diff --git a/pex/commands/bdist_pex.py b/pex/commands/bdist_pex.py
index 304c3b91d..9befc7b67 100644
--- a/pex/commands/bdist_pex.py
+++ b/pex/commands/bdist_pex.py
@@ -3,7 +3,7 @@
 
 from setuptools import Command
 
-from pex.bin.pex import build_pex, configure_clp
+from pex.bin.pex import build_pex, configure_clp, make_relative_to_root
 from pex.common import die
 from pex.compatibility import ConfigParser, StringIO, string
 from pex.variables import ENV
@@ -74,6 +74,10 @@ def run(self):
 
     options, reqs = parser.parse_args(self.pex_args)
 
+    # Update cache_dir with pex_root in case this is being called directly.
+    if options.cache_dir:
+      options.cache_dir = make_relative_to_root(options.cache_dir)
+
     if options.entry_point or options.script:
       die('Must not specify entry_point or script to --pex-args')
 
diff --git a/tests/test_bdist_pex.py b/tests/test_bdist_pex.py
index 1486f7a51..955fef7b8 100644
--- a/tests/test_bdist_pex.py
+++ b/tests/test_bdist_pex.py
@@ -35,6 +35,7 @@ def do_something():
       process = subprocess.Popen([os.path.join(project_dir, 'dist', 'my_app-0.0.0.pex')],
                                  stdout=subprocess.PIPE)
       stdout, _ = process.communicate()
+      assert '{pex_root}' not in os.listdir(project_dir)
       assert 0 == process.returncode
       assert stdout == b'hello world!\n'