diff --git a/libexec/rbenv-local b/libexec/rbenv-local
index 9169943e..d5c5f11c 100755
--- a/libexec/rbenv-local
+++ b/libexec/rbenv-local
@@ -47,9 +47,10 @@ elif [ -n "$RBENV_VERSION" ]; then
     } >&2
   fi
 else
-  rbenv-version-file-read .ruby-version ||
-  rbenv-version-file-read .rbenv-version ||
-  { echo "rbenv: no local version configured for this directory"
+  if version_file="$(rbenv-version-file "$PWD")"; then
+    rbenv-version-file-read "$version_file"
+  else
+    echo "rbenv: no local version configured for this directory" >&2
     exit 1
-  } >&2
+  fi
 fi
diff --git a/libexec/rbenv-version-file b/libexec/rbenv-version-file
index 5e38c695..1e70539f 100755
--- a/libexec/rbenv-version-file
+++ b/libexec/rbenv-version-file
@@ -1,35 +1,45 @@
 #!/usr/bin/env bash
+# Usage: rbenv version-file [<dir>]
 # Summary: Detect the file that sets the current rbenv version
 set -e
 [ -n "$RBENV_DEBUG" ] && set -x
 
+target_dir="$1"
+
 find_local_version_file() {
   local root="$1"
-  while true; do
-    [[ "$root" =~ ^//[^/]*$ ]] && break
+  while ! [[ "$root" =~ ^//[^/]*$ ]]; do
     if [ -e "${root}/.ruby-version" ]; then
       echo "${root}/.ruby-version"
-      exit
+      return 0
     elif [ -e "${root}/.rbenv-version" ]; then
       echo "${root}/.rbenv-version"
-      exit
+      return 0
     fi
     [ -n "$root" ] || break
     root="${root%/*}"
   done
+  return 1
 }
 
-find_local_version_file "$RBENV_DIR"
-[ "$RBENV_DIR" = "$PWD" ] || find_local_version_file "$PWD"
+find_global_version_file() {
+  local global_version_file="${RBENV_ROOT}/version"
 
-global_version_file="${RBENV_ROOT}/version"
+  if [ -e "$global_version_file" ]; then
+    echo "$global_version_file"
+  elif [ -e "${RBENV_ROOT}/global" ]; then
+    echo "${RBENV_ROOT}/global"
+  elif [ -e "${RBENV_ROOT}/default" ]; then
+    echo "${RBENV_ROOT}/default"
+  else
+    echo "$global_version_file"
+  fi
+}
 
-if [ -e "$global_version_file" ]; then
-  echo "$global_version_file"
-elif [ -e "${RBENV_ROOT}/global" ]; then
-  echo "${RBENV_ROOT}/global"
-elif [ -e "${RBENV_ROOT}/default" ]; then
-  echo "${RBENV_ROOT}/default"
+if [ -n "$target_dir" ]; then
+  find_local_version_file "$target_dir"
 else
-  echo "$global_version_file"
+  find_local_version_file "$RBENV_DIR" || {
+    [ "$RBENV_DIR" != "$PWD" ] && find_local_version_file "$PWD"
+  } || find_global_version_file
 fi
diff --git a/test/local.bats b/test/local.bats
index 3e93ca7f..a84833eb 100644
--- a/test/local.bats
+++ b/test/local.bats
@@ -32,11 +32,11 @@ setup() {
   assert_success "2.0"
 }
 
-@test "ignores version in parent directory" {
+@test "discovers version file in parent directory" {
   echo "1.2.3" > .ruby-version
   mkdir -p "subdir" && cd "subdir"
   run rbenv-local
-  assert_failure
+  assert_success "1.2.3"
 }
 
 @test "ignores RBENV_DIR" {
diff --git a/test/version-file.bats b/test/version-file.bats
index ed84c484..ef7901f4 100644
--- a/test/version-file.bats
+++ b/test/version-file.bats
@@ -97,3 +97,14 @@ create_file() {
   RBENV_DIR="${RBENV_TEST_DIR}/widget/blank" run rbenv-version-file
   assert_success "${RBENV_TEST_DIR}/project/.ruby-version"
 }
+
+@test "finds version file in target directory" {
+  create_file "project/.ruby-version"
+  run rbenv-version-file "${PWD}/project"
+  assert_success "${RBENV_TEST_DIR}/project/.ruby-version"
+}
+
+@test "fails when no version file in target directory" {
+  run rbenv-version-file "$PWD"
+  assert_failure ""
+}