diff --git a/.changeset/eight-feet-reflect.md b/.changeset/eight-feet-reflect.md
new file mode 100644
index 000000000..1b26622c5
--- /dev/null
+++ b/.changeset/eight-feet-reflect.md
@@ -0,0 +1,5 @@
+---
+'@astrojs/netlify': minor
+---
+
+Updating out directories for Netlify Functions
diff --git a/packages/integrations/netlify/README.md b/packages/integrations/netlify/README.md
index 02e11a19e..b0daeadef 100644
--- a/packages/integrations/netlify/README.md
+++ b/packages/integrations/netlify/README.md
@@ -39,7 +39,7 @@ export default defineConfig({
 
 ### dist
 
-For Netlify Functions, we build to a `netlify` directory at the base of your project. In the case of Netlify Edge Functions, we build to a `dist` directory at the base of your project. To change this, use the `dist` option:
+We build to a `dist` directory at the base of your project. To change this, use the `dist` option:
 
 ```js
 import { defineConfig } from 'astro/config';
diff --git a/packages/integrations/netlify/src/integration-functions.ts b/packages/integrations/netlify/src/integration-functions.ts
index b353220ce..fd8ec0b9a 100644
--- a/packages/integrations/netlify/src/integration-functions.ts
+++ b/packages/integrations/netlify/src/integration-functions.ts
@@ -24,7 +24,7 @@ function netlifyFunctions({ dist }: NetlifyFunctionsOptions = {}): AstroIntegrat
 				if (dist) {
 					config.outDir = dist;
 				} else {
-					config.outDir = new URL('./netlify/', config.root);
+					config.outDir = new URL('./dist/', config.root);
 				}
 			},
 			'astro:config:done': ({ config, setAdapter }) => {
@@ -34,7 +34,7 @@ function netlifyFunctions({ dist }: NetlifyFunctionsOptions = {}): AstroIntegrat
 			'astro:build:start': async ({ buildConfig }) => {
 				entryFile = buildConfig.serverEntry.replace(/\.m?js/, '');
 				buildConfig.client = _config.outDir;
-				buildConfig.server = new URL('./functions/', _config.outDir);
+				buildConfig.server = new URL('./.netlify/functions-internal/', _config.root);
 			},
 			'astro:build:done': async ({ routes, dir }) => {
 				await createRedirects(routes, dir, entryFile, false);
diff --git a/packages/integrations/netlify/test/functions/cookies.test.js b/packages/integrations/netlify/test/functions/cookies.test.js
index 43c55916b..e9121b429 100644
--- a/packages/integrations/netlify/test/functions/cookies.test.js
+++ b/packages/integrations/netlify/test/functions/cookies.test.js
@@ -24,7 +24,10 @@ describe('Cookies', () => {
 	});
 
 	it('Can set multiple', async () => {
-		const entryURL = new URL('./fixtures/cookies/dist/functions/entry.mjs', import.meta.url);
+		const entryURL = new URL(
+			'./fixtures/cookies/.netlify/functions-internal/entry.mjs',
+			import.meta.url
+		);
 		const { handler } = await import(entryURL);
 		const resp = await handler({
 			httpMethod: 'POST',