diff --git a/build_tests/build_dir/build.rb b/build_tests/build_dir/build.rb
new file mode 100644
index 0000000..65b14fd
--- /dev/null
+++ b/build_tests/build_dir/build.rb
@@ -0,0 +1,5 @@
+Rscons::Environment.new do |env|
+  env.append('CPPPATH' => Dir['src/**/*/'])
+  env.build_dir('src', 'build')
+  env.Program('build_dir', Dir['src/**/*.c'])
+end
diff --git a/build_tests/build_dir/src/one/one.c b/build_tests/build_dir/src/one/one.c
new file mode 100644
index 0000000..e0f31d7
--- /dev/null
+++ b/build_tests/build_dir/src/one/one.c
@@ -0,0 +1,6 @@
+#include "two.h"
+
+int main(int argc, char *argv[])
+{
+    two();
+}
diff --git a/build_tests/build_dir/src/two/two.c b/build_tests/build_dir/src/two/two.c
new file mode 100644
index 0000000..d9a9257
--- /dev/null
+++ b/build_tests/build_dir/src/two/two.c
@@ -0,0 +1,7 @@
+#include <stdio.h>
+#include "two.h"
+
+void two(void)
+{
+    printf("Hello from two()\n");
+}
diff --git a/build_tests/build_dir/src/two/two.h b/build_tests/build_dir/src/two/two.h
new file mode 100644
index 0000000..a49837a
--- /dev/null
+++ b/build_tests/build_dir/src/two/two.h
@@ -0,0 +1,6 @@
+#ifndef TWO_H
+#define TWO_H
+
+void two(void);
+
+#endif
diff --git a/lib/rscons/builders/program.rb b/lib/rscons/builders/program.rb
index 897d820..c0d1437 100644
--- a/lib/rscons/builders/program.rb
+++ b/lib/rscons/builders/program.rb
@@ -18,23 +18,25 @@ module Rscons
         if source.has_suffix?([@env['OBJSUFFIX'], @env['LIBSUFFIX']])
           source
         else
-          o_file = source.set_suffix(@env['OBJSUFFIX', :string])
+          o_file = @env.get_build_fname(source, @env['OBJSUFFIX', :string])
           builder = @env.builders.values.find { |b| b.produces?(o_file, source) }
           builder or raise "No builder found to convert input source #{source.inspect} to an object file."
-          builder.run(o_file, [source], cache)
+          builder.run(o_file, [source], cache) or break
         end
       end
-      vars = {
-        'TARGET' => target,
-        'SOURCES' => sources,
-        'LD' => @env['LD'] || @env['CC'], # TODO: figure out whether to use CC or CXX
-      }
-      command = @env.build_command(@env['LDCOM'], vars)
-      unless cache.up_to_date?(target, command, sources)
-        return false unless @env.execute("LD #{target}", command)
-        cache.register_build(target, command, sources)
+      if sources
+        vars = {
+          'TARGET' => target,
+          'SOURCES' => sources,
+          'LD' => @env['LD'] || @env['CC'], # TODO: figure out whether to use CC or CXX
+        }
+        command = @env.build_command(@env['LDCOM'], vars)
+        unless cache.up_to_date?(target, command, sources)
+          return false unless @env.execute("LD #{target}", command)
+          cache.register_build(target, command, sources)
+        end
+        target
       end
-      target
     end
   end
 end
diff --git a/lib/rscons/environment.rb b/lib/rscons/environment.rb
index d1d35c4..ce36e64 100644
--- a/lib/rscons/environment.rb
+++ b/lib/rscons/environment.rb
@@ -99,7 +99,7 @@ module Rscons
 
     def execute(short_desc, command)
       if @varset[:echo] == :command
-        puts command.map { |c| c =~ /\s/ ?  "'#{c}'" : c }.join(' ')
+        puts command.map { |c| c =~ /\s/ ? "'#{c}'" : c }.join(' ')
       elsif @varset[:echo] == :short
         puts short_desc
       end
diff --git a/spec/build_tests_spec.rb b/spec/build_tests_spec.rb
index a3d5c0c..c1776a6 100644
--- a/spec/build_tests_spec.rb
+++ b/spec/build_tests_spec.rb
@@ -112,4 +112,11 @@ describe Rscons do
     lines = build_testdir
     lines.should == ['gcc -o simple simple.o -lc']
   end
+
+  it 'builds object files in a different build directory' do
+    lines = test_dir('build_dir')
+    `./build_dir`.should == "Hello from two()\n"
+    File.exists?('build/one/one.o').should be_true
+    File.exists?('build/two/two.o').should be_true
+  end
 end