diff --git a/bake/compose.go b/bake/compose.go
index db33a8c9..eac95bf3 100644
--- a/bake/compose.go
+++ b/bake/compose.go
@@ -1,6 +1,9 @@
 package bake
 
 import (
+	"fmt"
+	"reflect"
+
 	"github.com/docker/cli/cli/compose/loader"
 	composetypes "github.com/docker/cli/cli/compose/types"
 )
@@ -26,6 +29,7 @@ func ParseCompose(dt []byte) (*Config, error) {
 	}
 
 	var c Config
+	var zeroBuildConfig composetypes.BuildConfig
 	if len(cfg.Services) > 0 {
 		c.Group = map[string]Group{}
 		c.Target = map[string]Target{}
@@ -33,7 +37,15 @@ func ParseCompose(dt []byte) (*Config, error) {
 		var g Group
 
 		for _, s := range cfg.Services {
-			g.Targets = append(g.Targets, s.Name)
+
+			if reflect.DeepEqual(s.Build, zeroBuildConfig) {
+				// if not make sure they're setting an image or it's invalid d-c.yml
+				if s.Image == "" {
+					return nil, fmt.Errorf("compose file invalid: service %s has neither an image nor a build context specified. At least one must be provided.", s.Name)
+				}
+				continue
+			}
+
 			var contextPathP *string
 			if s.Build.Context != "" {
 				contextPath := s.Build.Context
@@ -44,6 +56,7 @@ func ParseCompose(dt []byte) (*Config, error) {
 				dockerfilePath := s.Build.Dockerfile
 				dockerfilePathP = &dockerfilePath
 			}
+			g.Targets = append(g.Targets, s.Name)
 			t := Target{
 				Context:    contextPathP,
 				Dockerfile: dockerfilePathP,
diff --git a/bake/compose_test.go b/bake/compose_test.go
index 2f367179..94bf235d 100644
--- a/bake/compose_test.go
+++ b/bake/compose_test.go
@@ -40,6 +40,21 @@ services:
 	require.Equal(t, "123", c.Target["webapp"].Args["buildno"])
 }
 
+func TestNoBuildOutOfTreeService(t *testing.T) {
+	var dt = []byte(`
+version: "3.7"
+
+services:
+    external:
+        image: "verycooldb:1337"
+    webapp:
+        build: ./db
+`)
+	c, err := ParseCompose(dt)
+	require.NoError(t, err)
+	require.Equal(t, 1, len(c.Group))
+}
+
 func TestParseComposeTarget(t *testing.T) {
 	var dt = []byte(`
 version: "3.7"
@@ -47,9 +62,11 @@ version: "3.7"
 services:
   db:
     build:
+      context: ./db
       target: db
   webapp:
     build:
+      context: .
       target: webapp
 `)
 
@@ -59,3 +76,42 @@ services:
 	require.Equal(t, "db", *c.Target["db"].Target)
 	require.Equal(t, "webapp", *c.Target["webapp"].Target)
 }
+
+func TestComposeBuildWithoutContext(t *testing.T) {
+	var dt = []byte(`
+version: "3.7"
+
+services:
+  db:
+    build:
+      target: db
+  webapp:
+    build:
+      context: .
+      target: webapp
+`)
+
+	c, err := ParseCompose(dt)
+	require.NoError(t, err)
+	require.Equal(t, "db", *c.Target["db"].Target)
+	require.Equal(t, "webapp", *c.Target["webapp"].Target)
+}
+
+func TestBogusCompose(t *testing.T) {
+	var dt = []byte(`
+version: "3.7"
+
+services:
+  db:
+    labels:
+      - "foo"
+  webapp:
+    build:
+      context: .
+      target: webapp
+`)
+
+	_, err := ParseCompose(dt)
+	require.Error(t, err)
+	require.Contains(t, err.Error(), "has neither an image nor a build context specified. At least one must be provided")
+}
diff --git a/hack/demo-env/examples/compose/docker-compose.yml b/hack/demo-env/examples/compose/docker-compose.yml
index b31c3515..f9b03d13 100644
--- a/hack/demo-env/examples/compose/docker-compose.yml
+++ b/hack/demo-env/examples/compose/docker-compose.yml
@@ -7,6 +7,7 @@ services:
     image: docker.io/tonistiigi/db
   webapp:
     build:
+      context: .
       dockerfile: Dockerfile.webapp
       args:
         buildno: 1
\ No newline at end of file