diff --git a/.changeset/stupid-toes-complain.md b/.changeset/stupid-toes-complain.md
new file mode 100644
index 0000000000..246dce3af1
--- /dev/null
+++ b/.changeset/stupid-toes-complain.md
@@ -0,0 +1,5 @@
+---
+'@backstage/cli': patch
+---
+
+The build commands now support the new `backstage.inline` flag in `package.json`, which causes the contents of private packages to be inlined into the consuming package, rather than be treated as an external dependency.
diff --git a/packages/cli/src/commands/build/buildBackend.ts b/packages/cli/src/commands/build/buildBackend.ts
index 3609e40eb5..88d322d482 100644
--- a/packages/cli/src/commands/build/buildBackend.ts
+++ b/packages/cli/src/commands/build/buildBackend.ts
@@ -21,6 +21,7 @@ import tar, { CreateOptions } from 'tar';
 import { createDistWorkspace } from '../../lib/packager';
 import { getEnvironmentParallelism } from '../../lib/parallel';
 import { buildPackage, Output } from '../../lib/builder';
+import { PackageGraph } from '@backstage/cli-node';
 
 const BUNDLE_FILE = 'bundle.tar.gz';
 const SKELETON_FILE = 'skeleton.tar.gz';
@@ -42,6 +43,7 @@ export async function buildBackend(options: BuildBackendOptions) {
     packageJson: pkg,
     outputs: new Set([Output.cjs]),
     minify,
+    workspacePackages: await PackageGraph.listTargetPackages(),
   });
 
   const tmpDir = await fs.mkdtemp(resolvePath(os.tmpdir(), 'backstage-bundle'));
diff --git a/packages/cli/src/commands/build/command.ts b/packages/cli/src/commands/build/command.ts
index c0ad3c912b..a5f7f60971 100644
--- a/packages/cli/src/commands/build/command.ts
+++ b/packages/cli/src/commands/build/command.ts
@@ -17,7 +17,7 @@
 import { OptionValues } from 'commander';
 import { buildPackage, Output } from '../../lib/builder';
 import { findRoleFromCommand } from '../../lib/role';
-import { PackageRoles } from '@backstage/cli-node';
+import { PackageGraph, PackageRoles } from '@backstage/cli-node';
 import { paths } from '../../lib/paths';
 import { buildFrontend } from './buildFrontend';
 import { buildBackend } from './buildBackend';
@@ -82,5 +82,6 @@ export async function command(opts: OptionValues): Promise<void> {
   return buildPackage({
     outputs,
     minify: Boolean(opts.minify),
+    workspacePackages: await PackageGraph.listTargetPackages(),
   });
 }
diff --git a/packages/cli/src/commands/repo/build.ts b/packages/cli/src/commands/repo/build.ts
index 6d362c7d98..6a2b9be06d 100644
--- a/packages/cli/src/commands/repo/build.ts
+++ b/packages/cli/src/commands/repo/build.ts
@@ -137,6 +137,7 @@ export async function command(opts: OptionValues, cmd: Command): Promise<void> {
       outputs,
       logPrefix: `${chalk.cyan(relativePath(paths.targetRoot, pkg.dir))}: `,
       minify: buildOptions.minify,
+      workspacePackages: packages,
     };
   });
 
diff --git a/packages/cli/src/lib/builder/config.test.ts b/packages/cli/src/lib/builder/config.test.ts
index 733c35fb55..e426e1ffa5 100644
--- a/packages/cli/src/lib/builder/config.test.ts
+++ b/packages/cli/src/lib/builder/config.test.ts
@@ -29,6 +29,7 @@ describe('makeRollupConfigs', () => {
         version: '0.0.0',
         main: './src/index.ts',
       },
+      workspacePackages: [],
     });
     const external = config.external as Exclude<
       ExternalOption,
diff --git a/packages/cli/src/lib/builder/config.ts b/packages/cli/src/lib/builder/config.ts
index 8beb2cbb1e..b568b402bd 100644
--- a/packages/cli/src/lib/builder/config.ts
+++ b/packages/cli/src/lib/builder/config.ts
@@ -53,6 +53,21 @@ function isFileImport(source: string) {
   return false;
 }
 
+function buildInternalImportPattern(options: BuildOptions) {
+  const inlinedPackages = options.workspacePackages.filter(
+    pkg => pkg.packageJson.backstage?.inline,
+  );
+  for (const { packageJson } of inlinedPackages) {
+    if (!packageJson.private) {
+      throw new Error(
+        `Inlined package ${packageJson.name} must be marked as private`,
+      );
+    }
+  }
+  const names = inlinedPackages.map(pkg => pkg.packageJson.name);
+  return new RegExp(`^(?:${names.join('|')})(?:$|/)`);
+}
+
 export async function makeRollupConfigs(
   options: BuildOptions,
 ): Promise<RollupOptions[]> {
@@ -83,6 +98,19 @@ export async function makeRollupConfigs(
     SCRIPT_EXTS.includes(e.ext),
   );
 
+  const internalImportPattern = buildInternalImportPattern(options);
+  const external = (
+    source: string,
+    importer: string | undefined,
+    isResolved: boolean,
+  ) =>
+    Boolean(
+      importer &&
+        !isResolved &&
+        !internalImportPattern.test(source) &&
+        !isFileImport(source),
+    );
+
   if (options.outputs.has(Output.cjs) || options.outputs.has(Output.esm)) {
     const output = new Array<OutputOptions>();
     const mainFields = ['module', 'main'];
@@ -120,8 +148,7 @@ export async function makeRollupConfigs(
       onwarn,
       preserveEntrySignatures: 'strict',
       // All module imports are always marked as external
-      external: (source, importer, isResolved) =>
-        Boolean(importer && !isResolved && !isFileImport(source)),
+      external,
       plugins: [
         resolve({ mainFields }),
         commonjs({
@@ -190,18 +217,11 @@ export async function makeRollupConfigs(
         chunkFileNames: `types/[name]-[hash].d.ts`,
         format: 'es',
       },
-      external: [
-        /\.css$/,
-        /\.scss$/,
-        /\.sass$/,
-        /\.svg$/,
-        /\.eot$/,
-        /\.woff$/,
-        /\.woff2$/,
-        /\.ttf$/,
-      ],
+      external: (source, importer, isResolved) =>
+        /\.css|scss|sass|svg|eot|woff|woff2|ttf$/.test(source) ||
+        external(source, importer, isResolved),
       onwarn,
-      plugins: [dts()],
+      plugins: [dts({ respectExternal: true })],
     });
   }
 
diff --git a/packages/cli/src/lib/builder/types.ts b/packages/cli/src/lib/builder/types.ts
index 7d9c34fe29..937bd157c9 100644
--- a/packages/cli/src/lib/builder/types.ts
+++ b/packages/cli/src/lib/builder/types.ts
@@ -14,7 +14,7 @@
  * limitations under the License.
  */
 
-import { BackstagePackageJson } from '@backstage/cli-node';
+import { BackstagePackage, BackstagePackageJson } from '@backstage/cli-node';
 
 export enum Output {
   esm,
@@ -28,4 +28,5 @@ export type BuildOptions = {
   packageJson?: BackstagePackageJson;
   outputs: Set<Output>;
   minify?: boolean;
+  workspacePackages: BackstagePackage[];
 };
diff --git a/packages/cli/src/lib/packager/createDistWorkspace.ts b/packages/cli/src/lib/packager/createDistWorkspace.ts
index b966e23a85..54ce9c073f 100644
--- a/packages/cli/src/lib/packager/createDistWorkspace.ts
+++ b/packages/cli/src/lib/packager/createDistWorkspace.ts
@@ -211,6 +211,7 @@ export async function createDistWorkspace(
           outputs: outputs,
           logPrefix: `${chalk.cyan(relativePath(paths.targetRoot, pkg.dir))}: `,
           minify: options.minify,
+          workspacePackages: packages,
         });
       }
     }