diff --git a/cmake/nanobind-config.cmake b/cmake/nanobind-config.cmake
index ee781859..7edfff62 100644
--- a/cmake/nanobind-config.cmake
+++ b/cmake/nanobind-config.cmake
@@ -361,7 +361,7 @@ function(nanobind_add_module name)
 endfunction()
 
 function (nanobind_add_stub name)
-  cmake_parse_arguments(PARSE_ARGV 1 ARG "VERBOSE;INCLUDE_PRIVATE;EXCLUDE_DOCSTRINGS;INSTALL_TIME;EXCLUDE_FROM_ALL" "MODULE;OUTPUT;MARKER_FILE;COMPONENT;PATTERN_FILE" "PYTHON_PATH;DEPENDS")
+  cmake_parse_arguments(PARSE_ARGV 1 ARG "VERBOSE;INCLUDE_PRIVATE;EXCLUDE_DOCSTRINGS;INSTALL_TIME;EXCLUDE_FROM_ALL" "MODULE;OUTPUT;OUTPUT_DIR;RECURSIVE;MARKER_FILE;COMPONENT;PATTERN_FILE" "PYTHON_PATH;DEPENDS")
 
   if (EXISTS ${NB_DIR}/src/stubgen.py)
     set(NB_STUBGEN "${NB_DIR}/src/stubgen.py")
@@ -404,24 +404,34 @@ function (nanobind_add_stub name)
     list(APPEND NB_STUBGEN_ARGS -m "${ARG_MODULE}")
   endif()
 
-  if (NOT ARG_OUTPUT)
-    message(FATAL_ERROR "nanobind_add_stub(): an 'OUTPUT' argument must be specified!")
-  else()
+  if (ARG_OUTPUT AND ARG_OUTPUT_DIR)
+    message(FATAL_ERROR "nanobind_add_stub(): 'OUTPUT' and 'OUTPUT_DIR' cannot be used together!")
+  elseif(ARG_OUTPUT)
     list(APPEND NB_STUBGEN_ARGS -o "${ARG_OUTPUT}")
     list(APPEND NB_STUBGEN_OUTPUTS "${ARG_OUTPUT}")
+  elseif (ARG_OUTPUT_DIR)
+    list(APPEND NB_STUBGEN_ARGS -O "${ARG_OUTPUT_DIR}")
+  endif()
+
+  if (ARG_RECURSIVE)
+    list(APPEND NB_STUBGEN_ARGS -r)
   endif()
 
   set(NB_STUBGEN_CMD "${Python_EXECUTABLE}" "${NB_STUBGEN}" ${NB_STUBGEN_ARGS})
 
   if (NOT ARG_INSTALL_TIME)
+    set(STUB_FAKE_FILE ${CMAKE_BINARY_DIR}/${name}_stub.tmp)
+    set(NB_STUBGEN_CMD ${NB_STUBGEN_CMD} "-M" ${STUB_FAKE_FILE})
     add_custom_command(
-      OUTPUT ${NB_STUBGEN_OUTPUTS}
+      OUTPUT ${NB_STUBGEN_OUTPUTS} ${STUB_FAKE_FILE}
       COMMAND ${NB_STUBGEN_CMD}
       WORKING_DIRECTORY "${CMAKE_CURRENT_BINARY_DIR}"
       DEPENDS ${ARG_DEPENDS} "${NB_STUBGEN}" "${ARG_PATTERN_FILE}"
       ${NB_STUBGEN_EXTRA}
     )
-    add_custom_target(${name} ALL DEPENDS ${NB_STUBGEN_OUTPUTS})
+    add_custom_target(${name} ALL DEPENDS ${NB_STUBGEN_OUTPUTS} ${STUB_FAKE_FILE})
+    file(GLOB STUB_FILES CONFIGURE_DEPENDS "${CMAKE_CURRENT_BINARY_DIR}/*.pyi" )
+    set_target_properties(${name} PROPERTIES ADDITIONAL_CLEAN_FILES "${STUB_FILES}")
   else()
     set(NB_STUBGEN_EXTRA "")
     if (ARG_COMPONENT)
diff --git a/docs/api_cmake.rst b/docs/api_cmake.rst
index 7832b2b9..6b50aaa6 100644
--- a/docs/api_cmake.rst
+++ b/docs/api_cmake.rst
@@ -414,7 +414,14 @@ Nanobind's CMake tooling includes a convenience command to interface with the
         - Specifies the name of the stub file that should be written. The path
           is relative to ``CMAKE_CURRENT_BINARY_DIR`` for build-time stub
           generation and relative to ``CMAKE_INSTALL_PREFIX`` for install-time
-          stub generation. Mandatory.
+          stub generation. Either ``OUTPUT`` or ``OUTPUT_DIR`` should be specified.
+      * - ``OUTPUT_DIR``
+        - Specifies the directory of the stub files that should be written. The path
+          is relative to ``CMAKE_CURRENT_BINARY_DIR`` for build-time stub
+          generation and relative to ``CMAKE_INSTALL_PREFIX`` for install-time
+          stub generation. Either ``OUTPUT`` or ``OUTPUT_DIR`` should be specified.
+      * - ``RECURSIVE``
+        - Recursively process submodules. Cannot be used with ``OUTPUT``.
       * - ``PYTHON_PATH``
         - List of search paths that should be considered when importing the
           module. The paths are relative to ``CMAKE_CURRENT_BINARY_DIR`` for
diff --git a/src/stubgen.py b/src/stubgen.py
index 8a5448c6..7689c87a 100755
--- a/src/stubgen.py
+++ b/src/stubgen.py
@@ -1277,6 +1277,10 @@ def parse_options(args: List[str]) -> argparse.Namespace:
         parser.error(
             "The -o option is not compatible with recursive stub generation (-r)."
         )
+    if opt.output_dir and opt.output_file:
+        parser.error(
+            "The output file option (-o) is not compatible with output directory option (-O)."
+        )
     return opt
 
 
diff --git a/tests/CMakeLists.txt b/tests/CMakeLists.txt
index 7a24ad84..54767358 100644
--- a/tests/CMakeLists.txt
+++ b/tests/CMakeLists.txt
@@ -72,7 +72,7 @@ nanobind_add_stub(
   MODULE py_stub_test
   OUTPUT ${PYI_PREFIX}py_stub_test.pyi
   PYTHON_PATH $<TARGET_FILE_DIR:test_stl_ext>
-  DEPENDS py_stub_test.py
+  DEPENDS ${CMAKE_CURRENT_BINARY_DIR}/${PYI_PREFIX}py_stub_test.py
 )
 
 find_package (Eigen3 3.3.1 NO_MODULE)