diff -r 9c96c3adbcd1 -r 8b9da1557ad2 Lib/packaging/config.py
--- a/Lib/packaging/config.py	Sat Jun 18 20:21:09 2011 -0400
+++ b/Lib/packaging/config.py	Sun Jun 19 15:43:53 2011 +0100
@@ -134,15 +134,20 @@
             if 'setup_hooks' in content['global']:
                 setup_hooks = split_multiline(content['global']['setup_hooks'])
 
-                for line in setup_hooks:
-                    try:
-                        hook = resolve_name(line)
-                    except ImportError as e:
-                        logger.warning('cannot find setup hook: %s', e.args[0])
-                    else:
-                        self.setup_hooks.append(hook)
-
-                self.run_hooks(content)
+                # Issue #11637: ensure the project folder is in the path
+                # while resolving hooks.
+                sys.path.insert(0, cfg_directory)
+                try:
+                    for line in setup_hooks:
+                        try:
+                            hook = resolve_name(line)
+                        except ImportError as e:
+                            logger.warning('cannot find setup hook: %s', e.args[0])
+                        else:
+                            self.setup_hooks.append(hook)
+                    self.run_hooks(content)
+                finally:
+                    sys.path.pop(0)
 
         metadata = self.dist.metadata
 
diff -r 9c96c3adbcd1 -r 8b9da1557ad2 Lib/packaging/tests/test_config.py
--- a/Lib/packaging/tests/test_config.py	Sat Jun 18 20:21:09 2011 -0400
+++ b/Lib/packaging/tests/test_config.py	Sun Jun 19 15:43:53 2011 +0100
@@ -126,6 +126,14 @@
 
 """
 
+LOGGING_HOOK = r'''
+import logging
+
+logger = logging.getLogger('packaging')
+
+def logging_hook(*args, **kwargs):
+    logger.warning('logging_hook called: %s, %s, %s', __name__, args, kwargs)
+'''
 
 class DCompiler:
     name = 'd'
@@ -348,6 +356,16 @@
         self.assertEqual(1, len(logs))
         self.assertIn('cannot find setup hook', logs[0])
 
+    def test_project_setup_hook_works(self):
+        self.write_setup({'setup-hooks': 'hooks.logging_hook'})
+        self.write_file('README', 'yeah')
+        self.write_file('hooks.py', LOGGING_HOOK)
+        dist = self.get_dist()
+        logs = self.get_logs(logging.WARNING)
+        self.assertEqual(1, len(logs))
+        self.assertIn('logging_hook called: hook', logs[0])
+        self.assertIn('hooks', sys.modules)
+
     def test_metadata_requires_description_files_missing(self):
         self.write_setup({'description-file': 'README README2'})
         self.write_file('README', 'yeah')