diff --git a/Lib/py_compile.py b/Lib/py_compile.py
--- a/Lib/py_compile.py
+++ b/Lib/py_compile.py
@@ -130,7 +130,7 @@ def compile(file, cfile=None, dfile=None
         else:
             cfile = imp.cache_from_source(file)
     try:
-        os.makedirs(os.path.dirname(cfile))
+        os.makedirs(os.path.abspath(os.path.dirname(cfile)))
     except OSError as error:
         if error.errno != errno.EEXIST:
             raise
diff --git a/Lib/test/test_py_compile.py b/Lib/test/test_py_compile.py
new file mode 100644
--- /dev/null
+++ b/Lib/test/test_py_compile.py
@@ -0,0 +1,51 @@
+import imp
+import os
+import py_compile
+import shutil
+import tempfile
+import unittest
+
+from test import support, script_helper
+
+class PyCompileTests(unittest.TestCase):
+
+    def setUp(self):
+        self.directory = tempfile.mkdtemp()
+        self.source_path = os.path.join(self.directory, '_test.py')
+        self.pyc_path = self.source_path + 'c'
+        self.cache_path = imp.cache_from_source(self.source_path)
+        with open(self.source_path, 'w') as file:
+            file.write('x = 123\n')
+
+    def tearDown(self):
+        shutil.rmtree(self.directory)
+
+    def test_absolute_path(self):
+        py_compile.compile(self.source_path, self.pyc_path)
+        self.assertTrue(os.path.exists(self.pyc_path))
+        self.assertFalse(os.path.exists(self.cache_path))
+
+    def test_cache_path(self):
+        py_compile.compile(self.source_path)
+        self.assertTrue(os.path.exists(self.cache_path))
+
+    def test_cwd(self):
+        cwd = os.getcwd()
+        os.chdir(self.directory)
+        py_compile.compile(os.path.basename(self.source_path),
+                           os.path.basename(self.pyc_path))
+        os.chdir(cwd)
+        self.assertTrue(os.path.exists(self.pyc_path))
+        self.assertFalse(os.path.exists(self.cache_path))
+
+    def test_relative_path(self):
+        py_compile.compile(os.path.relpath(self.source_path),
+                           os.path.relpath(self.pyc_path))
+        self.assertTrue(os.path.exists(self.pyc_path))
+        self.assertFalse(os.path.exists(self.cache_path))
+
+def test_main():
+    support.run_unittest(PyCompileTests)
+
+if __name__ == "__main__":
+    test_main()