diff --git a/CHANGELOG.md b/CHANGELOG.md
index 23bad782..b83e664c 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -13,6 +13,9 @@ Changes since the last non-beta release.
 ### Changed
 - Changed internal `require`s to `require_relative` to make code less dependent on the load path. [PR 516](https://github.com/shakacode/shakapacker/pull/516) by [tagliala](https://github.com/tagliala).
 
+### Fixed
+- Fix error when rails environment is required from outside the rails root directory [PR 520](https://github.com/shakacode/shakapacker/pull/520)
+
 ## [v8.0.2] - August 28, 2024
 
 ### Fixed
diff --git a/lib/shakapacker/utils/manager.rb b/lib/shakapacker/utils/manager.rb
index 417d4a68..2d2e038e 100644
--- a/lib/shakapacker/utils/manager.rb
+++ b/lib/shakapacker/utils/manager.rb
@@ -16,7 +16,7 @@ class Error < StandardError; end
 
       # Emits a warning if it's not obvious what package manager to use
       def self.error_unless_package_manager_is_obvious!
-        return unless PackageJson.read.fetch("packageManager", nil).nil?
+        return unless PackageJson.read(rails_root).fetch("packageManager", nil).nil?
 
         guessed_binary = guess_binary
 
@@ -35,7 +35,7 @@ def self.error_unless_package_manager_is_obvious!
       #
       # @return [String]
       def self.guess_binary
-        MANAGER_LOCKS.find { |_, lock| File.exist?(lock) }&.first || "npm"
+        MANAGER_LOCKS.find { |_, lock| File.exist?(rails_root.join(lock)) }&.first || "npm"
       end
 
       # Guesses the version of the package manager to use by calling `<manager> --version`
@@ -53,6 +53,17 @@ def self.guess_version
 
         stdout.chomp
       end
+
+      private
+        def self.rails_root
+          if defined?(APP_ROOT)
+            Pathname.new(APP_ROOT)
+          elsif defined?(Rails)
+            Rails.root
+          else
+            raise "can only be called from a rails environment or with APP_ROOT defined"
+          end
+        end
     end
   end
 end
diff --git a/spec/shakapacker/utils_manager_spec.rb b/spec/shakapacker/utils_manager_spec.rb
index f8768f8e..c29d4de2 100644
--- a/spec/shakapacker/utils_manager_spec.rb
+++ b/spec/shakapacker/utils_manager_spec.rb
@@ -48,6 +48,7 @@ def exitstatus
       context "when there is a #{lock}" do
         before do
           allow(Open3).to receive(:capture3).and_return(["1.2.3\n", "", Struct::Status.new(0)])
+          allow(Rails).to receive(:root).and_return(Pathname.new("."))
         end
 
         it "raises an error about setting 'packageManager' for #{manager}" do
@@ -63,10 +64,35 @@ def exitstatus
           MSG
         end
       end
+
+      context "when lockfile is in Rails.root, but pwd is different" do
+        before do
+          allow(Open3).to receive(:capture3).and_return(["1.2.3\n", "", Struct::Status.new(0)])
+        end
+
+        it "raises an error about setting 'packageManager' for #{manager}" do
+          rails_root = Pathname.new("rails_root_#{lock}")
+          FileUtils.mkdir_p(rails_root)
+          allow(Rails).to receive(:root).and_return(rails_root)
+
+          File.write(rails_root.join("package.json"), {}.to_json)
+          FileUtils.touch(rails_root.join(lock))
+
+          expect { Shakapacker::Utils::Manager.error_unless_package_manager_is_obvious! }.to raise_error(Shakapacker::Utils::Manager::Error, <<~MSG)
+            You don't have "packageManager" set in your package.json
+            meaning that Shakapacker will use npm but you've got a #{lock}
+            file meaning you probably want to be using #{manager} instead.
+
+            To make this happen, set "packageManager" in your package.json to #{manager}@1.2.3
+          MSG
+        end
+      end
     end
   end
 
   describe "~guess_binary" do
+    before { allow(Rails).to receive(:root).and_return(Pathname.new(".")) }
+
     Shakapacker::Utils::Manager::MANAGER_LOCKS.each do |manager, lock|
       context "when a #{lock} exists" do
         before { FileUtils.touch(lock) }
@@ -75,6 +101,19 @@ def exitstatus
           expect(Shakapacker::Utils::Manager.guess_binary).to eq manager
         end
       end
+
+      context "when lockfile is in Rails.root, but pwd is different" do
+        before do
+          rails_root = Pathname.new("rails_root_#{lock}")
+          FileUtils.mkdir_p(rails_root)
+          FileUtils.touch(rails_root.join(lock))
+          allow(Rails).to receive(:root).and_return(rails_root)
+        end
+
+        it "guesses #{manager}" do
+          expect(Shakapacker::Utils::Manager.guess_binary).to eq manager
+        end
+      end
     end
 
     context "when there is no lockfile" do
@@ -91,7 +130,25 @@ def exitstatus
 
     Shakapacker::Utils::Manager::MANAGER_LOCKS.each do |manager, lock|
       context "when a #{lock} exists" do
-        before { FileUtils.touch(lock) }
+        before do
+          FileUtils.touch(lock)
+          allow(Rails).to receive(:root).and_return(Pathname.new("."))
+        end
+
+        it "calls #{manager} with --version" do
+          Shakapacker::Utils::Manager.guess_version
+
+          expect(Open3).to have_received(:capture3).with("#{manager} --version")
+        end
+      end
+
+      context "when lockfile is in Rails.root, but pwd is different" do
+        before do
+          rails_root = Pathname.new("rails_root_#{lock}")
+          FileUtils.mkdir_p(rails_root)
+          FileUtils.touch(rails_root.join(lock))
+          allow(Rails).to receive(:root).and_return(rails_root)
+        end
 
         it "calls #{manager} with --version" do
           Shakapacker::Utils::Manager.guess_version
@@ -110,6 +167,7 @@ def exitstatus
     context "when the command errors" do
       before do
         allow(Open3).to receive(:capture3).and_return(["", "oh noes!", Struct::Status.new(1)])
+        allow(Rails).to receive(:root).and_return(Pathname.new("."))
       end
 
       it "raises an error" do