diff --git a/extensions/css-language-features/server/src/utils/documentContext.ts b/extensions/css-language-features/server/src/utils/documentContext.ts
index 9858ca84367..ef2cddc4255 100644
--- a/extensions/css-language-features/server/src/utils/documentContext.ts
+++ b/extensions/css-language-features/server/src/utils/documentContext.ts
@@ -8,6 +8,28 @@ import { endsWith, startsWith } from '../utils/strings';
 import * as url from 'url';
 import { WorkspaceFolder } from 'vscode-languageserver';
 
+function getModuleNameFromPath(path: string) {
+	// If a scoped module (starts with @) then get up until second instance of '/', otherwise get until first isntance of '/'
+	if (path[0] === '@') {
+		return path.substring(0, path.indexOf('/', path.indexOf('/') + 1));
+	}
+	return path.substring(0, path.indexOf('/'));
+}
+
+function resolvePathToModule(moduleName: string, relativeTo: string) {
+	// if we require.resolve('my-module') then it will follow the main property in the linked package.json
+	// but we want the root of the module so resolve to the package.json and then trim
+	let resolved;
+	try {
+		resolved = require
+			.resolve(`${moduleName}/package.json`, { paths: [relativeTo] });
+	}
+	catch (ex) {
+		return null;
+	}
+	return resolved.slice(0, -12); // remove trailing `package.json`
+}
+
 export function getDocumentContext(documentUri: string, workspaceFolders: WorkspaceFolder[]): DocumentContext {
 	function getRootFolder(): string | undefined {
 		for (let folder of workspaceFolders) {
@@ -32,6 +54,18 @@ export function getDocumentContext(documentUri: string, workspaceFolders: Worksp
 					}
 				}
 			}
+			// Following [css-loader](https://github.com/webpack-contrib/css-loader#url)
+			// and [sass-loader's](https://github.com/webpack-contrib/sass-loader#imports)
+			// convention, if an import path starts with ~ then use node module resolution
+			// *unless* it starts with "~/" as this refers to the user's home directory.
+			if (ref[0] === '~' && ref[1] !== '/') {
+				const moduleName = getModuleNameFromPath(ref.substring(1));
+				const modulePath = resolvePathToModule(moduleName, base);
+				if (modulePath) {
+					const pathWithinModule = ref.substring(moduleName.length + 2);
+					return url.resolve(modulePath, pathWithinModule);
+				}
+			}
 			return url.resolve(base, ref);
 		},
 	};