diff --git a/dlt/destinations/impl/filesystem/filesystem.py b/dlt/destinations/impl/filesystem/filesystem.py
index 5dae4bf295..debfda06dc 100644
--- a/dlt/destinations/impl/filesystem/filesystem.py
+++ b/dlt/destinations/impl/filesystem/filesystem.py
@@ -73,7 +73,15 @@ def __init__(
             load_package_timestamp=dlt.current.load_package()["state"]["created_at"],  # type: ignore
             extra_placeholders=config.extra_placeholders,
         )
+
+        # We would like to avoid failing for local filesystem where
+        # deeply nested directory will not exist before writing a file.
+        # It `auto_mkdir` is disabled by default in fsspec so we made some
+        # trade offs between different options and decided on this.
         item = self.make_remote_path()
+        if self.config.protocol == "file":
+            fs_client.makedirs(posixpath.dirname(item), exist_ok=True)
+
         fs_client.put_file(local_path, item)
 
     def make_remote_path(self) -> str:
diff --git a/tests/load/pipeline/test_filesystem_pipeline.py b/tests/load/pipeline/test_filesystem_pipeline.py
index 5e94d42748..c641e6271f 100644
--- a/tests/load/pipeline/test_filesystem_pipeline.py
+++ b/tests/load/pipeline/test_filesystem_pipeline.py
@@ -3,7 +3,6 @@
 import posixpath
 from pathlib import Path
 from typing import Any, Callable, List, Dict, cast
-
 import dlt
 import pytest
 
@@ -13,7 +12,6 @@
 from dlt.common.storages.load_storage import LoadJobInfo
 from dlt.destinations import filesystem
 from dlt.destinations.impl.filesystem.filesystem import FilesystemClient
-from dlt.common.schema.typing import LOADS_TABLE_NAME
 
 from tests.cases import arrow_table_all_data_types
 from tests.common.utils import load_json_case
@@ -282,7 +280,9 @@ def some_source():
 
 
 @pytest.mark.parametrize("layout", TEST_LAYOUTS)
-def test_filesystem_destination_extended_layout_placeholders(layout: str) -> None:
+def test_filesystem_destination_extended_layout_placeholders(
+    layout: str, default_buckets_env: str
+) -> None:
     data = load_json_case("simple_row")
     call_count = 0
 
@@ -303,30 +303,31 @@ def count(*args, **kwargs) -> Any:
         "hiphip": counter("Hurraaaa"),
     }
     now = pendulum.now()
-    os.environ["DESTINATION__FILESYSTEM__BUCKET_URL"] = "file://_storage"
+    fs_destination = filesystem(
+        layout=layout,
+        extra_placeholders=extra_placeholders,
+        current_datetime=counter(now),
+    )
     pipeline = dlt.pipeline(
         pipeline_name="test_extended_layouts",
-        destination=filesystem(
-            layout=layout,
-            extra_placeholders=extra_placeholders,
-            kwargs={"auto_mkdir": True},
-            current_datetime=counter(now),
-        ),
+        destination=fs_destination,
     )
     load_info = pipeline.run(
         dlt.resource(data, name="simple_rows"),
         write_disposition="append",
     )
     client = pipeline.destination_client()
+
     expected_files = set()
     known_files = set()
     for basedir, _dirs, files in client.fs_client.walk(client.dataset_path):  # type: ignore[attr-defined]
         # strip out special tables
         if "_dlt" in basedir:
             continue
+
         for file in files:
             if ".jsonl" in file:
-                expected_files.add(os.path.join(basedir, file))
+                expected_files.add(posixpath.join(basedir, file))
 
     for load_package in load_info.load_packages:
         for load_info in load_package.jobs["completed_jobs"]:  # type: ignore[assignment]
@@ -343,8 +344,8 @@ def count(*args, **kwargs) -> Any:
                 load_package_timestamp=load_info.created_at.to_iso8601_string(),  # type: ignore[attr-defined]
                 extra_placeholders=extra_placeholders,
             )
-            full_path = os.path.join(client.dataset_path, path)  # type: ignore[attr-defined]
-            assert os.path.exists(full_path)
+            full_path = posixpath.join(client.dataset_path, path)  # type: ignore[attr-defined]
+            assert client.fs_client.exists(full_path)  # type: ignore[attr-defined]
             if ".jsonl" in full_path:
                 known_files.add(full_path)