diff --git a/packages/cli/src/commands/registry/build.ts b/packages/cli/src/commands/registry/build.ts
index 0de9e2ae7d..49f9e7c32c 100644
--- a/packages/cli/src/commands/registry/build.ts
+++ b/packages/cli/src/commands/registry/build.ts
@@ -162,7 +162,8 @@ async function runBuild(options: BuildOptions) {
 
 				const dependencies = new Set(item.dependencies);
 				const devDependencies = new Set(item.devDependencies);
-				const registryDependencies = new Set(item.registryDependencies);
+
+				const registryDependencies = new Set(item.registryDependencies.map(transformLocal));
 
 				const predefinedDeps = dependencies.size > 0 && devDependencies.size > 0;
 				if (!predefinedDeps) {
@@ -210,3 +211,23 @@ async function runBuild(options: BuildOptions) {
 
 	await p.tasks(tasks);
 }
+
+/**
+ * Transforms registryDependencies that start with `local:` into a path
+ * relative to the current registry-item's json file.
+ *
+ * ```
+ * "local:stepper"
+ *```
+ * transforms into:
+ * ```
+ * "./stepper.json"
+ * ```
+ */
+function transformLocal(registryDep: string) {
+	if (registryDep.startsWith("local:")) {
+		const LOCAL_REGEX = /^local:(.*)/;
+		return registryDep.replace(LOCAL_REGEX, "./$1.json");
+	}
+	return registryDep;
+}
diff --git a/packages/cli/src/commands/update/index.ts b/packages/cli/src/commands/update/index.ts
index 26220f0b19..1881fb7fa0 100644
--- a/packages/cli/src/commands/update/index.ts
+++ b/packages/cli/src/commands/update/index.ts
@@ -153,7 +153,6 @@ async function runUpdate(cwd: string, config: cliConfig.Config, options: UpdateO
 	const tasks: p.Task[] = [];
 
 	const resolvedItems = await registry.resolveRegistryItems({
-		baseUrl: registryUrl,
 		registryIndex: registryIndex,
 		items: selectedComponents.map((comp) => comp.name),
 	});
diff --git a/packages/cli/src/utils/add-registry-items.ts b/packages/cli/src/utils/add-registry-items.ts
index 14841afc6b..21ab266efd 100644
--- a/packages/cli/src/utils/add-registry-items.ts
+++ b/packages/cli/src/utils/add-registry-items.ts
@@ -30,7 +30,6 @@ export async function addRegistryItems(opts: AddRegistryItemsProps) {
 
 	const registryIndex = await registry.getRegistryIndex(registryUrl);
 	const resolvedItems = await registry.resolveRegistryItems({
-		baseUrl: registryUrl,
 		items: Array.from(selectedItems),
 		registryIndex,
 	});
diff --git a/packages/cli/src/utils/registry/index.ts b/packages/cli/src/utils/registry/index.ts
index acf2653be5..d2e8bc7427 100644
--- a/packages/cli/src/utils/registry/index.ts
+++ b/packages/cli/src/utils/registry/index.ts
@@ -47,46 +47,50 @@ export async function getRegistryBaseColor(baseUrl: string, baseColor: string) {
 }
 
 type ResolveRegistryItemsProps = {
-	baseUrl: string;
 	registryIndex: schemas.RegistryIndex;
 	items: string[];
-	includeRegDeps?: boolean;
+	parentUrl?: URL;
 };
 
 type ResolvedRegistryItem = schemas.RegistryItem | schemas.RegistryIndexItem;
 export async function resolveRegistryItems({
 	registryIndex,
-	baseUrl,
 	items,
-	includeRegDeps = true,
+	parentUrl,
 }: ResolveRegistryItemsProps): Promise<ResolvedRegistryItem[]> {
 	const resolvedItems: ResolvedRegistryItem[] = [];
 
 	for (const item of items) {
+		let remoteUrl: URL | undefined;
 		let resolvedItem: ResolvedRegistryItem | undefined = registryIndex.find(
 			(entry) => entry.name === item
 		);
 
-		// the `item` doesn't exist in the `index`, so it _must_ be a remote item (in other words, it's a URL)
+		/**
+		 * The `item` doesn't exist in the registry's `index`, so it can be one of two things:
+		 * 1. a remote registry item (URL)
+		 * 2. a `local:registryDep` of a _remote_  item (relative path from that item to the dep)
+		 */
 		if (!resolvedItem) {
-			const url = item;
-			if (!isUrl(url)) {
+			const isRelative = item.startsWith("./") || item.startsWith("../");
+			if (isUrl(item) || (parentUrl && isRelative)) {
+				remoteUrl = new URL(item, parentUrl);
+				const [result] = await fetchRegistry([remoteUrl]);
+				resolvedItem = schemas.registryItemSchema.parse(result);
+			} else {
 				throw error(
-					`Component item '${item}' does not exist in the registry, nor is it a valid URL.`
+					`Registry item '${item}' does not exist in the registry, nor is it a valid URL or a relative path to a registry dependency.`
 				);
 			}
-
-			const [result] = await fetchRegistry([url]);
-			resolvedItem = schemas.registryItemSchema.parse(result);
 		}
 
 		resolvedItems.push(resolvedItem);
 
-		if (includeRegDeps && resolvedItem.registryDependencies?.length) {
+		if (resolvedItem.registryDependencies?.length) {
 			const registryDeps = await resolveRegistryItems({
-				baseUrl,
 				registryIndex: registryIndex,
 				items: resolvedItem.registryDependencies,
+				parentUrl: remoteUrl,
 			});
 			resolvedItems.push(...registryDeps);
 		}
diff --git a/registry-template/registry.json b/registry-template/registry.json
index 64341bf370..8f0a254b1c 100644
--- a/registry-template/registry.json
+++ b/registry-template/registry.json
@@ -25,7 +25,7 @@
 			"registryDependencies": ["button", "input", "label", "textarea", "card"],
 			"files": [
 				{
-					"path": "registry/blocks/example-form/example-form.svelte",
+					"path": "src/lib/registry/blocks/example-form/example-form.svelte",
 					"type": "registry:component"
 				}
 			]
@@ -84,15 +84,15 @@
 			"files": [
 				{
 					"path": "src/lib/registry/ui/stepper/stepper.svelte",
-					"type": "registry:component"
+					"type": "registry:file"
 				},
 				{
 					"path": "src/lib/registry/ui/stepper/stepper-item.svelte",
-					"type": "registry:component"
+					"type": "registry:file"
 				},
 				{
 					"path": "src/lib/registry/ui/stepper/index.ts",
-					"type": "registry:lib"
+					"type": "registry:file"
 				}
 			]
 		},
diff --git a/sites/docs/src/content/registry/registry-item-json.md b/sites/docs/src/content/registry/registry-item-json.md
index 7583f78f94..fdd976b1b1 100644
--- a/sites/docs/src/content/registry/registry-item-json.md
+++ b/sites/docs/src/content/registry/registry-item-json.md
@@ -136,23 +136,62 @@ Use `@version` to specify the version of your registry item.
 
 ### registryDependencies
 
-Used for registry dependencies. Can be names or URLs. Use the name of the item to reference shadcn/ui components and urls to reference other registries.
+Defines other registry items that this item depends on.
 
-- For `shadcn-svelte` registry items such as `button`, `input`, `select`, etc use the name eg. `['button', 'input', 'select']`.
-- For custom registry items use the URL of the registry item eg. `['https://example.com/r/hello-world.json']`.
+Each entry may be one of the following:
+
+#### shadcn-svelte Registry Item
+
+The name of a shadcn-svelte registry item (e.g., `'button'`, `'input'`, `'select'`), which will resolve to that item in the shadcn-svelte registry.
 
 ```json title="registry-item.json" showLineNumbers
 {
-  "registryDependencies": [
-    "button",
-    "input",
-    "select",
-    "https://example.com/r/editor.json"
+  "registryDependencies": ["button", "input", "select"]
+}
+```
+
+#### Remote URL
+
+A full URL to a custom registry item (e.g. `https://example.com/r/hello-world.json`)
+
+```json title="registry-item.json" showLineNumbers
+{
+  "registryDependencies": ["https://example.com/r/hello-world.json"]
+}
+```
+
+#### Local alias (when building with the CLI)
+
+If you're defining the item in `registry.json` and using the CLI to build the registry, you can use a name prefixed with `local:` (e.g. `local:stepper`) to reference an item in the current registry. The CLI will convert this to a relative path (e.g. `./stepper.json`) in the output `registry-item.json` file.
+
+```json title="registry.json" showLineNumbers
+{
+  "items": [
+    {
+      "name": "hello-world",
+      "registryDependencies": ["local:stepper"]
+    }
   ]
 }
 ```
 
-Note: The CLI will automatically resolve remote registry dependencies.
+Which the CLI will convert to the following in the output `registry-item.json` file:
+
+```json title="registry-item.json" showLineNumbers
+{
+  "registryDependencies": ["./stepper.json"]
+}
+```
+
+#### Relative Path
+
+If you're not using the CLI and defining the item directly in its `registry-item.json` file, you can specify a relative path, which is relative to the current item, to reference another item in the registry (e.g. `./stepper.json`).
+
+```json title="registry-item.json" showLineNumbers
+{
+  "registryDependencies": ["./stepper.json"]
+}
+```
 
 ### files
 
diff --git a/sites/docs/src/content/registry/registry-json.md b/sites/docs/src/content/registry/registry-json.md
index 07ff048dab..38d0c23b3b 100644
--- a/sites/docs/src/content/registry/registry-json.md
+++ b/sites/docs/src/content/registry/registry-json.md
@@ -22,7 +22,7 @@ The `registry.json` schema is used to define your custom component registry.
       "description": "A simple hello world component.",
       "files": [
         {
-          "path": "registry/hello-world/hello-world.svelte",
+          "path": "src/lib/registry/blocks/hello-world/hello-world.svelte",
           "type": "registry:component"
         }
       ]
@@ -79,7 +79,7 @@ The `items` in your registry. Each item must implement the [registry-item schema
       "description": "A simple hello world component.",
       "files": [
         {
-          "path": "registry/hello-world/hello-world.svelte",
+          "path": "src/lib/registry/blocks/hello-world/hello-world.svelte",
           "type": "registry:component"
         }
       ]