diff --git a/packages/js/src/utils/copy-assets-handler.spec.ts b/packages/js/src/utils/copy-assets-handler.spec.ts
index a2c443c1483ca..b1f0e0d00b624 100644
--- a/packages/js/src/utils/copy-assets-handler.spec.ts
+++ b/packages/js/src/utils/copy-assets-handler.spec.ts
@@ -42,6 +42,7 @@ describe('AssetInputOutputHandler', () => {
           output: 'docs',
           ignore: ['ignore.md', '**/nested-ignore.md'],
         },
+        'LICENSE',
       ],
     });
   });
@@ -49,6 +50,8 @@ describe('AssetInputOutputHandler', () => {
   test('watchAndProcessOnAssetChange', async () => {
     const dispose = await sut.watchAndProcessOnAssetChange();
 
+    fse.writeFileSync(path.join(rootDir, 'LICENSE'), 'license');
+    await wait(100);
     fse.writeFileSync(path.join(projectDir, 'README.md'), 'readme');
     await wait(100); // give watch time to react
     fse.writeFileSync(path.join(projectDir, 'docs/test1.md'), 'test');
@@ -72,6 +75,15 @@ describe('AssetInputOutputHandler', () => {
     await wait(100);
 
     expect(callback.mock.calls).toEqual([
+      [
+        [
+          {
+            type: 'create',
+            src: path.join(rootDir, 'LICENSE'),
+            dest: path.join(rootDir, 'dist/mylib/LICENSE'),
+          },
+        ],
+      ],
       [
         [
           {
@@ -130,6 +142,7 @@ describe('AssetInputOutputHandler', () => {
   });
 
   test('processAllAssetsOnce', async () => {
+    fse.writeFileSync(path.join(rootDir, 'LICENSE'), 'license');
     fse.writeFileSync(path.join(projectDir, 'README.md'), 'readme');
     fse.writeFileSync(path.join(projectDir, 'docs/test1.md'), 'test');
     fse.writeFileSync(path.join(projectDir, 'docs/test2.md'), 'test');
@@ -144,6 +157,15 @@ describe('AssetInputOutputHandler', () => {
     await sut.processAllAssetsOnce();
 
     expect(callback.mock.calls).toEqual([
+      [
+        [
+          {
+            type: 'create',
+            src: path.join(rootDir, 'LICENSE'),
+            dest: path.join(rootDir, 'dist/mylib/LICENSE'),
+          },
+        ],
+      ],
       [
         [
           {
diff --git a/packages/js/src/utils/copy-assets-handler.ts b/packages/js/src/utils/copy-assets-handler.ts
index 3d9c7ba141ca6..304cdd486a494 100644
--- a/packages/js/src/utils/copy-assets-handler.ts
+++ b/packages/js/src/utils/copy-assets-handler.ts
@@ -120,14 +120,12 @@ export class CopyAssetsHandler {
               !ag.ignore?.some((ig) => minimatch(src, ig)) &&
               !this.ignore.ignores(src)
             ) {
+              const relPath = path.relative(ag.input, src);
+              const dest = relPath.startsWith('..') ? src : relPath;
               acc.push({
                 type: 'create',
                 src: path.join(this.rootDir, src),
-                dest: path.join(
-                  this.rootDir,
-                  ag.output,
-                  path.relative(ag.input, src)
-                ),
+                dest: path.join(this.rootDir, ag.output, dest),
               });
             }
             return acc;
@@ -140,7 +138,7 @@ export class CopyAssetsHandler {
   async watchAndProcessOnAssetChange(): Promise<() => Promise<void>> {
     const watcher = await import('@parcel/watcher');
     const subscription = await watcher.subscribe(
-      this.projectDir,
+      this.rootDir,
       (err, events) => {
         if (err) {
           logger.error(`Watch error: ${err?.message ?? 'Unknown'}`);
@@ -163,14 +161,12 @@ export class CopyAssetsHandler {
           !ag.ignore?.some((ig) => minimatch(pathFromRoot, ig)) &&
           !this.ignore.ignores(pathFromRoot)
         ) {
+          const relPath = path.relative(ag.input, pathFromRoot);
+          const destPath = relPath.startsWith('..') ? pathFromRoot : relPath;
           fileEvents.push({
             type: event.type,
             src: path.join(this.rootDir, pathFromRoot),
-            dest: path.join(
-              this.rootDir,
-              ag.output,
-              path.relative(ag.input, pathFromRoot)
-            ),
+            dest: path.join(this.rootDir, ag.output, destPath),
           });
           // Match first entry and skip the rest for this file.
           break;