diff --git a/bake/compose.go b/bake/compose.go
index 84c1fd4fe1b9..8151cc46fd5e 100644
--- a/bake/compose.go
+++ b/bake/compose.go
@@ -263,10 +263,13 @@ func loadDotEnv(curenv map[string]string, workingDir string) (map[string]string,
 		return nil, err
 	}
 
-	if _, err = os.Stat(ef); os.IsNotExist(err) {
-		return curenv, nil
-	} else if err != nil {
+	if st, err := os.Stat(ef); err != nil {
+		if os.IsNotExist(err) {
+			return curenv, nil
+		}
 		return nil, err
+	} else if st.IsDir() {
+		return curenv, nil
 	}
 
 	dt, err := os.ReadFile(ef)
diff --git a/bake/compose_test.go b/bake/compose_test.go
index 9a5e97de2532..6c04b7f5cbd4 100644
--- a/bake/compose_test.go
+++ b/bake/compose_test.go
@@ -846,6 +846,22 @@ services:
 	require.Equal(t, map[string]string{"base": "target:base"}, c.Targets[1].Contexts)
 }
 
+func TestDotEnvDir(t *testing.T) {
+	tmpdir := t.TempDir()
+	require.NoError(t, os.Mkdir(filepath.Join(tmpdir, ".env"), 0755))
+
+	dt := []byte(`
+services:
+  foo:
+    build:
+     context: .
+`)
+
+	chdir(t, tmpdir)
+	_, err := ParseComposeFiles([]File{{Name: "compose.yml", Data: dt}})
+	require.NoError(t, err)
+}
+
 // chdir changes the current working directory to the named directory,
 // and then restore the original working directory at the end of the test.
 func chdir(t *testing.T, dir string) {