diff --git a/.github/workflows/test.yml b/.github/workflows/test.yml
index 60a3063..c332e63 100644
--- a/.github/workflows/test.yml
+++ b/.github/workflows/test.yml
@@ -406,6 +406,25 @@ jobs:
           src: >-
             __tests__/fixtures/python-project/src/python_project/__init__.py
             __tests__/fixtures/python-project/src/python_project/hello_world.py
+  test-parent-directory-pyproject:
+    runs-on: ubuntu-latest
+    steps:
+      - uses: actions/checkout@08c6903cd8c0fde910a37f88322edcfb5dd907a8 # v5.0.0
+        with:
+          persist-credentials: false
+      - name: Use version from parent directory pyproject.toml
+        id: ruff-action
+        uses: ./
+        with:
+          src: __tests__/fixtures/parent-config-project/subproject
+      - name: Correct version gets installed
+        run: |
+          if [ "$RUFF_VERSION" != "0.10.0" ]; then
+            echo "Expected version 0.10.0 but got $RUFF_VERSION"
+            exit 1
+          fi
+        env:
+          RUFF_VERSION: ${{ steps.ruff-action.outputs.ruff-version }}
 
   all-tests-passed:
     runs-on: ubuntu-latest
@@ -431,6 +450,7 @@ jobs:
       - test-args
       - test-failure
       - test-multiple-src
+      - test-parent-directory-pyproject
     if: always()
     steps:
       - name: All tests passed
diff --git a/__tests__/fixtures/parent-config-project/pyproject.toml b/__tests__/fixtures/parent-config-project/pyproject.toml
new file mode 100644
index 0000000..b88937e
--- /dev/null
+++ b/__tests__/fixtures/parent-config-project/pyproject.toml
@@ -0,0 +1,13 @@
+[project]
+name = "parent-config-project"
+version = "0.1.0"
+description = "Test fixture for parent directory pyproject.toml search"
+readme = "README.md"
+requires-python = ">=3.12"
+dependencies = [
+    "ruff==0.10.0",
+]
+
+[build-system]
+requires = ["hatchling"]
+build-backend = "hatchling.build"
diff --git a/__tests__/fixtures/parent-config-project/subproject/hello.py b/__tests__/fixtures/parent-config-project/subproject/hello.py
new file mode 100644
index 0000000..9bbdc0c
--- /dev/null
+++ b/__tests__/fixtures/parent-config-project/subproject/hello.py
@@ -0,0 +1,3 @@
+"""Hello world example."""
+
+print("Hello, world!")
diff --git a/dist/ruff-action/index.js b/dist/ruff-action/index.js
index c460e43..2ae53e4 100644
Binary files a/dist/ruff-action/index.js and b/dist/ruff-action/index.js differ
diff --git a/src/ruff-action.ts b/src/ruff-action.ts
index e3a7ce2..0d4de6c 100644
--- a/src/ruff-action.ts
+++ b/src/ruff-action.ts
@@ -1,4 +1,3 @@
-import * as fs from "node:fs";
 import * as path from "node:path";
 import * as core from "@actions/core";
 import * as exec from "@actions/exec";
@@ -23,6 +22,7 @@ import {
   type Platform,
 } from "./utils/platforms";
 import { getRuffVersionFromRequirementsFile } from "./utils/pyproject";
+import { findPyprojectToml } from "./utils/pyproject-finder";
 
 async function run(): Promise<void> {
   const platform = getPlatform();
@@ -107,9 +107,12 @@ async function determineVersion(): Promise<string> {
     }
     return await resolveVersion(versionFromPyproject || "latest", githubToken);
   }
-  const pyProjectPath = path.join(src, "pyproject.toml");
-  if (!fs.existsSync(pyProjectPath)) {
-    core.info(`Could not find ${pyProjectPath}. Using latest version.`);
+  const pyProjectPath = findPyprojectToml(
+    src,
+    process.env.GITHUB_WORKSPACE || ".",
+  );
+  if (!pyProjectPath) {
+    core.info(`Could not find pyproject.toml. Using latest version.`);
     return await resolveVersion("latest", githubToken);
   }
   const versionFromPyproject =
diff --git a/src/utils/pyproject-finder.test.ts b/src/utils/pyproject-finder.test.ts
new file mode 100644
index 0000000..f0b4872
--- /dev/null
+++ b/src/utils/pyproject-finder.test.ts
@@ -0,0 +1,183 @@
+import * as path from "node:path";
+import * as core from "@actions/core";
+import { findPyprojectToml } from "./pyproject-finder";
+
+jest.mock("@actions/core", () => ({
+  debug: jest.fn(),
+  info: jest.fn(),
+}));
+
+describe("findPyprojectToml", () => {
+  beforeEach(() => {
+    jest.clearAllMocks();
+  });
+
+  describe("when pyproject.toml exists in src directory", () => {
+    it("should return the exact path", () => {
+      const fixturesDir = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+      );
+      const workspaceRoot = path.join(__dirname, "..", "..");
+
+      const result = findPyprojectToml(fixturesDir, workspaceRoot);
+
+      expect(result).toContain("pyproject.toml");
+      expect(result).toContain("fixtures");
+      expect(core.info).toHaveBeenCalled();
+    });
+  });
+
+  describe("when pyproject.toml exists only in parent directory", () => {
+    it("should search upwards and find the parent's pyproject.toml", () => {
+      // subproject doesn't have a pyproject.toml, but its parent (parent-config-project) does
+      const subprojectDir = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+        "parent-config-project",
+        "subproject",
+      );
+      const workspaceRoot = path.join(__dirname, "..", "..");
+
+      const result = findPyprojectToml(subprojectDir, workspaceRoot);
+
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+      expect(result).toContain("parent-config-project");
+      expect(core.info).toHaveBeenCalled();
+    });
+  });
+
+  describe("boundary conditions", () => {
+    it("should stop searching at workspace root and return undefined when not found", () => {
+      // Create a path that won't have pyproject.toml above it
+      const nodeModulesDir = path.join(
+        __dirname,
+        "..",
+        "..",
+        "node_modules",
+        "@actions",
+      );
+      const workspaceRoot = path.join(__dirname, "..", "..");
+
+      const result = findPyprojectToml(nodeModulesDir, workspaceRoot);
+
+      // Should return undefined since there's no pyproject.toml in the search path
+      expect(result).toBeUndefined();
+      expect(core.info).not.toHaveBeenCalledWith(
+        expect.stringContaining("Found pyproject.toml"),
+      );
+    });
+
+    it("should find pyproject.toml when it exists at workspace root", () => {
+      // Use parent-config-project as the "workspace root" for this test
+      // Start from subproject (which has no pyproject.toml) to search up to workspace root
+      const subprojectDir = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+        "parent-config-project",
+        "subproject",
+      );
+      const workspaceRoot = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+        "parent-config-project",
+      );
+
+      const result = findPyprojectToml(subprojectDir, workspaceRoot);
+
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+      expect(result).toContain("parent-config-project");
+    });
+
+    it("should stop at workspace root even if searching from it", () => {
+      const workspaceRoot = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+      );
+
+      const result = findPyprojectToml(workspaceRoot, workspaceRoot);
+
+      // Should find pyproject.toml at workspace root
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+      expect(result).toContain("fixtures");
+    });
+  });
+
+  describe("edge cases", () => {
+    it("should handle relative paths", () => {
+      const srcDir = "./__tests__/fixtures";
+      const workspaceRoot = ".";
+
+      const result = findPyprojectToml(srcDir, workspaceRoot);
+
+      // Should work with relative paths
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+    });
+
+    it("should handle when src equals workspace root", () => {
+      const workspaceRoot = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+      );
+      const result = findPyprojectToml(workspaceRoot, workspaceRoot);
+
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+      expect(result).toContain("fixtures");
+    });
+
+    it("should log debug messages for each checked path", () => {
+      const pythonProjectDir = path.join(
+        __dirname,
+        "..",
+        "..",
+        "__tests__",
+        "fixtures",
+        "python-project",
+      );
+      const workspaceRoot = path.join(__dirname, "..", "..");
+
+      findPyprojectToml(pythonProjectDir, workspaceRoot);
+
+      expect(core.debug).toHaveBeenCalled();
+      const debugCalls = (core.debug as jest.Mock).mock.calls;
+      expect(debugCalls.length).toBeGreaterThan(0);
+
+      // First debug call should be for the starting directory
+      expect(debugCalls[0][0]).toContain("Checking for");
+      expect(debugCalls[0][0]).toContain("python-project");
+    });
+
+    it("should handle paths with trailing slashes", () => {
+      const fixturesDir = `${path.join(__dirname, "..", "..", "__tests__", "fixtures")}/`;
+      const workspaceRoot = path.join(__dirname, "..", "..");
+
+      const result = findPyprojectToml(fixturesDir, workspaceRoot);
+
+      expect(result).toBeTruthy();
+      expect(result).toContain("pyproject.toml");
+    });
+  });
+});
diff --git a/src/utils/pyproject-finder.ts b/src/utils/pyproject-finder.ts
new file mode 100644
index 0000000..cde0812
--- /dev/null
+++ b/src/utils/pyproject-finder.ts
@@ -0,0 +1,79 @@
+import * as fs from "node:fs";
+import * as path from "node:path";
+import * as core from "@actions/core";
+
+/**
+ * Search for a pyproject.toml file starting from the given directory
+ * and traversing upwards through parent directories until reaching
+ * the GitHub workspace root.
+ *
+ * @param startDir The directory to start the search from (e.g., the src input)
+ * @param workspaceRoot The GitHub workspace directory (GITHUB_WORKSPACE)
+ * @returns The path to the found pyproject.toml, or undefined if not found
+ */
+export function findPyprojectToml(
+  startDir: string,
+  workspaceRoot: string,
+): string | undefined {
+  let currentDir = path.resolve(startDir);
+  const resolvedWorkspaceRoot = path.resolve(workspaceRoot);
+
+  while (true) {
+    const pyprojectPath = path.join(currentDir, "pyproject.toml");
+    core.debug(`Checking for ${pyprojectPath}`);
+
+    if (fs.existsSync(pyprojectPath)) {
+      core.info(`Found pyproject.toml at ${pyprojectPath}`);
+      return pyprojectPath;
+    }
+
+    // Check if we've reached the workspace root
+    if (currentDir === resolvedWorkspaceRoot) {
+      // If we're at workspace root and didn't find it, stop searching
+      break;
+    }
+
+    // Move up to parent directory
+    const parentDir = path.dirname(currentDir);
+
+    // If parent is the same as current, we've reached the filesystem root
+    if (parentDir === currentDir) {
+      break;
+    }
+
+    currentDir = parentDir;
+
+    // If we've gone past the workspace root, stop searching
+    if (isPathWithinWorkspace(currentDir, resolvedWorkspaceRoot) === false) {
+      break;
+    }
+  }
+
+  return undefined;
+}
+
+/**
+ * Check if a given path is within or equal to the workspace root.
+ *
+ * @param checkPath The path to check
+ * @param workspaceRoot The workspace root directory
+ * @returns true if within or equal to workspace, false if outside, undefined if can't determine
+ */
+function isPathWithinWorkspace(
+  checkPath: string,
+  workspaceRoot: string,
+): boolean | undefined {
+  try {
+    const checkPathResolved = path.resolve(checkPath);
+    const workspaceRootResolved = path.resolve(workspaceRoot);
+
+    // Check if checkPath starts with workspaceRoot (case-insensitive on Windows)
+    const relativePath = path.relative(
+      workspaceRootResolved,
+      checkPathResolved,
+    );
+    return !relativePath.startsWith("..") && !path.isAbsolute(relativePath);
+  } catch {
+    return undefined;
+  }
+}