diff --git a/pkg/cmd/dependency_update_test.go b/pkg/cmd/dependency_update_test.go
index 3eaa51df1..eed251b32 100644
--- a/pkg/cmd/dependency_update_test.go
+++ b/pkg/cmd/dependency_update_test.go
@@ -310,3 +310,89 @@ func createTestingChart(t *testing.T, dest, name, baseURL string) {
 		t.Fatal(err)
 	}
 }
+
+func TestDependencyUpdateCmd_NestedLocalDependencies(t *testing.T) {
+	srv := repotest.NewTempServer(
+		t,
+		repotest.WithChartSourceGlob("testdata/testcharts/*.tgz"),
+	)
+	defer srv.Stop()
+
+	if err := srv.LinkIndices(); err != nil {
+		t.Fatal(err)
+	}
+
+	dir := func(p ...string) string {
+		return filepath.Join(append([]string{srv.Root()}, p...)...)
+	}
+
+	// Create leaf dependency (has remote dependency)
+	leafChart := &chart.Chart{
+		Metadata: &chart.Metadata{
+			APIVersion: chart.APIVersionV2,
+			Name:       "leaf-chart",
+			Version:    "0.1.0",
+			Dependencies: []*chart.Dependency{
+				{Name: "reqtest", Version: "0.1.0", Repository: srv.URL()},
+			},
+		},
+	}
+	if err := chartutil.SaveDir(leafChart, dir()); err != nil {
+		t.Fatal(err)
+	}
+
+	// Create middle dependency (has local dependency on leaf)
+	middleChart := &chart.Chart{
+		Metadata: &chart.Metadata{
+			APIVersion: chart.APIVersionV2,
+			Name:       "middle-chart",
+			Version:    "0.1.0",
+			Dependencies: []*chart.Dependency{
+				{Name: "leaf-chart", Version: "0.1.0", Repository: "file://../leaf-chart"},
+			},
+		},
+	}
+	if err := chartutil.SaveDir(middleChart, dir()); err != nil {
+		t.Fatal(err)
+	}
+
+	rootChart := &chart.Chart{
+		Metadata: &chart.Metadata{
+			APIVersion: chart.APIVersionV2,
+			Name:       "root-chart",
+			Version:    "0.1.0",
+			Dependencies: []*chart.Dependency{
+				{Name: "middle-chart", Version: "0.1.0", Repository: "file://../middle-chart"},
+			},
+		},
+	}
+	if err := chartutil.SaveDir(rootChart, dir()); err != nil {
+		t.Fatal(err)
+	}
+
+	contentCache := t.TempDir()
+
+	_, out, err := executeActionCommand(
+		fmt.Sprintf("dependency update '%s' --repository-config %s --repository-cache %s --content-cache %s --plain-http",
+			dir("root-chart"), dir("repositories.yaml"), dir(), contentCache),
+	)
+	if err != nil {
+		t.Logf("Output: %s", out)
+		t.Fatal(err)
+	}
+
+	expectMiddle := dir("root-chart", "charts/middle-chart-0.1.0.tgz")
+	if _, err := os.Stat(expectMiddle); err != nil {
+		t.Fatalf("Expected middle-chart dependency: %s", err)
+	}
+
+	expectLeaf := dir("middle-chart", "charts/leaf-chart-0.1.0.tgz")
+	if _, err := os.Stat(expectLeaf); err != nil {
+		t.Fatalf("Expected leaf-chart dependency: %s", err)
+	}
+
+	expectReqtest := dir("leaf-chart", "charts/reqtest-0.1.0.tgz")
+	if _, err := os.Stat(expectReqtest); err != nil {
+		t.Fatalf("Expected reqtest dependency: %s", err)
+	}
+}
diff --git a/pkg/downloader/manager.go b/pkg/downloader/manager.go
index 6043fbaaa..522c57053 100644
--- a/pkg/downloader/manager.go
+++ b/pkg/downloader/manager.go
@@ -192,6 +192,26 @@ func (m *Manager) Update() error {
 		}
 	}
 
+	// do resolution for each local dependency first
+	// it is required when local dependencies may have their own dependencies which must be resolved
+	for _, dep := range req {
+		if !isLocalDependency(dep.Repository) {
+			continue
+		}
+		man := *m
+		// no need to update repositories, it is already done in main chart
+		man.SkipUpdate = true
+		chartpath, err := resolver.GetLocalPath(dep.Repository, man.ChartPath)
+		if err != nil {
+			return err
+		}
+		man.ChartPath = chartpath
+		err = man.Update()
+		if err != nil {
+			return err
+		}
+	}
+
 	// Now we need to find out which version of a chart best satisfies the
 	// dependencies in the Chart.yaml
 	lock, err := m.resolve(req, repoNames)
@@ -300,7 +320,7 @@ func (m *Manager) downloadAll(deps []*chart.Dependency) error {
 			}
 			continue
 		}
-		if strings.HasPrefix(dep.Repository, "file://") {
+		if isLocalDependency(dep.Repository) {
 			if m.Debug {
 				fmt.Fprintf(m.Out, "Archiving %s from repo %s\n", dep.Name, dep.Repository)
 			}
@@ -920,3 +940,7 @@ func key(name string) (string, error) {
 	}
 	return hex.EncodeToString(hash.Sum(nil)), nil
 }
+
+func isLocalDependency(repositoryPath string) bool {
+	return strings.HasPrefix(repositoryPath, "file://")
+}