diff --git a/tests/conftest.py b/tests/conftest.py
index e673f17b35..6eb34a3e0a 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -15,6 +15,7 @@
 from web3.contract import Contract
 from web3.providers.eth_tester import EthereumTesterProvider
 
+from tests.utils import working_directory
 from vyper import compiler
 from vyper.ast.grammar import parse_vyper_source
 from vyper.codegen.ir_node import IRnode
@@ -79,6 +80,12 @@ def debug(pytestconfig):
     _set_debug_mode(debug)
 
 
+@pytest.fixture
+def chdir_tmp_path(tmp_path):
+    with working_directory(tmp_path):
+        yield
+
+
 @pytest.fixture
 def keccak():
     return Web3.keccak
diff --git a/tests/functional/syntax/modules/test_initializers.py b/tests/functional/syntax/modules/test_initializers.py
index a12f5f57ea..d0523153c8 100644
--- a/tests/functional/syntax/modules/test_initializers.py
+++ b/tests/functional/syntax/modules/test_initializers.py
@@ -326,7 +326,7 @@ def foo():
     assert e.value._hint == "did you mean `m := lib1`?"
 
 
-def test_global_initializer_constraint(make_input_bundle):
+def test_global_initializer_constraint(make_input_bundle, chdir_tmp_path):
     lib1 = """
 counter: uint256
     """
@@ -818,7 +818,7 @@ def foo(new_value: uint256):
     assert e.value._hint == expected_hint
 
 
-def test_invalid_uses(make_input_bundle):
+def test_invalid_uses(make_input_bundle, chdir_tmp_path):
     lib1 = """
 counter: uint256
     """
@@ -848,7 +848,7 @@ def foo():
     assert e.value._hint == "delete `uses: lib1`"
 
 
-def test_invalid_uses2(make_input_bundle):
+def test_invalid_uses2(make_input_bundle, chdir_tmp_path):
     # test a more complicated invalid uses
     lib1 = """
 counter: uint256
diff --git a/tests/unit/cli/vyper_compile/test_compile_files.py b/tests/unit/cli/vyper_compile/test_compile_files.py
index 2a65d66835..6adee24db6 100644
--- a/tests/unit/cli/vyper_compile/test_compile_files.py
+++ b/tests/unit/cli/vyper_compile/test_compile_files.py
@@ -1,3 +1,5 @@
+import contextlib
+import sys
 from pathlib import Path
 
 import pytest
@@ -257,3 +259,34 @@ def foo() -> uint256:
     contract_file = make_file("contract.vy", contract_source)
 
     assert compile_files([contract_file], ["combined_json"], paths=[tmp_path]) is not None
+
+
+@contextlib.contextmanager
+def mock_sys_path(path):
+    try:
+        sys.path.append(path)
+        yield
+    finally:
+        sys.path.pop()
+
+
+def test_import_sys_path(tmp_path_factory, make_file):
+    library_source = """
+@internal
+def foo() -> uint256:
+    return block.number + 1
+    """
+    contract_source = """
+import lib
+
+@external
+def foo() -> uint256:
+    return lib.foo()
+    """
+    tmpdir = tmp_path_factory.mktemp("test-sys-path")
+    with open(tmpdir / "lib.vy", "w") as f:
+        f.write(library_source)
+
+    contract_file = make_file("contract.vy", contract_source)
+    with mock_sys_path(tmpdir):
+        assert compile_files([contract_file], ["combined_json"]) is not None
diff --git a/vyper/cli/vyper_compile.py b/vyper/cli/vyper_compile.py
index d6ba9e180a..ac69cf3310 100755
--- a/vyper/cli/vyper_compile.py
+++ b/vyper/cli/vyper_compile.py
@@ -238,10 +238,18 @@ def compile_files(
     storage_layout_paths: list[str] = None,
     no_bytecode_metadata: bool = False,
 ) -> dict:
-    paths = paths or []
+    # lowest precedence search path is always sys path
+    search_paths = [Path(p) for p in sys.path]
+
+    # python sys path uses opposite resolution order from us
+    # (first in list is highest precedence; we give highest precedence
+    # to the last in the list)
+    search_paths.reverse()
 
-    # lowest precedence search path is always `.`
-    search_paths = [Path(".")]
+    if Path(".") not in search_paths:
+        search_paths.append(Path("."))
+
+    paths = paths or []
 
     for p in paths:
         path = Path(p).resolve(strict=True)
diff --git a/vyper/semantics/analysis/module.py b/vyper/semantics/analysis/module.py
index e50c3e6d6f..9d2cef6eee 100644
--- a/vyper/semantics/analysis/module.py
+++ b/vyper/semantics/analysis/module.py
@@ -695,10 +695,22 @@ def _load_import_helper(
 
 
 def _parse_and_fold_ast(file: FileInput) -> vy_ast.Module:
+    module_path = file.resolved_path  # for error messages
+    try:
+        # try to get a relative path, to simplify the error message
+        cwd = Path(".")
+        if module_path.is_absolute():
+            cwd = cwd.resolve()
+        module_path = module_path.relative_to(cwd)
+    except ValueError:
+        # we couldn't get a relative path (cf. docs for Path.relative_to),
+        # use the resolved path given to us by the InputBundle
+        pass
+
     ret = vy_ast.parse_to_ast(
         file.source_code,
         source_id=file.source_id,
-        module_path=str(file.path),
+        module_path=str(module_path),
         resolved_path=str(file.resolved_path),
     )
     return ret