diff --git a/CHANGELOG.rst b/CHANGELOG.rst
index 59c5c82b9f..2c04fe4e85 100644
--- a/CHANGELOG.rst
+++ b/CHANGELOG.rst
@@ -2,6 +2,11 @@
 CHANGELOG
 =========
 
+1.9.3dev
+========
+
+* bug-fix: Local Mode: Create output/data directory expected by SageMaker Container.
+
 1.9.2
 =====
 
diff --git a/src/sagemaker/local/image.py b/src/sagemaker/local/image.py
index bca0599dd3..00de74b225 100644
--- a/src/sagemaker/local/image.py
+++ b/src/sagemaker/local/image.py
@@ -85,6 +85,8 @@ def train(self, input_data_config, hyperparameters):
         """
         self.container_root = self._create_tmp_folder()
         os.mkdir(os.path.join(self.container_root, 'output'))
+        # create output/data folder since sagemaker-containers 2.0 expects it
+        os.mkdir(os.path.join(self.container_root, 'output', 'data'))
         # A shared directory for all the containers. It is only mounted if the training script is
         # Local.
         shared_dir = os.path.join(self.container_root, 'shared')
@@ -386,7 +388,7 @@ def _generate_compose_file(self, command, additional_volumes=None, additional_en
         environment.extend(additional_env_vars)
 
         if command == 'train':
-            optml_dirs = {'output', 'input'}
+            optml_dirs = {'output', 'output/data', 'input'}
 
         services = {
             h: self._create_docker_host(h, environment, optml_dirs,
diff --git a/tests/unit/test_image.py b/tests/unit/test_image.py
index be145aee11..328e53a6c1 100644
--- a/tests/unit/test_image.py
+++ b/tests/unit/test_image.py
@@ -245,6 +245,10 @@ def test_train(_download_folder, _cleanup, popen, _stream_output, LocalSession,
                 assert config['services'][h]['image'] == image
                 assert config['services'][h]['command'] == 'train'
 
+        # assert that expected by sagemaker container output directories exist
+        assert os.path.exists(os.path.join(sagemaker_container.container_root, 'output'))
+        assert os.path.exists(os.path.join(sagemaker_container.container_root, 'output/data'))
+
 
 @patch('sagemaker.local.local_session.LocalSession')
 @patch('sagemaker.local.image._stream_output', side_effect=RuntimeError('this is expected'))