diff --git a/railties/lib/rails/generators/rails/app/app_generator.rb b/railties/lib/rails/generators/rails/app/app_generator.rb
index 10d8b8f85a..0a0b033738 100644
--- a/railties/lib/rails/generators/rails/app/app_generator.rb
+++ b/railties/lib/rails/generators/rails/app/app_generator.rb
@@ -200,6 +200,9 @@ module Rails
 
       def initialize(*args)
         raise Error, "Options should be given after the application name. For details run: rails --help" if args[0].blank?
+
+        @original_wd = Dir.pwd
+
         super
 
         if !options[:skip_activerecord] && !DATABASES.include?(options[:database])
@@ -316,7 +319,7 @@ module Rails
             if URI(path).is_a?(URI::HTTP)
               contents = open(path, "Accept" => "application/x-thor-template") {|io| io.read }
             else
-              contents = open(path) {|io| io.read }
+              contents = open(File.expand_path(path, @original_wd)) {|io| io.read }
             end
 
             prok = eval("proc { #{contents} }", TOPLEVEL_BINDING, path, 1)
diff --git a/railties/test/generators/app_generator_test.rb b/railties/test/generators/app_generator_test.rb
index 1a93867013..8743defe82 100644
--- a/railties/test/generators/app_generator_test.rb
+++ b/railties/test/generators/app_generator_test.rb
@@ -238,6 +238,14 @@ class CustomAppGeneratorTest < Rails::Generators::TestCase
     assert_file "config.ru", %[run proc { |env| [200, { "Content-Type" => "text/html" }, ["Hello World"]] }]
   end
 
+  def test_builder_option_with_relative_path
+    here = File.expand_path(File.dirname(__FILE__))
+    FileUtils.cd(here)
+    run_generator([destination_root, "-b", "../fixtures/lib/simple_builder.rb"])
+    (DEFAULT_APP_FILES - ['config.ru']).each{ |path| assert_no_file path }
+    assert_file "config.ru", %[run proc { |env| [200, { "Content-Type" => "text/html" }, ["Hello World"]] }]
+  end
+
   def test_builder_option_with_tweak_app_builder
     FileUtils.cd(Rails.root)
     run_generator([destination_root, "-b", "#{Rails.root}/lib/tweak_builder.rb"])