diff --git a/CHANGELOG.md b/CHANGELOG.md
index 7655158757..7c4b6b0f52 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -25,6 +25,7 @@
 
 #### :bug: Bug fix
 
+- Rewatch: rebuild source dependencies when the consuming project's package output settings change. https://github.com/rescript-lang/rescript/pull/8540
 - Preserve multibyte characters when wrapping long source lines in compiler code frames. https://github.com/rescript-lang/rescript/pull/8520
 
 #### :memo: Documentation
diff --git a/rewatch/src/build.rs b/rewatch/src/build.rs
index 1c02d28da6..f3e6186e24 100644
--- a/rewatch/src/build.rs
+++ b/rewatch/src/build.rs
@@ -11,7 +11,9 @@ pub mod read_compile_state;
 
 use self::parse::parser_args;
 use crate::build::compile::{mark_modules_with_deleted_deps_dirty, mark_modules_with_expired_deps_dirty};
-use crate::build::compiler_info::{CompilerCheckResult, verify_compiler_info, write_compiler_info};
+use crate::build::compiler_info::{
+    CompilerCheckResult, get_package_output_specs, verify_compiler_info, write_compiler_info,
+};
 use crate::config::SourceMapCommand;
 use crate::helpers::emojis::*;
 use crate::helpers::{self};
@@ -191,7 +193,8 @@ pub fn initialize_build(
     let source_map_args = project_context
         .get_root_config()
         .get_source_map_args(source_map_command);
-    let compiler_check = verify_compiler_info(&packages, &compiler, &source_map_args);
+    let package_output_specs = get_package_output_specs(project_context.get_root_config());
+    let compiler_check = verify_compiler_info(&packages, &compiler, &source_map_args, &package_output_specs);
 
     if !packages::validate_packages_dependencies(&packages) {
         return Err(anyhow!("Failed to validate package dependencies"));
diff --git a/rewatch/src/build/clean.rs b/rewatch/src/build/clean.rs
index 7fe006c728..041f756b42 100644
--- a/rewatch/src/build/clean.rs
+++ b/rewatch/src/build/clean.rs
@@ -33,7 +33,7 @@ fn remove_iast(package: &packages::Package, source_file: &Path) {
     ));
 }
 
-fn remove_mjs_file(source_file: &Path, suffix: &str) {
+pub(crate) fn remove_js_file(source_file: &Path, suffix: &str) {
     let js_file = source_file.with_extension(
         // suffix.to_string includes the ., so we need to remove it
         &suffix[1..],
@@ -102,7 +102,7 @@ fn clean_source_files(build_state: &BuildState, root_config: &Config) {
 
     rescript_file_locations
         .par_iter()
-        .for_each(|(rescript_file_location, suffix)| remove_mjs_file(rescript_file_location, suffix));
+        .for_each(|(rescript_file_location, suffix)| remove_js_file(rescript_file_location, suffix));
 }
 
 // TODO: change to scan_previous_build => CompileAssetsState
@@ -145,7 +145,7 @@ pub fn cleanup_previous_build(
                 .get(package_name)
                 .expect("Could not find package");
             remove_compile_assets(package, res_file_location);
-            remove_mjs_file(res_file_location, suffix);
+            remove_js_file(res_file_location, suffix);
             remove_iast(package, res_file_location);
             remove_ast(package, res_file_location);
             match helpers::get_extension(ast_file_path).as_str() {
diff --git a/rewatch/src/build/compiler_info.rs b/rewatch/src/build/compiler_info.rs
index dddacc8ee1..233cfabfe3 100644
--- a/rewatch/src/build/compiler_info.rs
+++ b/rewatch/src/build/compiler_info.rs
@@ -9,6 +9,25 @@ use serde::{Deserialize, Serialize};
 use std::fs::File;
 use std::io::Write;
 
+#[derive(Serialize, Deserialize, Debug, PartialEq)]
+pub(crate) struct PackageOutputSpec {
+    module: String,
+    in_source: bool,
+    suffix: String,
+}
+
+pub(crate) fn get_package_output_specs(config: &crate::config::Config) -> Vec<PackageOutputSpec> {
+    config
+        .get_package_specs()
+        .iter()
+        .map(|spec| PackageOutputSpec {
+            module: spec.module.as_str().to_string(),
+            in_source: spec.in_source,
+            suffix: config.get_suffix(spec),
+        })
+        .collect()
+}
+
 // In order to have a loose coupling with the compiler, we don't want to have a hard dependency on the compiler's structs
 // We can use this struct to parse the compiler-info.json file
 // If something is not there, that is fine, we will treat it as a mismatch
@@ -19,6 +38,7 @@ struct CompilerInfoFile {
     bsc_hash: String,
     rescript_config_hash: String,
     source_map_args: Vec<String>,
+    package_output_specs: Vec<PackageOutputSpec>,
     runtime_path: String,
     generated_at: String,
 }
@@ -28,29 +48,61 @@ pub enum CompilerCheckResult {
     CleanedPackagesDueToCompiler,
 }
 
+fn remove_package_outputs(package: &packages::Package, output_specs: &[PackageOutputSpec]) {
+    let Some(source_files) = &package.source_files else {
+        return;
+    };
+
+    for output_spec in output_specs {
+        let output_dir = match output_spec.module.as_str() {
+            "commonjs" => package.get_js_path(),
+            "esmodule" => package.get_esmodule_path(),
+            _ => continue,
+        };
+
+        source_files
+            .keys()
+            .filter(|source_file| {
+                source_file
+                    .extension()
+                    .and_then(|extension| extension.to_str())
+                    .is_some_and(helpers::is_implementation_file)
+            })
+            .for_each(|source_file| {
+                let source_file = if output_spec.in_source {
+                    package.path.join(source_file)
+                } else {
+                    output_dir.join(source_file)
+                };
+                clean::remove_js_file(&source_file, &output_spec.suffix);
+            });
+    }
+}
+
 fn get_rescript_config_hash(package: &packages::Package) -> Option<String> {
     helpers::compute_file_hash(&package.config.path).map(|hash| hash.to_hex().to_string())
 }
 
-pub fn verify_compiler_info(
+pub(crate) fn verify_compiler_info(
     packages: &AHashMap<String, packages::Package>,
     compiler: &CompilerInfo,
     source_map_args: &[String],
+    package_output_specs: &[PackageOutputSpec],
 ) -> CompilerCheckResult {
     let mismatched_packages = packages
         .values()
-        .filter(|package| {
+        .filter_map(|package| {
             let info_path = package.get_compiler_info_path();
             let Ok(contents) = std::fs::read_to_string(&info_path) else {
                 // Can't read the compiler-info.json file, maybe there is no current build.
                 // We check if the ocaml build folder exists, if not, we assume the compiler is not installed
-                return logs::does_ocaml_build_compiler_log_exist(package);
+                return logs::does_ocaml_build_compiler_log_exist(package).then_some((package, None));
             };
 
             let parsed: Result<CompilerInfoFile, _> = serde_json::from_str(&contents);
             let parsed = match parsed {
                 Ok(p) => p,
-                Err(_) => return true, // unknown or invalid format -> treat as mismatch
+                Err(_) => return Some((package, None)), // unknown or invalid format -> treat as mismatch
             };
 
             let current_bsc_path_str = compiler.bsc_path.to_string_lossy();
@@ -58,7 +110,7 @@ pub fn verify_compiler_info(
             let current_runtime_path_str = compiler.runtime_path.to_string_lossy();
             let current_rescript_config_hash = match get_rescript_config_hash(package) {
                 Some(hash) => hash,
-                None => return true, // can't compute hash -> treat as mismatch
+                None => return Some((package, None)), // can't compute hash -> treat as mismatch
             };
 
             let mut mismatch = false;
@@ -107,16 +159,35 @@ pub fn verify_compiler_info(
                 );
                 mismatch = true;
             }
+            let package_output_specs_changed = parsed.package_output_specs != package_output_specs;
+            if package_output_specs_changed {
+                log::debug!(
+                    "compiler-info mismatch for {}: package_output_specs changed (stored={:?}, current={:?})",
+                    package.name,
+                    parsed.package_output_specs,
+                    package_output_specs
+                );
+                mismatch = true;
+            }
 
-            mismatch
+            mismatch.then(|| {
+                let previous_output_specs =
+                    package_output_specs_changed.then_some(parsed.package_output_specs);
+                (package, previous_output_specs)
+            })
         })
         .collect::<Vec<_>>();
 
     let cleaned_count = mismatched_packages.len();
-    mismatched_packages.par_iter().for_each(|package| {
-        // suppress progress printing during init to avoid breaking step output
-        clean::clean_package(false, true, package);
-    });
+    mismatched_packages
+        .into_par_iter()
+        .for_each(|(package, previous_output_specs)| {
+            if let Some(previous_output_specs) = previous_output_specs {
+                remove_package_outputs(package, &previous_output_specs);
+            }
+            // suppress progress printing during init to avoid breaking step output
+            clean::clean_package(false, true, package);
+        });
     if cleaned_count == 0 {
         CompilerCheckResult::SameCompilerAsLastRun
     } else {
@@ -124,7 +195,7 @@ pub fn verify_compiler_info(
     }
 }
 
-pub fn write_compiler_info(build_state: &BuildCommandState) {
+pub(crate) fn write_compiler_info(build_state: &BuildCommandState) {
     let bsc_path = build_state.compiler_info.bsc_path.to_string_lossy().to_string();
     let bsc_hash = build_state.compiler_info.bsc_hash.to_hex().to_string();
     let runtime_path = build_state
@@ -135,6 +206,7 @@ pub fn write_compiler_info(build_state: &BuildCommandState) {
     let source_map_args = build_state
         .get_root_config()
         .get_source_map_args(build_state.source_map_command);
+    let package_output_specs = get_package_output_specs(build_state.get_root_config());
     // derive version from the crate version
     let version = env!("CARGO_PKG_VERSION").to_string();
     let generated_at = crate::helpers::get_system_time().to_string();
@@ -147,6 +219,7 @@ pub fn write_compiler_info(build_state: &BuildCommandState) {
         bsc_hash: &'a str,
         rescript_config_hash: String,
         source_map_args: &'a [String],
+        package_output_specs: &'a [PackageOutputSpec],
         runtime_path: &'a str,
         generated_at: &'a str,
     }
@@ -159,6 +232,7 @@ pub fn write_compiler_info(build_state: &BuildCommandState) {
                 bsc_hash: &bsc_hash,
                 rescript_config_hash: rescript_config_hash.to_hex().to_string(),
                 source_map_args: &source_map_args,
+                package_output_specs: &package_output_specs,
                 runtime_path: &runtime_path,
                 generated_at: &generated_at,
             };
@@ -225,12 +299,13 @@ pub fn write_compiler_info(build_state: &BuildCommandState) {
 #[cfg(test)]
 mod tests {
     use super::*;
-    use crate::build::packages::{Namespace, Package};
+    use crate::build::packages::{Namespace, Package, SourceFileMeta};
     use crate::config;
     use ahash::{AHashMap, AHashSet};
     use serde_json::json;
     use std::fs;
     use std::path::Path;
+    use std::time::SystemTime;
     use tempfile::TempDir;
 
     fn test_compiler(root: &Path) -> CompilerInfo {
@@ -268,7 +343,12 @@ mod tests {
         }
     }
 
-    fn write_test_compiler_info(package: &Package, compiler: &CompilerInfo, source_map_args: Vec<&str>) {
+    fn write_test_compiler_info(
+        package: &Package,
+        compiler: &CompilerInfo,
+        source_map_args: Vec<&str>,
+        package_output_specs: &[PackageOutputSpec],
+    ) {
         fs::create_dir_all(package.get_build_path()).expect("build directory should be created");
         fs::create_dir_all(package.get_ocaml_build_path()).expect("ocaml build directory should be created");
 
@@ -280,6 +360,7 @@ mod tests {
             "bsc_hash": compiler.bsc_hash.to_hex().to_string(),
             "rescript_config_hash": rescript_config_hash,
             "source_map_args": source_map_args,
+            "package_output_specs": package_output_specs,
             "runtime_path": compiler.runtime_path.to_string_lossy().to_string(),
             "generated_at": "test",
         });
@@ -304,9 +385,20 @@ mod tests {
         let package = test_package(temp_dir.path(), "dep");
         let build_path = package.get_build_path();
         let source_map_args = vec!["-bs-source-map".to_string(), "linked".to_string()];
-        write_test_compiler_info(&package, &compiler, vec!["-bs-source-map", "linked"]);
+        let package_output_specs = get_package_output_specs(&package.config);
+        write_test_compiler_info(
+            &package,
+            &compiler,
+            vec!["-bs-source-map", "linked"],
+            &package_output_specs,
+        );
 
-        let result = verify_compiler_info(&packages_map(package), &compiler, &source_map_args);
+        let result = verify_compiler_info(
+            &packages_map(package),
+            &compiler,
+            &source_map_args,
+            &package_output_specs,
+        );
 
         assert!(matches!(result, CompilerCheckResult::SameCompilerAsLastRun));
         assert!(build_path.exists());
@@ -319,14 +411,70 @@ mod tests {
         let package = test_package(temp_dir.path(), "dep");
         let build_path = package.get_build_path();
         let source_map_args = vec!["-bs-source-map".to_string(), "linked".to_string()];
-        write_test_compiler_info(&package, &compiler, vec!["-bs-source-map", "false"]);
+        let package_output_specs = get_package_output_specs(&package.config);
+        write_test_compiler_info(
+            &package,
+            &compiler,
+            vec!["-bs-source-map", "false"],
+            &package_output_specs,
+        );
+
+        let result = verify_compiler_info(
+            &packages_map(package),
+            &compiler,
+            &source_map_args,
+            &package_output_specs,
+        );
+
+        assert!(matches!(
+            result,
+            CompilerCheckResult::CleanedPackagesDueToCompiler
+        ));
+        assert!(!build_path.exists());
+    }
+
+    #[test]
+    fn verify_compiler_info_cleans_package_when_package_output_specs_change() {
+        let temp_dir = TempDir::new().expect("temp dir should be created");
+        let compiler = test_compiler(temp_dir.path());
+        let mut package = test_package(temp_dir.path(), "dep");
+        let build_path = package.get_build_path();
+        let source_file = Path::new("src/Dep.res").to_path_buf();
+        package.source_files = Some(AHashMap::from_iter([(
+            source_file.clone(),
+            SourceFileMeta {
+                modified: SystemTime::now(),
+                is_type_dev: false,
+            },
+        )]));
+        let previous_output = package.get_js_path().join(source_file).with_extension("cjs");
+        fs::create_dir_all(previous_output.parent().expect("output should have a parent"))
+            .expect("output directory should be created");
+        fs::write(&previous_output, "generated output").expect("previous output should be written");
+        fs::write(previous_output.with_extension("cjs.map"), "source map")
+            .expect("previous source map should be written");
+        let source_map_args = Vec::new();
+        let package_output_specs = get_package_output_specs(&package.config);
+        let previous_package_output_specs = vec![PackageOutputSpec {
+            module: "commonjs".to_string(),
+            in_source: false,
+            suffix: ".cjs".to_string(),
+        }];
+        write_test_compiler_info(&package, &compiler, vec![], &previous_package_output_specs);
 
-        let result = verify_compiler_info(&packages_map(package), &compiler, &source_map_args);
+        let result = verify_compiler_info(
+            &packages_map(package),
+            &compiler,
+            &source_map_args,
+            &package_output_specs,
+        );
 
         assert!(matches!(
             result,
             CompilerCheckResult::CleanedPackagesDueToCompiler
         ));
         assert!(!build_path.exists());
+        assert!(!previous_output.exists());
+        assert!(!previous_output.with_extension("cjs.map").exists());
     }
 }
diff --git a/rewatch/tests/compile/20-rebuild-dependency-for-package-specs.sh b/rewatch/tests/compile/20-rebuild-dependency-for-package-specs.sh
new file mode 100755
index 0000000000..10efb66eed
--- /dev/null
+++ b/rewatch/tests/compile/20-rebuild-dependency-for-package-specs.sh
@@ -0,0 +1,83 @@
+#!/bin/bash
+# Verifies that a source dependency is rebuilt when the consuming project's
+# package output settings change.
+
+cd $(dirname $0)
+source "../utils.sh"
+
+bold "Test: Rebuild dependencies when package specs change"
+
+fixture=$(mktemp -d 2>/dev/null || mktemp -d -t rewatch-package-specs)
+trap "rm -rf '$fixture'" EXIT
+
+mkdir -p "$fixture/src"
+mkdir -p "$fixture/node_modules/shared-dep/src"
+
+cat > "$fixture/package.json" <<'EOF'
+{
+  "name": "host",
+  "version": "0.0.1"
+}
+EOF
+
+cat > "$fixture/rescript.json" <<'EOF'
+{
+  "name": "host",
+  "sources": { "dir": "src" },
+  "dependencies": ["shared-dep"],
+  "package-specs": { "module": "commonjs", "in-source": false, "suffix": ".cjs" }
+}
+EOF
+
+cat > "$fixture/src/Main.res" <<'EOF'
+let value = SharedDep.value
+EOF
+
+cat > "$fixture/node_modules/shared-dep/package.json" <<'EOF'
+{
+  "name": "shared-dep",
+  "version": "0.0.1"
+}
+EOF
+
+cat > "$fixture/node_modules/shared-dep/rescript.json" <<'EOF'
+{
+  "name": "shared-dep",
+  "sources": { "dir": "src" }
+}
+EOF
+
+cat > "$fixture/node_modules/shared-dep/src/SharedDep.res" <<'EOF'
+let value = 42
+EOF
+
+cd "$fixture"
+rewatch build
+
+if [ ! -f "node_modules/shared-dep/lib/js/src/SharedDep.cjs" ]; then
+  error "Expected CommonJS dependency output"
+  exit 1
+fi
+
+cat > "$fixture/rescript.json" <<'EOF'
+{
+  "name": "host",
+  "sources": { "dir": "src" },
+  "dependencies": ["shared-dep"],
+  "package-specs": { "module": "esmodule", "in-source": false, "suffix": ".mjs" }
+}
+EOF
+
+rewatch build
+
+if [ ! -f "node_modules/shared-dep/lib/es6/src/SharedDep.mjs" ]; then
+  error "Expected ES module dependency output after changing package specs"
+  exit 1
+fi
+
+if [ -f "node_modules/shared-dep/lib/js/src/SharedDep.cjs" ]; then
+  error "Expected previous CommonJS dependency output to be removed"
+  exit 1
+fi
+
+success "Source dependency was rebuilt for the new package specs"
diff --git a/rewatch/tests/suite.sh b/rewatch/tests/suite.sh
index 7c7eb518be..a27ef61e69 100755
--- a/rewatch/tests/suite.sh
+++ b/rewatch/tests/suite.sh
@@ -129,6 +129,7 @@ fi
 ./compile/17-prod-flag.sh &&
 ./compile/18-external-dep-uncurried-dot.sh &&
 ./compile/19-utf8-warning.sh &&
+./compile/20-rebuild-dependency-for-package-specs.sh &&
 ./compile/14-no-testrepo-changes.sh &&
 ./compile/15-no-new-files.sh &&
 ./compile/16-snapshots-unchanged.sh &&
diff --git a/rewatch/tests/utils.sh b/rewatch/tests/utils.sh
index eee37596b5..888a6ff372 100644
--- a/rewatch/tests/utils.sh
+++ b/rewatch/tests/utils.sh
@@ -99,3 +99,15 @@ wait_for_file_gone() {
   done
   return 1
 }
+
+wait_for_clean_worktree() {
+  local path="$1"; local timeout="${2:-30}"
+  while [ "$timeout" -gt 0 ]; do
+    if git diff --quiet -- "$path" && [ -z "$(git ls-files --others --exclude-standard -- "$path")" ]; then
+      return 0
+    fi
+    sleep 1
+    timeout=$((timeout - 1))
+  done
+  return 1
+}
diff --git a/rewatch/tests/watch/04-watch-config-change.sh b/rewatch/tests/watch/04-watch-config-change.sh
index 519f77f5e8..57e63f0dcd 100755
--- a/rewatch/tests/watch/04-watch-config-change.sh
+++ b/rewatch/tests/watch/04-watch-config-change.sh
@@ -51,6 +51,15 @@ else
   exit 1
 fi
 
+if ! wait_for_file_gone "./src/Test.mjs" 20; then
+  error "Previous suffix output was not removed after config change"
+  cat rewatch.log
+  replace "s/.res.mjs/.mjs/g" rescript.json
+  git checkout -- ./src/Test.res
+  exit_watcher
+  exit 1
+fi
+
 # Verify the watcher is still running (didn't crash on config change)
 if [ -f lib/watch.lock ]; then
   success "Watcher still running after config change"
@@ -66,12 +75,18 @@ fi
 replace "s/.res.mjs/.mjs/g" rescript.json
 git checkout -- ./src/Test.res
 
-# Wait for rebuild with restored suffix (old .res.mjs should go away)
-if wait_for_file_gone "./src/Test.res.mjs" 20; then
-  success "Rebuild after restore removed old suffix files"
+# Wait for the restored build to finish before stopping the watcher. Merely
+# waiting for the old output to disappear only observes the cleanup phase and
+# can interrupt the slower Windows rebuild before tracked outputs are recreated.
+if wait_for_clean_worktree . 30; then
+  success "Rebuild after restore removed old suffix files and restored outputs"
 else
-  # Clean up manually if the watcher didn't remove them
-  find . -name "*.res.mjs" -delete 2>/dev/null
+  error "Rebuild after restore did not finish"
+  cat rewatch.log
+  exit_watcher
+  git diff .
+  git ls-files --others --exclude-standard .
+  exit 1
 fi
 
 exit_watcher