diff --git a/Lib/py_compile.py b/Lib/py_compile.py
index e0f98cb741d..5adb70a2939 100644
--- a/Lib/py_compile.py
+++ b/Lib/py_compile.py
@@ -130,7 +130,9 @@ def compile(file, cfile=None, dfile=None, doraise=False, optimize=-1):
         else:
             cfile = imp.cache_from_source(file)
     try:
-        os.makedirs(os.path.dirname(cfile))
+        dirname = os.path.dirname(cfile)
+        if dirname:
+            os.makedirs(dirname)
     except OSError as error:
         if error.errno != errno.EEXIST:
             raise
diff --git a/Lib/test/test_py_compile.py b/Lib/test/test_py_compile.py
index 8ad0897433b..f3c1a6a44b6 100644
--- a/Lib/test/test_py_compile.py
+++ b/Lib/test/test_py_compile.py
@@ -39,6 +39,15 @@ class PyCompileTests(unittest.TestCase):
         py_compile.compile(self.source_path)
         self.assertTrue(os.path.exists(self.cache_path))
 
+    def test_cwd(self):
+        cwd = os.getcwd()
+        os.chdir(self.directory)
+        py_compile.compile(os.path.basename(self.source_path),
+                           os.path.basename(self.pyc_path))
+        os.chdir(cwd)
+        self.assertTrue(os.path.exists(self.pyc_path))
+        self.assertFalse(os.path.exists(self.cache_path))
+
     def test_relative_path(self):
         py_compile.compile(os.path.relpath(self.source_path),
                            os.path.relpath(self.pyc_path))
diff --git a/Misc/ACKS b/Misc/ACKS
index cecb238c515..b8e5881b943 100644
--- a/Misc/ACKS
+++ b/Misc/ACKS
@@ -1014,6 +1014,7 @@ Kannan Vijayan
 Kurt Vile
 Norman Vine
 Frank Visser
+Sjoerd de Vries
 Niki W. Waibel
 Wojtek Walczak
 Charles Waldman
diff --git a/Misc/NEWS b/Misc/NEWS
index ceb3582eac4..8ef9e13bdf2 100644
--- a/Misc/NEWS
+++ b/Misc/NEWS
@@ -395,6 +395,9 @@ Core and Builtins
 Library
 -------
 
+- Issue #12618: Fix a bug that prevented py_compile from creating byte
+  compiled files in the current directory.  Initial patch by Sjoerd de Vries.
+
 - Issue #13444: When stdout has been closed explicitly, we should not attempt
   to flush it at shutdown and print an error.