diff --git a/changelog.d/20241220_221301_Pawamoy_find_pyproject_upper_dirs.md b/changelog.d/20241220_221301_Pawamoy_find_pyproject_upper_dirs.md
new file mode 100644
index 0000000..a158ecf
--- /dev/null
+++ b/changelog.d/20241220_221301_Pawamoy_find_pyproject_upper_dirs.md
@@ -0,0 +1,40 @@
+<!--
+A new scriv changelog fragment.
+
+Uncomment the section that is right (remove the HTML comment wrapper).
+-->
+
+<!--
+### Removed
+
+- A bullet item for the Removed category.
+
+-->
+<!--
+### Added
+
+- A bullet item for the Added category.
+
+-->
+<!--
+### Changed
+
+- A bullet item for the Changed category.
+
+-->
+<!--
+### Deprecated
+
+- A bullet item for the Deprecated category.
+
+-->
+### Fixed
+
+- Find `pyproject.toml` file in parent directories, not just next to the Pytest configuration file.
+
+<!--
+### Security
+
+- A bullet item for the Security category.
+
+-->
diff --git a/src/inline_snapshot/pytest_plugin.py b/src/inline_snapshot/pytest_plugin.py
index 496e7d7..0c540b4 100644
--- a/src/inline_snapshot/pytest_plugin.py
+++ b/src/inline_snapshot/pytest_plugin.py
@@ -76,7 +76,12 @@ def is_implementation_supported():
 def pytest_configure(config):
     global flags
 
-    _config.config = _config.read_config(config.rootpath / "pyproject.toml")
+    directory = config.rootpath
+    while not (pyproject := directory / "pyproject.toml").exists():
+        if directory == directory.parent:
+            break
+        directory = directory.parent
+    _config.config = _config.read_config(pyproject)
 
     if config.option.inline_snapshot is None:
         flags = set(_config.config.default_flags)
diff --git a/src/inline_snapshot/testing/_example.py b/src/inline_snapshot/testing/_example.py
index e61fda8..60d3b55 100644
--- a/src/inline_snapshot/testing/_example.py
+++ b/src/inline_snapshot/testing/_example.py
@@ -99,10 +99,16 @@ def dump_files(self):
 
     def _write_files(self, dir: Path):
         for name, content in self.files.items():
-            (dir / name).write_text(content)
+            filename = dir / name
+            filename.parent.mkdir(exist_ok=True, parents=True)
+            filename.write_text(content)
 
     def _read_files(self, dir: Path):
-        return {p.name: p.read_text() for p in dir.iterdir() if p.is_file()}
+        return {
+            str(p.relative_to(dir)): p.read_text()
+            for p in [*dir.iterdir(), *dir.rglob("*.py")]
+            if p.is_file()
+        }
 
     def run_inline(
         self,
diff --git a/tests/test_pytest_plugin.py b/tests/test_pytest_plugin.py
index 5012797..49bc504 100644
--- a/tests/test_pytest_plugin.py
+++ b/tests/test_pytest_plugin.py
@@ -769,3 +769,34 @@ def test_outsource():
     assert project.storage(storage_dir) == snapshot(
         ["2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824.html"]
     )
+
+
+def test_find_pyproject_in_parent_directories(tmp_path):
+
+    Example(
+        {
+            "pyproject.toml": """\
+[tool.inline-snapshot]
+hash-length=2
+""",
+            "project/pytest.ini": "",
+            "project/test_something.py": """\
+from inline_snapshot import outsource,snapshot,external
+
+def test_something():
+    assert outsource("test") == snapshot()
+""",
+        }
+    ).run_pytest(
+        ["--rootdir", "./project", "--inline-snapshot=create"],
+        changed_files=snapshot(
+            {
+                "project/test_something.py": """\
+from inline_snapshot import outsource,snapshot,external
+
+def test_something():
+    assert outsource("test") == snapshot(external("9f*.txt"))
+"""
+            }
+        ),
+    )