diff --git a/cli/args/mod.rs b/cli/args/mod.rs
index 8b3d793087..6dab0c973b 100644
--- a/cli/args/mod.rs
+++ b/cli/args/mod.rs
@@ -67,7 +67,6 @@ use std::path::PathBuf;
 use std::sync::Arc;
 use thiserror::Error;
 
-use crate::cache::DenoDir;
 use crate::file_fetcher::FileFetcher;
 use crate::npm::CliNpmRegistryApi;
 use crate::npm::NpmProcessState;
@@ -724,10 +723,6 @@ impl CliOptions {
     }
   }
 
-  pub fn resolve_deno_dir(&self) -> Result<DenoDir, AnyError> {
-    Ok(DenoDir::new(self.maybe_custom_root())?)
-  }
-
   /// Based on an optional command line import map path and an optional
   /// configuration file, return a resolved module specifier to an import map
   /// and a boolean indicating if unknown keys should not result in diagnostics.
@@ -1114,12 +1109,8 @@ impl CliOptions {
     &self.flags.location
   }
 
-  pub fn maybe_custom_root(&self) -> Option<PathBuf> {
-    self
-      .flags
-      .cache_path
-      .clone()
-      .or_else(|| env::var("DENO_DIR").map(String::into).ok())
+  pub fn maybe_custom_root(&self) -> &Option<PathBuf> {
+    &self.flags.cache_path
   }
 
   pub fn no_clear_screen(&self) -> bool {
diff --git a/cli/cache/cache_db.rs b/cli/cache/cache_db.rs
index e05ecd962b..fd694062ce 100644
--- a/cli/cache/cache_db.rs
+++ b/cli/cache/cache_db.rs
@@ -109,7 +109,6 @@ impl Drop for CacheDB {
 }
 
 impl CacheDB {
-  #[cfg(test)]
   pub fn in_memory(
     config: &'static CacheDBConfiguration,
     version: &'static str,
diff --git a/cli/cache/caches.rs b/cli/cache/caches.rs
index 62bec8a000..f630a82ffd 100644
--- a/cli/cache/caches.rs
+++ b/cli/cache/caches.rs
@@ -1,19 +1,20 @@
 // Copyright 2018-2023 the Deno authors. All rights reserved. MIT license.
 
 use std::path::PathBuf;
+use std::sync::Arc;
 
 use once_cell::sync::OnceCell;
 
 use super::cache_db::CacheDB;
 use super::cache_db::CacheDBConfiguration;
 use super::check::TYPE_CHECK_CACHE_DB;
+use super::deno_dir::DenoDirProvider;
 use super::incremental::INCREMENTAL_CACHE_DB;
 use super::node::NODE_ANALYSIS_CACHE_DB;
 use super::parsed_source::PARSED_SOURCE_CACHE_DB;
-use super::DenoDir;
 
 pub struct Caches {
-  dir: DenoDir,
+  dir_provider: Arc<DenoDirProvider>,
   fmt_incremental_cache_db: OnceCell<CacheDB>,
   lint_incremental_cache_db: OnceCell<CacheDB>,
   dep_analysis_db: OnceCell<CacheDB>,
@@ -22,9 +23,9 @@ pub struct Caches {
 }
 
 impl Caches {
-  pub fn new(dir: DenoDir) -> Self {
+  pub fn new(dir: Arc<DenoDirProvider>) -> Self {
     Self {
-      dir,
+      dir_provider: dir,
       fmt_incremental_cache_db: Default::default(),
       lint_incremental_cache_db: Default::default(),
       dep_analysis_db: Default::default(),
@@ -36,10 +37,16 @@ impl Caches {
   fn make_db(
     cell: &OnceCell<CacheDB>,
     config: &'static CacheDBConfiguration,
-    path: PathBuf,
+    path: Option<PathBuf>,
   ) -> CacheDB {
     cell
-      .get_or_init(|| CacheDB::from_path(config, path, crate::version::deno()))
+      .get_or_init(|| {
+        if let Some(path) = path {
+          CacheDB::from_path(config, path, crate::version::deno())
+        } else {
+          CacheDB::in_memory(config, crate::version::deno())
+        }
+      })
       .clone()
   }
 
@@ -47,7 +54,11 @@ impl Caches {
     Self::make_db(
       &self.fmt_incremental_cache_db,
       &INCREMENTAL_CACHE_DB,
-      self.dir.fmt_incremental_cache_db_file_path(),
+      self
+        .dir_provider
+        .get_or_create()
+        .ok()
+        .map(|dir| dir.fmt_incremental_cache_db_file_path()),
     )
   }
 
@@ -55,7 +66,11 @@ impl Caches {
     Self::make_db(
       &self.lint_incremental_cache_db,
       &INCREMENTAL_CACHE_DB,
-      self.dir.lint_incremental_cache_db_file_path(),
+      self
+        .dir_provider
+        .get_or_create()
+        .ok()
+        .map(|dir| dir.lint_incremental_cache_db_file_path()),
     )
   }
 
@@ -63,7 +78,11 @@ impl Caches {
     Self::make_db(
       &self.dep_analysis_db,
       &PARSED_SOURCE_CACHE_DB,
-      self.dir.dep_analysis_db_file_path(),
+      self
+        .dir_provider
+        .get_or_create()
+        .ok()
+        .map(|dir| dir.dep_analysis_db_file_path()),
     )
   }
 
@@ -71,7 +90,11 @@ impl Caches {
     Self::make_db(
       &self.node_analysis_db,
       &NODE_ANALYSIS_CACHE_DB,
-      self.dir.node_analysis_db_file_path(),
+      self
+        .dir_provider
+        .get_or_create()
+        .ok()
+        .map(|dir| dir.node_analysis_db_file_path()),
     )
   }
 
@@ -79,7 +102,11 @@ impl Caches {
     Self::make_db(
       &self.type_checking_cache_db,
       &TYPE_CHECK_CACHE_DB,
-      self.dir.type_checking_cache_db_file_path(),
+      self
+        .dir_provider
+        .get_or_create()
+        .ok()
+        .map(|dir| dir.type_checking_cache_db_file_path()),
     )
   }
 }
diff --git a/cli/cache/deno_dir.rs b/cli/cache/deno_dir.rs
index 2cee0e7a70..07bd4a61d2 100644
--- a/cli/cache/deno_dir.rs
+++ b/cli/cache/deno_dir.rs
@@ -1,10 +1,36 @@
 // Copyright 2018-2023 the Deno authors. All rights reserved. MIT license.
 
+use once_cell::sync::OnceCell;
+
 use super::DiskCache;
 
 use std::env;
 use std::path::PathBuf;
 
+/// Lazily creates the deno dir which might be useful in scenarios
+/// where functionality wants to continue if the DENO_DIR can't be created.
+pub struct DenoDirProvider {
+  maybe_custom_root: Option<PathBuf>,
+  deno_dir: OnceCell<std::io::Result<DenoDir>>,
+}
+
+impl DenoDirProvider {
+  pub fn new(maybe_custom_root: Option<PathBuf>) -> Self {
+    Self {
+      maybe_custom_root,
+      deno_dir: Default::default(),
+    }
+  }
+
+  pub fn get_or_create(&self) -> Result<&DenoDir, std::io::Error> {
+    self
+      .deno_dir
+      .get_or_init(|| DenoDir::new(self.maybe_custom_root.clone()))
+      .as_ref()
+      .map_err(|err| std::io::Error::new(err.kind(), err.to_string()))
+  }
+}
+
 /// `DenoDir` serves as coordinator for multiple `DiskCache`s containing them
 /// in single directory that can be controlled with `$DENO_DIR` env variable.
 #[derive(Clone)]
@@ -18,6 +44,8 @@ pub struct DenoDir {
 
 impl DenoDir {
   pub fn new(maybe_custom_root: Option<PathBuf>) -> std::io::Result<Self> {
+    let maybe_custom_root =
+      maybe_custom_root.or_else(|| env::var("DENO_DIR").map(String::into).ok());
     let root: PathBuf = if let Some(root) = maybe_custom_root {
       root
     } else if let Some(cache_dir) = dirs::cache_dir() {
diff --git a/cli/cache/mod.rs b/cli/cache/mod.rs
index 40d74ff66b..772ba10a53 100644
--- a/cli/cache/mod.rs
+++ b/cli/cache/mod.rs
@@ -30,6 +30,7 @@ pub use caches::Caches;
 pub use check::TypeCheckCache;
 pub use common::FastInsecureHasher;
 pub use deno_dir::DenoDir;
+pub use deno_dir::DenoDirProvider;
 pub use disk_cache::DiskCache;
 pub use emit::EmitCache;
 pub use http_cache::CachedUrlMetadata;
diff --git a/cli/factory.rs b/cli/factory.rs
index 3b171414f7..8e20e5514e 100644
--- a/cli/factory.rs
+++ b/cli/factory.rs
@@ -10,6 +10,7 @@ use crate::args::StorageKeyResolver;
 use crate::args::TsConfigType;
 use crate::cache::Caches;
 use crate::cache::DenoDir;
+use crate::cache::DenoDirProvider;
 use crate::cache::EmitCache;
 use crate::cache::HttpCache;
 use crate::cache::NodeAnalysisCache;
@@ -130,7 +131,7 @@ impl<T> Deferred<T> {
 
 #[derive(Default)]
 struct CliFactoryServices {
-  dir: Deferred<DenoDir>,
+  deno_dir_provider: Deferred<Arc<DenoDirProvider>>,
   caches: Deferred<Arc<Caches>>,
   file_fetcher: Deferred<Arc<FileFetcher>>,
   http_client: Deferred<Arc<HttpClient>>,
@@ -182,16 +183,21 @@ impl CliFactory {
     &self.options
   }
 
+  pub fn deno_dir_provider(&self) -> &Arc<DenoDirProvider> {
+    self.services.deno_dir_provider.get_or_init(|| {
+      Arc::new(DenoDirProvider::new(
+        self.options.maybe_custom_root().clone(),
+      ))
+    })
+  }
+
   pub fn deno_dir(&self) -> Result<&DenoDir, AnyError> {
-    self
-      .services
-      .dir
-      .get_or_try_init(|| self.options.resolve_deno_dir())
+    Ok(self.deno_dir_provider().get_or_create()?)
   }
 
   pub fn caches(&self) -> Result<&Arc<Caches>, AnyError> {
     self.services.caches.get_or_try_init(|| {
-      let caches = Arc::new(Caches::new(self.deno_dir()?.clone()));
+      let caches = Arc::new(Caches::new(self.deno_dir_provider().clone()));
       // Warm up the caches we know we'll likely need based on the CLI mode
       match self.options.sub_command() {
         DenoSubcommand::Run(_) => {
diff --git a/cli/lsp/language_server.rs b/cli/lsp/language_server.rs
index 594c4adbc3..9a2b067c60 100644
--- a/cli/lsp/language_server.rs
+++ b/cli/lsp/language_server.rs
@@ -582,9 +582,7 @@ fn create_npm_resolver_and_resolution(
 
 impl Inner {
   fn new(client: Client) -> Self {
-    let maybe_custom_root = env::var("DENO_DIR").map(String::into).ok();
-    let dir =
-      DenoDir::new(maybe_custom_root).expect("could not access DENO_DIR");
+    let dir = DenoDir::new(None).expect("could not access DENO_DIR");
     let module_registries_location = dir.registries_folder_path();
     let http_client = Arc::new(HttpClient::new(None, None));
     let module_registries =
@@ -904,7 +902,7 @@ impl Inner {
     &mut self,
     new_cache_path: Option<PathBuf>,
   ) -> Result<(), AnyError> {
-    let dir = self.deno_dir_from_maybe_cache_path(new_cache_path.clone())?;
+    let dir = DenoDir::new(new_cache_path.clone())?;
     let workspace_settings = self.config.workspace_settings();
     let maybe_root_path = self
       .config
@@ -938,19 +936,8 @@ impl Inner {
     Ok(())
   }
 
-  fn deno_dir_from_maybe_cache_path(
-    &self,
-    cache_path: Option<PathBuf>,
-  ) -> std::io::Result<DenoDir> {
-    let maybe_custom_root =
-      cache_path.or_else(|| env::var("DENO_DIR").map(String::into).ok());
-    DenoDir::new(maybe_custom_root)
-  }
-
   async fn recreate_npm_services_if_necessary(&mut self) {
-    let deno_dir = match self
-      .deno_dir_from_maybe_cache_path(self.maybe_cache_path.clone())
-    {
+    let deno_dir = match DenoDir::new(self.maybe_cache_path.clone()) {
       Ok(deno_dir) => deno_dir,
       Err(err) => {
         lsp_warn!("Error getting deno dir: {}", err);
diff --git a/cli/standalone/mod.rs b/cli/standalone/mod.rs
index 82c41b8823..14d4ad533c 100644
--- a/cli/standalone/mod.rs
+++ b/cli/standalone/mod.rs
@@ -7,7 +7,7 @@ use crate::args::CacheSetting;
 use crate::args::PackageJsonDepsProvider;
 use crate::args::StorageKeyResolver;
 use crate::cache::Caches;
-use crate::cache::DenoDir;
+use crate::cache::DenoDirProvider;
 use crate::cache::NodeAnalysisCache;
 use crate::file_fetcher::get_source_from_data_url;
 use crate::http_util::HttpClient;
@@ -282,7 +282,7 @@ pub async fn run(
   let current_exe_path = std::env::current_exe().unwrap();
   let current_exe_name =
     current_exe_path.file_name().unwrap().to_string_lossy();
-  let dir = DenoDir::new(None)?;
+  let deno_dir_provider = Arc::new(DenoDirProvider::new(None));
   let root_cert_store_provider = Arc::new(StandaloneRootCertStoreProvider {
     ca_stores: metadata.ca_stores,
     ca_data: metadata.ca_data.map(CaData::Bytes),
@@ -362,7 +362,7 @@ pub async fn run(
   let node_resolver =
     Arc::new(NodeResolver::new(fs.clone(), npm_resolver.clone()));
   let cjs_resolutions = Arc::new(CjsResolutionStore::default());
-  let cache_db = Caches::new(dir.clone());
+  let cache_db = Caches::new(deno_dir_provider.clone());
   let node_analysis_cache = NodeAnalysisCache::new(cache_db.node_analysis_db());
   let cjs_esm_code_analyzer = CliCjsEsmCodeAnalyzer::new(node_analysis_cache);
   let node_code_translator = Arc::new(NodeCodeTranslator::new(
diff --git a/cli/tests/integration/compile_tests.rs b/cli/tests/integration/compile_tests.rs
index 9c1c66d357..05128bc076 100644
--- a/cli/tests/integration/compile_tests.rs
+++ b/cli/tests/integration/compile_tests.rs
@@ -1,6 +1,7 @@
 // Copyright 2018-2023 the Deno authors. All rights reserved. MIT license.
 
 use std::fs::File;
+use std::path::Path;
 use std::process::Command;
 use test_util as util;
 use test_util::TempDir;
@@ -8,8 +9,9 @@ use util::assert_contains;
 use util::TestContextBuilder;
 
 #[test]
-fn compile() {
-  let dir = TempDir::new();
+fn compile_basic() {
+  let context = TestContextBuilder::new().build();
+  let dir = context.temp_dir();
   let exe = if cfg!(windows) {
     dir.path().join("welcome.exe")
   } else {
@@ -17,26 +19,45 @@ fn compile() {
   };
   // try this twice to ensure it works with the cache
   for _ in 0..2 {
-    let output = util::deno_cmd_with_deno_dir(&dir)
-      .current_dir(util::root_path())
-      .arg("compile")
-      .arg("--output")
-      .arg(&exe)
-      .arg("./test_util/std/examples/welcome.ts")
-      .stdout(std::process::Stdio::piped())
-      .spawn()
-      .unwrap()
-      .wait_with_output()
-      .unwrap();
-    assert!(output.status.success());
-    let output = Command::new(&exe)
-      .stdout(std::process::Stdio::piped())
-      .spawn()
-      .unwrap()
-      .wait_with_output()
-      .unwrap();
-    assert!(output.status.success());
-    assert_eq!(output.stdout, "Welcome to Deno!\n".as_bytes());
+    let output = context
+      .new_command()
+      .args_vec([
+        "compile",
+        "--output",
+        &exe.to_string_lossy(),
+        "../../../test_util/std/examples/welcome.ts",
+      ])
+      .run();
+    output.assert_exit_code(0);
+    output.skip_output_check();
+    let output = context
+      .new_command()
+      .command_name(exe.to_string_lossy())
+      .run();
+    output.assert_matches_text("Welcome to Deno!\n");
+  }
+
+  // now ensure this works when the deno_dir is readonly
+  let readonly_dir = dir.path().join("readonly");
+  make_dir_readonly(&readonly_dir);
+  let readonly_sub_dir = readonly_dir.join("sub");
+
+  let output = context
+    .new_command()
+    // it should fail creating this, but still work
+    .env("DENO_DIR", readonly_sub_dir.to_string_lossy())
+    .command_name(exe.to_string_lossy())
+    .run();
+  output.assert_matches_text("Welcome to Deno!\n");
+}
+
+fn make_dir_readonly(dir: &Path) {
+  std::fs::create_dir_all(dir).unwrap();
+  eprintln!("DIR: {}", dir.display());
+  if cfg!(windows) {
+    Command::new("attrib").arg("+r").arg(dir).output().unwrap();
+  } else if cfg!(unix) {
+    Command::new("chmod").arg("555").arg(dir).output().unwrap();
   }
 }
 
diff --git a/cli/tools/repl/mod.rs b/cli/tools/repl/mod.rs
index dfd9931b8d..34acb8a4e3 100644
--- a/cli/tools/repl/mod.rs
+++ b/cli/tools/repl/mod.rs
@@ -107,9 +107,12 @@ pub async fn run(flags: Flags, repl_flags: ReplFlags) -> Result<i32, AnyError> {
   )?);
   let npm_resolver = factory.npm_resolver().await?.clone();
   let resolver = factory.resolver().await?.clone();
-  let dir = factory.deno_dir()?;
   let file_fetcher = factory.file_fetcher()?;
   let worker_factory = factory.create_cli_main_worker_factory().await?;
+  let history_file_path = factory
+    .deno_dir()
+    .ok()
+    .and_then(|dir| dir.repl_history_file_path());
 
   let mut worker = worker_factory
     .create_main_worker(main_module, permissions)
@@ -126,7 +129,6 @@ pub async fn run(flags: Flags, repl_flags: ReplFlags) -> Result<i32, AnyError> {
     sync_sender: rustyline_channel.0,
   };
 
-  let history_file_path = dir.repl_history_file_path();
   let editor = ReplEditor::new(helper, history_file_path)?;
 
   if let Some(eval_files) = repl_flags.eval_files {