diff --git a/piptools/repositories/pypi.py b/piptools/repositories/pypi.py
index 26b6751ff..603eca7f6 100644
--- a/piptools/repositories/pypi.py
+++ b/piptools/repositories/pypi.py
@@ -133,7 +133,12 @@ def get_dependencies(self, ireq):
             raise TypeError('Expected pinned or editable InstallRequirement, got {}'.format(ireq))
 
         if ireq not in self._dependencies_cache:
-            if ireq.link and not ireq.link.is_artifact:
+            if ireq.editable and (ireq.source_dir and os.path.exists(ireq.source_dir)):
+                # No download_dir for locally available editable requirements.
+                # If a download_dir is passed, pip will  unnecessarely
+                # archive the entire source directory
+                download_dir = None
+            elif ireq.link and not ireq.link.is_artifact:
                 # No download_dir for VCS sources.  This also works around pip
                 # using git-checkout-index, which gets rid of the .git dir.
                 download_dir = None
diff --git a/tests/test_cli.py b/tests/test_cli.py
index e29e97e9e..d4aef076d 100644
--- a/tests/test_cli.py
+++ b/tests/test_cli.py
@@ -255,6 +255,29 @@ def test_editable_package_vcs(tmpdir):
         assert 'pytest' in out.output  # dependency of pytest-django
 
 
+def test_locally_available_editable_package_is_not_archived_in_cache_dir(tmpdir):
+    """ piptools will not create an archive for a locally available editable requirement """
+    cache_dir = tmpdir.mkdir('cache_dir')
+
+    fake_package_dir = os.path.join(os.path.split(__file__)[0], 'fixtures', 'small_fake_package')
+    fake_package_dir = 'file:' + pathname2url(fake_package_dir)
+
+    with mock.patch('piptools.repositories.pypi.CACHE_DIR', new=str(cache_dir)):
+        runner = CliRunner()
+        with runner.isolated_filesystem():
+            with open('requirements.in', 'w') as req_in:
+                req_in.write('-e ' + fake_package_dir)  # require editable fake package
+
+            out = runner.invoke(cli, ['-n'])
+
+            assert out.exit_code == 0
+            assert fake_package_dir in out.output
+            assert 'six==1.10.0' in out.output
+
+    # we should not find any archived file in {cache_dir}/pkgs
+    assert not os.listdir(os.path.join(str(cache_dir), 'pkgs'))
+
+
 def test_input_file_without_extension(tmpdir):
     """
     piptools can compile a file without an extension,