diff --git a/source/dub/dub.d b/source/dub/dub.d
index b6c6821..c5f0909 100644
--- a/source/dub/dub.d
+++ b/source/dub/dub.d
@@ -1182,17 +1182,56 @@
 
 	private void determineDefaultCompiler()
 	{
-		import std.range : front;
+		import std.file : thisExePath;
+		import std.path : buildPath, dirName, expandTilde, isAbsolute, isDirSeparator;
 		import std.process : environment;
+		import std.range : front;
+		import std.regex : ctRegex, matchFirst;
 
-		m_defaultCompiler = m_config.defaultCompiler;
-		if (m_defaultCompiler.length) return;
+		m_defaultCompiler = m_config.defaultCompiler.expandTilde;
+		if (m_defaultCompiler.length && m_defaultCompiler.isAbsolute)
+			return;
+
+		auto dubPrefix = m_defaultCompiler.matchFirst(ctRegex!(`^\$DUB_BINARY_PATH`));
+		if(!dubPrefix.empty)
+		{
+			m_defaultCompiler = thisExePath().dirName() ~ dubPrefix.post;
+			return;
+		}
+
+		if (!find!isDirSeparator(m_defaultCompiler).empty)
+			throw new Exception("defaultCompiler specified in a DUB config file cannot use an unqualified relative path:\n\n" ~ m_defaultCompiler ~
+			"\n\nUse \"$DUB_BINARY_PATH/../path/you/want\" instead.");
 
 		version (Windows) enum sep = ";", exe = ".exe";
 		version (Posix) enum sep = ":", exe = "";
 
 		auto compilers = ["dmd", "gdc", "gdmd", "ldc2", "ldmd2"];
+		// If a compiler name is specified, look for it next to dub.
+		// Otherwise, look for any of the common compilers adjacent to dub.
+		if (m_defaultCompiler.length)
+		{
+			string compilerPath = buildPath(thisExePath().dirName(), m_defaultCompiler ~ exe);
+			if (existsFile(compilerPath))
+			{
+				m_defaultCompiler = compilerPath;
+				return;
+			}
+		}
+		else
+		{
+			auto nextFound = compilers.find!(bin => existsFile(buildPath(thisExePath().dirName(), bin ~ exe)));
+			if (!nextFound.empty)
+			{
+				m_defaultCompiler = buildPath(thisExePath().dirName(),  nextFound.front ~ exe);
+				return;
+			}
+		}
 
+		// If nothing found next to dub, search the user's PATH, starting
+		// with the compiler name from their DUB config file, if specified.
+		if (m_defaultCompiler.length)
+			compilers = m_defaultCompiler ~ compilers;
 		auto paths = environment.get("PATH", "").splitter(sep).map!NativePath;
 		auto res = compilers.find!(bin => paths.canFind!(p => existsFile(p ~ (bin~exe))));
 		m_defaultCompiler = res.empty ? compilers[0] : res.front;
diff --git a/test/issue895-local-configuration.sh b/test/issue895-local-configuration.sh
index d00bb62..9799288 100755
--- a/test/issue895-local-configuration.sh
+++ b/test/issue895-local-configuration.sh
@@ -1,11 +1,6 @@
 #!/usr/bin/env bash
 . $(dirname "${BASH_SOURCE[0]}")/common.sh
 
-cd ${CURR_DIR}
-mkdir ../etc
-mkdir ../etc/dub
-echo "{\"defaultCompiler\": \"foo\"}" > ../etc/dub/settings.json
-
 if [ -e /var/lib/dub/settings.json ]; then
 	die $LINENO 'Found existing system wide DUB configuration. Aborting.'
 fi
@@ -14,9 +9,68 @@
 	die $LINENO 'Found existing user wide DUB configuration. Aborting.'
 fi
 
-if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF 'Unknown compiler: foo'; then
-	rm -r ../etc
-	die $LINENO 'DUB did not find the local configuration'
+cd ${CURR_DIR}
+mkdir -p ../etc/dub
+echo "{\"defaultCompiler\": \"foo\"}" > ../etc/dub/settings.json
+echo "Empty file named foo." > ../bin/foo
+
+function cleanup {
+    rm -r ../etc
+}
+
+trap cleanup EXIT
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Unknown compiler: $(dirname $CURR_DIR)/bin/foo"; then
+	rm ../bin/foo
+	die $LINENO 'DUB did not find the local configuration with an adjacent compiler.'
 fi
 
-rm -r ../etc
+echo "{\"defaultCompiler\": \"$CURR_DIR/foo\"}" > ../etc/dub/settings.json
+mv ../bin/foo $CURR_DIR
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Unknown compiler: $CURR_DIR/foo"; then
+	rm $CURR_DIR/foo
+	die $LINENO 'DUB did not find a locally-configured compiler with an absolute path.'
+fi
+
+echo "{\"defaultCompiler\": \"~/.dub/foo\"}" > ../etc/dub/settings.json
+mv $CURR_DIR/foo ~/.dub/
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Unknown compiler: "; then
+	rm ~/.dub/foo
+	die $LINENO 'DUB did not find a locally-configured compiler with a tilde-prefixed path.'
+fi
+
+echo "{\"defaultCompiler\": \"\$DUB_BINARY_PATH/../foo\"}" > ../etc/dub/settings.json
+mv ~/.dub/foo ..
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Unknown compiler: $(dirname $CURR_DIR)/bin/../foo"; then
+	rm ../foo
+	die $LINENO 'DUB did not find a locally-configured compiler with a DUB-relative path.'
+fi
+
+echo "{\"defaultCompiler\": \"../foo\"}" > ../etc/dub/settings.json
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "defaultCompiler specified in a DUB config file cannot use an unqualified relative path"; then
+	rm ../foo
+	die $LINENO 'DUB did not error properly for a locally-configured compiler with a relative path.'
+fi
+
+rm ../etc/dub/settings.json
+echo "Empty file named ldc2." > ../bin/ldc2
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Failed to invoke the compiler $(dirname $CURR_DIR)/bin/ldc2 to determine the build platform"; then
+	rm ../bin/ldc2
+	die $LINENO 'DUB did not find ldc2 adjacent to it.'
+fi
+
+echo "{\"defaultCompiler\": \"foo\"}" > ../etc/dub/settings.json
+rm ../bin/ldc2
+export PATH=$(dirname $CURR_DIR)${PATH:+:$PATH}
+
+if ! { ${DUB} describe --single issue103-single-file-package.d 2>&1 || true; } | grep -cF "Unknown compiler: foo"; then
+	rm ../foo
+	die $LINENO 'DUB did not find a locally-configured compiler in its PATH.'
+fi
+
+rm ../foo