diff --git a/internal/providercache/installer.go b/internal/providercache/installer.go
index c0fe08406..bd1d95619 100644
--- a/internal/providercache/installer.go
+++ b/internal/providercache/installer.go
@@ -400,6 +400,14 @@ NeedProvider:
 			}
 			continue
 		}
+		if _, err := cached.ExecutableFile(); err != nil {
+			err := fmt.Errorf("provider binary not found: %s", err)
+			errs[provider] = err
+			if cb := evts.HashPackageFailure; cb != nil {
+				cb(provider, version, err)
+			}
+			continue
+		}
 		hash, err := cached.Hash()
 		if err != nil {
 			errs[provider] = fmt.Errorf("failed to calculate checksum for installed provider %s package: %s", provider, err)
diff --git a/internal/providercache/installer_test.go b/internal/providercache/installer_test.go
index 46d962407..22b20962d 100644
--- a/internal/providercache/installer_test.go
+++ b/internal/providercache/installer_test.go
@@ -11,12 +11,102 @@ import (
 	"strings"
 	"testing"
 
+	"github.com/google/go-cmp/cmp"
 	svchost "github.com/hashicorp/terraform-svchost"
 	"github.com/hashicorp/terraform-svchost/disco"
 	"github.com/hashicorp/terraform/addrs"
 	"github.com/hashicorp/terraform/internal/getproviders"
 )
 
+func TestEnsureProviderVersions_local_source(t *testing.T) {
+	// create filesystem source using the test provider cache dir
+	source := getproviders.NewFilesystemMirrorSource("testdata/cachedir")
+
+	// create a temporary workdir
+	tmpDirPath, err := ioutil.TempDir("", "terraform-test-providercache")
+	if err != nil {
+		t.Fatal(err)
+	}
+	defer os.RemoveAll(tmpDirPath)
+
+	// set up the installer using the temporary directory and filesystem source
+	platform := getproviders.Platform{OS: "linux", Arch: "amd64"}
+	dir := NewDirWithPlatform(tmpDirPath, platform)
+	installer := NewInstaller(dir, source)
+
+	tests := map[string]struct {
+		provider  string
+		version   string
+		installed bool
+		err       string
+	}{
+		"install-unpacked": {
+			provider:  "null",
+			version:   "2.0.0",
+			installed: true,
+		},
+		"invalid-zip-file": {
+			provider:  "null",
+			version:   "2.1.0",
+			installed: false,
+			err:       "zip: not a valid zip file",
+		},
+		"version-constraint-unmet": {
+			provider:  "null",
+			version:   "2.2.0",
+			installed: false,
+			err:       "no available releases match the given constraints 2.2.0",
+		},
+		"missing-executable": {
+			provider:  "missing/executable",
+			version:   "2.0.0",
+			installed: true,
+			err:       "provider binary not found: could not find executable file starting with terraform-provider-executable",
+		},
+	}
+
+	for name, test := range tests {
+		t.Run(name, func(t *testing.T) {
+			ctx := context.TODO()
+
+			provider := addrs.MustParseProviderSourceString(test.provider)
+			versionConstraint := getproviders.MustParseVersionConstraints(test.version)
+			version := getproviders.MustParseVersion(test.version)
+			reqs := getproviders.Requirements{
+				provider: versionConstraint,
+			}
+			wantSelected := getproviders.Selections{provider: version}
+			if !test.installed {
+				wantSelected = getproviders.Selections{}
+			}
+
+			selected, err := installer.EnsureProviderVersions(ctx, reqs, InstallNewProvidersOnly)
+
+			if diff := cmp.Diff(wantSelected, selected); diff != "" {
+				t.Errorf("wrong selected\n%s", diff)
+			}
+
+			if test.err == "" && err == nil {
+				return
+			}
+
+			switch err := err.(type) {
+			case InstallerError:
+				providerError, ok := err.ProviderErrors[provider]
+				if !ok {
+					t.Fatalf("did not get error for provider %s", provider)
+				}
+
+				if got := providerError.Error(); got != test.err {
+					t.Fatalf("wrong result\ngot:  %s\nwant: %s\n", got, test.err)
+				}
+			default:
+				t.Fatalf("wrong error type. Expected InstallerError, got %T", err)
+			}
+		})
+	}
+}
+
 // This test only verifies protocol errors and does not try for successfull
 // installation (at the time of writing, the test files aren't signed so the
 // signature verification fails); that's left to the e2e tests.