diff --git a/cli/args/config_file.rs b/cli/args/config_file.rs
index 8b52d7825e..ed31a47a64 100644
--- a/cli/args/config_file.rs
+++ b/cli/args/config_file.rs
@@ -668,12 +668,13 @@ pub struct ConfigFileJson {
   pub bench: Option<Value>,
   pub lock: Option<Value>,
   pub exclude: Option<Value>,
+  pub node_modules_dir: Option<bool>,
 }
 
 #[derive(Clone, Debug)]
 pub struct ConfigFile {
   pub specifier: ModuleSpecifier,
-  pub json: ConfigFileJson,
+  json: ConfigFileJson,
 }
 
 impl ConfigFile {
@@ -865,6 +866,10 @@ impl ConfigFile {
     self.json.import_map.clone()
   }
 
+  pub fn node_modules_dir(&self) -> Option<bool> {
+    self.json.node_modules_dir
+  }
+
   pub fn to_import_map_value(&self) -> Value {
     let mut value = serde_json::Map::with_capacity(2);
     if let Some(imports) = &self.json.imports {
diff --git a/cli/args/flags.rs b/cli/args/flags.rs
index fa28241a3a..63ec2b9471 100644
--- a/cli/args/flags.rs
+++ b/cli/args/flags.rs
@@ -2431,7 +2431,7 @@ fn local_npm_arg() -> Arg {
     .value_parser(value_parser!(bool))
     .default_missing_value("true")
     .require_equals(true)
-    .help("Creates a local node_modules folder")
+    .help("Enables or disables the use of a local node_modules folder for npm packages")
 }
 
 fn unsafely_ignore_certificate_errors_arg() -> Arg {
diff --git a/cli/args/mod.rs b/cli/args/mod.rs
index 53dad9cae0..fef27f464d 100644
--- a/cli/args/mod.rs
+++ b/cli/args/mod.rs
@@ -1184,14 +1184,17 @@ fn resolve_local_node_modules_folder(
   maybe_config_file: Option<&ConfigFile>,
   maybe_package_json: Option<&PackageJson>,
 ) -> Result<Option<PathBuf>, AnyError> {
-  let path = if flags.node_modules_dir == Some(false) {
+  let use_node_modules_dir = flags
+    .node_modules_dir
+    .or_else(|| maybe_config_file.and_then(|c| c.node_modules_dir()));
+  let path = if use_node_modules_dir == Some(false) {
     return Ok(None);
   } else if let Some(state) = &*NPM_PROCESS_STATE {
     return Ok(state.local_node_modules_path.as_ref().map(PathBuf::from));
   } else if let Some(package_json_path) = maybe_package_json.map(|c| &c.path) {
     // always auto-discover the local_node_modules_folder when a package.json exists
     package_json_path.parent().unwrap().join("node_modules")
-  } else if flags.node_modules_dir.is_none() {
+  } else if use_node_modules_dir.is_none() {
     return Ok(None);
   } else if let Some(config_path) = maybe_config_file
     .as_ref()
diff --git a/cli/schemas/config-file.v1.json b/cli/schemas/config-file.v1.json
index 0006997677..8640428775 100644
--- a/cli/schemas/config-file.v1.json
+++ b/cli/schemas/config-file.v1.json
@@ -422,6 +422,10 @@
         }
       }
     },
+    "nodeModulesDir": {
+      "description": "Enables or disables the use of a local node_modules folder for npm packages. Alternatively, use the `--node-modules-dir` or `--node-modules-dir=false` flag.",
+      "type": "boolean"
+    },
     "tasks": {
       "description": "Configuration for deno task",
       "type": "object",
diff --git a/cli/tests/integration/npm_tests.rs b/cli/tests/integration/npm_tests.rs
index dc3aa7b111..40214315a5 100644
--- a/cli/tests/integration/npm_tests.rs
+++ b/cli/tests/integration/npm_tests.rs
@@ -1880,3 +1880,34 @@ fn binary_package_with_optional_dependencies() {
     }
   }
 }
+
+#[test]
+pub fn node_modules_dir_config_file() {
+  let test_context = TestContextBuilder::for_npm().use_temp_cwd().build();
+  let temp_dir = test_context.temp_dir();
+  let node_modules_dir = temp_dir.path().join("node_modules");
+  let rm_node_modules = || std::fs::remove_dir_all(&node_modules_dir).unwrap();
+
+  temp_dir.write("deno.json", r#"{ "nodeModulesDir": true }"#);
+  temp_dir.write("main.ts", "import 'npm:@denotest/esm-basic';");
+
+  let deno_cache_cmd = test_context.new_command().args("cache --quiet main.ts");
+  deno_cache_cmd.run();
+
+  assert!(node_modules_dir.exists());
+  rm_node_modules();
+  temp_dir.write("deno.json", r#"{ "nodeModulesDir": false }"#);
+
+  deno_cache_cmd.run();
+  assert!(!node_modules_dir.exists());
+
+  temp_dir.write("package.json", r#"{}"#);
+  deno_cache_cmd.run();
+  assert!(!node_modules_dir.exists());
+
+  test_context
+    .new_command()
+    .args("cache --quiet --node-modules-dir main.ts")
+    .run();
+  assert!(node_modules_dir.exists());
+}