diff --git a/.changeset/quick-dog-jump.md b/.changeset/quick-dog-jump.md
new file mode 100644
index 0000000000..23b033146f
--- /dev/null
+++ b/.changeset/quick-dog-jump.md
@@ -0,0 +1,5 @@
+---
+'@backstage/cli': patch
+---
+
+Added `watchOptions` to frontend webpack config for compatibility with Yarn PnP
diff --git a/packages/cli/src/lib/bundler/config.ts b/packages/cli/src/lib/bundler/config.ts
index a64bc0fcd8..cc8a467bc2 100644
--- a/packages/cli/src/lib/bundler/config.ts
+++ b/packages/cli/src/lib/bundler/config.ts
@@ -347,6 +347,13 @@ export async function createConfig(
   return {
     mode,
     profile: false,
+    ...(isDev
+      ? {
+          watchOptions: {
+            ignored: /node_modules/,
+          },
+        }
+      : {}),
     optimization,
     bail: false,
     performance: {