fix: support babel config file names other than .babelrc

README.md

@@ -351,7 +351,9 @@ Just remember to configure your `netlify.toml` to point to the `Next.js` build f
 
 ## Webpack Configuration
 
-By default the webpack configuration uses `babel-loader` to load all js files. Any `.babelrc` in the directory `netlify-lambda` is run from will be respected. If no `.babelrc` is found, a [few basic settings are used](https://github.com/netlify/netlify-lambda/blob/master/lib/build.js#L11-L15a).
+By default the webpack configuration uses `babel-loader` to load all js files. 
+`netlify-lambda` will search for [a valid babel config file](https://babeljs.io/docs/en/config-files) in the functions directory first and look upwards up to the directory `netlify-lambda` is run from (similar to how `babel-loader` looks for a Babel config file). 
+If no babel config file is found, a [few basic settings are used](https://github.com/netlify/netlify-lambda/blob/master/lib/build.js#L11-L15a).
 
 If you need to use additional webpack modules or loaders, you can specify an additional webpack config with the `-c`/`--config` option when running either `serve` or `build`.
 
@@ -383,7 +385,7 @@ The additional webpack config will be merged into the default config via [webpac
 
 The default webpack configuration uses `babel-loader` with a [few basic settings](https://github.com/netlify/netlify-lambda/blob/master/lib/build.js#L19-L33).
 
-However, if any `.babelrc` is found in the directory `netlify-lambda` is run from, or [folders above it](https://github.com/netlify/netlify-lambda/pull/92) (useful for monorepos), it will be used instead of the default one.
+However, if any valid Babel config file is found in the directory `netlify-lambda` is run from, or [folders above it](https://github.com/netlify/netlify-lambda/pull/92) (useful for monorepos), it will be used instead of the default one.
 
 It is possible to disable this behaviour by passing `--babelrc false`.
 
@@ -401,7 +403,7 @@ npm install --save-dev @babel/preset-typescript
 
 You may also want to add `typescript @types/node @types/aws-lambda`.
 
-2. Create a custom `.babelrc` file:
+2. Create a Babel config file, e.g. `.babelrc`:
 
 ```diff
 {
@@ -465,7 +467,7 @@ If you need an escape hatch and are building your lambda in some way that is inc
 
 Defaults to `true`
 
-Use a `.babelrc` found in the directory `netlify-lambda` is run from. This can be useful when you have conflicting babel-presets, more info [here](#babel-configuration)
+Use a Babel config file found in the directory `netlify-lambda` is run from. This can be useful when you have conflicting babel-presets, more info [here](#babel-configuration)
 
 ## Netlify Identity
 

lib/build.js

@@ -3,6 +3,27 @@ var path = require('path');
 var conf = require('./config');
 var webpack = require('webpack');
 var merge = require('webpack-merge');
+const findUp = require('find-up');
+
+/*
+ * Possible babel files were taken from
+ * https://github.com/babel/babel/blob/master/packages/babel-core/src/config/files/configuration.js#L24
+ */
+
+const BABEL_ROOT_CONFIG_FILENAMES = [
+  'babel.config.js',
+  'babel.config.cjs',
+  'babel.config.mjs',
+  'babel.config.json',
+];
+
+const BABEL_RELATIVE_CONFIG_FILENAMES = [
+  '.babelrc',
+  '.babelrc.js',
+  '.babelrc.cjs',
+  '.babelrc.mjs',
+  '.babelrc.json',
+];
 
 const testFilePattern = '\\.(test|spec)\\.?';
 
@@ -15,25 +36,25 @@ function getBabelTarget(envConfig) {
   return unknown ? '8.15.0' : current.replace(/^nodejs/, '');
 }
 
-function haveBabelrc(functionsDir) {
-  const cwd = process.cwd();
-
-  return (
-    fs.existsSync(path.join(cwd, '.babelrc')) ||
-    functionsDir.split('/').some((dir) => {
-      const indexOf = functionsDir.indexOf(dir);
-      const dirToSearch = functionsDir.substr(0, indexOf);
-
-      return fs.existsSync(path.join(cwd, dirToSearch, '.babelrc'));
-    })
+function existsBabelConfig(functionsDir) {
+  const babelConfigFile = findUp.sync(
+    [...BABEL_ROOT_CONFIG_FILENAMES, ...BABEL_RELATIVE_CONFIG_FILENAMES],
+    {
+      cwd: path.join(process.cwd(), functionsDir),
+    },
   );
+  if (babelConfigFile) {
+    // Ensure babel config files outside of working dir are not accounted for
+    return babelConfigFile.includes(process.cwd());
+  }
+  return false;
 }
 
 function webpackConfig(dir, { userWebpackConfig, useBabelrc } = {}) {
   var config = conf.load();
   var envConfig = conf.loadContext(config).environment;
   var babelOpts = { cacheDirectory: true };
-  if (!haveBabelrc(dir)) {
+  if (!existsBabelConfig(dir)) {
     babelOpts.presets = [
       [
         require.resolve('@babel/preset-env'),