diff --git a/packages/@aws-cdk/aws-lambda-nodejs/lib/bundlers.ts b/packages/@aws-cdk/aws-lambda-nodejs/lib/bundlers.ts
index fd0d69d960b92..0ba132012ddc3 100644
--- a/packages/@aws-cdk/aws-lambda-nodejs/lib/bundlers.ts
+++ b/packages/@aws-cdk/aws-lambda-nodejs/lib/bundlers.ts
@@ -24,32 +24,36 @@ interface LocalBundlerProps extends BundlerProps {
  * Local Parcel bundler
  */
 export class LocalBundler implements cdk.ILocalBundling {
-  public static get runsLocally(): boolean {
-    if (LocalBundler._runsLocally !== undefined) {
-      return LocalBundler._runsLocally;
+  public static runsLocally(resolvePath: string): boolean {
+    if (LocalBundler._runsLocally[resolvePath] !== undefined) {
+      return LocalBundler._runsLocally[resolvePath];
     }
     if (os.platform() === 'win32') { // TODO: add Windows support
       return false;
     }
     try {
-      const parcel = spawnSync(require.resolve('parcel'), ['--version']);
+      const parcel = spawnSync(require.resolve('parcel', { paths: [resolvePath] }), ['--version']);
       const version = parcel.stdout.toString().trim();
-      LocalBundler._runsLocally = new RegExp(`^${PARCEL_VERSION}`).test(version); // Cache result to avoid unnecessary spawns
-      if (!LocalBundler._runsLocally) {
+      LocalBundler._runsLocally[resolvePath] = new RegExp(`^${PARCEL_VERSION}`).test(version); // Cache result to avoid unnecessary spawns
+      if (!LocalBundler._runsLocally[resolvePath]) {
         process.stderr.write(`Incorrect parcel version detected: ${version} <> ${PARCEL_VERSION}. Switching to Docker bundling.\n`);
       }
-      return LocalBundler._runsLocally;
-    } catch {
+      return LocalBundler._runsLocally[resolvePath];
+    } catch (err) {
       return false;
     }
   }
 
-  public static _runsLocally?: boolean; // public for testing purposes
+  public static clearRunsLocallyCache(): void { // for tests
+    LocalBundler._runsLocally = {};
+  }
+
+  private static _runsLocally: { [key: string]: boolean } = {};
 
   constructor(private readonly props: LocalBundlerProps) {}
 
   public tryBundle(outputDir: string) {
-    if (!LocalBundler.runsLocally) {
+    if (!LocalBundler.runsLocally(this.props.projectRoot)) {
       return false;
     }
 
@@ -61,6 +65,7 @@ export class LocalBundler implements cdk.ILocalBundling {
       dependencies: this.props.dependencies,
       installer: this.props.installer,
       lockFile: this.props.lockFile,
+      bundlingEnvironment: BundlingEnvironment.LOCAL,
     });
 
     exec('bash', ['-c', localCommand], {
@@ -109,6 +114,7 @@ export class DockerBundler {
       installer: props.installer,
       lockFile: props.lockFile,
       dependencies: props.dependencies,
+      bundlingEnvironment: BundlingEnvironment.DOCKER,
     });
 
     this.bundlingOptions = {
@@ -122,6 +128,12 @@ export class DockerBundler {
 
 interface BundlingCommandOptions extends LocalBundlerProps {
   outputDir: string;
+  bundlingEnvironment: BundlingEnvironment;
+}
+
+enum BundlingEnvironment {
+  DOCKER = 'docker',
+  LOCAL = 'local',
 }
 
 /**
@@ -130,9 +142,13 @@ interface BundlingCommandOptions extends LocalBundlerProps {
 function createBundlingCommand(options: BundlingCommandOptions): string {
   const entryPath = path.join(options.projectRoot, options.relativeEntryPath);
   const distFile = path.basename(options.relativeEntryPath).replace(/\.(jsx|tsx?)$/, '.js');
+  const parcelResolvePath = options.bundlingEnvironment === BundlingEnvironment.DOCKER
+    ? '/' // Force using parcel installed at / in the image
+    : entryPath; // Look up starting from entry path
+
   const parcelCommand: string = chain([
     [
-      '$(node -p "require.resolve(\'parcel\')")', // Parcel is not globally installed, find its "bin"
+      `$(node -p "require.resolve(\'parcel\', { paths: ['${parcelResolvePath}'] })")`, // Parcel is not globally installed, find its "bin"
       'build', entryPath.replace(/\\/g, '/'), // Always use POSIX paths in the container
       '--target', 'cdk-lambda',
       '--dist-dir', options.outputDir, // Output bundle in outputDir (will have the same name as the entry)
diff --git a/packages/@aws-cdk/aws-lambda-nodejs/lib/bundling.ts b/packages/@aws-cdk/aws-lambda-nodejs/lib/bundling.ts
index 9c946d4879e37..f68123c4d36be 100644
--- a/packages/@aws-cdk/aws-lambda-nodejs/lib/bundling.ts
+++ b/packages/@aws-cdk/aws-lambda-nodejs/lib/bundling.ts
@@ -203,7 +203,7 @@ export class Bundling {
       cacheDir: options.cacheDir,
       environment: options.parcelEnvironment,
       bundlingDockerImage: options.bundlingDockerImage,
-      buildImage: !LocalBundler.runsLocally || options.forceDockerBundling,
+      buildImage: !LocalBundler.runsLocally(projectRoot) || options.forceDockerBundling, // build image only if we can't run locally
       buildArgs: options.buildArgs,
       parcelVersion: options.parcelVersion,
       dependencies,
diff --git a/packages/@aws-cdk/aws-lambda-nodejs/test/bundling.test.ts b/packages/@aws-cdk/aws-lambda-nodejs/test/bundling.test.ts
index 0caa440ec1b8a..40fdb21ac60a8 100644
--- a/packages/@aws-cdk/aws-lambda-nodejs/test/bundling.test.ts
+++ b/packages/@aws-cdk/aws-lambda-nodejs/test/bundling.test.ts
@@ -18,6 +18,7 @@ const fromAssetMock = jest.spyOn(BundlingDockerImage, 'fromAsset');
 let findUpMock: jest.SpyInstance;
 beforeEach(() => {
   jest.clearAllMocks();
+  LocalBundler.clearRunsLocallyCache();
   findUpMock = jest.spyOn(util, 'findUp').mockImplementation((name: string, directory) => {
     if (name === 'package.json') {
       return path.join(__dirname, '..');
@@ -53,7 +54,7 @@ test('Parcel bundling', () => {
       command: [
         'bash', '-c',
         [
-          '$(node -p "require.resolve(\'parcel\')") build /asset-input/folder/entry.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist --cache-dir /asset-input/cache-dir',
+          '$(node -p "require.resolve(\'parcel\', { paths: [\'/\'] })") build /asset-input/folder/entry.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist --cache-dir /asset-input/cache-dir',
           'mv /asset-output/entry.js /asset-output/index.js',
         ].join(' && '),
       ],
@@ -96,7 +97,7 @@ test('Parcel bundling with handler named index.ts', () => {
     bundling: expect.objectContaining({
       command: [
         'bash', '-c',
-        '$(node -p "require.resolve(\'parcel\')") build /asset-input/folder/index.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
+        '$(node -p "require.resolve(\'parcel\', { paths: [\'/\'] })") build /asset-input/folder/index.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
       ],
     }),
   });
@@ -116,7 +117,7 @@ test('Parcel bundling with tsx handler', () => {
       command: [
         'bash', '-c',
         [
-          '$(node -p "require.resolve(\'parcel\')") build /asset-input/folder/handler.tsx --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
+          '$(node -p "require.resolve(\'parcel\', { paths: [\'/\'] })") build /asset-input/folder/handler.tsx --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
           'mv /asset-output/handler.js /asset-output/index.js',
         ].join(' && '),
       ],
@@ -156,7 +157,7 @@ test('Parcel bundling with externals and dependencies', () => {
       command: [
         'bash', '-c',
         [
-          '$(node -p "require.resolve(\'parcel\')") build /asset-input/folder/entry.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
+          '$(node -p "require.resolve(\'parcel\', { paths: [\'/\'] })") build /asset-input/folder/entry.ts --target cdk-lambda --dist-dir /asset-output --no-autoinstall --no-scope-hoist',
           'mv /asset-output/entry.js /asset-output/index.js',
           `echo \'{\"dependencies\":{\"delay\":\"${delayVersion}\"}}\' > /asset-output/package.json`,
           'cd /asset-output',
@@ -229,7 +230,7 @@ test('Local bundling', () => {
   const spawnSyncMock = jest.spyOn(child_process, 'spawnSync').mockReturnValue({
     status: 0,
     stderr: Buffer.from('stderr'),
-    stdout: Buffer.from('stdout'),
+    stdout: Buffer.from('2.0.0-beta.1'),
     pid: 123,
     output: ['stdout', 'stderr'],
     signal: null,
@@ -237,7 +238,7 @@ test('Local bundling', () => {
 
   const bundler = new LocalBundler({
     installer: Installer.NPM,
-    projectRoot: '/project',
+    projectRoot: __dirname,
     relativeEntryPath: 'folder/entry.ts',
     dependencies: {
       dep: 'version',
@@ -251,20 +252,11 @@ test('Local bundling', () => {
   bundler.tryBundle('/outdir');
 
   expect(spawnSyncMock).toHaveBeenCalledWith(
-    'bash', [
-      '-c',
-      [
-        '$(node -p \"require.resolve(\'parcel\')\") build /project/folder/entry.ts --target cdk-lambda --dist-dir /outdir --no-autoinstall --no-scope-hoist',
-        'mv /outdir/entry.js /outdir/index.js',
-        'echo \'{\"dependencies\":{\"dep\":\"version\"}}\' > /outdir/package.json',
-        'cp /project/package-lock.json /outdir/package-lock.json',
-        'cd /outdir',
-        'npm install',
-      ].join(' && '),
-    ],
+    'bash',
+    expect.arrayContaining(['-c', expect.stringContaining(__dirname)]),
     expect.objectContaining({
       env: expect.objectContaining({ KEY: 'value' }),
-      cwd: '/project/folder',
+      cwd: expect.stringContaining(path.join(__dirname, 'folder')),
     }),
   );
 
@@ -273,8 +265,6 @@ test('Local bundling', () => {
 });
 
 test('LocalBundler.runsLocally checks parcel version and caches results', () => {
-  LocalBundler._runsLocally = undefined;
-
   const spawnSyncMock = jest.spyOn(child_process, 'spawnSync').mockReturnValue({
     status: 0,
     stderr: Buffer.from('stderr'),
@@ -284,15 +274,13 @@ test('LocalBundler.runsLocally checks parcel version and caches results', () =>
     signal: null,
   });
 
-  expect(LocalBundler.runsLocally).toBe(true);
-  expect(LocalBundler.runsLocally).toBe(true);
+  expect(LocalBundler.runsLocally(__dirname)).toBe(true);
+  expect(LocalBundler.runsLocally(__dirname)).toBe(true);
   expect(spawnSyncMock).toHaveBeenCalledTimes(1);
   expect(spawnSyncMock).toHaveBeenCalledWith(expect.stringContaining('parcel'), ['--version']);
 });
 
 test('LocalBundler.runsLocally with incorrect parcel version', () => {
-  LocalBundler._runsLocally = undefined;
-
   jest.spyOn(child_process, 'spawnSync').mockReturnValue({
     status: 0,
     stderr: Buffer.from('stderr'),
@@ -302,7 +290,7 @@ test('LocalBundler.runsLocally with incorrect parcel version', () => {
     signal: null,
   });
 
-  expect(LocalBundler.runsLocally).toBe(false);
+  expect(LocalBundler.runsLocally(__dirname)).toBe(false);
 });
 
 test('Project root detection', () => {