diff --git a/guix/transformations.scm b/guix/transformations.scm
index 5ae1977cb2..e0f5579c28 100644
--- a/guix/transformations.scm
+++ b/guix/transformations.scm
@@ -46,6 +46,7 @@
   #:use-module (srfi srfi-37)
   #:use-module (ice-9 match)
   #:use-module (ice-9 vlist)
+  #:autoload   (web uri) (string->uri uri-scheme uri-path)
   #:export (options->transformation
             manifest-entry-with-transformations
 
@@ -106,15 +107,25 @@ extensions."
 (define* (package-with-source p uri #:optional version)
   "Return a package based on P but with its source taken from URI.  Extract
 the new package's version number from URI."
-  (let ((base (tarball-base-name (basename uri))))
+  (let ((base (tarball-base-name (basename uri)))
+        (file (match (string->uri uri)
+                (#f uri)
+                (uri (and (eq? 'file (uri-scheme uri))
+                          (uri-path uri))))))
     (let-values (((_ version*)
                   (hyphen-package-name->name+version base)))
       (package (inherit p)
                (version (or version version*
                             (package-version p)))
 
-               ;; Use #:recursive? #t to allow for directories.
-               (source (downloaded-file uri #t))))))
+               ;; Default to #:recursive? #f to match what 'url-fetch' does,
+               ;; but use #t when URI denotes a directory.
+               (source (let ((recursive?
+                              (and file
+                                   (match (stat file #f)
+                                     (#f #t)
+                                     (st (eq? 'directory (stat:type st)))))))
+                         (downloaded-file uri recursive?)))))))
 
 
 ;;;