diff --git a/src/index.js b/src/index.js
index 9932b012..e2027374 100644
--- a/src/index.js
+++ b/src/index.js
@@ -23,8 +23,6 @@ const pkg = require("../package.json");
 const cache = require("./cache");
 const transform = require("./transform");
 
-const relative = require("./utils/relative");
-
 const loaderUtils = require("loader-utils");
 
 function subscribe(subscriber, metadata, context) {
@@ -77,19 +75,21 @@ async function loader(source, inputSourceMap, overrides) {
     );
   }
 
-  // Set babel-loader's default options.
-  const {
-    sourceRoot = process.cwd(),
-    sourceMap = this.sourceMap,
-    sourceFileName = relative(sourceRoot, filename),
-  } = loaderOptions;
-
   const programmaticOptions = Object.assign({}, loaderOptions, {
     filename,
     inputSourceMap: inputSourceMap || undefined,
-    sourceRoot,
-    sourceMap,
-    sourceFileName,
+
+    // Set the default sourcemap behavior based on Webpack's mapping flag,
+    // but allow users to override if they want.
+    sourceMap:
+      loaderOptions.sourceMap === undefined
+        ? this.sourceMap
+        : loaderOptions.sourceMap,
+
+    // Ensure that Webpack will get a full absolute path in the sourcemap
+    // so that it can properly map the module back to its internal cached
+    // modules.
+    sourceFileName: filename,
   });
   // Remove loader related options
   delete programmaticOptions.cacheDirectory;
diff --git a/src/utils/relative.js b/src/utils/relative.js
deleted file mode 100644
index 1321e02d..00000000
--- a/src/utils/relative.js
+++ /dev/null
@@ -1,14 +0,0 @@
-const path = require("path");
-
-module.exports = function relative(root, file) {
-  const rootPath = root.replace(/\\/g, "/").split("/")[1];
-  const filePath = file.replace(/\\/g, "/").split("/")[1];
-
-  // If the file is in a completely different root folder
-  // use the absolute path of the file
-  if (rootPath && rootPath !== filePath) {
-    return file;
-  }
-
-  return path.relative(root, file);
-};
diff --git a/test/sourcemaps.test.js b/test/sourcemaps.test.js
index 0b451ae5..10f470fa 100644
--- a/test/sourcemaps.test.js
+++ b/test/sourcemaps.test.js
@@ -72,3 +72,47 @@ test.cb("should output webpack's sourcemap", t => {
     });
   });
 });
+
+test.cb("should output webpack's devtoolModuleFilename option", t => {
+  const config = Object.assign({}, globalConfig, {
+    devtool: "source-map",
+    output: {
+      path: t.context.directory,
+      devtoolModuleFilenameTemplate: "==[absolute-resource-path]==",
+    },
+    module: {
+      rules: [
+        {
+          test: /\.jsx?/,
+          loader: babelLoader + "?presets[]=@babel/env",
+          exclude: /node_modules/,
+        },
+      ],
+    },
+  });
+
+  webpack(config, (err, stats) => {
+    t.is(err, null);
+    t.is(stats.compilation.errors.length, 0);
+    t.is(stats.compilation.warnings.length, 0);
+
+    fs.readdir(t.context.directory, (err, files) => {
+      t.is(err, null);
+
+      const map = files.filter(file => file.indexOf(".map") !== -1);
+
+      t.true(map.length > 0);
+
+      if (map.length > 0) {
+        fs.readFile(path.resolve(t.context.directory, map[0]), (err, data) => {
+          t.is(err, null);
+
+          // The full absolute path is included in the sourcemap properly
+          t.not(data.toString().indexOf(`==${globalConfig.entry}==`), -1);
+
+          t.end();
+        });
+      }
+    });
+  });
+});
diff --git a/test/utils/relative.test.js b/test/utils/relative.test.js
deleted file mode 100644
index 96183b2d..00000000
--- a/test/utils/relative.test.js
+++ /dev/null
@@ -1,37 +0,0 @@
-import test from "ava";
-import os from "os";
-import relative from "../../lib/utils/relative.js";
-
-if (os.platform() === "win32") {
-  test("should get correct relative path - depth 0 - windows", t => {
-    t.is(relative("C:\\the\\root", "C:\\the\\root\\one.js"), "one.js");
-  });
-
-  test("should get correct relative path - depth 1 - windows", t => {
-    t.is(relative("C:\\the\\root", "C:\\the\\rootone.js"), "..\\rootone.js");
-  });
-
-  test("should get correct relative path - depth 2 - windows", t => {
-    t.is(relative("C:\\the\\root", "C:\\therootone.js"), "C:\\therootone.js");
-  });
-
-  test("should get correct relative path with main root - depth 0 - windows", t => {
-    t.is(relative("C:\\", "C:\\the\\root\\one.js"), "the\\root\\one.js");
-  });
-} else {
-  test("should get correct relative path - depth 0", t => {
-    t.is(relative("/the/root", "/the/root/one.js"), "one.js");
-  });
-
-  test("should get correct relative path - depth 1", t => {
-    t.is(relative("/the/root", "/the/rootone.js"), "../rootone.js");
-  });
-
-  test("should get correct relative path - depth 2", t => {
-    t.is(relative("/the/root", "/therootone.js"), "/therootone.js");
-  });
-
-  test("should get correct relative path with main root - depth 0", t => {
-    t.is(relative("/", "/the/root/one.js"), "the/root/one.js");
-  });
-}