diff --git a/pipenv/project.py b/pipenv/project.py
index cd047875..21a02995 100644
--- a/pipenv/project.py
+++ b/pipenv/project.py
@@ -56,23 +56,35 @@ class Project(object):
     def _build_package_list(self, package_section):
         """Returns a list of packages for pip-tools to consume."""
         ps = {}
+        # TODO: Separate the logic for showing packages from the filters for supplying pip-tools
         for k, v in self.parsed_pipfile.get(package_section, {}).items():
             # Skip editable VCS deps.
             if hasattr(v, 'keys'):
-                # When a vcs url is given without editable it only appears as a key
-                if is_vcs(v) or is_vcs(k):
+                # When a vcs url is gven without editable it only appears as a key
+                # Eliminate any vcs, path, or url entries which are not editable
+                # Since pip-tools can't do deep resolution on them
+                # Exempt setuptools-installable directories
+                if (is_vcs(v) or is_vcs(k) or (is_installable_file(k) and os.path.isfile(k)) or
+                        any((prefix in v and
+                             (os.path.isfile(v[prefix]) or is_valid_url(v[prefix])))
+                            for prefix in ['path', 'file'])):
                     # Non-editable VCS entries can't be resolved by piptools
                     if 'editable' not in v:
                         continue
                     else:
                         ps.update({k: v})
                 else:
-                    if not (is_installable_file(k) or is_installable_file(v) or
-                            any(file_prefix in v for file_prefix in ['path', 'file'])):
-                        ps.update({k: v})
+                    ps.update({k: v})
             else:
+                # Since these entries have no attributes we know they are not editable
+                # So we can safely exclude things that need to be editable in order to be resolved
+                # First exclude anything that is a vcs entry either in the key or value
                 if not (any(is_vcs(i) for i in [k, v]) or
-                        any(is_installable_file(i) for i in [k, v]) or
+                        # Then exclude any installable files that are not directories
+                        # Because pip-tools can resolve setup.py for example
+                        any((is_installable_file(i) and os.path.isfile(i)) for i in [k, v]) or
+                        # Then exclude any URLs because they need to be editable also
+                        # Things that are excluded can only be 'shallow resolved'
                         any(is_valid_url(i) for i in [k, v])):
                     ps.update({k: v})
         return ps
diff --git a/tests/test_pipenv.py b/tests/test_pipenv.py
index e0dd731f..8e332e74 100644
--- a/tests/test_pipenv.py
+++ b/tests/test_pipenv.py
@@ -879,6 +879,29 @@ requests = "==2.14.0"
 
             assert 'file' in dep
 
+    @pytest.mark.install
+    @pytest.mark.files
+    @pytest.mark.resolver
+    def test_local_package(self):
+        """This test ensures that local packages (directories with a setup.py)
+        installed in editable mode have their dependencies resolved as well"""
+        file_name = 'tablib-0.12.1.tar.gz'
+        package = 'tablib-0.12.1'
+        # Not sure where travis/appveyor run tests from
+        test_dir = os.path.dirname(os.path.abspath(__file__))
+        source_path = os.path.abspath(os.path.join(test_dir, 'test_artifacts', file_name))
+        with PipenvInstance() as p:
+            # This tests for a bug when installing a zipfile in the current dir
+            copy_to = os.path.join(p.path, file_name)
+            shutil.copy(source_path, copy_to)
+            import tarfile
+            with tarfile.open(copy_to, 'r:gz') as tgz:
+                tgz.extractall(path=p.path)
+            c = p.pipenv('install -e {0}'.format(package))
+            assert c.return_code == 0
+            assert all(pkg in p.lockfile['default'] for pkg in ['xlrd', 'xlwt', 'pyyaml', 'odfpy'])
+
+
     @pytest.mark.install
     @pytest.mark.files
     def test_local_zipfiles(self):