diff --git a/repo2docker/buildpacks/nix/__init__.py b/repo2docker/buildpacks/nix/__init__.py
index 4b73cf63..707f6d8a 100644
--- a/repo2docker/buildpacks/nix/__init__.py
+++ b/repo2docker/buildpacks/nix/__init__.py
@@ -57,8 +57,8 @@ class NixBuildPack(BaseImage):
             ('${NB_USER}', """
             nix-channel --add https://nixos.org/channels/nixpkgs-unstable nixpkgs && \
             nix-channel --update && \
-            nix-shell default.nix
-            """)
+            nix-shell {}
+            """.format(self.binder_path('default.nix')))
         ]
 
     def get_start_script(self):
diff --git a/repo2docker/buildpacks/nix/nix-shell-wrapper b/repo2docker/buildpacks/nix/nix-shell-wrapper
index 1a69e13c..859123fd 100644
--- a/repo2docker/buildpacks/nix/nix-shell-wrapper
+++ b/repo2docker/buildpacks/nix/nix-shell-wrapper
@@ -8,20 +8,25 @@ _term() {
 
 trap _term SIGTERM
 
-echo 'command:' "$@"
-
-# a script in the binder sub-directory take precedence
-if [ -f ./binder/start ]; then
-  chmod u+x ./binder/start
-  nix-shell default.nix --command "./binder/start $@" &
-elif [ -f ./start ]; then
-  chmod u+x ./start
-  nix-shell default.nix --command "./start $@" &
+# if there is a binder/ sub-directory it takes precedence
+# files outside it are ignored
+if [ -e ./binder ]; then
+  nixpath="./binder/default.nix";
+  if [ -f ./binder/start ]; then
+    chmod u+x ./binder/start
+    nix-shell $nixpath --command "./binder/start $*" &
+  else
+    nix-shell $nixpath --command "$*" &
+  fi
 else
-  nix-shell default.nix --command "$@" &
+  nixpath="./default.nix";
+  if [ -f ./start ]; then
+    chmod u+x ./start
+    nix-shell $nixpath --command "./start $*" &
+  else
+    nix-shell $nixpath --command "$*" &
+  fi
 fi
 
 PID=$!
-echo 'waiting'
-
 wait "$PID"
diff --git a/tests/nix/binder-dir/README.rst b/tests/nix/binder-dir/README.rst
index 6d79746c..8c6ad2a7 100644
--- a/tests/nix/binder-dir/README.rst
+++ b/tests/nix/binder-dir/README.rst
@@ -1,4 +1,13 @@
+<<<<<<< HEAD
 default.nix in a binder/ directory
 ----------------------------------
 
 Check we find and use `default.nix` when it is in a `binder/` sub-directory.
+=======
+Nix environment - default.nix
+-----------------------------
+
+You can install a nix shell environment using the traditional default.nix.
+
+Documentation on the syntax and typical setup of a ``nix-shell`` environment can be found `here <https://nixos.org/nix/manual/#sec-nix-shell>`_.
+>>>>>>> 983b7f5... Add test and support for binder sub-directory
diff --git a/tests/nix/binder-dir/binder/default.nix b/tests/nix/binder-dir/binder/default.nix
new file mode 100644
index 00000000..990a193a
--- /dev/null
+++ b/tests/nix/binder-dir/binder/default.nix
@@ -0,0 +1,20 @@
+let
+  # Pinning nixpkgs to specific release
+  # To get sha256 use "nix-prefetch-git <url> --rev <commit>"
+  commitRev="5574b6a152b1b3ae5f93ba37c4ffd1981f62bf5a";
+  nixpkgs = builtins.fetchTarball {
+    url = "https://github.com/NixOS/nixpkgs/archive/${commitRev}.tar.gz";
+    sha256 = "1pqdddp4aiz726c7qs1dwyfzixi14shp0mbzi1jhapl9hrajfsjg";
+  };
+  pkgs = import nixpkgs { config = { allowUnfree = true; }; };
+in
+pkgs.mkShell {
+  buildInputs = with pkgs; [
+    python36Packages.numpy
+    python36Packages.notebook
+  ];
+
+  shellHook = ''
+    export NIX_PATH="nixpkgs=${nixpkgs}:."
+  '';
+}
diff --git a/tests/nix/binder-dir/verify b/tests/nix/binder-dir/verify
new file mode 100755
index 00000000..dbd34b2a
--- /dev/null
+++ b/tests/nix/binder-dir/verify
@@ -0,0 +1,3 @@
+#!/usr/bin/env python
+
+import numpy
diff --git a/tests/nix/simple/default.nix b/tests/nix/simple/default.nix
index d417565f..990a193a 100644
--- a/tests/nix/simple/default.nix
+++ b/tests/nix/simple/default.nix
@@ -11,6 +11,7 @@ in
 pkgs.mkShell {
   buildInputs = with pkgs; [
     python36Packages.numpy
+    python36Packages.notebook
   ];
 
   shellHook = ''
diff --git a/tests/nix/start/default.nix b/tests/nix/start/default.nix
index d417565f..990a193a 100644
--- a/tests/nix/start/default.nix
+++ b/tests/nix/start/default.nix
@@ -11,6 +11,7 @@ in
 pkgs.mkShell {
   buildInputs = with pkgs; [
     python36Packages.numpy
+    python36Packages.notebook
   ];
 
   shellHook = ''