diff --git a/modules/build/src/main/scala/scala/build/CrossSources.scala b/modules/build/src/main/scala/scala/build/CrossSources.scala
index c7e731752a..2151abc135 100644
--- a/modules/build/src/main/scala/scala/build/CrossSources.scala
+++ b/modules/build/src/main/scala/scala/build/CrossSources.scala
@@ -190,9 +190,14 @@ object CrossSources {
 
     val flattenedInputs = inputs.flattened()
     val allExclude = { // supports only one exclude directive in one source file, which should be the project file.
-      val projectScalaFileOpt = flattenedInputs.collectFirst {
+      val projectScalaFileCandidates = flattenedInputs.collect {
         case f: ProjectScalaFile => f
       }
+
+      // this relies upon the inferred workspace root being the outermost directory.
+      // which is the common case when you pass a single directory.
+      val projectScalaFileOpt =
+        projectScalaFileCandidates.sortBy(_.subPath.segments.size).headOption
       val excludeFromProjectFile =
         value(preprocessSources(projectScalaFileOpt.toSeq))
           .flatMap(_.options).flatMap(_.internal.exclude)
diff --git a/modules/build/src/test/scala/scala/build/tests/ExcludeTests.scala b/modules/build/src/test/scala/scala/build/tests/ExcludeTests.scala
index bdd68dce15..aabc59a7b9 100644
--- a/modules/build/src/test/scala/scala/build/tests/ExcludeTests.scala
+++ b/modules/build/src/test/scala/scala/build/tests/ExcludeTests.scala
@@ -213,4 +213,40 @@ class ExcludeTests extends TestUtil.ScalaCliBuildSuite {
     }
   }
 
+  test("exclude nested scala-cli project") {
+    val testInputs = TestInputs(
+      os.rel / "Hello.scala" -> "object Hello",
+      // this project.scala needs to come first so that the inferred workspace is the outermost one.
+      os.rel / "project.scala" ->
+        """//> using exclude */examples/*""",
+      os.rel / "examples" / "fail.scala" ->
+        """val i: Int = "abc";""",
+      os.rel / "examples" / "project.scala" ->
+        """val unused = 23"""
+    )
+    testInputs.withInputs { (root, inputs) =>
+      val (crossSources, _) =
+        CrossSources.forInputs(
+          inputs,
+          preprocessors,
+          TestLogger(),
+          SuppressWarningOptions()
+        )(using ScalaCliInvokeData.dummy).orThrow
+      val scopedSources = crossSources.scopedSources(BuildOptions())
+        .orThrow
+      val sources =
+        scopedSources.sources(
+          Scope.Main,
+          crossSources.sharedOptions(BuildOptions()),
+          root,
+          TestLogger()
+        )
+          .orThrow
+
+      expect(sources.paths.nonEmpty)
+      expect(sources.paths.length == 2)
+      expect(sources.paths.map(_._2) == Seq(os.rel / "Hello.scala", os.rel / "project.scala"))
+    }
+  }
+
 }