diff --git a/package/__tests__/config.js b/package/__tests__/config.js
index acdd99e58..ee722cf43 100644
--- a/package/__tests__/config.js
+++ b/package/__tests__/config.js
@@ -1,14 +1,30 @@
 /* global test expect, describe */
 
-const { chdirTestApp, chdirCwd } = require('../utils/helpers')
+const { chdirCwd, chdirTestApp } = require('../utils/helpers')
 
 chdirTestApp()
 
 const config = require('../config')
 
 describe('Config', () => {
+  beforeEach(() => jest.resetModules())
   afterAll(chdirCwd)
 
+  test('public path', () => {
+    process.env.RAILS_ENV = 'development'
+    delete process.env.RAILS_RELATIVE_URL_ROOT
+    const config = require('../config')
+    expect(config.publicPath).toEqual('/packs/')
+  })
+
+  // also tests removal of extra slashes
+  test('public path with relative root', () => {
+    process.env.RAILS_ENV = 'development'
+    process.env.RAILS_RELATIVE_URL_ROOT = '/foo'
+    const config = require('../config')
+    expect(config.publicPath).toEqual('/foo/packs/')
+  })
+
   test('should return extensions as listed in app config', () => {
     expect(config.extensions).toEqual([
       '.js',
diff --git a/package/config.js b/package/config.js
index 48ae7778a..e0dba2cec 100644
--- a/package/config.js
+++ b/package/config.js
@@ -20,6 +20,14 @@ if (isArray(app.extensions) && app.extensions.length) delete defaults.extensions
 
 const config = deepMerge(defaults, app)
 config.outputPath = resolve('public', config.public_output_path)
-config.publicPath = `/${config.public_output_path}/`.replace(/([^:]\/)\/+/g, '$1')
+
+let publicPath = `/${config.public_output_path}/`
+// Add prefix to publicPath.
+if (process.env.RAILS_RELATIVE_URL_ROOT) {
+  publicPath = `/${process.env.RAILS_RELATIVE_URL_ROOT}${publicPath}`
+}
+
+// Remove extra slashes.
+config.publicPath = publicPath.replace(/(^\/|[^:]\/)\/+/g, '$1')
 
 module.exports = config