diff --git a/src/Microsoft.Tye.Core/ProjectReader.cs b/src/Microsoft.Tye.Core/ProjectReader.cs
index af5076c5..e2203c4d 100644
--- a/src/Microsoft.Tye.Core/ProjectReader.cs
+++ b/src/Microsoft.Tye.Core/ProjectReader.cs
@@ -73,6 +73,11 @@ namespace Microsoft.Tye
                 throw new ArgumentNullException(nameof(project));
             }
 
+            if (!Directory.Exists(project.ProjectFile.DirectoryName))
+            {
+                throw new CommandException($"Failed to locate directory: '{project.ProjectFile.DirectoryName}'.");
+            }
+
             EnsureMSBuildRegistered(output, project.ProjectFile);
 
             EvaluateProject(output, project);
diff --git a/test/E2ETest/ApplicationFactoryTests.cs b/test/E2ETest/ApplicationFactoryTests.cs
index 88ab1b7d..b32f7261 100644
--- a/test/E2ETest/ApplicationFactoryTests.cs
+++ b/test/E2ETest/ApplicationFactoryTests.cs
@@ -107,5 +107,19 @@ services:
 
             Assert.Equal("redis2", ((ContainerServiceBuilder)redisService).Image);
         }
+
+        [Fact]
+        public async Task WrongProjectPathProducesCorrectErrorMessage()
+        {
+            using var projectDirectory = TestHelpers.CopyTestProjectDirectory("frontend-backend");
+            var projectFile = new FileInfo(Path.Combine(projectDirectory.DirectoryPath, "tye-wrong-projectpath.yaml"));
+            var outputContext = new OutputContext(_sink, Verbosity.Debug);
+
+            var exception = await Assert.ThrowsAsync<CommandException>(async () =>
+                await ApplicationFactory.CreateAsync(outputContext, projectFile));
+
+            var wrongProjectPath = Path.Combine(projectDirectory.DirectoryPath, "backend1");
+            Assert.Equal($"Failed to locate directory: '{wrongProjectPath}'.", exception.Message);
+        }
     }
 }
diff --git a/test/E2ETest/testassets/projects/frontend-backend/tye-wrong-projectpath.yaml b/test/E2ETest/testassets/projects/frontend-backend/tye-wrong-projectpath.yaml
new file mode 100644
index 00000000..0ff65ceb
--- /dev/null
+++ b/test/E2ETest/testassets/projects/frontend-backend/tye-wrong-projectpath.yaml
@@ -0,0 +1,8 @@
+# tye application configuration file
+# read all about it at https://github.com/dotnet/tye
+name: frontend-backend
+services:
+- name: backend
+  project: backend1/backend.csproj
+- name: frontend
+  project: frontend/frontend.csproj