diff --git a/packages/api-server/src/watch.ts b/packages/api-server/src/watch.ts
index 756b355cb776..0be01404f60c 100644
--- a/packages/api-server/src/watch.ts
+++ b/packages/api-server/src/watch.ts
@@ -61,14 +61,14 @@ const validate = async () => {
   }
 }
 
-const rebuildApiServer = () => {
+const rebuildApiServer = async () => {
   try {
     // Shutdown API server
     killApiServer()
 
     const buildTs = Date.now()
     process.stdout.write(c.dim(c.italic('Building... ')))
-    buildApi()
+    await buildApi()
     console.log(c.dim(c.italic('Took ' + (Date.now() - buildTs) + ' ms')))
 
     const forkOpts = {
diff --git a/packages/cli/jsconfig.json b/packages/cli/jsconfig.json
index 0b2607fe6cfc..1b8d45ca0773 100644
--- a/packages/cli/jsconfig.json
+++ b/packages/cli/jsconfig.json
@@ -12,7 +12,6 @@
     { "path": "../project-config" },
     { "path": "../structure" },
     { "path": "../prerender" },
-    { "path": "../api-server" },
-    { "path": "../auth-providers-setup" },
+    { "path": "../api-server" }
   ]
 }
diff --git a/packages/cli/src/commands/__tests__/build.test.js b/packages/cli/src/commands/__tests__/build.test.js
index b54468d9d483..2a9906caa2bc 100644
--- a/packages/cli/src/commands/__tests__/build.test.js
+++ b/packages/cli/src/commands/__tests__/build.test.js
@@ -67,7 +67,7 @@ test('Should run prerender for web', async () => {
   // Run prerendering task, but expect warning,
   // because `detectPrerenderRoutes` is empty.
   expect(consoleSpy.mock.calls[0][0]).toBe('Starting prerendering...')
-  expect(consoleSpy.mock.calls[1][0]).toBe(
-    'You have not marked any routes to "prerender" in your Routes (​file:///mocked/project/web/Routes.tsx​).'
+  expect(consoleSpy.mock.calls[1][0]).toMatch(
+    /You have not marked any routes to "prerender"/
   )
 })
diff --git a/packages/cli/src/commands/buildHandler.js b/packages/cli/src/commands/buildHandler.js
index 841fe51c0d7d..bf891e805edb 100644
--- a/packages/cli/src/commands/buildHandler.js
+++ b/packages/cli/src/commands/buildHandler.js
@@ -73,8 +73,8 @@ export const handler = async ({
     },
     side.includes('api') && {
       title: 'Building API...',
-      task: () => {
-        const { errors, warnings } = buildApi()
+      task: async () => {
+        const { errors, warnings } = await buildApi()
 
         if (errors.length) {
           console.error(errors)
@@ -134,7 +134,10 @@ export const handler = async ({
           'file://' + rwjsPaths.web.routes
         )}.`
       )
+
+      return
     }
+
     // Running a separate process here, otherwise it wouldn't pick up the
     // generated Prisma Client due to require module caching
     await execa('yarn rw prerender', {
diff --git a/packages/cli/src/commands/deploy/__tests__/nftPack.test.js b/packages/cli/src/commands/deploy/__tests__/nftPack.test.js
index a3f79a6e8572..62e859a49c6a 100644
--- a/packages/cli/src/commands/deploy/__tests__/nftPack.test.js
+++ b/packages/cli/src/commands/deploy/__tests__/nftPack.test.js
@@ -1,31 +1,32 @@
-import fs from 'fs'
-import path from 'path'
-
-import { buildApi } from '@redwoodjs/internal/dist/build/api'
 import { findApiDistFunctions } from '@redwoodjs/internal/dist/files'
 
 import nftPacker from '../packing/nft'
 
-const FIXTURE_PATH = path.resolve(
-  __dirname,
-  '../../../../../../__fixtures__/example-todo-main'
-)
-
-let functionDistFiles
-
-beforeAll(() => {
-  process.env.RWJS_CWD = FIXTURE_PATH
-
-  // Actually build the fixture, if we need it
-  if (!fs.existsSync(path.join(FIXTURE_PATH, 'api/dist/functions'))) {
-    buildApi()
+jest.mock('@redwoodjs/internal/dist/files', () => {
+  return {
+    findApiDistFunctions: () => {
+      return [
+        '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/api/dist/functions/graphql.js',
+        '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/api/dist/functions/healthz/healthz.js',
+        '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/api/dist/functions/invalid/x.js',
+        '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/api/dist/functions/nested/nested.js',
+        '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/api/dist/functions/x/index.js',
+      ]
+    },
   }
-
-  functionDistFiles = findApiDistFunctions()
 })
 
-afterAll(() => {
-  delete process.env.RWJS_CWD
+jest.mock('@redwoodjs/project-config', () => {
+  return {
+    getPaths: () => {
+      return {
+        base: '/Users/carmack/dev/redwood/__fixtures__/example-todo-main/',
+      }
+    },
+    ensurePosixPath: (path) => {
+      return path.replace(/\\/g, '/')
+    },
+  }
 })
 
 test('Check packager detects all functions', () => {
@@ -39,7 +40,7 @@ test('Check packager detects all functions', () => {
 })
 
 test('Creates entry file for nested functions correctly', () => {
-  const nestedFunction = functionDistFiles.find((fPath) =>
+  const nestedFunction = findApiDistFunctions().find((fPath) =>
     fPath.includes('nested')
   )
 
@@ -55,7 +56,7 @@ test('Creates entry file for nested functions correctly', () => {
 })
 
 test('Creates entry file for top level functions correctly', () => {
-  const graphqlFunction = functionDistFiles.find((fPath) =>
+  const graphqlFunction = findApiDistFunctions().find((fPath) =>
     fPath.includes('graphql')
   )
 
diff --git a/packages/internal/src/__tests__/build_api.test.ts b/packages/internal/src/__tests__/build_api.test.ts
index c46bb09a9e82..5c90d9965f4a 100644
--- a/packages/internal/src/__tests__/build_api.test.ts
+++ b/packages/internal/src/__tests__/build_api.test.ts
@@ -6,11 +6,12 @@ import compat from 'core-js-compat'
 
 import { ensurePosixPath, getPaths } from '@redwoodjs/project-config'
 
-import { cleanApiBuild, prebuildApiFiles } from '../build/api'
+import { cleanApiBuild } from '../build/api'
 import {
   getApiSideBabelConfigPath,
   getApiSideBabelPlugins,
   getApiSideDefaultBabelConfig,
+  transformWithBabel,
   BABEL_PLUGIN_TRANSFORM_RUNTIME_OPTIONS,
   TARGETS_NODE,
 } from '../build/babel/api'
@@ -21,6 +22,31 @@ const FIXTURE_PATH = path.resolve(
   '../../../../__fixtures__/example-todo-main'
 )
 
+// @NOTE: we no longer prebuild files into the .redwood/prebuild folder
+// However, prebuilding in the tests still helpful for us to  validate
+// that everything is working as expected.
+export const prebuildApiFiles = (srcFiles: string[]) => {
+  const rwjsPaths = getPaths()
+  const plugins = getApiSideBabelPlugins()
+
+  return srcFiles.map((srcPath) => {
+    const relativePathFromSrc = path.relative(rwjsPaths.base, srcPath)
+    const dstPath = path
+      .join(rwjsPaths.generated.prebuild, relativePathFromSrc)
+      .replace(/\.(ts)$/, '.js')
+
+    const result = transformWithBabel(srcPath, plugins)
+    if (!result?.code) {
+      throw new Error(`Could not prebuild ${srcPath}`)
+    }
+
+    fs.mkdirSync(path.dirname(dstPath), { recursive: true })
+    fs.writeFileSync(dstPath, result.code)
+
+    return dstPath
+  })
+}
+
 const cleanPaths = (p) => {
   return ensurePosixPath(path.relative(FIXTURE_PATH, p))
 }
@@ -90,6 +116,10 @@ test.skip('api prebuild transforms gql with `babel-plugin-graphql-tag`', () => {
     .filter((p) => p.endsWith('todos.sdl.js'))
     .pop()
 
+  if (!p) {
+    throw new Error('No built files')
+  }
+
   const code = fs.readFileSync(p, 'utf-8')
   expect(code.includes('import gql from "graphql-tag";')).toEqual(false)
   expect(code.includes('gql`')).toEqual(false)
@@ -493,7 +523,7 @@ test('jest mock statements also handle', () => {
     cwd: getPaths().api.base,
     // We override the plugins, to match packages/testing/config/jest/api/index.js
     plugins: getApiSideBabelPlugins({ forJest: true }),
-  }).code
+  })?.code
 
   // Step 2: check that output has correct import statement path
   expect(outputForJest).toContain('import dog from "../../lib/dog"')
@@ -503,10 +533,13 @@ test('jest mock statements also handle', () => {
 
 test('core-js polyfill list', () => {
   const { list } = compat({
+    // @ts-expect-error TODO: Figure out why this is needed
     targets: { node: TARGETS_NODE },
+    // @ts-expect-error TODO: Figure out why this is needed
     version: BABEL_PLUGIN_TRANSFORM_RUNTIME_OPTIONS.corejs.version,
   })
 
+  // TODO: Node.js 12? Really?
   /**
    * Redwood targets Node.js 12, but that doesn't factor into what gets polyfilled
    * because Redwood uses the plugin-transform-runtime polyfill strategy.
diff --git a/packages/internal/src/build/api.ts b/packages/internal/src/build/api.ts
index efa1e17024ab..ac2bb71e366c 100644
--- a/packages/internal/src/build/api.ts
+++ b/packages/internal/src/build/api.ts
@@ -1,73 +1,58 @@
-import fs from 'fs'
-import path from 'path'
-
-import * as esbuild from 'esbuild'
+import type { PluginBuild } from 'esbuild'
+import { build } from 'esbuild'
 import { removeSync } from 'fs-extra'
 
 import { getPaths } from '@redwoodjs/project-config'
 
 import { findApiFiles } from '../files'
 
-import { getApiSideBabelPlugins, prebuildApiFile } from './babel/api'
+import { getApiSideBabelPlugins, transformWithBabel } from './babel/api'
 
-export const buildApi = () => {
+export const buildApi = async () => {
   // TODO: Be smarter about caching and invalidating files,
   // but right now we just delete everything.
   cleanApiBuild()
-
-  const srcFiles = findApiFiles()
-
-  const prebuiltFiles = prebuildApiFiles(srcFiles).filter(
-    (path): path is string => path !== undefined
-  )
-
-  return transpileApi(prebuiltFiles)
+  return transpileApi(findApiFiles())
 }
 
 export const cleanApiBuild = () => {
   const rwjsPaths = getPaths()
   removeSync(rwjsPaths.api.dist)
-  removeSync(path.join(rwjsPaths.generated.prebuild, 'api'))
 }
 
-/**
- * Remove RedwoodJS "magic" from a user's code leaving JavaScript behind.
- */
-export const prebuildApiFiles = (srcFiles: string[]) => {
-  const rwjsPaths = getPaths()
-  const plugins = getApiSideBabelPlugins()
-
-  return srcFiles.map((srcPath) => {
-    const relativePathFromSrc = path.relative(rwjsPaths.base, srcPath)
-    const dstPath = path
-      .join(rwjsPaths.generated.prebuild, relativePathFromSrc)
-      .replace(/\.(ts)$/, '.js')
-
-    const result = prebuildApiFile(srcPath, dstPath, plugins)
-    if (!result?.code) {
-      // TODO: Figure out a better way to return these programatically.
-      console.warn('Error:', srcPath, 'could not prebuilt.')
-
-      return undefined
-    }
-
-    fs.mkdirSync(path.dirname(dstPath), { recursive: true })
-    fs.writeFileSync(dstPath, result.code)
-
-    return dstPath
-  })
+const runRwBabelTransformsPlugin = {
+  name: 'rw-esbuild-babel-transform',
+  setup(build: PluginBuild) {
+    build.onLoad({ filter: /\.(js|ts|tsx|jsx)$/ }, async (args) => {
+      //  Remove RedwoodJS "magic" from a user's code leaving JavaScript behind.
+      const transformedCode = transformWithBabel(
+        args.path,
+        getApiSideBabelPlugins()
+      )
+
+      if (transformedCode?.code) {
+        return {
+          contents: transformedCode.code,
+          loader: 'js',
+        }
+      }
+
+      throw new Error(`Could not transform file: ${args.path}`)
+    })
+  },
 }
 
-export const transpileApi = (files: string[], options = {}) => {
+export const transpileApi = async (files: string[], options = {}) => {
   const rwjsPaths = getPaths()
 
-  return esbuild.buildSync({
+  return build({
     absWorkingDir: rwjsPaths.api.base,
     entryPoints: files,
     platform: 'node',
     target: 'node16',
     format: 'cjs',
     bundle: false,
+    plugins: [runRwBabelTransformsPlugin],
     outdir: rwjsPaths.api.dist,
     // setting this to 'true' will generate an external sourcemap x.js.map
     // AND set the sourceMappingURL comment
diff --git a/packages/internal/src/build/babel/api.ts b/packages/internal/src/build/babel/api.ts
index ab6300cc7260..a44a13eaa4ad 100644
--- a/packages/internal/src/build/babel/api.ts
+++ b/packages/internal/src/build/babel/api.ts
@@ -194,11 +194,8 @@ export const registerApiSideBabelHook = ({
   })
 }
 
-export const prebuildApiFile = (
+export const transformWithBabel = (
   srcPath: string,
-  // we need to know dstPath as well
-  // so we can generate an inline, relative sourcemap
-  dstPath: string,
   plugins: TransformOptions['plugins']
 ) => {
   const code = fs.readFileSync(srcPath, 'utf-8')
@@ -208,9 +205,6 @@ export const prebuildApiFile = (
     ...defaultOptions,
     cwd: getPaths().api.base,
     filename: srcPath,
-    // we set the sourceFile (for the sourcemap) as a correct, relative path
-    // this is why this function (prebuildFile) must know about the dstPath
-    sourceFileName: path.relative(path.dirname(dstPath), srcPath),
     // we need inline sourcemaps at this level
     // because this file will eventually be fed to esbuild
     // when esbuild finds an inline sourcemap, it tries to "combine" it