
+    if (await fileExists(pkgJsonPath)) {
+      logDebug(`Found package.json at ${pkgJsonPath}`);
+      logDebug(`Setting project directory to ${dir}`);
+      result.projectDir = dir;
+      result.pkgJsonPath = pkgJsonPath;
+    }
+  }
+
   const npmLockfile = path.join(dir, "package-lock.json");
   if (await fileExists(npmLockfile)) {
     logDebug(`Detected npm from lockfile ${npmLockfile}`);
@@ -113,15 +125,6 @@ export async function findProjectDir(
     return result;
   }
 
-  if (result.pkgJsonPath === null) {
-    const pkgJsonPath = path.join(dir, "package.json");
-    if (await fileExists(pkgJsonPath)) {
-      logDebug(`Found package.json at ${pkgJsonPath}`);
-      result.projectDir = dir;
-      result.pkgJsonPath = pkgJsonPath;
-    }
-  }
-
   const prev = dir;
   dir = path.dirname(dir);
   if (dir === prev) {
diff --git a/test/commands.test.ts b/test/commands.test.ts
index 91c6fbe..eba49dc 100644
--- a/test/commands.test.ts
+++ b/test/commands.test.ts
@@ -12,6 +12,7 @@ import {
 } from "./test_utils";
 import * as assert from "node:assert/strict";
 import {
+  exec,
   PkgJson,
   readJson,
   readTextFile,
@@ -289,6 +290,23 @@ describe("install", () => {
     );
   });
 
+  it("pnpm install into existing project", async () => {
+    await runInTempDir(async (dir) => {
+      const sub = path.join(dir, "sub", "sub1");
+      await fs.promises.mkdir(sub, {
+        recursive: true,
+      });
+
+      await exec("pnpm", ["i", "preact"], dir);
+
+      await runJsr(["i", "--pnpm", "@std/encoding@0.216.0"], sub);
+      assert.ok(
+        await isFile(path.join(dir, "pnpm-lock.yaml")),
+        "pnpm lockfile not created",
+      );
+    });
+  });
+
   if (process.platform !== "win32") {
     it("jsr add --bun @std/encoding@0.216.0 - forces bun", async () => {
       await withTempEnv(