diff --git a/src/lib/babel-config.js b/src/lib/babel-config.js
index 7a8162f3c..80dcbd424 100644
--- a/src/lib/babel-config.js
+++ b/src/lib/babel-config.js
@@ -1,4 +1,5 @@
 export default (env, options={}) => ({
+	babelrc: false,
 	presets: [
 		[require.resolve('babel-preset-env'), {
 			loose: true,
diff --git a/src/lib/webpack/transform-config.js b/src/lib/webpack/transform-config.js
index 5568aceb5..1e1cd76c1 100644
--- a/src/lib/webpack/transform-config.js
+++ b/src/lib/webpack/transform-config.js
@@ -17,7 +17,7 @@ export default async function (env, config, ssr = false) {
 	}
 
 	require('babel-register')({
-		presets: ['env']
+		presets: [require.resolve('babel-preset-env')]
 	});
 	const m = require(transformerPath);
 	const transformer = m && m.default || m;
diff --git a/src/lib/webpack/webpack-base-config.js b/src/lib/webpack/webpack-base-config.js
index ccb356fd1..aebc3f341 100644
--- a/src/lib/webpack/webpack-base-config.js
+++ b/src/lib/webpack/webpack-base-config.js
@@ -14,6 +14,7 @@ import autoprefixer from 'autoprefixer';
 import ProgressBarPlugin from 'progress-bar-webpack-plugin';
 import ReplacePlugin from 'webpack-plugin-replace';
 import requireRelative from 'require-relative';
+import createBabelConfig from '../babel-config';
 
 export function exists(file) {
 	try {
@@ -48,6 +49,7 @@ export default (env) => {
 	env.manifest = readJson(src('manifest.json')) || {};
 	env.pkg = readJson(resolve(cwd, 'package.json')) || {};
 
+	let babelrc = readJson(resolve(cwd, '.babelrc')) || {};
 	let browsers = env.pkg.browserslist || ['> 1%', 'last 2 versions', 'IE >= 9'];
 
 	return group([
@@ -86,12 +88,10 @@ export default (env) => {
 						enforce: 'pre',
 						test: /\.jsx?$/,
 						loader: 'babel-loader',
-						options: {
-							babelrc: true,
-							presets: [
-								[resolve(__dirname, '../babel-config'), { browsers }]
-							]
-						}
+						options: Object.assign(
+							createBabelConfig(env, { browsers }),
+							babelrc // intentionall overwrite our settings
+						)
 					}
 				]
 			}
diff --git a/tests/build.snapshot.js b/tests/build.snapshot.js
index 30eb85049..a289ec1ac 100644
--- a/tests/build.snapshot.js
+++ b/tests/build.snapshot.js
@@ -66,16 +66,16 @@ export default {
 		'bundle.js': { size: 18460 },
 		'bundle.js.map': { size: 101500 },
 		'route-home.chunk.*.js': { size: 1020 },
-		'route-home.chunk.*.js.map': { size: 4283 },
+		'route-home.chunk.*.js.map': { size: 4977 },
 		'route-profile.chunk.*.js': { size: 1660 },
-		'route-profile.chunk.*.js.map': { size: 7504 },
+		'route-profile.chunk.*.js.map': { size: 8607 },
 		'polyfills.js.map': { size: 31750 },
 		'index.html': { size: 870 },
 		'style.css': { size: 1065 },
 		'style.css.map': { size: 2246 },
 		'ssr-build': {
 			'ssr-bundle.js': { size: 18960 },
-			'ssr-bundle.js.map': { size: 91773 },
+			'ssr-bundle.js.map': { size: 97403 },
 			'style.css': { size: 1065 },
 			'style.css.map': { size: 2250 },
 		}
@@ -85,16 +85,16 @@ export default {
 		'bundle.js': { size: 19300 },
 		'bundle.js.map': { size: 105590 },
 		'route-home.chunk.*.js': { size: 1000 },
-		'route-home.chunk.*.js.map': { size: 4285 },
+		'route-home.chunk.*.js.map': { size: 4981 },
 		'route-profile.chunk.*.js': { size: 1650 },
-		'route-profile.chunk.*.js.map': { size: 7507 },
+		'route-profile.chunk.*.js.map': { size: 8609 },
 		'polyfills.js.map': { size: 31800 },
 		'index.html': { size: 850 },
 		'style.css': { size: 1065 },
 		'style.css.map': { size: 2345 },
 		'ssr-build': {
 			'ssr-bundle.js': { size: 19820 },
-			'ssr-bundle.js.map': { size: 95581 },
+			'ssr-bundle.js.map': { size: 101502 },
 			'style.css': { size: 1065 },
 			'style.css.map': { size: 2345 },
 		}
diff --git a/tests/subjects/custom-babelrc/.babelrc b/tests/subjects/custom-babelrc/.babelrc
index fa5b8e976..d30f308f0 100644
--- a/tests/subjects/custom-babelrc/.babelrc
+++ b/tests/subjects/custom-babelrc/.babelrc
@@ -1,6 +1,7 @@
 {
   "plugins": [
     "transform-regenerator",
+    ["transform-react-jsx", { "pragma": "h" }],
     ["transform-runtime", {
       "helpers": false,
       "polyfill": false,
diff --git a/tests/subjects/custom-babelrc/index.js b/tests/subjects/custom-babelrc/index.js
index 0f12696de..c1c4fc867 100644
--- a/tests/subjects/custom-babelrc/index.js
+++ b/tests/subjects/custom-babelrc/index.js
@@ -1,4 +1,4 @@
-import { Component } from 'preact';
+import { h, Component } from 'preact';
 
 const delay = t => new Promise(r => setTimeout(r, t));