diff --git a/packages/backend-common/package.json b/packages/backend-common/package.json
index 41b120eca7..9b92540488 100644
--- a/packages/backend-common/package.json
+++ b/packages/backend-common/package.json
@@ -2,7 +2,7 @@
   "name": "@backstage/backend-common",
   "description": "Common functionality library for Backstage backends",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "private": false,
   "publishConfig": {
@@ -32,6 +32,7 @@
     "express": "^4.17.1",
     "helmet": "^3.22.0",
     "morgan": "^1.10.0",
+    "stoppable": "^1.1.0",
     "winston": "^3.2.1"
   },
   "devDependencies": {
@@ -41,7 +42,9 @@
     "@types/express": "^4.17.6",
     "@types/http-errors": "^1.6.3",
     "@types/morgan": "^1.9.0",
+    "@types/stoppable": "^1.1.0",
     "@types/supertest": "^2.0.8",
+    "@types/webpack-env": "^1.15.2",
     "@types/yaml": "^1.9.7",
     "get-port": "^5.1.1",
     "http-errors": "^1.7.3",
diff --git a/packages/backend-common/src/hot.ts b/packages/backend-common/src/hot.ts
new file mode 100644
index 0000000000..f684b5cba1
--- /dev/null
+++ b/packages/backend-common/src/hot.ts
@@ -0,0 +1,92 @@
+/*
+ * Copyright 2020 Spotify AB
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+/**
+ * This function allows devs to cleanup
+ * ongoing effects when module gets hot-reloaded
+ * Useful for cleaning intervals, timers, requests etc
+ * @example
+ * ```ts
+ * const intervalId = setInterval(doStuff, 1000);
+ * useHotCleanup(module, () => clearInterval(intervalId));
+ * ```
+ * @param _module Reference to the current module where you invoke the fn
+ * @param cancelEffect Fn that cleans up the ongoing effects
+ */
+export function useHotCleanup(_module: NodeModule, cancelEffect: () => void) {
+  if (_module.hot) {
+    _module.hot.addDisposeHandler(() => {
+      cancelEffect();
+    });
+  }
+}
+
+/**
+ * This function allows devs to preserve
+ * some value between hot-reloads.
+ * Useful for stateful parts of the backend
+ * @example
+ * ```ts
+ * const db = useHotMemoize(module, () => createDB(dbParams));
+ * ```
+ * @param _module Reference to the current module where you invoke the fn
+ * @param valueFactory Fn that returns the value you want to memoize
+ * @warning Don't use inside conditionals or loops,
+ * same rules as for hooks apply (https://reactjs.org/docs/hooks-rules.html)
+ */
+export function useHotMemoize<T>(
+  _module: NodeModule,
+  valueFactory: () => T,
+): T {
+  const CURRENT_HOT_MEMOIZE_INDEX_KEY = 'backstage.io/hmr-memoize-key';
+
+  if (!_module.hot) {
+    // Just return value straight away
+    return valueFactory();
+  }
+
+  if (_module.hot && typeof _module.hot.data === 'undefined') {
+    // First run, init the module data
+    _module.hot.data = {
+      [CURRENT_HOT_MEMOIZE_INDEX_KEY]: 0,
+    };
+  }
+
+  // Let's store data per module based on the order of the code invocation
+  const index = _module.hot.data?.[CURRENT_HOT_MEMOIZE_INDEX_KEY];
+  // Increasing the counter after each call
+  _module.hot.data[CURRENT_HOT_MEMOIZE_INDEX_KEY] += 1;
+
+  const prevValue = _module.hot.data?.[index];
+  const createDisposeHandler = (value: any) => (data: {
+    [key: number]: any;
+    [indexKey: string]: number;
+  }) => {
+    // Preserving the value through the HMR process
+    data[index] = value;
+    // Decreasing the counter after each handler
+    data[CURRENT_HOT_MEMOIZE_INDEX_KEY] = index - 1;
+  };
+
+  if (prevValue) {
+    _module.hot!.addDisposeHandler(createDisposeHandler(prevValue));
+    return prevValue;
+  }
+
+  const newValue = valueFactory();
+  _module.hot.addDisposeHandler(createDisposeHandler(newValue));
+  return newValue;
+}
diff --git a/packages/backend-common/src/index.ts b/packages/backend-common/src/index.ts
index 11689aafff..0e4e5b2c6b 100644
--- a/packages/backend-common/src/index.ts
+++ b/packages/backend-common/src/index.ts
@@ -18,3 +18,4 @@ export * from './errors';
 export * from './logging';
 export * from './middleware';
 export * from './service';
+export * from './hot';
diff --git a/packages/backend-common/src/service/ServiceBuilderImpl.ts b/packages/backend-common/src/service/ServiceBuilderImpl.ts
index ac35d52112..931d29b841 100644
--- a/packages/backend-common/src/service/ServiceBuilderImpl.ts
+++ b/packages/backend-common/src/service/ServiceBuilderImpl.ts
@@ -19,6 +19,7 @@ import cors from 'cors';
 import express, { Router } from 'express';
 import helmet from 'helmet';
 import { Server } from 'http';
+import stoppable from 'stoppable';
 import { Logger } from 'winston';
 import { getRootLogger } from '../logging';
 import {
@@ -27,6 +28,7 @@ import {
   requestLoggingHandler,
 } from '../middleware';
 import { ServiceBuilder } from './types';
+import { useHotCleanup } from '../hot';
 
 const DEFAULT_PORT = 7000;
 
@@ -35,9 +37,14 @@ export class ServiceBuilderImpl implements ServiceBuilder {
   private logger: Logger | undefined;
   private corsOptions: cors.CorsOptions | undefined;
   private routers: [string, Router][];
-
-  constructor() {
+  /**
+   * Reference to the module where builder is created
+   * Needed for the HMR
+   */
+  private module: NodeModule;
+  constructor(module: NodeModule) {
     this.routers = [];
+    this.module = module;
   }
 
   setPort(port: number): ServiceBuilder {
@@ -82,9 +89,19 @@ export class ServiceBuilderImpl implements ServiceBuilder {
         logger.error(`Failed to start up on port ${port}, ${e}`);
         reject(e);
       });
-      const server = app.listen(port, () => {
-        logger.info(`Listening on port ${port}`);
-      });
+      const server = stoppable(
+        app.listen(port, () => {
+          logger.info(`Listening on port ${port}`);
+        }),
+        0,
+      );
+
+      useHotCleanup(this.module, () =>
+        server.stop((e: any) => {
+          if (e) console.error(e);
+        }),
+      );
+
       resolve(server);
     });
   }
diff --git a/packages/backend-common/src/service/createServiceBuilder.ts b/packages/backend-common/src/service/createServiceBuilder.ts
index ffd8901def..daef612fcf 100644
--- a/packages/backend-common/src/service/createServiceBuilder.ts
+++ b/packages/backend-common/src/service/createServiceBuilder.ts
@@ -19,6 +19,6 @@ import { ServiceBuilderImpl } from './ServiceBuilderImpl';
 /**
  * Creates a new service builder.
  */
-export function createServiceBuilder() {
-  return new ServiceBuilderImpl();
+export function createServiceBuilder(_module: NodeModule) {
+  return new ServiceBuilderImpl(_module);
 }
diff --git a/packages/backend-common/tsconfig.json b/packages/backend-common/tsconfig.json
index ca39bf9964..2e645bef0b 100644
--- a/packages/backend-common/tsconfig.json
+++ b/packages/backend-common/tsconfig.json
@@ -9,6 +9,6 @@
     "target": "ES2019",
     "module": "commonjs",
     "esModuleInterop": true,
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/packages/backend/package.json b/packages/backend/package.json
index 58d405ab2f..9079c3d503 100644
--- a/packages/backend/package.json
+++ b/packages/backend/package.json
@@ -10,7 +10,7 @@
   },
   "scripts": {
     "build": "tsc",
-    "start": "backstage-cli watch-deps --build -- tsc-watch --onFirstSuccess \\\"cross-env NODE_ENV=development nodemon -r esm\\\"",
+    "start": "backstage-cli backend:dev",
     "lint": "backstage-cli lint",
     "test": "backstage-cli test",
     "clean": "backstage-cli clean",
diff --git a/packages/backend/src/index.ts b/packages/backend/src/index.ts
index d583db672b..0a9d852222 100644
--- a/packages/backend/src/index.ts
+++ b/packages/backend/src/index.ts
@@ -22,7 +22,11 @@
  * Happy hacking!
  */
 
-import { createServiceBuilder, getRootLogger } from '@backstage/backend-common';
+import {
+  createServiceBuilder,
+  getRootLogger,
+  useHotMemoize,
+} from '@backstage/backend-common';
 import knex from 'knex';
 import auth from './plugins/auth';
 import catalog from './plugins/catalog';
@@ -45,19 +49,24 @@ function createEnv(plugin: string): PluginEnvironment {
 }
 
 async function main() {
-  const service = createServiceBuilder()
+  const catalogEnv = useHotMemoize(module, () => createEnv('catalog'));
+  const scaffolderEnv = useHotMemoize(module, () => createEnv('scaffolder'));
+  const authEnv = useHotMemoize(module, () => createEnv('auth'));
+  const identityEnv = useHotMemoize(module, () => createEnv('identity'));
+
+  const service = createServiceBuilder(module)
     .enableCors({
       origin: 'http://localhost:3000',
       credentials: true,
     })
-    .addRouter('/catalog', await catalog(createEnv('catalog')))
-    .addRouter('/scaffolder', await scaffolder(createEnv('scaffolder')))
+    .addRouter('/catalog', await catalog(catalogEnv))
+    .addRouter('/scaffolder', await scaffolder(scaffolderEnv))
     .addRouter(
       '/sentry',
       await sentry(getRootLogger().child({ type: 'plugin', plugin: 'sentry' })),
     )
-    .addRouter('/auth', await auth(createEnv('auth')))
-    .addRouter('/identity', await identity(createEnv('identity')));
+    .addRouter('/auth', await auth(authEnv))
+    .addRouter('/identity', await identity(identityEnv));
 
   await service.start().catch(err => {
     console.log(err);
@@ -65,6 +74,7 @@ async function main() {
   });
 }
 
+module.hot?.accept();
 main().catch(error => {
   console.error(`Backend failed to start up, ${error}`);
   process.exit(1);
diff --git a/packages/backend/src/plugins/catalog.ts b/packages/backend/src/plugins/catalog.ts
index c472623c3d..41e4226001 100644
--- a/packages/backend/src/plugins/catalog.ts
+++ b/packages/backend/src/plugins/catalog.ts
@@ -24,6 +24,7 @@ import {
   runPeriodically,
 } from '@backstage/plugin-catalog-backend';
 import { PluginEnvironment } from '../types';
+import { useHotCleanup } from '@backstage/backend-common';
 
 export default async function createPlugin({
   logger,
@@ -41,7 +42,10 @@ export default async function createPlugin({
     logger,
   );
 
-  runPeriodically(() => higherOrderOperation.refreshAllLocations(), 10000);
+  useHotCleanup(
+    module,
+    runPeriodically(() => higherOrderOperation.refreshAllLocations(), 10000),
+  );
 
   return await createRouter({
     entitiesCatalog,
diff --git a/packages/backend/tsconfig.json b/packages/backend/tsconfig.json
index 04701a5502..269b22607c 100644
--- a/packages/backend/tsconfig.json
+++ b/packages/backend/tsconfig.json
@@ -10,6 +10,6 @@
     "module": "commonjs",
     "esModuleInterop": true,
     "lib": ["es2019", "dom"],
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/packages/cli/config/tsconfig.json b/packages/cli/config/tsconfig.json
index f6d622ee16..ce031bc5e7 100644
--- a/packages/cli/config/tsconfig.json
+++ b/packages/cli/config/tsconfig.json
@@ -32,6 +32,6 @@
     "strictPropertyInitialization": true,
     "stripInternal": true,
     "target": "ES2019",
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/packages/cli/package.json b/packages/cli/package.json
index 8a50839934..a4c862351e 100644
--- a/packages/cli/package.json
+++ b/packages/cli/package.json
@@ -39,6 +39,9 @@
     "@rollup/plugin-node-resolve": "^7.1.1",
     "@spotify/eslint-config": "^7.0.1",
     "@sucrase/webpack-loader": "^2.0.0",
+    "@types/start-server-webpack-plugin": "^2.2.0",
+    "@types/webpack-node-externals": "^1.7.1",
+    "@types/webpack-env": "^1.15.2",
     "bfj": "^7.0.2",
     "chalk": "^4.0.0",
     "chokidar": "^3.3.1",
@@ -72,6 +75,7 @@
     "rollup-plugin-peer-deps-external": "^2.2.2",
     "rollup-plugin-postcss": "^3.1.1",
     "rollup-plugin-typescript2": "^0.26.0",
+    "start-server-webpack-plugin": "^2.2.5",
     "style-loader": "^1.2.1",
     "sucrase": "^3.14.1",
     "tar": "^6.0.1",
@@ -81,6 +85,7 @@
     "url-loader": "^4.1.0",
     "webpack": "^4.41.6",
     "webpack-dev-server": "^3.10.3",
+    "webpack-node-externals": "^1.7.2",
     "yaml": "^1.10.0",
     "yml-loader": "^2.1.0",
     "yn": "^4.0.0"
diff --git a/packages/cli/src/commands/backend/dev.ts b/packages/cli/src/commands/backend/dev.ts
new file mode 100644
index 0000000000..f04f904e09
--- /dev/null
+++ b/packages/cli/src/commands/backend/dev.ts
@@ -0,0 +1,32 @@
+/*
+ * Copyright 2020 Spotify AB
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+import { ConfigReader } from '@backstage/config';
+import { loadConfig } from '@backstage/config-loader';
+import { Command } from 'commander';
+import { serveBackend } from '../../lib/bundler/backend';
+
+export default async (cmd: Command) => {
+  const appConfigs = await loadConfig();
+  const waitForExit = await serveBackend({
+    entry: 'src/index',
+    checksEnabled: cmd.check,
+    config: ConfigReader.fromConfigs(appConfigs),
+    appConfigs,
+  });
+
+  await waitForExit();
+};
diff --git a/packages/cli/src/index.ts b/packages/cli/src/index.ts
index a0302c4713..ea71dc6485 100644
--- a/packages/cli/src/index.ts
+++ b/packages/cli/src/index.ts
@@ -41,6 +41,12 @@ const main = (argv: string[]) => {
     .option('--check', 'Enable type checking and linting')
     .action(lazyAction(() => import('./commands/app/serve'), 'default'));
 
+  program
+    .command('backend:dev')
+    .description('Start local development server with HMR for the backend')
+    .option('--check', 'Enable type checking and linting')
+    .action(lazyAction(() => import('./commands/backend/dev'), 'default'));
+
   program
     .command('app:diff')
     .option('--check', 'Fail if changes are required')
diff --git a/packages/cli/src/lib/bundler/backend.ts b/packages/cli/src/lib/bundler/backend.ts
new file mode 100644
index 0000000000..ce821a585b
--- /dev/null
+++ b/packages/cli/src/lib/bundler/backend.ts
@@ -0,0 +1,56 @@
+/*
+ * Copyright 2020 Spotify AB
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+import webpack from 'webpack';
+import { createBackendConfig } from './config';
+import { resolveBundlingPaths } from './paths';
+import { ServeOptions } from './types';
+
+export async function serveBackend(options: ServeOptions) {
+  const paths = resolveBundlingPaths(options);
+  const config = createBackendConfig(paths, {
+    ...options,
+    isDev: true,
+  });
+
+  const compiler = webpack(config);
+
+  const watcher = compiler.watch(
+    {
+      poll: true,
+    },
+    (err: Error) => {
+      if (err) {
+        console.error(err);
+      } else console.log('Build succeeded');
+    },
+  );
+
+  const waitForExit = async () => {
+    for (const signal of ['SIGINT', 'SIGTERM'] as const) {
+      process.on(signal, () => {
+        watcher.close(() => console.log('Stopped watcher'));
+        // exit instead of resolve. The process is shutting down and resolving a promise here logs an error
+        process.exit();
+      });
+    }
+
+    // Block indefinitely and wait for the interrupt signal
+    return new Promise(() => {});
+  };
+
+  return waitForExit;
+}
diff --git a/packages/cli/src/lib/bundler/config.ts b/packages/cli/src/lib/bundler/config.ts
index ba99c49c62..e6d47573ef 100644
--- a/packages/cli/src/lib/bundler/config.ts
+++ b/packages/cli/src/lib/bundler/config.ts
@@ -14,15 +14,17 @@
  * limitations under the License.
  */
 
-import webpack from 'webpack';
 import ForkTsCheckerWebpackPlugin from 'fork-ts-checker-webpack-plugin';
-import ModuleScopePlugin from 'react-dev-utils/ModuleScopePlugin';
 import HtmlWebpackPlugin from 'html-webpack-plugin';
+import ModuleScopePlugin from 'react-dev-utils/ModuleScopePlugin';
+import StartServerPlugin from 'start-server-webpack-plugin';
+import webpack from 'webpack';
+import nodeExternals from 'webpack-node-externals';
+import { optimization } from './optimization';
 import { Config } from '@backstage/config';
 import { BundlingPaths } from './paths';
 import { transforms } from './transforms';
-import { optimization } from './optimization';
-import { BundlingOptions } from './types';
+import { BundlingOptions, BackendBundlingOptions } from './types';
 // import checkRequiredFiles from 'react-dev-utils/checkRequiredFiles';
 // import ModuleNotFoundPlugin from 'react-dev-utils/ModuleNotFoundPlugin';
 // import errorOverlayMiddleware from 'react-dev-utils/errorOverlayMiddleware';
@@ -93,6 +95,17 @@ export function createConfig(
   return {
     mode: isDev ? 'development' : 'production',
     profile: false,
+    node: {
+      module: 'empty',
+      dgram: 'empty',
+      dns: 'mock',
+      fs: 'empty',
+      http2: 'empty',
+      net: 'empty',
+      tls: 'empty',
+      child_process: 'empty',
+    },
+    optimization: optimization(options),
     bail: false,
     performance: {
       hints: false, // we check the gzip size instead
@@ -124,17 +137,94 @@ export function createConfig(
         ? '[name].chunk.js'
         : '[name].[chunkhash:8].chunk.js',
     },
-    optimization: optimization(options),
     plugins,
-    node: {
-      module: 'empty',
-      dgram: 'empty',
-      dns: 'mock',
-      fs: 'empty',
-      http2: 'empty',
-      net: 'empty',
-      tls: 'empty',
-      child_process: 'empty',
-    },
+  };
+}
+
+export function createBackendConfig(
+  paths: BundlingPaths,
+  options: BackendBundlingOptions,
+): webpack.Configuration {
+  const { checksEnabled, isDev } = options;
+
+  const { loaders } = transforms(options);
+
+  return {
+    mode: isDev ? 'development' : 'production',
+    profile: false,
+    ...(isDev
+      ? {
+          watch: true,
+          watchOptions: {
+            ignored: [/node_modules\/(?!\@backstage)/],
+          },
+        }
+      : {}),
+    externals: [
+      nodeExternals({
+        modulesDir: paths.rootNodeModules,
+        whitelist: ['webpack/hot/poll?100', /\@backstage\/.*/],
+      }),
+      nodeExternals({
+        modulesDir: paths.targetNodeModules,
+        whitelist: ['webpack/hot/poll?100', /\@backstage\/.*/],
+      }),
+    ],
+    target: 'node' as const,
+    node: {
+      __dirname: true,
+      __filename: true,
+      global: true,
+    },
+    bail: false,
+    performance: {
+      hints: false, // we check the gzip size instead
+    },
+    devtool: isDev ? 'cheap-module-eval-source-map' : 'source-map',
+    context: paths.targetPath,
+    entry: ['webpack/hot/poll?100', paths.targetEntry],
+    resolve: {
+      extensions: ['.ts', '.tsx', '.mjs', '.js', '.jsx'],
+      mainFields: ['main:src', 'browser', 'module', 'main'],
+      modules: [paths.targetNodeModules, paths.rootNodeModules],
+      plugins: [
+        new ModuleScopePlugin(
+          [paths.targetSrc, paths.targetDev],
+          [paths.targetPackageJson],
+        ),
+      ],
+      alias: {
+        'react-dom': '@hot-loader/react-dom',
+      },
+    },
+    module: {
+      rules: loaders,
+    },
+    output: {
+      path: paths.targetDist,
+      filename: isDev ? '[name].js' : '[name].[hash:8].js',
+      chunkFilename: isDev
+        ? '[name].chunk.js'
+        : '[name].[chunkhash:8].chunk.js',
+    },
+    plugins: [
+      new StartServerPlugin('main.js'),
+      new webpack.HotModuleReplacementPlugin(),
+      ...(checksEnabled
+        ? [
+            new ForkTsCheckerWebpackPlugin({
+              tsconfig: paths.targetTsConfig,
+              eslint: true,
+              eslintOptions: {
+                parserOptions: {
+                  project: paths.targetTsConfig,
+                  tsconfigRootDir: paths.targetPath,
+                },
+              },
+              reportFiles: ['**', '!**/__tests__/**', '!**/?(*.)(spec|test).*'],
+            }),
+          ]
+        : []),
+    ],
   };
 }
diff --git a/packages/cli/src/lib/bundler/index.ts b/packages/cli/src/lib/bundler/index.ts
index cdfb5f3897..2030b4bb96 100644
--- a/packages/cli/src/lib/bundler/index.ts
+++ b/packages/cli/src/lib/bundler/index.ts
@@ -14,5 +14,6 @@
  * limitations under the License.
  */
 
+export { serveBackend } from './backend';
 export { buildBundle } from './bundle';
 export { serveBundle } from './server';
diff --git a/packages/cli/src/lib/bundler/paths.ts b/packages/cli/src/lib/bundler/paths.ts
index cec270178a..1e1cd1298a 100644
--- a/packages/cli/src/lib/bundler/paths.ts
+++ b/packages/cli/src/lib/bundler/paths.ts
@@ -60,6 +60,8 @@ export function resolveBundlingPaths(options: BundlingPathsOptions) {
     targetTsConfig: paths.resolveTargetRoot('tsconfig.json'),
     targetNodeModules: paths.resolveTarget('node_modules'),
     targetPackageJson: paths.resolveTarget('package.json'),
+    rootNodeModules: paths.resolveTargetRoot('node_modules'),
+    root: paths.targetRoot,
   };
 }
 
diff --git a/packages/cli/src/lib/bundler/server.ts b/packages/cli/src/lib/bundler/server.ts
index 64fe823c2d..c7bacc0c7d 100644
--- a/packages/cli/src/lib/bundler/server.ts
+++ b/packages/cli/src/lib/bundler/server.ts
@@ -30,7 +30,11 @@ export async function serveBundle(options: ServeOptions) {
   const paths = resolveBundlingPaths(options);
   const pkgPath = paths.targetPackageJson;
   const pkg = await fs.readJson(pkgPath);
-  const config = createConfig(paths, { ...options, isDev: true, baseUrl: url });
+  const config = createConfig(paths, {
+    ...options,
+    isDev: true,
+    baseUrl: url,
+  });
   const compiler = webpack(config);
 
   const server = new WebpackDevServer(compiler, {
diff --git a/packages/cli/src/lib/bundler/transforms.ts b/packages/cli/src/lib/bundler/transforms.ts
index 98bcfe49ef..0cd800f2ea 100644
--- a/packages/cli/src/lib/bundler/transforms.ts
+++ b/packages/cli/src/lib/bundler/transforms.ts
@@ -16,14 +16,16 @@
 
 import webpack, { Module, Plugin } from 'webpack';
 import MiniCssExtractPlugin from 'mini-css-extract-plugin';
-import { BundlingOptions } from './types';
+import { BundlingOptions, BackendBundlingOptions } from './types';
 
 type Transforms = {
   loaders: Module['rules'];
   plugins: Plugin[];
 };
 
-export const transforms = (options: BundlingOptions): Transforms => {
+export const transforms = (
+  options: BundlingOptions | BackendBundlingOptions,
+): Transforms => {
   const { isDev } = options;
 
   const loaders = [
diff --git a/packages/cli/src/lib/bundler/types.ts b/packages/cli/src/lib/bundler/types.ts
index c1692ca997..5d0ba66a51 100644
--- a/packages/cli/src/lib/bundler/types.ts
+++ b/packages/cli/src/lib/bundler/types.ts
@@ -25,6 +25,8 @@ export type BundlingOptions = {
   baseUrl: URL;
 };
 
+export type BackendBundlingOptions = Omit<BundlingOptions, 'baseUrl'>;
+
 export type ServeOptions = BundlingPathsOptions & {
   checksEnabled: boolean;
   config: Config;
diff --git a/plugins/auth-backend/package.json b/plugins/auth-backend/package.json
index 9ee11eca52..5eff22126d 100644
--- a/plugins/auth-backend/package.json
+++ b/plugins/auth-backend/package.json
@@ -1,7 +1,7 @@
 {
   "name": "@backstage/plugin-auth-backend",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "license": "Apache-2.0",
   "private": true,
diff --git a/plugins/auth-backend/tsconfig.json b/plugins/auth-backend/tsconfig.json
index 015a967f76..6f1acf8dce 100644
--- a/plugins/auth-backend/tsconfig.json
+++ b/plugins/auth-backend/tsconfig.json
@@ -10,6 +10,6 @@
     "module": "commonjs",
     "esModuleInterop": true,
     "lib": ["es2019"],
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/plugins/catalog-backend/package.json b/plugins/catalog-backend/package.json
index d98afbe4d3..9abfb1646a 100644
--- a/plugins/catalog-backend/package.json
+++ b/plugins/catalog-backend/package.json
@@ -1,7 +1,7 @@
 {
   "name": "@backstage/plugin-catalog-backend",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "license": "Apache-2.0",
   "private": true,
diff --git a/plugins/catalog-backend/src/service/standaloneServer.ts b/plugins/catalog-backend/src/service/standaloneServer.ts
index 6a9755c0c4..5c7ccb23f5 100644
--- a/plugins/catalog-backend/src/service/standaloneServer.ts
+++ b/plugins/catalog-backend/src/service/standaloneServer.ts
@@ -54,7 +54,7 @@ export async function startStandaloneServer(
     higherOrderOperation,
     logger,
   });
-  const service = createServiceBuilder()
+  const service = createServiceBuilder(module)
     .enableCors({ origin: 'http://localhost:3000' })
     .addRouter('/catalog', router);
   return await service.start().catch(err => {
@@ -62,3 +62,5 @@ export async function startStandaloneServer(
     process.exit(1);
   });
 }
+
+module.hot?.accept();
diff --git a/plugins/catalog-backend/tsconfig.json b/plugins/catalog-backend/tsconfig.json
index 95c3a656e6..9ca38dca27 100644
--- a/plugins/catalog-backend/tsconfig.json
+++ b/plugins/catalog-backend/tsconfig.json
@@ -11,6 +11,6 @@
     "esModuleInterop": true,
     "allowJs": true,
     "lib": ["es2019"],
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/plugins/identity-backend/package.json b/plugins/identity-backend/package.json
index 0d1f6b99e5..ae7526daa2 100644
--- a/plugins/identity-backend/package.json
+++ b/plugins/identity-backend/package.json
@@ -1,7 +1,7 @@
 {
   "name": "@backstage/plugin-identity-backend",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "license": "Apache-2.0",
   "private": true,
diff --git a/plugins/identity-backend/tsconfig.json b/plugins/identity-backend/tsconfig.json
index 015a967f76..6f1acf8dce 100644
--- a/plugins/identity-backend/tsconfig.json
+++ b/plugins/identity-backend/tsconfig.json
@@ -10,6 +10,6 @@
     "module": "commonjs",
     "esModuleInterop": true,
     "lib": ["es2019"],
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/plugins/scaffolder-backend/package.json b/plugins/scaffolder-backend/package.json
index 1d7e3d4388..da87c707aa 100644
--- a/plugins/scaffolder-backend/package.json
+++ b/plugins/scaffolder-backend/package.json
@@ -1,7 +1,7 @@
 {
   "name": "@backstage/plugin-scaffolder-backend",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "license": "Apache-2.0",
   "private": true,
diff --git a/plugins/sentry-backend/package.json b/plugins/sentry-backend/package.json
index fd9638afe3..03846ea5a9 100644
--- a/plugins/sentry-backend/package.json
+++ b/plugins/sentry-backend/package.json
@@ -1,7 +1,7 @@
 {
   "name": "@backstage/plugin-sentry-backend",
   "version": "0.1.1-alpha.8",
-  "main": "dist",
+  "main": "src/index.ts",
   "types": "src/index.ts",
   "license": "Apache-2.0",
   "private": true,
diff --git a/plugins/sentry-backend/tsconfig.json b/plugins/sentry-backend/tsconfig.json
index 015a967f76..6f1acf8dce 100644
--- a/plugins/sentry-backend/tsconfig.json
+++ b/plugins/sentry-backend/tsconfig.json
@@ -10,6 +10,6 @@
     "module": "commonjs",
     "esModuleInterop": true,
     "lib": ["es2019"],
-    "types": ["node", "jest"]
+    "types": ["node", "jest", "webpack-env"]
   }
 }
diff --git a/yarn.lock b/yarn.lock
index 087252a8c3..2afeb2eb37 100644
--- a/yarn.lock
+++ b/yarn.lock
@@ -4020,6 +4020,20 @@
   resolved "https://registry.npmjs.org/@types/stack-utils/-/stack-utils-1.0.1.tgz#0a851d3bd96498fa25c33ab7278ed3bd65f06c3e"
   integrity sha512-l42BggppR6zLmpfU6fq9HEa2oGPEI8yrSPL3GITjfRInppYFahObbIQOQK3UGxEnyQpltZLaPe75046NOZQikw==
 
+"@types/start-server-webpack-plugin@^2.2.0":
+  version "2.2.0"
+  resolved "https://registry.npmjs.org/@types/start-server-webpack-plugin/-/start-server-webpack-plugin-2.2.0.tgz#a7c4595c715eda083d92ca1ea184d97db3d8fc7b"
+  integrity sha512-TFiZWMPuiMR/utvjk6ENi0HPtQl38HnPMYfJqm04ztpzITHzTCXt7T7LyXnP9eTwg4lLQkmRUaFy04iEyjoJmw==
+  dependencies:
+    "@types/webpack" "*"
+
+"@types/stoppable@^1.1.0":
+  version "1.1.0"
+  resolved "https://registry.npmjs.org/@types/stoppable/-/stoppable-1.1.0.tgz#a5fa6a48120b109ca9233eed05c67c50bc4f3b91"
+  integrity sha512-BRR23Q9CJduH7AM6mk4JRttd8XyFkb4qIPZu4mdLF+VoP+wcjIxIWIKiBbN78NBbEuynrAyMPtzOHnIp2B/JPQ==
+  dependencies:
+    "@types/node" "*"
+
 "@types/styled-jsx@^2.2.8":
   version "2.2.8"
   resolved "https://registry.npmjs.org/@types/styled-jsx/-/styled-jsx-2.2.8.tgz#b50d13d8a3c34036282d65194554cf186bab7234"
@@ -4143,6 +4157,18 @@
   resolved "https://registry.npmjs.org/@types/webpack-env/-/webpack-env-1.15.1.tgz#c8e84705e08eed430b5e15b39c65b0944e4d1422"
   integrity sha512-eWN5ElDTeBc5lRDh95SqA8x18D0ll2pWudU3uWiyfsRmIZcmUXpEsxPU+7+BsdCrO2vfLRC629u/MmjbmF+2tA==
 
+"@types/webpack-env@^1.15.2":
+  version "1.15.2"
+  resolved "https://registry.npmjs.org/@types/webpack-env/-/webpack-env-1.15.2.tgz#927997342bb9f4a5185a86e6579a0a18afc33b0a"
+  integrity sha512-67ZgZpAlhIICIdfQrB5fnDvaKFcDxpKibxznfYRVAT4mQE41Dido/3Ty+E3xGBmTogc5+0Qb8tWhna+5B8z1iQ==
+
+"@types/webpack-node-externals@^1.7.1":
+  version "1.7.1"
+  resolved "https://registry.npmjs.org/@types/webpack-node-externals/-/webpack-node-externals-1.7.1.tgz#73d0d7ae0e98cfbd69b7443388302cd69217494a"
+  integrity sha512-kbO2gYPKvMb5j1KOgnIuUH52CKul9Ud4b10J5n+JX8oHmgu86hYpBVfrV4bMDe5lhCaO64h8QrKz7WnRZzqkbA==
+  dependencies:
+    "@types/webpack" "*"
+
 "@types/webpack-sources@*":
   version "0.1.6"
   resolved "https://registry.npmjs.org/@types/webpack-sources/-/webpack-sources-0.1.6.tgz#3d21dfc2ec0ad0c77758e79362426a9ba7d7cbcb"
@@ -9932,7 +9958,7 @@ he@^1.2.0:
   resolved "https://registry.npmjs.org/he/-/he-1.2.0.tgz#84ae65fa7eafb165fddb61566ae14baf05664f0f"
   integrity sha512-F/1DnUGPopORZi0ni+CvrCgHQ5FyEAHRLSApuYWMmrbSwoN2Mn/7k+Gl38gJnR7yyDZk6WLXwiGod1JOWNDKGw==
 
-headers-utils@^1.1.3, headers-utils@^1.1.9:
+headers-utils@^1.1.9, headers-utils@^1.2.0:
   version "1.2.0"
   resolved "https://registry.npmjs.org/headers-utils/-/headers-utils-1.2.0.tgz#5e10d1bc9d2bccf789547afca5b991a3167241e8"
   integrity sha512-4/BMXcWrJErw7JpM87gF8MNEXcIMLzepYZjNRv/P9ctgupl2Ywa3u1PgHtNhSRq84bHH9Ndlkdy7bSi+bZ9I9A==
@@ -13169,9 +13195,9 @@ ms@^2.0.0, ms@^2.1.1:
   integrity sha512-sGkPx+VjMtmA6MX27oA4FBFELFCZZ4S4XqeGOXCv68tT+jb3vk/RyaKWP0PTKyWtmLSM0b+adUTEvbs1PEaH2w==
 
 msw@^0.19.0:
-  version "0.19.0"
-  resolved "https://registry.npmjs.org/msw/-/msw-0.19.0.tgz#fd37015787d40db82d243a2853be66c466675e72"
-  integrity sha512-1TpmJzJ+afBWTRNJYoeW8KwLQbCVlvvhw2u/eRuIYfel+bPqcut5NaSgo+Bi4C0Q/7M5wza00w1GEuOXQu6FCA==
+  version "0.19.3"
+  resolved "https://registry.npmjs.org/msw/-/msw-0.19.3.tgz#88f39edbd37313bff15a0e7cd00c71406cbdbbae"
+  integrity sha512-HYLnyrCDDPP72GG/CeHPhBjHsZFYkz36rJLXDWccZWNA24gYjgrcp9iVqqitk2cI6NAJwsupRml9GkfpJBB74w==
   dependencies:
     "@open-draft/until" "^1.0.0"
     "@types/cookie" "^0.3.3"
@@ -13180,7 +13206,7 @@ msw@^0.19.0:
     graphql "^15.0.0"
     headers-utils "^1.1.9"
     node-match-path "^0.4.2"
-    node-request-interceptor "^0.2.4"
+    node-request-interceptor "^0.2.5"
     statuses "^2.0.0"
     yargs "^15.3.1"
 
@@ -13436,13 +13462,13 @@ node-releases@^1.1.29, node-releases@^1.1.52:
   dependencies:
     semver "^6.3.0"
 
-node-request-interceptor@^0.2.4:
-  version "0.2.4"
-  resolved "https://registry.npmjs.org/node-request-interceptor/-/node-request-interceptor-0.2.4.tgz#f03a1b874823d0bea311a14280227707be946298"
-  integrity sha512-/htjDLmygBczT5qYPaSxfAEtMkc0LGuH6jqAP1o+TKfQh6yQfFyTtac25cpY8+pb4EawHljCLUN7dCeed9SdPA==
+node-request-interceptor@^0.2.5:
+  version "0.2.6"
+  resolved "https://registry.npmjs.org/node-request-interceptor/-/node-request-interceptor-0.2.6.tgz#541278d7033bb6a8befb5dd793f83428cf6446a2"
+  integrity sha512-aJW1tPSM7nzuZFRe+C/KSz22GJO3CVFMxHHmMGX8Z+tjP7TCIVbzeckLFVfJG68BdVgrdOOP7Ejc57ag820eyA==
   dependencies:
     debug "^4.1.1"
-    headers-utils "^1.1.3"
+    headers-utils "^1.2.0"
 
 nodemon@^2.0.2:
   version "2.0.4"
@@ -17299,6 +17325,11 @@ start-server-and-test@^1.10.11:
     ps-tree "1.2.0"
     wait-on "4.0.0"
 
+start-server-webpack-plugin@^2.2.5:
+  version "2.2.5"
+  resolved "https://registry.npmjs.org/start-server-webpack-plugin/-/start-server-webpack-plugin-2.2.5.tgz#4a2838759b0f36acd11b0b2f5f196f289ae29d31"
+  integrity sha512-DRCkciwCJoCFZ+wt3wWMkR1M2mpVhJbUKFXqhK3FWyIUKYb42NnocH5sMwqgo+nPNHupqNwK/v8lgfBbr2NKdg==
+
 state-toggle@^1.0.0:
   version "1.0.3"
   resolved "https://registry.npmjs.org/state-toggle/-/state-toggle-1.0.3.tgz#e123b16a88e143139b09c6852221bc9815917dfe"
@@ -17327,6 +17358,11 @@ stealthy-require@^1.1.1:
   resolved "https://registry.npmjs.org/stealthy-require/-/stealthy-require-1.1.1.tgz#35b09875b4ff49f26a777e509b3090a3226bf24b"
   integrity sha1-NbCYdbT/SfJqd35QmzCQoyJr8ks=
 
+stoppable@^1.1.0:
+  version "1.1.0"
+  resolved "https://registry.npmjs.org/stoppable/-/stoppable-1.1.0.tgz#32da568e83ea488b08e4d7ea2c3bcc9d75015d5b"
+  integrity sha512-KXDYZ9dszj6bzvnEMRYvxgeTHU74QBFL54XKtP3nyMuJ81CFYtABZ3bAzL2EdFUaEwJOBOgENyFj3R7oTzDyyw==
+
 store2@^2.7.1:
   version "2.10.0"
   resolved "https://registry.npmjs.org/store2/-/store2-2.10.0.tgz#46b82bb91878daf1b0d56dec2f1d41e54d5103cf"
@@ -19067,6 +19103,11 @@ webpack-log@^2.0.0:
     ansi-colors "^3.0.0"
     uuid "^3.3.2"
 
+webpack-node-externals@^1.7.2:
+  version "1.7.2"
+  resolved "https://registry.npmjs.org/webpack-node-externals/-/webpack-node-externals-1.7.2.tgz#6e1ee79ac67c070402ba700ef033a9b8d52ac4e3"
+  integrity sha512-ajerHZ+BJKeCLviLUUmnyd5B4RavLF76uv3cs6KNuO8W+HuQaEs0y0L7o40NQxdPy5w0pcv8Ew7yPUAQG0UdCg==
+
 webpack-sources@^1.1.0, webpack-sources@^1.4.0, webpack-sources@^1.4.1, webpack-sources@^1.4.3:
   version "1.4.3"
   resolved "https://registry.npmjs.org/webpack-sources/-/webpack-sources-1.4.3.tgz#eedd8ec0b928fbf1cbfe994e22d2d890f330a933"