diff --git a/Modules/FindProtobuf.cmake b/Modules/FindProtobuf.cmake
index 8ad3270ba7..bdad4debf8 100644
--- a/Modules/FindProtobuf.cmake
+++ b/Modules/FindProtobuf.cmake
@@ -302,8 +302,6 @@ function(protobuf_generate)
           list(APPEND _protobuf_include_path -I ${_abs_dir})
       endif()
     endforeach()
-  else()
-    set(_protobuf_include_path -I ${CMAKE_CURRENT_SOURCE_DIR})
   endif()
 
   foreach(DIR ${protobuf_generate_IMPORT_DIRS})
@@ -314,6 +312,10 @@ function(protobuf_generate)
     endif()
   endforeach()
 
+  if(NOT protobuf_generate_APPEND_PATH)
+    list(APPEND _protobuf_include_path -I ${CMAKE_CURRENT_SOURCE_DIR})
+  endif()
+
   set(_generated_srcs_all)
   foreach(_proto ${protobuf_generate_PROTOS})
     get_filename_component(_abs_file ${_proto} ABSOLUTE)
@@ -323,7 +325,19 @@ function(protobuf_generate)
 
     set(_possible_rel_dir)
     if (NOT protobuf_generate_APPEND_PATH)
-        set(_possible_rel_dir ${_rel_dir}/)
+      foreach(DIR ${_protobuf_include_path})
+        if(NOT DIR STREQUAL "-I")
+          file(RELATIVE_PATH _rel_dir ${DIR} ${_abs_dir})
+          if(_rel_dir STREQUAL _abs_dir)
+            continue()
+          endif()
+          string(FIND "${_rel_dir}" "../" _is_in_parent_folder)
+          if (NOT ${_is_in_parent_folder} EQUAL 0)
+            break()
+          endif()
+        endif()
+      endforeach()
+      set(_possible_rel_dir ${_rel_dir}/)
     endif()
 
     set(_generated_srcs)
diff --git a/Tests/FindProtobuf/Test/CMakeLists.txt b/Tests/FindProtobuf/Test/CMakeLists.txt
index 84041eaf4e..cd193843e0 100644
--- a/Tests/FindProtobuf/Test/CMakeLists.txt
+++ b/Tests/FindProtobuf/Test/CMakeLists.txt
@@ -55,8 +55,9 @@ add_test(NAME test_desc COMMAND test_desc ${DESC_PROTO_DESC})
 
 if(CMake_TEST_FindProtobuf_gRPC)
   find_program(gRPC_CPP_PLUGIN grpc_cpp_plugin)
-  add_library(msgs_grpc msgs/example_service.proto)
-  target_include_directories(msgs_grpc PUBLIC ${CMAKE_CURRENT_BINARY_DIR})
+  add_library(msgs_grpc msgs/grpc/example_service.proto)
+  # NOTE: by default generated files will be placed under ${CMAKE_CURRENT_BINARY_DIR}/msgs/grpc/
+  target_include_directories(msgs_grpc PUBLIC ${CMAKE_CURRENT_BINARY_DIR} ${CMAKE_CURRENT_BINARY_DIR}/msgs/grpc/)
   target_link_libraries(msgs_grpc PUBLIC ${Protobuf_LIBRARIES})
   protobuf_generate(TARGET msgs_grpc LANGUAGE cpp)
   protobuf_generate(TARGET msgs_grpc LANGUAGE grpc GENERATE_EXTENSIONS .grpc.pb.h .grpc.pb.cc PLUGIN "protoc-gen-grpc=${gRPC_CPP_PLUGIN}")
@@ -64,4 +65,24 @@ if(CMake_TEST_FindProtobuf_gRPC)
   add_executable(test_generate_grpc main-generate-grpc.cxx)
   target_link_libraries(test_generate_grpc PRIVATE msgs_grpc)
   add_test(NAME test_generate_grpc COMMAND test_generate_grpc)
+
+  add_library(msgs_grpc_IMPORT_DIRS msgs/grpc/example_service.proto)
+  # NOTE: with IMPORT_DIRS msgs/, generated files will be placed under ${CMAKE_CURRENT_BINARY_DIR}/grpc/
+  target_include_directories(msgs_grpc_IMPORT_DIRS PUBLIC ${CMAKE_CURRENT_BINARY_DIR} ${CMAKE_CURRENT_BINARY_DIR}/grpc/)
+  target_link_libraries(msgs_grpc_IMPORT_DIRS PUBLIC ${Protobuf_LIBRARIES})
+  protobuf_generate(TARGET msgs_grpc_IMPORT_DIRS LANGUAGE cpp IMPORT_DIRS msgs/)
+  protobuf_generate(TARGET msgs_grpc_IMPORT_DIRS LANGUAGE grpc IMPORT_DIRS msgs/ GENERATE_EXTENSIONS .grpc.pb.h .grpc.pb.cc PLUGIN "protoc-gen-grpc=${gRPC_CPP_PLUGIN}")
+  add_executable(test_generate_grpc_IMPORT_DIRS main-generate-grpc.cxx)
+  target_link_libraries(test_generate_grpc_IMPORT_DIRS PRIVATE msgs_grpc_IMPORT_DIRS)
+  add_test(NAME test_generate_grpc_IMPORT_DIRS COMMAND test_generate_grpc_IMPORT_DIRS)
+
+  add_library(msgs_grpc_APPEND_PATH msgs/grpc/example_service.proto)
+  # NOTE: with APPEND_PATH, generated files will be placed under ${CMAKE_CURRENT_BINARY_DIR}/
+  target_include_directories(msgs_grpc_APPEND_PATH PUBLIC ${CMAKE_CURRENT_BINARY_DIR})
+  target_link_libraries(msgs_grpc_APPEND_PATH PUBLIC ${Protobuf_LIBRARIES})
+  protobuf_generate(TARGET msgs_grpc_APPEND_PATH LANGUAGE cpp APPEND_PATH)
+  protobuf_generate(TARGET msgs_grpc_APPEND_PATH LANGUAGE grpc APPEND_PATH GENERATE_EXTENSIONS .grpc.pb.h .grpc.pb.cc PLUGIN "protoc-gen-grpc=${gRPC_CPP_PLUGIN}")
+  add_executable(test_generate_grpc_APPEND_PATH main-generate-grpc.cxx)
+  target_link_libraries(test_generate_grpc_APPEND_PATH PRIVATE msgs_grpc_APPEND_PATH)
+  add_test(NAME test_generate_grpc_APPEND_PATH COMMAND test_generate_grpc_APPEND_PATH)
 endif()
diff --git a/Tests/FindProtobuf/Test/main-generate-grpc.cxx b/Tests/FindProtobuf/Test/main-generate-grpc.cxx
index 070c6b46e7..3251f6a20c 100644
--- a/Tests/FindProtobuf/Test/main-generate-grpc.cxx
+++ b/Tests/FindProtobuf/Test/main-generate-grpc.cxx
@@ -1,4 +1,4 @@
-#include <msgs/example_service.grpc.pb.h>
+#include <example_service.grpc.pb.h>
 
 int main()
 {
diff --git a/Tests/FindProtobuf/Test/msgs/example_service.proto b/Tests/FindProtobuf/Test/msgs/grpc/example_service.proto
similarity index 100%
rename from Tests/FindProtobuf/Test/msgs/example_service.proto
rename to Tests/FindProtobuf/Test/msgs/grpc/example_service.proto