diff --git a/internal/langserver/handlers/did_change_watched_files_test.go b/internal/langserver/handlers/did_change_watched_files_test.go
index 9c2262a9..3ab1b1f1 100644
--- a/internal/langserver/handlers/did_change_watched_files_test.go
+++ b/internal/langserver/handlers/did_change_watched_files_test.go
@@ -701,7 +701,7 @@ func TestLangServer_DidChangeWatchedFiles_pluginChange(t *testing.T) {
 		t.Fatal(err)
 	}
 
-	originalTestDir := filepath.Join(testData, "uninitialized-single-submodule")
+	originalTestDir := filepath.Join(testData, "uninitialized-submodules")
 	testDir := t.TempDir()
 	// Copy test configuration so the test can run in isolation
 	err = copy.Copy(originalTestDir, testDir)
@@ -835,7 +835,7 @@ func TestLangServer_DidChangeWatchedFiles_moduleInstalled(t *testing.T) {
 		t.Fatal(err)
 	}
 
-	originalTestDir := filepath.Join(testData, "uninitialized-single-submodule")
+	originalTestDir := filepath.Join(testData, "uninitialized-submodules")
 	testDir := t.TempDir()
 	// Copy test configuration so the test can run in isolation
 	err = copy.Copy(originalTestDir, testDir)
diff --git a/internal/langserver/handlers/go_to_ref_target_test.go b/internal/langserver/handlers/go_to_ref_target_test.go
index 8763cf36..5efd8da0 100644
--- a/internal/langserver/handlers/go_to_ref_target_test.go
+++ b/internal/langserver/handlers/go_to_ref_target_test.go
@@ -496,6 +496,89 @@ func TestDefinition_moduleInputToVariable(t *testing.T) {
 		}`, modHandle.URI))
 }
 
+func TestDefinition_moduleOutsideWorkspace(t *testing.T) {
+	testPath, err := filepath.Abs(filepath.Join("testdata", "main-module-multienv"))
+	if err != nil {
+		t.Fatal(err)
+	}
+	modHandle := document.DirHandleFromPath(filepath.Join(testPath, "main"))
+	dbModHandle := document.DirHandleFromPath(filepath.Join(testPath, "modules", "database"))
+
+	ss, err := state.NewStateStore()
+	if err != nil {
+		t.Fatal(err)
+	}
+	wc := walker.NewWalkerCollector()
+
+	ls := langserver.NewLangServerMock(t, NewMockSession(&MockSessionInput{
+		TerraformCalls: &exec.TerraformMockCalls{
+			PerWorkDir: map[string][]*mock.Call{
+				modHandle.Path(): validTfMockCalls(),
+			},
+		},
+		StateStore:      ss,
+		WalkerCollector: wc,
+	}))
+	stop := ls.Start(t)
+	defer stop()
+
+	ls.Call(t, &langserver.CallRequest{
+		Method: "initialize",
+		ReqParams: fmt.Sprintf(`{
+			"capabilities": {},
+			"rootUri": %q,
+			"processId": 12345
+	}`, modHandle.URI)})
+	waitForWalkerPath(t, ss, wc, modHandle)
+	ls.Notify(t, &langserver.CallRequest{
+		Method:    "initialized",
+		ReqParams: "{}",
+	})
+	ls.Call(t, &langserver.CallRequest{
+		Method: "textDocument/didOpen",
+		ReqParams: fmt.Sprintf(`{
+		"textDocument": {
+			"version": 0,
+			"languageId": "terraform",
+			"text": `+fmt.Sprintf("%q",
+			`module "db" {
+  source = "../modules/database"
+}
+`)+`,
+			"uri": "%s/main.tf"
+		}
+	}`, modHandle.URI)})
+	ls.CallAndExpectResponse(t, &langserver.CallRequest{
+		Method: "textDocument/definition",
+		ReqParams: fmt.Sprintf(`{
+			"textDocument": {
+				"uri": "%s/main.tf"
+			},
+			"position": {
+				"line": 1,
+				"character": 17
+			}
+		}`, modHandle.URI)}, fmt.Sprintf(`{
+			"jsonrpc": "2.0",
+			"id": 3,
+			"result": [
+				{
+						"uri": "%s/main.tf",
+						"range": {
+								"start": {
+										"line": 0,
+										"character": 0
+								},
+								"end": {
+										"line": 0,
+										"character": 0
+								}
+						}
+				}
+			]
+		}`, dbModHandle.URI))
+}
+
 func TestDeclaration_basic(t *testing.T) {
 	tmpDir := TempDir(t)
 
diff --git a/internal/langserver/handlers/testdata/uninitialized-single-submodule/.gitignore b/internal/langserver/handlers/testdata/uninitialized-submodules/.gitignore
similarity index 100%
rename from internal/langserver/handlers/testdata/uninitialized-single-submodule/.gitignore
rename to internal/langserver/handlers/testdata/uninitialized-submodules/.gitignore
diff --git a/internal/langserver/handlers/testdata/uninitialized-single-submodule/main.tf b/internal/langserver/handlers/testdata/uninitialized-submodules/main.tf
similarity index 69%
rename from internal/langserver/handlers/testdata/uninitialized-single-submodule/main.tf
rename to internal/langserver/handlers/testdata/uninitialized-submodules/main.tf
index d28dd2e2..ba608efd 100644
--- a/internal/langserver/handlers/testdata/uninitialized-single-submodule/main.tf
+++ b/internal/langserver/handlers/testdata/uninitialized-submodules/main.tf
@@ -1,3 +1,7 @@
 module "azure-hcp-consul" {
   source = "github.com/hashicorp/terraform-azurerm-hcp-consul?ref=v0.2.4"
 }
+
+module "local" {
+  source = "./submodule"
+}
diff --git a/internal/langserver/handlers/testdata/uninitialized-submodules/submodule/main.tf b/internal/langserver/handlers/testdata/uninitialized-submodules/submodule/main.tf
new file mode 100644
index 00000000..e69de29b