diff --git a/pipenv/project.py b/pipenv/project.py
index 7e96db129c..9495370e97 100644
--- a/pipenv/project.py
+++ b/pipenv/project.py
@@ -427,16 +427,12 @@ def get_location_for_virtualenv(self) -> str:
 
         dot_venv = os.path.join(self.project_directory, ".venv")
 
-        # If there's no .venv in project root, set location based on config.
-        if not os.path.exists(dot_venv):
+        # If there's no .venv in project root or it is a folder, set location based on config.
+        if not os.path.exists(dot_venv) or os.path.isdir(dot_venv):
             if self.is_venv_in_project():
                 return dot_venv
             return str(get_workon_home().joinpath(self.virtualenv_name))
 
-        # If .venv in project root is a directory, use it.
-        if os.path.isdir(dot_venv):
-            return dot_venv
-
         # Now we assume .venv in project root is a file. Use its content.
         with open(dot_venv) as f:
             name = f.read().strip()
diff --git a/tests/integration/test_dot_venv.py b/tests/integration/test_dot_venv.py
index ce920e63da..b4ac5486fd 100644
--- a/tests/integration/test_dot_venv.py
+++ b/tests/integration/test_dot_venv.py
@@ -62,6 +62,29 @@ def test_venv_at_project_root(true_value, pipenv_instance_pypi):
         assert normalize_drive(p.path) in p.pipenv('--venv').stdout
 
 
+@pytest.mark.dotvenv
+@pytest.mark.parametrize("false_value", FALSE_VALUES)
+def test_venv_in_project_disabled_with_existing_venv_dir(false_value, pipenv_instance_pypi):
+    venv_name = "my_project"
+    with temp_environ(), pipenv_instance_pypi() as p, TemporaryDirectory(
+        prefix="pipenv-", suffix="temp_workon_home"
+    ) as workon_home:
+        os.environ['PIPENV_VENV_IN_PROJECT'] = false_value
+        os.environ['PIPENV_CUSTOM_VENV_NAME'] = venv_name
+        os.environ["WORKON_HOME"] = workon_home
+        os.mkdir('.venv')
+        c = p.pipenv('install')
+        assert c.returncode == 0
+        c = p.pipenv('--venv')
+        assert c.returncode == 0
+        venv_loc = Path(c.stdout.strip()).absolute()
+        assert venv_loc.exists()
+        assert venv_loc.joinpath('.project').exists()
+        venv_path = normalize_drive(venv_loc.as_posix())
+        venv_expected_path = Path(workon_home).joinpath(venv_name).absolute().as_posix()
+        assert venv_path == normalize_drive(venv_expected_path)
+
+
 @pytest.mark.dotvenv
 def test_reuse_previous_venv(pipenv_instance_pypi):
     with pipenv_instance_pypi() as p: