diff --git a/src/commands/image/imageSource/buildImageInAzure/BuildFromProjectListStep.ts b/src/commands/image/imageSource/buildImageInAzure/BuildFromProjectListStep.ts
index a966ee3c4..3992ad334 100644
--- a/src/commands/image/imageSource/buildImageInAzure/BuildFromProjectListStep.ts
+++ b/src/commands/image/imageSource/buildImageInAzure/BuildFromProjectListStep.ts
@@ -14,6 +14,7 @@ import { ImageNameStep } from "./ImageNameStep";
 import { OSPickStep } from "./OSPickStep";
 import { RootFolderStep } from "./RootFolderStep";
 import { RunStep } from "./RunStep";
+import { SourcePathStep } from "./SourcePathStep";
 import { TarFileStep } from "./TarFileStep";
 import { UploadSourceCodeStep } from "./UploadSourceCodeStep";
 
@@ -49,7 +50,7 @@ export class BuildFromProjectListStep extends AzureWizardPromptStep<ImageSourceC
 
         switch (context.buildType) {
             case ImageSource.RemoteAcrBuild:
-                promptSteps.push(new AcrListStep(), new RootFolderStep(), new DockerFileItemStep(), new ImageNameStep(), new OSPickStep());
+                promptSteps.push(new AcrListStep(), new RootFolderStep(), new DockerFileItemStep(), new SourcePathStep(), new ImageNameStep(), new OSPickStep());
                 executeSteps.push(new TarFileStep(), new UploadSourceCodeStep(), new RunStep(), new BuildImageStep());
                 break;
             //TODO: case for 'Build from project locally using Docker'
diff --git a/src/commands/image/imageSource/buildImageInAzure/BuildImageInAzureImageSourceContext.ts b/src/commands/image/imageSource/buildImageInAzure/BuildImageInAzureImageSourceContext.ts
index 73d0f52e9..744885262 100644
--- a/src/commands/image/imageSource/buildImageInAzure/BuildImageInAzureImageSourceContext.ts
+++ b/src/commands/image/imageSource/buildImageInAzure/BuildImageInAzureImageSourceContext.ts
@@ -12,6 +12,7 @@ import { type AcrBuildSupportedOS } from './OSPickStep';
 
 export interface BuildImageInAzureImageSourceBaseContext extends ContainerRegistryImageSourceBaseContext {
     rootFolder: vscode.WorkspaceFolder;
+    srcPath: string;
     dockerfilePath: string;
     imageName: string;
     os: AcrBuildSupportedOS;
diff --git a/src/commands/image/imageSource/buildImageInAzure/RunStep.ts b/src/commands/image/imageSource/buildImageInAzure/RunStep.ts
index 40e17afea..604ed2876 100644
--- a/src/commands/image/imageSource/buildImageInAzure/RunStep.ts
+++ b/src/commands/image/imageSource/buildImageInAzure/RunStep.ts
@@ -26,7 +26,7 @@ export class RunStep extends ExecuteActivityOutputStepBase<BuildImageInAzureImag
                 isPushEnabled: true,
                 sourceLocation: context.uploadedSourceLocation,
                 platform: { os: context.os },
-                dockerFilePath: path.basename(context.dockerfilePath) /* Assume the dockerfile is always in the root of the source */
+                dockerFilePath: path.relative(context.srcPath, context.dockerfilePath)
             };
 
             const retries = 3;
diff --git a/src/commands/image/imageSource/buildImageInAzure/SourcePathStep.ts b/src/commands/image/imageSource/buildImageInAzure/SourcePathStep.ts
new file mode 100644
index 000000000..d3a2a8fb4
--- /dev/null
+++ b/src/commands/image/imageSource/buildImageInAzure/SourcePathStep.ts
@@ -0,0 +1,59 @@
+/*---------------------------------------------------------------------------------------------
+*  Copyright (c) Microsoft Corporation. All rights reserved.
+*  Licensed under the MIT License. See License.md in the project root for license information.
+*--------------------------------------------------------------------------------------------*/
+
+import { AzureWizardPromptStep, type IAzureQuickPickItem } from '@microsoft/vscode-azext-utils';
+import * as path from 'path';
+import { browseItem } from '../../../../constants';
+import { localize } from '../../../../utils/localize';
+import { type BuildImageInAzureImageSourceContext } from './BuildImageInAzureImageSourceContext';
+
+export class SourcePathStep extends AzureWizardPromptStep<BuildImageInAzureImageSourceContext> {
+    public async prompt(context: BuildImageInAzureImageSourceContext): Promise<void> {
+        const srcPath: string | undefined = (await context.ui.showQuickPick(this.getPicks(context), {
+            placeHolder: localize('sourceDirectoryPick', 'Choose your source code directory'),
+            suppressPersistence: true
+        })).data;
+
+        context.srcPath = srcPath ?? (await context.ui.showOpenDialog({
+            defaultUri: context.rootFolder?.uri,
+            canSelectFiles: false,
+            canSelectFolders: true
+        }))[0].fsPath;
+    }
+
+    public async configureBeforePrompt(context: BuildImageInAzureImageSourceContext): Promise<void> {
+        if (this.hasRootDockerfile(context)) {
+            context.srcPath = context.rootFolder.uri.fsPath;
+        }
+    }
+
+    public shouldPrompt(context: BuildImageInAzureImageSourceContext): boolean {
+        return !context.srcPath;
+    }
+
+    private getPicks(context: BuildImageInAzureImageSourceContext): IAzureQuickPickItem<string | undefined>[] {
+        const rootPath: string = context.rootFolder.uri.fsPath;
+        const directories: string[] = path.relative(rootPath, path.dirname(context.dockerfilePath)).split(path.sep);
+        const picks: IAzureQuickPickItem<string | undefined>[] = [{ label: '.' + path.sep, data: rootPath }];
+
+        let p: string = '';
+        for (const directory of directories) {
+            p += path.sep + directory;
+            picks.push({ label: '.' + p, data: rootPath + p });
+        }
+
+        picks.push(browseItem);
+        return picks;
+    }
+
+    private hasRootDockerfile(context: BuildImageInAzureImageSourceContext): boolean {
+        if (!context.rootFolder || !context.dockerfilePath) {
+            return false;
+        }
+
+        const rootPath: string = context.rootFolder.uri.fsPath;
+        return path.relative(rootPath, context.dockerfilePath) === path.basename(context.dockerfilePath);
+    }
+}
diff --git a/src/commands/image/imageSource/buildImageInAzure/UploadSourceCodeStep.ts b/src/commands/image/imageSource/buildImageInAzure/UploadSourceCodeStep.ts
index c8ddbf27f..6764fde85 100644
--- a/src/commands/image/imageSource/buildImageInAzure/UploadSourceCodeStep.ts
+++ b/src/commands/image/imageSource/buildImageInAzure/UploadSourceCodeStep.ts
@@ -19,24 +19,22 @@ const vcsIgnoreList = ['.git', '.gitignore', '.bzr', 'bzrignore', '.hg', '.hgign
 
 export class UploadSourceCodeStep extends ExecuteActivityOutputStepBase<BuildImageInAzureImageSourceContext> {
     public priority: number = 430;
+    /** Relative path of src folder from rootFolder and what gets deployed */
     private _sourceFilePath: string;
 
     protected async executeCore(context: BuildImageInAzureImageSourceContext, progress: Progress<{ message?: string | undefined; increment?: number | undefined }>): Promise<void> {
-        /* relative path of src folder from rootFolder and what gets deployed */
-        this._sourceFilePath = path.dirname(path.relative(context.rootFolder.uri.path, context.dockerfilePath));
+        this._sourceFilePath = context.rootFolder.uri.fsPath === context.srcPath ? '.' : path.relative(context.rootFolder.uri.fsPath, context.srcPath);
         context.telemetry.properties.sourceDepth = this._sourceFilePath === '.' ? '0' : String(this._sourceFilePath.split(path.sep).length);
 
         context.registryName = nonNullValue(context.registry?.name);
         context.resourceGroupName = getResourceGroupFromId(nonNullValue(context.registry?.id));
         context.client = await createContainerRegistryManagementClient(context);
 
-        const uploading: string = localize('uploadingSourceCode', 'Uploading source code...', this._sourceFilePath);
-        progress.report({ message: uploading });
+        progress.report({ message: localize('uploadingSourceCode', 'Uploading source code...') });
+
         const source: string = path.join(context.rootFolder.uri.fsPath, this._sourceFilePath);
         let items = await AzExtFsExtra.readDirectory(source);
-        items = items.filter(i => {
-            return !vcsIgnoreList.includes(i.name)
-        });
+        items = items.filter(i => !vcsIgnoreList.includes(i.name));
 
         tar.c({ cwd: source }, items.map(i => i.name)).pipe(fse.createWriteStream(context.tarFilePath));