diff --git a/src/command/render/render-contexts.ts b/src/command/render/render-contexts.ts
index 03620fe8c10..a7c227f28ee 100644
--- a/src/command/render/render-contexts.ts
+++ b/src/command/render/render-contexts.ts
@@ -678,15 +678,20 @@ const readExtensionFormat = async (
 ) => {
   // Determine effective extension - use default for certain project/format combinations
   let effectiveExtension = formatDesc.extension;
+  let preferLocal = false;
 
-  // For book projects with typst format and no explicit extension,
-  // use orange-book as the default typst book template
   if (
-    !effectiveExtension &&
     formatDesc.baseFormat === "typst" &&
     project?.config?.project?.[kProjectType] === "book"
   ) {
-    effectiveExtension = "orange-book";
+    if (effectiveExtension) {
+      // User explicitly named a typst book extension (e.g. format: orange-book-typst),
+      // prefer a locally installed copy over the built-in so customizations take effect
+      preferLocal = true;
+    } else {
+      // No explicit extension - use orange-book as the default typst book template
+      effectiveExtension = "orange-book";
+    }
   }
 
   // Read the format file and populate this
@@ -697,6 +702,7 @@ const readExtensionFormat = async (
       file,
       project?.config,
       project?.dir,
+      preferLocal,
     );
 
     // Read the yaml file and resolve / bucketize
diff --git a/src/extension/extension.ts b/src/extension/extension.ts
index 5827e9d8601..4dfdbddd1d0 100644
--- a/src/extension/extension.ts
+++ b/src/extension/extension.ts
@@ -119,9 +119,15 @@ export function createExtensionContext(): ExtensionContext {
     input: string,
     config?: ProjectConfig,
     projectDir?: string,
+    preferLocal = false,
   ): Promise<Extension | undefined> => {
     // Load the extension and resolve any paths
-    const unresolved = await loadExtension(name, input, projectDir);
+    const unresolved = await loadExtension(
+      name,
+      input,
+      projectDir,
+      preferLocal,
+    );
     return resolveExtensionPaths(unresolved, input, config);
   };
 
@@ -342,9 +348,15 @@ const loadExtension = async (
   extension: string,
   input: string,
   projectDir?: string,
+  preferLocal = false,
 ): Promise<Extension> => {
   const extensionId = toExtensionId(extension);
-  const extensionPath = discoverExtensionPath(input, extensionId, projectDir);
+  const extensionPath = discoverExtensionPath(
+    input,
+    extensionId,
+    projectDir,
+    preferLocal,
+  );
 
   if (extensionPath) {
     // Find the metadata file, if any
@@ -585,8 +597,9 @@ export function discoverExtensionPath(
   input: string,
   extensionId: ExtensionId,
   projectDir?: string,
+  preferLocal = false,
 ) {
-  const extensionDirGlobs = [];
+  const extensionDirGlobs: string[] = [];
   if (extensionId.organization) {
     // If there is an organization, always match that exactly
     extensionDirGlobs.push(
@@ -619,6 +632,41 @@ export function discoverExtensionPath(
     }
   };
 
+  const findLocalExtensionDir = () => {
+    const sourceDir = Deno.statSync(input).isDirectory ? input : dirname(input);
+    const sourceDirAbs = normalizePath(sourceDir);
+
+    if (projectDir && isSubdir(projectDir, sourceDirAbs)) {
+      let extensionDir;
+      let currentDir = normalize(sourceDirAbs);
+      const projDir = normalize(projectDir);
+      while (!extensionDir) {
+        extensionDir = findExtensionDir(
+          join(currentDir, kExtensionDir),
+          extensionDirGlobs,
+        );
+        if (currentDir == projDir) {
+          break;
+        }
+        currentDir = dirname(currentDir);
+      }
+      return extensionDir;
+    } else {
+      return findExtensionDir(
+        join(sourceDirAbs, kExtensionDir),
+        extensionDirGlobs,
+      );
+    }
+  };
+
+  // When preferLocal is set, check local project extensions first
+  if (preferLocal) {
+    const localDir = findLocalExtensionDir();
+    if (localDir) {
+      return localDir;
+    }
+  }
+
   // check for built-in
   const builtinExtensionDir = findExtensionDir(
     builtinExtensions(),
@@ -646,30 +694,9 @@ export function discoverExtensionPath(
     }
   }
 
-  // Start in the source directory
-  const sourceDir = Deno.statSync(input).isDirectory ? input : dirname(input);
-  const sourceDirAbs = normalizePath(sourceDir);
-
-  if (projectDir && isSubdir(projectDir, sourceDirAbs)) {
-    let extensionDir;
-    let currentDir = normalize(sourceDirAbs);
-    const projDir = normalize(projectDir);
-    while (!extensionDir) {
-      extensionDir = findExtensionDir(
-        join(currentDir, kExtensionDir),
-        extensionDirGlobs,
-      );
-      if (currentDir == projDir) {
-        break;
-      }
-      currentDir = dirname(currentDir);
-    }
-    return extensionDir;
-  } else {
-    return findExtensionDir(
-      join(sourceDirAbs, kExtensionDir),
-      extensionDirGlobs,
-    );
+  // Check local project extensions (when not already checked via preferLocal)
+  if (!preferLocal) {
+    return findLocalExtensionDir();
   }
 }
 
diff --git a/src/extension/types.ts b/src/extension/types.ts
index 6de34af6dfd..60287944c2c 100644
--- a/src/extension/types.ts
+++ b/src/extension/types.ts
@@ -71,6 +71,7 @@ export interface ExtensionContext {
     input: string,
     config?: ProjectConfig,
     projectDir?: string,
+    preferLocal?: boolean,
   ): Promise<Extension | undefined>;
   find(
     name: string,
diff --git a/tests/docs/smoke-all/typst/override-orange-book/.gitignore b/tests/docs/smoke-all/typst/override-orange-book/.gitignore
new file mode 100644
index 00000000000..ad293093b07
--- /dev/null
+++ b/tests/docs/smoke-all/typst/override-orange-book/.gitignore
@@ -0,0 +1,2 @@
+/.quarto/
+**/*.quarto_ipynb
diff --git a/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/_extension.yml b/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/_extension.yml
new file mode 100644
index 00000000000..63de6871448
--- /dev/null
+++ b/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/_extension.yml
@@ -0,0 +1,8 @@
+title: Override Test
+author: Test
+version: 0.1.0
+contributes:
+  formats:
+    typst:
+      template-partials:
+        - typst-show.typ
diff --git a/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/typst-show.typ b/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/typst-show.typ
new file mode 100644
index 00000000000..9642ebb3f73
--- /dev/null
+++ b/tests/docs/smoke-all/typst/override-orange-book/_extensions/orange-book/typst-show.typ
@@ -0,0 +1 @@
+// LOCAL-OVERRIDE-MARKER
diff --git a/tests/docs/smoke-all/typst/override-orange-book/_quarto.yml b/tests/docs/smoke-all/typst/override-orange-book/_quarto.yml
new file mode 100644
index 00000000000..68408b6ba54
--- /dev/null
+++ b/tests/docs/smoke-all/typst/override-orange-book/_quarto.yml
@@ -0,0 +1,13 @@
+project:
+  type: book
+
+book:
+  title: "Override Test"
+  author: "Test Author"
+  date: "2024-01-01"
+  chapters:
+    - index.qmd
+
+format:
+  orange-book-typst:
+    keep-typ: true
diff --git a/tests/docs/smoke-all/typst/override-orange-book/index.qmd b/tests/docs/smoke-all/typst/override-orange-book/index.qmd
new file mode 100644
index 00000000000..c12f6ea9c6c
--- /dev/null
+++ b/tests/docs/smoke-all/typst/override-orange-book/index.qmd
@@ -0,0 +1,14 @@
+---
+keep-typ: true
+_quarto:
+  render-project: true
+  tests:
+    orange-book-typst:
+      ensureTypstFileRegexMatches:
+        - # must match
+          - "LOCAL-OVERRIDE-MARKER"
+---
+
+# Introduction
+
+Hello world.