diff --git a/t/jobs/dependencies/dependency.nix b/t/jobs/dependencies/dependency.nix
new file mode 100644
index 00000000..f528bdc8
--- /dev/null
+++ b/t/jobs/dependencies/dependency.nix
@@ -0,0 +1,17 @@
+{ exposeUnderlyingJob, exposeDependentJob }:
+with import ../config.nix;
+let
+  underlyingJob = mkDerivation {
+    name = "underlying-job";
+    builder = ../empty-dir-builder.sh;
+  };
+
+  dependentJob = mkDerivation {
+    name = "dependent-job";
+    builder = ../empty-dir-builder.sh;
+    inherit underlyingJob;
+  };
+in
+(if exposeUnderlyingJob then { inherit underlyingJob; } else { }) //
+(if exposeDependentJob then { inherit dependentJob; } else { }) //
+{ }
diff --git a/t/jobs/dependencies/dependentOnly.nix b/t/jobs/dependencies/dependentOnly.nix
new file mode 100644
index 00000000..edf8a912
--- /dev/null
+++ b/t/jobs/dependencies/dependentOnly.nix
@@ -0,0 +1,4 @@
+import ./dependency.nix {
+  exposeUnderlyingJob = false;
+  exposeDependentJob = true;
+}
diff --git a/t/jobs/dependencies/underlyingOnly.nix b/t/jobs/dependencies/underlyingOnly.nix
new file mode 100644
index 00000000..106d17fe
--- /dev/null
+++ b/t/jobs/dependencies/underlyingOnly.nix
@@ -0,0 +1,4 @@
+import ./dependency.nix {
+  exposeUnderlyingJob = true;
+  exposeDependentJob = false;
+}
diff --git a/t/queue-runner/build-locally-with-substitutable-path.t b/t/queue-runner/build-locally-with-substitutable-path.t
new file mode 100644
index 00000000..f335d284
--- /dev/null
+++ b/t/queue-runner/build-locally-with-substitutable-path.t
@@ -0,0 +1,51 @@
+use strict;
+use warnings;
+use Setup;
+use Data::Dumper;
+use Test2::V0;
+my $ctx = test_context(
+    use_external_destination_store => 1
+);
+
+# This test is regarding https://github.com/NixOS/hydra/pull/1126
+#
+# A hydra instance was regularly failing to build derivations with:
+#
+#     possibly transient failure building ‘/nix/store/X.drv’ on ‘localhost’:
+#     dependency '/nix/store/Y' of '/nix/store/Y.drv' does not exist,
+#     and substitution is disabled
+#
+# However it would only fail when building on localhost, and it would only
+# fail if the build output was already in the binary cache.
+#
+# This test replicates this scenario by having two jobs, underlyingJob and
+# dependentJob. dependentJob depends on underlyingJob. We first build
+# underlyingJob and copy it to an external cache. Then forcefully delete
+# the output of underlyingJob, and build dependentJob. In order to pass
+# it must either rebuild underlyingJob or fetch it from the cache.
+
+
+subtest "Building, caching, and then garbage collecting the underlying job" => sub {
+    my $builds = $ctx->makeAndEvaluateJobset(
+        expression => "dependencies/underlyingOnly.nix",
+        build => 1
+    );
+
+    my $path = $builds->{"underlyingJob"}->buildoutputs->find({ name => "out" })->path;
+
+    ok(unlink(Hydra::Helper::Nix::gcRootFor($path)), "Unlinking the GC root for underlying Dependency succeeds");
+
+    (my $ret, my $stdout, my $stderr) = captureStdoutStderr(1, "nix-store", "--delete", $path);
+    is($ret, 0, "Deleting the underlying dependency should succeed");
+};
+
+subtest "Building the dependent job should now succeed, even though we're missing a local dependency" => sub {
+    my $builds = $ctx->makeAndEvaluateJobset(
+        expression => "dependencies/dependentOnly.nix"
+    );
+
+    ok(runBuild($builds->{"dependentJob"}), "building the job should succeed");
+};
+
+
+done_testing;