diff --git a/src/dune_rules/pkg_rules.ml b/src/dune_rules/pkg_rules.ml
index 066558d3c0c..8607b703f5a 100644
--- a/src/dune_rules/pkg_rules.ml
+++ b/src/dune_rules/pkg_rules.ml
@@ -456,6 +456,7 @@ module Run_with_path = struct
     type ('path, 'target) t =
       { prog : Action.Prog.t
       ; args : 'path arg Array.Immutable.t
+      ; ocamlfind_destdir : 'path
       }
 
     let name = "run-with-path"
@@ -467,10 +468,16 @@ module Run_with_path = struct
         | Path p -> Path (f p))
     ;;
 
-    let bimap t f _g = { t with args = Array.Immutable.map t.args ~f:(map_arg ~f) }
+    let bimap t f _g =
+      { t with
+        args = Array.Immutable.map t.args ~f:(map_arg ~f)
+      ; ocamlfind_destdir = f t.ocamlfind_destdir
+      }
+    ;;
+
     let is_useful_to ~memoize:_ = true
 
-    let encode { prog; args } path _ : Dune_lang.t =
+    let encode { prog; args; ocamlfind_destdir } path _ : Dune_lang.t =
       let prog =
         Dune_lang.atom_or_quoted_string
         @@
@@ -485,10 +492,17 @@ module Run_with_path = struct
               | String s -> Dune_lang.atom_or_quoted_string s
               | Path p -> path p)))
       in
-      List ([ Dune_lang.atom_or_quoted_string name; prog ] @ args)
+      List
+        [ List ([ Dune_lang.atom_or_quoted_string name; prog ] @ args)
+        ; path ocamlfind_destdir
+        ]
     ;;
 
-    let action { prog; args } ~(ectx : Action.Ext.context) ~(eenv : Action.Ext.env) =
+    let action
+      { prog; args; ocamlfind_destdir }
+      ~(ectx : Action.Ext.context)
+      ~(eenv : Action.Ext.env)
+      =
       let open Fiber.O in
       match prog with
       | Error e -> Action.Prog.Not_found.raise e
@@ -501,6 +515,12 @@ module Run_with_path = struct
             |> String.concat ~sep:"")
         in
         let metadata = Process.create_metadata ~purpose:ectx.purpose () in
+        let env =
+          Env.add
+            eenv.env
+            ~var:"OCAMLFIND_DESTDIR"
+            ~value:(Path.to_absolute_filename ocamlfind_destdir)
+        in
         Process.run
           (Accept eenv.exit_codes)
           prog
@@ -511,21 +531,21 @@ module Run_with_path = struct
           ~stderr_to:eenv.stderr_to
           ~stdin_from:eenv.stdin_from
           ~dir:eenv.working_dir
-          ~env:eenv.env
+          ~env
         >>= (function
          | Error _ -> Fiber.return ()
          | Ok () -> Fiber.return ())
     ;;
   end
 
-  let action prog args =
+  let action prog args ~ocamlfind_destdir =
     let module M = struct
       type path = Path.t
       type target = Path.Build.t
 
       module Spec = Spec
 
-      let v = { Spec.prog; args }
+      let v = { Spec.prog; args; ocamlfind_destdir }
     end
     in
     Action.Extension (module M)
@@ -786,7 +806,10 @@ module Action_expander = struct
                | String s -> Run_with_path.Spec.String s
                | Path p | Dir p -> Path p))
          in
-         Run_with_path.action exe args)
+         let ocamlfind_destdir =
+           (Lazy.force expander.paths.install_roots).lib_root |> Path.build
+         in
+         Run_with_path.action exe args ~ocamlfind_destdir)
     | Progn t ->
       let+ args = Memo.parallel_map t ~f:(expand ~expander) in
       Action.Progn args
@@ -958,7 +981,7 @@ module Action_expander = struct
   ;;
 
   let install_command context (pkg : Pkg.t) =
-    Option.map pkg.install_command ~f:(expand context pkg)
+    Option.map pkg.install_command ~f:(fun action -> expand context pkg action)
   ;;
 
   let exported_env (expander : Expander.t) (env : _ Env_update.t) =
diff --git a/test/blackbox-tests/test-cases/pkg/set-ocamlfind-destdir.t b/test/blackbox-tests/test-cases/pkg/set-ocamlfind-destdir.t
new file mode 100644
index 00000000000..0bff0491672
--- /dev/null
+++ b/test/blackbox-tests/test-cases/pkg/set-ocamlfind-destdir.t
@@ -0,0 +1,14 @@
+Test that the OCAMLFIND_DESTDIR environment variable is set when running
+install and build commands.
+  $ . ./helpers.sh
+
+  $ make_lockdir
+  $ cat >dune.lock/test.pkg <<'EOF'
+  > (version 0.0.1)
+  > (build (run sh -c "echo [build] OCAMLFIND_DESTDIR=$OCAMLFIND_DESTDIR"))
+  > (install (run sh -c "echo [install] OCAMLFIND_DESTDIR=$OCAMLFIND_DESTDIR"))
+  > EOF
+
+  $ build_pkg test 2>&1 | sed "s#$(pwd)#PWD#" | sed 's#\.sandbox/.*/_private#\.sandbox/SANDBOX/_private#'
+  [build] OCAMLFIND_DESTDIR=PWD/_build/.sandbox/SANDBOX/_private/default/.pkg/test/target/lib
+  [install] OCAMLFIND_DESTDIR=PWD/_build/.sandbox/SANDBOX/_private/default/.pkg/test/target/lib