diff --git a/lib/compiler.js b/lib/compiler.js
index d5d870a..3e1df63 100644
--- a/lib/compiler.js
+++ b/lib/compiler.js
@@ -5,6 +5,7 @@ var path = require('path');
 var toposort = require('toposort');
 var ConfigLoader = require('./config-loader');
 var debug = require('debug')('loopback:boot:compiler');
+var Module = require('module');
 
 /**
  * Gather all bootstrap-related configuration data and compile it into
@@ -245,7 +246,12 @@ function findModelDefinitions(rootDir, sources) {
   var registry = {};
 
   sources.forEach(function(src) {
-    var srcDir = path.resolve(rootDir, src);
+    var srcDir = resolveSourceDir(rootDir, src);
+    if (!srcDir) {
+      debug('Skipping unknown module source dir %j', src);
+      return;
+    }
+
     var files = tryReadDir(srcDir);
     files
       .filter(function(f) {
@@ -267,6 +273,36 @@ function findModelDefinitions(rootDir, sources) {
   return registry;
 }
 
+function resolveSourceDir(rootDir, sourceDir) {
+  var srcDir = path.resolve(rootDir, sourceDir);
+  if (fs.existsSync(srcDir))
+    return srcDir;
+
+  // Handle module-relative path, e.g. `loopback/common/models`
+  var start = sourceDir.substring(0, 2);
+  if (start !== './' && start !== '..') {
+    // Module.globalPaths is a list of globally configured paths like
+    //   [ env.NODE_PATH values, $HOME/.node_modules, etc. ]
+    // Module._nodeModulePaths(rootDir) returns a list of paths like
+    //   [ rootDir/node_modules, rootDir/../node_modules, etc. ]
+    var modulePaths = Module.globalPaths
+      .concat(Module._nodeModulePaths(rootDir));
+
+    srcDir = modulePaths
+      .map(function(candidateDir) {
+        return path.join(candidateDir, sourceDir);
+      })
+      .filter(function(candidate) {
+        return fs.existsSync(candidate);
+      })
+      [0];
+    if (srcDir)
+      return srcDir;
+  }
+
+  return undefined;
+}
+
 function loadModelDefinition(rootDir, jsonFile) {
   var definition = require(jsonFile);
 
diff --git a/test/compiler.test.js b/test/compiler.test.js
index 45e17ec..f902140 100644
--- a/test/compiler.test.js
+++ b/test/compiler.test.js
@@ -501,6 +501,30 @@ describe('compiler', function() {
       });
     });
 
+    it('supports sources relative to node_modules', function() {
+      appdir.createConfigFilesSync({}, {}, {
+        User: { dataSource: 'db' }
+      });
+
+      var instructions = boot.compile({
+        appRootDir: appdir.PATH,
+        modelSources: [
+          'loopback/common/models',
+          'loopback/common/dir-does-not-exist'
+        ]
+      });
+
+      expect(instructions.models).to.have.length(1);
+      expect(instructions.models[0]).to.eql({
+        name: 'User',
+        config: {
+          dataSource: 'db'
+        },
+        definition: require('loopback/common/models/user.json'),
+        sourceFile: require.resolve('loopback/common/models/user.js')
+      });
+    });
+
     it('handles model definitions with no code', function() {
       appdir.createConfigFilesSync({}, {}, {
         Car: { dataSource: 'db' }
diff --git a/test/fixtures/browser-app/model-config.json b/test/fixtures/browser-app/model-config.json
index d895c8a..c0686a2 100644
--- a/test/fixtures/browser-app/model-config.json
+++ b/test/fixtures/browser-app/model-config.json
@@ -2,7 +2,7 @@
   "_meta": {
     "sources": [
       "./models",
-      "../../../node_modules/loopback/common/models"
+      "loopback/common/models"
     ]
   },
   "Customer": {