diff --git a/packages/create-payload-app/src/lib/init-next.ts b/packages/create-payload-app/src/lib/init-next.ts
index a6387b876..60c17adce 100644
--- a/packages/create-payload-app/src/lib/init-next.ts
+++ b/packages/create-payload-app/src/lib/init-next.ts
@@ -6,30 +6,42 @@ import type { CliArgs } from '../types'
 
 import { copyRecursiveSync } from '../utils/copy-recursive-sync'
 
-export async function initNext(args: CliArgs): Promise<void> {
-  const { '--debug': debug } = args
-  const projectDir = process.cwd()
+export async function initNext(
+  args: Pick<CliArgs, '--debug'> & { nextDir?: string; useDistFiles?: boolean },
+): Promise<{ success: boolean }> {
+  const { '--debug': debug, nextDir, useDistFiles } = args
+  let projectDir = process.cwd()
+  if (nextDir) {
+    projectDir = path.resolve(projectDir, nextDir)
+    console.log(`Overriding project directory to ${projectDir}`)
+  }
 
-  const foundConfig = (await globby('next.config.*js', { cwd: process.cwd() }))?.[0]
+  if (!fs.existsSync(projectDir)) {
+    console.log(`Could not find specified project directory at ${projectDir}`)
+    return { success: false }
+  }
+
+  const foundConfig = (await globby('next.config.*js', { cwd: projectDir }))?.[0]
   const nextConfigPath = path.resolve(projectDir, foundConfig)
   if (!fs.existsSync(nextConfigPath)) {
     console.log(
       `No next.config.js found at ${nextConfigPath}. Ensure you are in a Next.js project directory.`,
     )
-    process.exit(1)
+    return { success: false }
   } else {
     if (debug) console.log(`Found Next config at ${nextConfigPath}`)
   }
 
-  const templateFilesPath = __dirname.endsWith('dist')
-    ? path.resolve(__dirname, '../..', 'dist/app')
-    : path.resolve(__dirname, '../../../next/src/app')
+  const templateFilesPath =
+    __dirname.endsWith('dist') || useDistFiles
+      ? path.resolve(__dirname, '../..', 'dist/app')
+      : path.resolve(__dirname, '../../../next/src/app')
 
   console.log(`Using template files from: ${templateFilesPath}`)
 
   if (!fs.existsSync(templateFilesPath)) {
     console.log(`Could not find template source files from ${templateFilesPath}`)
-    process.exit(1)
+    return { success: false }
   } else {
     console.log('Found template source files')
   }
@@ -37,11 +49,11 @@ export async function initNext(args: CliArgs): Promise<void> {
   const userAppDir = path.resolve(projectDir, 'src/app')
   if (!fs.existsSync(userAppDir)) {
     console.log(`Could not find user app directory at ${userAppDir}`)
-    process.exit(1)
+    return { success: false }
   } else {
     if (debug) console.log(`Found user app directory: ${userAppDir}`)
   }
 
   copyRecursiveSync(templateFilesPath, userAppDir, debug)
-  process.exit(0)
+  return { success: true }
 }
diff --git a/packages/create-payload-app/src/main.ts b/packages/create-payload-app/src/main.ts
index 96bc9bb44..05459c58f 100644
--- a/packages/create-payload-app/src/main.ts
+++ b/packages/create-payload-app/src/main.ts
@@ -60,8 +60,8 @@ export class Main {
       }
 
       if (this.args['--init-next']) {
-        await initNext(this.args)
-        process.exit(0)
+        const result = await initNext(this.args)
+        process.exit(result.success ? 0 : 1)
       }
 
       const templateArg = this.args['--template']
diff --git a/test/create-payload-app/.gitignore b/test/create-payload-app/.gitignore
new file mode 100644
index 000000000..c9748c226
--- /dev/null
+++ b/test/create-payload-app/.gitignore
@@ -0,0 +1 @@
+test-app
diff --git a/test/create-payload-app/int.spec.ts b/test/create-payload-app/int.spec.ts
new file mode 100644
index 000000000..b4ea0a105
--- /dev/null
+++ b/test/create-payload-app/int.spec.ts
@@ -0,0 +1,48 @@
+import fs from 'fs'
+import path from 'path'
+import shelljs from 'shelljs'
+
+import { initNext } from '../../packages/create-payload-app/src/lib/init-next'
+
+describe('create-payload-app', () => {
+  describe('--init-next', () => {
+    const nextDir = path.resolve(__dirname, 'test-app')
+
+    beforeAll(() => {
+      if (fs.existsSync(nextDir)) {
+        fs.rmdirSync(nextDir, { recursive: true })
+      }
+
+      // Create dir for Next.js project
+      if (!fs.existsSync(nextDir)) {
+        fs.mkdirSync(nextDir)
+      }
+
+      // Create a new Next.js project with default options
+      shelljs.exec(
+        'pnpm create next-app@latest . --typescript --eslint --no-tailwind --app --import-alias="@/*" --src-dir',
+        { cwd: nextDir },
+      )
+    })
+
+    afterAll(() => {
+      if (fs.existsSync(nextDir)) {
+        fs.rmdirSync(nextDir, { recursive: true })
+      }
+    })
+
+    it('should install payload app in Next.js project', async () => {
+      expect(fs.existsSync(nextDir)).toBe(true)
+
+      const result = await initNext({
+        '--debug': true,
+        nextDir,
+        useDistFiles: true, // create-payload-app must be built
+      })
+
+      expect(result.success).toBe(true)
+      const payloadFilesPath = path.resolve(nextDir, 'src/app/(payload)')
+      expect(fs.existsSync(payloadFilesPath)).toBe(true)
+    })
+  })
+})