diff --git a/README.md b/README.md
index 4a8ffa5b..fba5009c 100644
--- a/README.md
+++ b/README.md
@@ -46,7 +46,7 @@ The plugin inherits all compiler options and file lists from your `tsconfig.json
 * `noEmit`: false
 * `inlineSourceMap`: false (see [#71](https://github.com/ezolenko/rollup-plugin-typescript2/issues/71))
 * `outDir`: `./placeholder` in cache root, see [83](https://github.com/ezolenko/rollup-plugin-typescript2/issues/83) and [Microsoft/TypeScript/issues/24715](https://github.com/Microsoft/TypeScript/issues/24715)
-* `declarationDir`: `process.cwd()` (*only if `useTsconfigDeclarationDir` is false in the plugin options*)
+* `declarationDir`: Rollup's `output.file` or `output.dir` (*only if `useTsconfigDeclarationDir` is false in the plugin options*)
 * `moduleResolution`: `node` (*`classic` is [deprecated](https://www.typescriptlang.org/docs/handbook/module-resolution.html). It also breaks this plugin, see [#12](https://github.com/ezolenko/rollup-plugin-typescript2/issues/12) and [#14](https://github.com/ezolenko/rollup-plugin-typescript2/issues/14)*)
 * `allowNonTsExtensions`: true to let other plugins on the chain generate typescript, update plugin's include filter to pick them up (see [#111](https://github.com/ezolenko/rollup-plugin-typescript2/issues/111))
 
diff --git a/src/get-options-overrides.ts b/src/get-options-overrides.ts
index 9f39ccc4..0d7a579c 100644
--- a/src/get-options-overrides.ts
+++ b/src/get-options-overrides.ts
@@ -6,7 +6,7 @@ import * as _ from "lodash";
 import { join } from "path";
 import { IContext } from "./context";
 
-export function getOptionsOverrides({ useTsconfigDeclarationDir, cacheRoot, cwd }: IOptions, preParsedTsconfig?: tsTypes.ParsedCommandLine): tsTypes.CompilerOptions
+export function getOptionsOverrides({ cacheRoot }: IOptions, preParsedTsconfig?: tsTypes.ParsedCommandLine): tsTypes.CompilerOptions
 {
 	const overrides: tsTypes.CompilerOptions = {
 		noEmitHelpers: false,
@@ -27,8 +27,6 @@ export function getOptionsOverrides({ useTsconfigDeclarationDir, cacheRoot, cwd
 		const declaration = preParsedTsconfig.options.declaration;
 		if (!declaration)
 			overrides.declarationDir = undefined;
-		if (declaration && !useTsconfigDeclarationDir)
-			overrides.declarationDir = cwd;
 
 		// unsetting sourceRoot if sourceMap is not enabled (in case original tsconfig had inlineSourceMap set that is being unset and would cause TS5051)
 		const sourceMap = preParsedTsconfig.options.sourceMap;
diff --git a/src/index.ts b/src/index.ts
index 1fa12cd5..a45e8441 100644
--- a/src/index.ts
+++ b/src/index.ts
@@ -12,7 +12,7 @@ import { parseTsConfig } from "./parse-tsconfig";
 import { printDiagnostics } from "./print-diagnostics";
 import { TSLIB, TSLIB_VIRTUAL, tslibSource, tslibVersion } from "./tslib";
 import { blue, red, yellow, green } from "colors/safe";
-import { relative } from "path";
+import { relative, dirname } from "path";
 import { normalize } from "./normalize";
 import { satisfies } from "semver";
 import findCacheDir from "find-cache-dir";
@@ -326,6 +326,11 @@ const typescript: PluginImpl<RPT2Options> = (options) =>
 			if (!parsedConfig.options.declaration)
 				return;
 
+			if (!pluginOptions.useTsconfigDeclarationDir)
+				parsedConfig.options.declarationDir = _output.file
+					? dirname(_output.file)
+					: _output.dir;
+
 			_.each(parsedConfig.fileNames, (name) =>
 			{
 				const key = normalize(name);