diff --git a/Makefile b/Makefile
index 8c6af055..da16f9bc 100644
--- a/Makefile
+++ b/Makefile
@@ -17,3 +17,6 @@ test-release-mode-multi-sdk:
 
 test-validate-action:
 	./testing/test.sh ./testing/validate-action.env
+
+test-overlay:
+	./testing/test.sh ./testing/overlay-test.env
\ No newline at end of file
diff --git a/internal/cli/cli.go b/internal/cli/cli.go
index 46cb1a0d..869ce813 100644
--- a/internal/cli/cli.go
+++ b/internal/cli/cli.go
@@ -293,7 +293,7 @@ func ApplyOverlay(overlayPath, inPath, outPath string) error {
 		"overlay",
 		"apply",
 		"-o",
-		"overlayPath",
+		overlayPath,
 		"-s",
 		inPath,
 	}
diff --git a/internal/document/document.go b/internal/document/document.go
index 50c9cf2f..82ee4890 100644
--- a/internal/document/document.go
+++ b/internal/document/document.go
@@ -109,7 +109,7 @@ func GetOpenAPIFileInfo() (string, string, string, error) {
 }
 
 func mergeFiles(files []string) (string, error) {
-	outPath := filepath.Join(environment.GetWorkspace(), "repo", "openapi", "openapi_merged")
+	outPath := filepath.Join(environment.GetWorkspace(), "repo", ".openapi", "openapi_merged")
 
 	if err := os.MkdirAll(filepath.Dir(outPath), os.ModePerm); err != nil {
 		return "", fmt.Errorf("failed to create openapi directory: %w", err)
@@ -123,7 +123,7 @@ func mergeFiles(files []string) (string, error) {
 }
 
 func applyOverlay(filePath string, overlayFiles []string) (string, error) {
-	outPath := filepath.Join(environment.GetWorkspace(), "repo", "openapi", "openapi_overlay")
+	outPath := filepath.Join(environment.GetWorkspace(), "repo", ".openapi", "openapi_overlay")
 
 	if err := os.MkdirAll(filepath.Dir(outPath), os.ModePerm); err != nil {
 		return "", fmt.Errorf("failed to create openapi directory: %w", err)
diff --git a/testing/overlay-test.env b/testing/overlay-test.env
new file mode 100644
index 00000000..b6f5709d
--- /dev/null
+++ b/testing/overlay-test.env
@@ -0,0 +1,8 @@
+INPUT_MODE="pr"
+INPUT_ACTION="generate"
+INPUT_LANGUAGES="- go"
+INPUT_OPENAPI_DOCS="[\"base_oas.yaml\"]"
+INPUT_OVERLAY_DOCS="[\"terraform_overlay.yaml\"]"
+GITHUB_REPOSITORY="speakeasy-api/sdk-generation-action-overlay-test"
+INPUT_FORCE=true
+RUN_FINALIZE=true