diff --git a/packages/@vue/cli-plugin-babel/__tests__/transpileDependencies.spec.js b/packages/@vue/cli-plugin-babel/__tests__/transpileDependencies.spec.js
new file mode 100644
index 0000000000..2fadca6051
--- /dev/null
+++ b/packages/@vue/cli-plugin-babel/__tests__/transpileDependencies.spec.js
@@ -0,0 +1,67 @@
+jest.setTimeout(30000)
+
+const { defaultPreset } = require('@vue/cli/lib/options')
+const create = require('@vue/cli-test-utils/createTestProject')
+
+let project
+
+beforeAll(async () => {
+  project = await create('babel-transpile-deps', defaultPreset)
+
+  await project.write(
+    'node_modules/external-dep/package.json',
+    `{ "name": "external-dep", "version": "1.0.0", "main": "index.js" }`
+  )
+
+  await project.write(
+    'node_modules/external-dep/index.js',
+    `const test = () => "__TEST__";\nexport default test`
+  )
+
+  let $packageJson = await project.read('package.json')
+
+  $packageJson = JSON.parse($packageJson)
+  $packageJson.dependencies['external-dep'] = '1.0.0'
+  $packageJson = JSON.stringify($packageJson)
+
+  await project.write(
+    'package.json',
+    $packageJson
+  )
+
+  let $mainjs = await project.read('src/main.js')
+
+  $mainjs = `import test from 'external-dep'\n${$mainjs}\nconsole.log(test())`
+
+  await project.write(
+    'src/main.js',
+    $mainjs
+  )
+})
+
+test('dep from node_modules should not been transpiled', async () => {
+  const { stdout } = await project.run('vue-cli-service build')
+
+  let $vendorjs = stdout.match(/(js\/vendors~app\.[^.]+\.js)/)[1]
+
+  $vendorjs = `dist/${$vendorjs}`
+  $vendorjs = await project.read($vendorjs)
+
+  expect($vendorjs).toMatch('() => "__TEST__"')
+})
+
+test('dep from node_modules should been transpiled', async () => {
+  await project.write(
+    'vue.config.js',
+    `module.exports = { transpileDependencies: ['external-dep'] }`
+  )
+
+  const { stdout } = await project.run('vue-cli-service build')
+
+  let $vendorjs = stdout.match(/(js\/vendors~app\.[^.]+\.js)/)[1]
+
+  $vendorjs = `dist/${$vendorjs}`
+  $vendorjs = await project.read($vendorjs)
+
+  expect($vendorjs).toMatch('return "__TEST__"')
+})
diff --git a/packages/@vue/cli/lib/Generator.js b/packages/@vue/cli/lib/Generator.js
index fa35a4b6a0..b1c2e24329 100644
--- a/packages/@vue/cli/lib/Generator.js
+++ b/packages/@vue/cli/lib/Generator.js
@@ -88,9 +88,15 @@ module.exports = class Generator {
       for (const key in this.pkg) {
         extract(key)
       }
-    } else if (!process.env.VUE_CLI_TEST) {
-      // by default, always extract vue.config.js
-      extract('vue')
+    } else {
+      if (!process.env.VUE_CLI_TEST) {
+        // by default, always extract vue.config.js
+        extract('vue')
+      }
+      // always extract babel.config.js as this is the only way to apply
+      // project-wide configuration even to dependencies.
+      // TODO: this can be removed when Babel supports root: true in package.json
+      extract('babel')
     }
   }
 
diff --git a/packages/@vue/cli/lib/util/configTransforms.js b/packages/@vue/cli/lib/util/configTransforms.js
index e0b4ffba2d..99fed4e9c9 100644
--- a/packages/@vue/cli/lib/util/configTransforms.js
+++ b/packages/@vue/cli/lib/util/configTransforms.js
@@ -77,7 +77,7 @@ function transformYAML (value, filename, source) {
 
 module.exports = {
   vue: makeJSTransform('vue.config.js'),
-  babel: makeJSONTransform('.babelrc'),
+  babel: makeJSTransform('babel.config.js'),
   postcss: makeMutliExtensionJSONTransform('.postcssrc', true),
   eslintConfig: makeMutliExtensionJSONTransform('.eslintrc', true),
   jest: makeJSTransform('jest.config.js')