diff --git a/cli/templateupdate.go b/cli/templateupdate.go
index fcbba2b122c05..15b2c512fe35b 100644
--- a/cli/templateupdate.go
+++ b/cli/templateupdate.go
@@ -3,6 +3,7 @@ package cli
 import (
 	"fmt"
 	"os"
+	"path/filepath"
 	"time"
 
 	"github.com/briandowns/spinner"
@@ -24,8 +25,8 @@ func templateUpdate() *cobra.Command {
 	)
 
 	cmd := &cobra.Command{
-		Use:   "update <template>",
-		Args:  cobra.ExactArgs(1),
+		Use:   "update [template]",
+		Args:  cobra.MaximumNArgs(1),
 		Short: "Update the source-code of a template from the current directory or as specified by flag",
 		RunE: func(cmd *cobra.Command, args []string) error {
 			client, err := createClient(cmd)
@@ -36,7 +37,13 @@ func templateUpdate() *cobra.Command {
 			if err != nil {
 				return err
 			}
-			template, err := client.TemplateByName(cmd.Context(), organization.ID, args[0])
+
+			name := filepath.Base(directory)
+			if len(args) > 0 {
+				name = args[0]
+			}
+
+			template, err := client.TemplateByName(cmd.Context(), organization.ID, name)
 			if err != nil {
 				return err
 			}
diff --git a/cli/templateupdate_test.go b/cli/templateupdate_test.go
index 71cabc6ad408b..bfb153c0ee041 100644
--- a/cli/templateupdate_test.go
+++ b/cli/templateupdate_test.go
@@ -2,6 +2,7 @@ package cli_test
 
 import (
 	"context"
+	"path/filepath"
 	"testing"
 
 	"github.com/google/uuid"
@@ -113,6 +114,7 @@ func TestTemplateUpdate(t *testing.T) {
 		user := coderdtest.CreateFirstUser(t, client)
 		version := coderdtest.CreateTemplateVersion(t, client, user.OrganizationID, nil)
 		_ = coderdtest.AwaitTemplateVersionJob(t, client, version.ID)
+
 		template := coderdtest.CreateTemplate(t, client, user.OrganizationID, version.ID)
 
 		// Test the cli command.
@@ -152,6 +154,59 @@ func TestTemplateUpdate(t *testing.T) {
 		assert.Len(t, templateVersions, 2)
 		assert.NotEqual(t, template.ActiveVersionID, templateVersions[1].ID)
 	})
+
+	t.Run("UseWorkingDir", func(t *testing.T) {
+		t.Parallel()
+		client := coderdtest.New(t, &coderdtest.Options{IncludeProvisionerD: true})
+		user := coderdtest.CreateFirstUser(t, client)
+		version := coderdtest.CreateTemplateVersion(t, client, user.OrganizationID, nil)
+		_ = coderdtest.AwaitTemplateVersionJob(t, client, version.ID)
+
+		// Test the cli command.
+		source := clitest.CreateTemplateVersionSource(t, &echo.Responses{
+			Parse:     echo.ParseComplete,
+			Provision: echo.ProvisionComplete,
+		})
+
+		template := coderdtest.CreateTemplate(t, client, user.OrganizationID, version.ID,
+			func(r *codersdk.CreateTemplateRequest) {
+				r.Name = filepath.Base(source)
+			})
+
+		// Don't pass the name of the template, it should use the
+		// directory of the source.
+		cmd, root := clitest.New(t, "templates", "update", "--directory", source, "--test.provisioner", string(database.ProvisionerTypeEcho))
+		clitest.SetupConfig(t, client, root)
+		pty := ptytest.New(t)
+		cmd.SetIn(pty.Input())
+		cmd.SetOut(pty.Output())
+
+		execDone := make(chan error)
+		go func() {
+			execDone <- cmd.Execute()
+		}()
+
+		matches := []struct {
+			match string
+			write string
+		}{
+			{match: "Upload", write: "yes"},
+		}
+		for _, m := range matches {
+			pty.ExpectMatch(m.match)
+			pty.WriteLine(m.write)
+		}
+
+		require.NoError(t, <-execDone)
+
+		// Assert that the template version changed.
+		templateVersions, err := client.TemplateVersionsByTemplate(context.Background(), codersdk.TemplateVersionsByTemplateRequest{
+			TemplateID: template.ID,
+		})
+		require.NoError(t, err)
+		assert.Len(t, templateVersions, 2)
+		assert.NotEqual(t, template.ActiveVersionID, templateVersions[1].ID)
+	})
 }
 
 func latestTemplateVersion(t *testing.T, client *codersdk.Client, templateID uuid.UUID) (codersdk.TemplateVersion, []codersdk.Parameter) {