diff --git a/docs/generated/packages/js/executors/swc.json b/docs/generated/packages/js/executors/swc.json
index 2c5289db8ef55..7f93c917c8a1d 100644
--- a/docs/generated/packages/js/executors/swc.json
+++ b/docs/generated/packages/js/executors/swc.json
@@ -116,7 +116,8 @@
         "oneOf": [
           { "type": "string", "enum": ["all", "none"] },
           { "type": "array", "items": { "type": "string" } }
-        ]
+        ],
+        "x-deprecated": "Make sure all dependencies are buildable by running `nx g @nx/js:setup-build`. This option will be removed in Nx 20."
       },
       "externalBuildTargets": {
         "type": "array",
@@ -131,6 +132,11 @@
         "x-priority": "internal"
       }
     },
+    "stripLeadingPaths": {
+      "type": "boolean",
+      "description": "Remove leading directory from output (e.g. src). See: https://swc.rs/docs/usage/cli#--strip-leading-paths",
+      "default": false
+    },
     "required": ["main", "outputPath", "tsConfig"],
     "definitions": {
       "assetPattern": {
diff --git a/docs/generated/packages/js/executors/tsc.json b/docs/generated/packages/js/executors/tsc.json
index cd05d41f7d8e7..5d41da4d8fc8f 100644
--- a/docs/generated/packages/js/executors/tsc.json
+++ b/docs/generated/packages/js/executors/tsc.json
@@ -116,7 +116,8 @@
         "oneOf": [
           { "type": "string", "enum": ["all", "none"] },
           { "type": "array", "items": { "type": "string" } }
-        ]
+        ],
+        "x-deprecated": "Make sure all dependencies are buildable by running `nx g @nx/js:setup-build`. This option will be removed in Nx 20."
       },
       "externalBuildTargets": {
         "type": "array",
diff --git a/e2e/js/src/js-executor-swc.test.ts b/e2e/js/src/js-executor-swc.test.ts
index 9c287b68cc870..4aa369567679b 100644
--- a/e2e/js/src/js-executor-swc.test.ts
+++ b/e2e/js/src/js-executor-swc.test.ts
@@ -92,4 +92,19 @@ myLib();
     }).toString();
     expect(result).toContain('x');
   }, 240_000);
+
+  it('should support --strip-leading-paths option', () => {
+    const lib = uniq('lib');
+    runCLI(`generate @nx/js:lib ${lib} --bundler=swc --no-interactive`);
+
+    runCLI(`build ${lib} --stripLeadingPaths`);
+
+    checkFilesExist(
+      `dist/libs/${lib}/package.json`,
+      `dist/libs/${lib}/index.js`,
+      `dist/libs/${lib}/lib/${lib}.js`,
+      `dist/libs/${lib}/index.d.ts`,
+      `dist/libs/${lib}/lib/${lib}.d.ts`
+    );
+  });
 });
diff --git a/packages/js/migrations.json b/packages/js/migrations.json
index e462d9b9efa8c..dcd1bf7f9583c 100644
--- a/packages/js/migrations.json
+++ b/packages/js/migrations.json
@@ -167,6 +167,15 @@
           "alwaysAddToPackageJson": false
         }
       }
+    },
+    "18.2.5": {
+      "version": "18.2.5-beta.0",
+      "packages": {
+        "@swc/cli": {
+          "version": "~0.3.12",
+          "alwaysAddToPackageJson": false
+        }
+      }
     }
   }
 }
diff --git a/packages/js/src/executors/swc/schema.json b/packages/js/src/executors/swc/schema.json
index 195de7d0086a3..d5c07b2e76128 100644
--- a/packages/js/src/executors/swc/schema.json
+++ b/packages/js/src/executors/swc/schema.json
@@ -97,7 +97,8 @@
             "type": "string"
           }
         }
-      ]
+      ],
+      "x-deprecated": "Make sure all dependencies are buildable by running `nx g @nx/js:setup-build`. This option will be removed in Nx 20."
     },
     "externalBuildTargets": {
       "type": "array",
@@ -114,6 +115,11 @@
       "x-priority": "internal"
     }
   },
+  "stripLeadingPaths": {
+    "type": "boolean",
+    "description": "Remove leading directory from output (e.g. src). See: https://swc.rs/docs/usage/cli#--strip-leading-paths",
+    "default": false
+  },
   "required": ["main", "outputPath", "tsConfig"],
   "definitions": {
     "assetPattern": {
diff --git a/packages/js/src/executors/swc/swc.impl.ts b/packages/js/src/executors/swc/swc.impl.ts
index 19002b39e3cb4..0ca1827d54c69 100644
--- a/packages/js/src/executors/swc/swc.impl.ts
+++ b/packages/js/src/executors/swc/swc.impl.ts
@@ -17,6 +17,7 @@ import {
 import { copyPackageJson } from '../../utils/package-json';
 import {
   NormalizedSwcExecutorOptions,
+  SwcCliOptions,
   SwcExecutorOptions,
 } from '../../utils/schema';
 import { compileSwc, compileSwcWatch } from '../../utils/swc/compile-swc';
@@ -59,20 +60,16 @@ function normalizeOptions(
     outputPath
   );
 
-  const projectRootParts = projectRoot.split('/');
-  // We pop the last part of the `projectRoot` to pass
-  // the last part (projectDir) and the remainder (projectRootParts) to swc
-  const projectDir = projectRootParts.pop();
-  // default to current directory if projectRootParts is [].
-  // Eg: when a project is at the root level, outside of layout dir
-  const swcCwd = projectRootParts.join('/') || '.';
+  // Always execute from root of project, same as with SWC CLI.
+  const swcCwd = join(root, projectRoot);
   const { swcrcPath, tmpSwcrcPath } = getSwcrcPath(options, root, projectRoot);
 
   const swcCliOptions = {
-    srcPath: projectDir,
-    destPath: relative(join(root, swcCwd), outputPath),
+    srcPath: projectRoot,
+    destPath: relative(swcCwd, outputPath),
     swcCwd,
     swcrcPath,
+    stripLeadingPaths: Boolean(options.stripLeadingPaths),
   };
 
   return {
@@ -127,11 +124,16 @@ export async function* swcExecutor(
   );
 
   if (!isInlineGraphEmpty(inlineProjectGraph)) {
+    if (options.stripLeadingPaths) {
+      throw new Error(`Cannot use --strip-leading-paths with inlining.`);
+    }
+
     options.projectRoot = '.'; // set to root of workspace to include other libs for type check
 
     // remap paths for SWC compilation
-    options.swcCliOptions.srcPath = options.swcCliOptions.swcCwd;
+    options.inline = true;
     options.swcCliOptions.swcCwd = '.';
+    options.swcCliOptions.srcPath = options.swcCliOptions.swcCwd;
     options.swcCliOptions.destPath = join(
       options.swcCliOptions.destPath.split(normalize('../')).at(-1),
       options.swcCliOptions.srcPath
diff --git a/packages/js/src/executors/tsc/schema.json b/packages/js/src/executors/tsc/schema.json
index 39dc7035a098e..0cc11cf075af1 100644
--- a/packages/js/src/executors/tsc/schema.json
+++ b/packages/js/src/executors/tsc/schema.json
@@ -85,7 +85,8 @@
             "type": "string"
           }
         }
-      ]
+      ],
+      "x-deprecated": "Make sure all dependencies are buildable by running `nx g @nx/js:setup-build`. This option will be removed in Nx 20."
     },
     "externalBuildTargets": {
       "type": "array",
diff --git a/packages/js/src/utils/schema.d.ts b/packages/js/src/utils/schema.d.ts
index 0a82243ba2e9c..b0caaa031789b 100644
--- a/packages/js/src/utils/schema.d.ts
+++ b/packages/js/src/utils/schema.d.ts
@@ -51,6 +51,7 @@ export interface ExecutorOptions {
   external?: 'all' | 'none' | string[];
   externalBuildTargets?: string[];
   generateLockfile?: boolean;
+  stripLeadingPaths?: boolean;
 }
 
 export interface NormalizedExecutorOptions extends ExecutorOptions {
@@ -75,6 +76,7 @@ export interface SwcCliOptions {
   destPath: string;
   swcrcPath: string;
   swcCwd: string;
+  stripLeadingPaths: boolean;
 }
 
 export interface NormalizedSwcExecutorOptions
@@ -84,4 +86,7 @@ export interface NormalizedSwcExecutorOptions
   skipTypeCheck: boolean;
   swcCliOptions: SwcCliOptions;
   tmpSwcrcPath: string;
+  sourceRoot?: string;
+  // TODO(v20): remove inline feature
+  inline?: boolean;
 }
diff --git a/packages/js/src/utils/swc/compile-swc.ts b/packages/js/src/utils/swc/compile-swc.ts
index ede82806fe9b5..90d2fed647f91 100644
--- a/packages/js/src/utils/swc/compile-swc.ts
+++ b/packages/js/src/utils/swc/compile-swc.ts
@@ -1,35 +1,66 @@
 import { cacheDir, ExecutorContext, logger } from '@nx/devkit';
-import { exec, execSync } from 'child_process';
-import { removeSync } from 'fs-extra';
+import { exec, execSync } from 'node:child_process';
+import { join } from 'node:path';
+import { existsSync, removeSync } from 'fs-extra';
 import { createAsyncIterable } from '@nx/devkit/src/utils/async-iterable';
 import { NormalizedSwcExecutorOptions, SwcCliOptions } from '../schema';
 import { printDiagnostics } from '../typescript/print-diagnostics';
 import { runTypeCheck, TypeCheckOptions } from '../typescript/run-type-check';
+import { relative } from 'path';
 
 function getSwcCmd(
-  { swcrcPath, srcPath, destPath }: SwcCliOptions,
+  {
+    swcCliOptions: { swcrcPath, destPath, stripLeadingPaths },
+    root,
+    projectRoot,
+    originalProjectRoot,
+    sourceRoot,
+    inline,
+  }: NormalizedSwcExecutorOptions,
   watch = false
 ) {
   const swcCLI = require.resolve('@swc/cli/bin/swc.js');
+  let inputDir: string;
+  // TODO(v20): remove inline feature
+  if (inline) {
+    inputDir = originalProjectRoot.split('/')[0];
+  } else {
+    if (sourceRoot) {
+      inputDir = relative(projectRoot, sourceRoot);
+    } else {
+      // If sourceRoot is not provided, check if `src` exists and use that instead.
+      // This is important for root projects to avoid compiling too many directories.
+      inputDir = existsSync(join(root, projectRoot, 'src')) ? 'src' : '.';
+    }
+  }
+
   let swcCmd = `node ${swcCLI} ${
-    // TODO(jack): clean this up when we remove inline module support
-    // Handle root project
-    srcPath === '.' ? 'src' : srcPath
-  } -d ${
-    srcPath === '.' ? `${destPath}/src` : destPath
-  } --config-file=${swcrcPath}`;
+    inputDir || '.'
+  } -d ${destPath} --config-file=${swcrcPath} ${
+    stripLeadingPaths ? '--strip-leading-paths' : ''
+  }`;
   return watch ? swcCmd.concat(' --watch') : swcCmd;
 }
 
 function getTypeCheckOptions(normalizedOptions: NormalizedSwcExecutorOptions) {
-  const { projectRoot, watch, tsConfig, root, outputPath } = normalizedOptions;
+  const { sourceRoot, projectRoot, watch, tsConfig, root, outputPath } =
+    normalizedOptions;
+  const inputDir =
+    // If `--strip-leading-paths` SWC option is used, we need to transpile from `src` directory.
+    !normalizedOptions.swcCliOptions.stripLeadingPaths
+      ? projectRoot
+      : sourceRoot
+      ? sourceRoot
+      : existsSync(join(root, projectRoot, 'src'))
+      ? join(projectRoot, 'src')
+      : projectRoot;
 
   const typeCheckOptions: TypeCheckOptions = {
     mode: 'emitDeclarationOnly',
     tsConfigPath: tsConfig,
     outDir: outputPath,
     workspaceRoot: root,
-    rootDir: projectRoot,
+    rootDir: inputDir,
   };
 
   if (watch) {
@@ -51,7 +82,7 @@ export async function compileSwc(
     removeSync(normalizedOptions.outputPath);
   }
 
-  const swcCmdLog = execSync(getSwcCmd(normalizedOptions.swcCliOptions), {
+  const swcCmdLog = execSync(getSwcCmd(normalizedOptions), {
     encoding: 'utf8',
     cwd: normalizedOptions.swcCliOptions.swcCwd,
   });
@@ -104,10 +135,9 @@ export async function* compileSwcWatch(
       let stderrOnData: () => void;
       let watcherOnExit: () => void;
 
-      const swcWatcher = exec(
-        getSwcCmd(normalizedOptions.swcCliOptions, true),
-        { cwd: normalizedOptions.swcCliOptions.swcCwd }
-      );
+      const swcWatcher = exec(getSwcCmd(normalizedOptions, true), {
+        cwd: normalizedOptions.swcCliOptions.swcCwd,
+      });
 
       processOnExit = () => {
         swcWatcher.kill();
diff --git a/packages/js/src/utils/versions.ts b/packages/js/src/utils/versions.ts
index d0d826e6c3172..bedec52edcb9d 100644
--- a/packages/js/src/utils/versions.ts
+++ b/packages/js/src/utils/versions.ts
@@ -2,7 +2,7 @@ export const nxVersion = require('../../package.json').version;
 
 export const esbuildVersion = '^0.19.2';
 export const prettierVersion = '^2.6.2';
-export const swcCliVersion = '~0.1.62';
+export const swcCliVersion = '~0.3.12';
 export const swcCoreVersion = '~1.3.85';
 export const swcHelpersVersion = '~0.5.2';
 export const swcNodeVersion = '~1.8.0';