diff --git a/daffodil-core/src/main/scala/org/apache/daffodil/core/runtime1/SchemaSetRuntime1Mixin.scala b/daffodil-core/src/main/scala/org/apache/daffodil/core/runtime1/SchemaSetRuntime1Mixin.scala
index c055940fd1..a7929ca94b 100644
--- a/daffodil-core/src/main/scala/org/apache/daffodil/core/runtime1/SchemaSetRuntime1Mixin.scala
+++ b/daffodil-core/src/main/scala/org/apache/daffodil/core/runtime1/SchemaSetRuntime1Mixin.scala
@@ -20,6 +20,7 @@ package org.apache.daffodil.core.runtime1
 import org.apache.daffodil.core.dsom.SchemaSet
 import org.apache.daffodil.core.dsom.SequenceTermBase
 import org.apache.daffodil.lib.util.Logger
+import org.apache.daffodil.lib.xml.XMLUtils
 import org.apache.daffodil.runtime1.api.DFDL
 import org.apache.daffodil.runtime1.layers.LayerRuntimeCompiler
 import org.apache.daffodil.runtime1.layers.LayerRuntimeData
@@ -30,6 +31,8 @@ import org.apache.daffodil.runtime1.processors.VariableMap
 import org.apache.daffodil.runtime1.processors.parsers.NotParsableParser
 import org.apache.daffodil.runtime1.processors.unparsers.NotUnparsableUnparser
 
+import java.io.FileNotFoundException
+
 trait SchemaSetRuntime1Mixin {
   self: SchemaSet =>
 
@@ -79,7 +82,14 @@ trait SchemaSetRuntime1Mixin {
       "The root element cannot have the dfdl:outputValueCalc property."
     )
     // stored transiently in the SSRD, only used for full validation
-    val mainSchemaURI = self.schemaSource.uriForLoading
+    val mainSchemaURI =
+      XMLUtils.resolveSchemaLocation(self.schemaSource.uriForLoading.toString, None) match {
+        case Some((uss, _)) => uss.uri
+        case None =>
+          throw new FileNotFoundException(
+            s"Could not find file or resource ${self.schemaSource.uriForLoading}"
+          )
+      }
     val p = if (!root.isError) parser else null
     val u = if (!root.isError) unparser else null
     val ssrd =
diff --git a/daffodil-japi/src/test/java/org/apache/daffodil/example/TestJavaAPI.java b/daffodil-japi/src/test/java/org/apache/daffodil/example/TestJavaAPI.java
index 6462367b81..8a8e9fbb70 100644
--- a/daffodil-japi/src/test/java/org/apache/daffodil/example/TestJavaAPI.java
+++ b/daffodil-japi/src/test/java/org/apache/daffodil/example/TestJavaAPI.java
@@ -23,10 +23,9 @@
 import static org.junit.Assert.assertTrue;
 import static org.junit.Assert.fail;
 
-import java.io.ByteArrayInputStream;
-import java.io.ByteArrayOutputStream;
-import java.io.File;
-import java.io.IOException;
+import java.io.*;
+import java.net.URI;
+import java.net.URISyntaxException;
 import java.nio.ByteBuffer;
 import java.nio.channels.Channels;
 import java.nio.channels.ReadableByteChannel;
@@ -1444,5 +1443,45 @@ public void testJavaAPICompileResource() throws IOException, ClassNotFoundExcept
         }
     }
 
+    @Test
+    public void testJavaAPICompileSource1() throws IOException, URISyntaxException, InvalidUsageException {
+        org.apache.daffodil.japi.Compiler c = Daffodil.compiler();
+        URI uri = new URI("/test/japi/mySchema1.dfdl.xsd");
+        ProcessorFactory pf = c.compileSource(uri);
+        DataProcessor dp = pf.onPath("/").withValidationMode(ValidationMode.Full);
+
+        java.io.File file = getResource("/test/japi/myDataBroken.dat");
+        java.io.FileInputStream fis = new java.io.FileInputStream(file);
+        try (InputSourceDataInputStream dis = new InputSourceDataInputStream(fis)) {
+            JDOMInfosetOutputter outputter = new JDOMInfosetOutputter();
+            ParseResult res = dp.parse(dis, outputter);
+            assertTrue(res.isError());
+
+            Diagnostic d = res.getDiagnostics().get(0);
+            LocationInSchemaFile loc = d.getLocationsInSchemaFiles().get(0);
+            assertTrue(loc.toString().replace("\\", "/").contains("in " + uri.getPath()));
+        }
+    }
+
+    @Test
+    public void testJavaAPICompileSource2() throws IOException {
+        org.apache.daffodil.japi.Compiler c = Daffodil.compiler();
+        File tempFile = File.createTempFile("testJavaAPI", ".schema");
+        File schemaFile = getResource("/test/japi/mySchema2.dfdl.xsd");
+        FileUtils.copyFile(schemaFile, tempFile);
+        ProcessorFactory pf = c.compileSource(tempFile.toURI());
+        try {
+            if (!pf.isError()) {
+                tempFile.delete();
+                pf.onPath("/");
+            } else {
+                tempFile.delete();
+                fail();
+            }
+        } catch (Exception e) {
+            assertTrue(e.getMessage().contains("Could not find file or resource"));
+        }
+    }
+
 
 }
diff --git a/daffodil-sapi/src/test/scala/org/apache/daffodil/example/TestScalaAPI.scala b/daffodil-sapi/src/test/scala/org/apache/daffodil/example/TestScalaAPI.scala
index 4dcee6dd27..9697a6f6cd 100644
--- a/daffodil-sapi/src/test/scala/org/apache/daffodil/example/TestScalaAPI.scala
+++ b/daffodil-sapi/src/test/scala/org/apache/daffodil/example/TestScalaAPI.scala
@@ -22,6 +22,7 @@ import java.io.ByteArrayOutputStream
 import java.io.File
 import java.io.ObjectInputStream
 import java.io.ObjectOutputStream
+import java.net.URI
 import java.nio.ByteBuffer
 import java.nio.channels.Channels
 import java.nio.charset.StandardCharsets
@@ -1407,4 +1408,44 @@ class TestScalaAPI {
     }
   }
 
+  @Test
+  def testScalaAPICompileSource1(): Unit = {
+    val c = Daffodil.compiler()
+    val uri = new URI("/test/sapi/mySchema1.dfdl.xsd")
+    val pf = c.compileSource(uri)
+    val dp = pf.onPath("/").withValidationMode(ValidationMode.Full)
+
+    val file = getResource("/test/sapi/myDataBroken.dat")
+    val fis = new java.io.FileInputStream(file)
+    using(new InputSourceDataInputStream(fis)) { input =>
+      val outputter = new ScalaXMLInfosetOutputter()
+      val res = dp.parse(input, outputter)
+      assertTrue(res.isError())
+
+      val d = res.getDiagnostics.head
+      val loc = d.getLocationsInSchemaFiles.head
+      assertTrue(loc.toString().replace("\\", "/").contains("in " + uri.getPath))
+    }
+  }
+
+  @Test
+  def testJavaAPICompileSource2(): Unit = {
+    val c = Daffodil.compiler()
+    val tempFile = File.createTempFile("testScalaAPI", ".schema")
+    val schemaFile = getResource("/test/sapi/mySchema2.dfdl.xsd")
+    FileUtils.copyFile(schemaFile, tempFile)
+    val pf = c.compileSource(tempFile.toURI)
+    try
+      if (!pf.isError ) {
+        tempFile.delete
+        pf.onPath("/")
+      } else {
+        tempFile.delete
+        fail()
+      }
+    catch {
+      case e: Exception =>
+        assertTrue(e.getMessage.contains("Could not find file or resource"))
+    }
+  }
 }