diff --git a/e2e/bzlmod_write_source_files_external/.bazelrc b/e2e/bzlmod_write_source_files_external/.bazelrc
new file mode 100644
index 0000000..3ce91d2
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/.bazelrc
@@ -0,0 +1 @@
+common --enable_bzlmod
diff --git a/e2e/bzlmod_write_source_files_external/.bazelversion b/e2e/bzlmod_write_source_files_external/.bazelversion
new file mode 120000
index 0000000..96cf949
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/.bazelversion
@@ -0,0 +1 @@
+../../.bazelversion
\ No newline at end of file
diff --git a/e2e/bzlmod_write_source_files_external/BUILD.bazel b/e2e/bzlmod_write_source_files_external/BUILD.bazel
new file mode 100644
index 0000000..bcb49d7
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/BUILD.bazel
@@ -0,0 +1,10 @@
+load("@aspect_bazel_lib//lib:write_source_files.bzl", "write_source_files")
+
+# This tests that the "in" file to write_source_files can be a
+# label to an external repository target when bzlmod is enabled.
+write_source_files(
+    name = "write_external",
+    files = {
+        "foobar.txt": "@test//:foobar.txt",
+    },
+)
diff --git a/e2e/bzlmod_write_source_files_external/MODULE.bazel b/e2e/bzlmod_write_source_files_external/MODULE.bazel
new file mode 100644
index 0000000..d8d1095
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/MODULE.bazel
@@ -0,0 +1,17 @@
+module(
+    name = "e2e_bzlmod_write_source_files_external",
+    compatibility_level = 1,
+    version = "0.0.0",
+)
+
+bazel_dep(name = "aspect_bazel_lib", version = "0.0.0")
+
+local_path_override(
+    module_name = "aspect_bazel_lib",
+    path = "../..",
+)
+
+test_ext = use_extension("//:test_extension.bzl", "test_ext")
+
+use_repo(test_ext, "test")
+
diff --git a/e2e/bzlmod_write_source_files_external/WORKSPACE b/e2e/bzlmod_write_source_files_external/WORKSPACE
new file mode 100644
index 0000000..79d35f9
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/WORKSPACE
@@ -0,0 +1,2 @@
+# Marker file that this folder is the root of a Bazel workspace.
+# See MODULE.bazel for dependencies and setup.
diff --git a/e2e/bzlmod_write_source_files_external/foobar.txt b/e2e/bzlmod_write_source_files_external/foobar.txt
new file mode 100644
index 0000000..323fae0
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/foobar.txt
@@ -0,0 +1 @@
+foobar
diff --git a/e2e/bzlmod_write_source_files_external/test_extension.bzl b/e2e/bzlmod_write_source_files_external/test_extension.bzl
new file mode 100644
index 0000000..6efadad
--- /dev/null
+++ b/e2e/bzlmod_write_source_files_external/test_extension.bzl
@@ -0,0 +1,20 @@
+"Test module extension to create a test repository"
+
+def _test_repo_impl(rctx):
+    rctx.file("BUILD.bazel", """\
+exports_files(["foobar.txt"], visibility = ["//visibility:public"])
+""", executable = False)
+
+    rctx.file("foobar.txt", "foobar\n")
+
+test_repo = repository_rule(
+    local = True,
+    implementation = _test_repo_impl,
+)
+
+def _test_ext_impl(_):
+    test_repo(name = "test")
+
+test_ext = module_extension(
+    implementation = _test_ext_impl,
+)
diff --git a/lib/private/write_source_file.bzl b/lib/private/write_source_file.bzl
index 4feac0d..c5adc65 100644
--- a/lib/private/write_source_file.bzl
+++ b/lib/private/write_source_file.bzl
@@ -57,8 +57,7 @@ def write_source_file(
         if not out_file:
             fail("out_file must be specified if in_file is set")
 
-    if in_file and out_file:
-        in_file = utils.to_label(in_file)
+    if out_file:
         out_file = utils.to_label(out_file)
 
         if utils.is_external_label(out_file):