diff --git a/packages/cache/RELEASES.md b/packages/cache/RELEASES.md
index 133be52a1a..aab5fc3963 100644
--- a/packages/cache/RELEASES.md
+++ b/packages/cache/RELEASES.md
@@ -64,4 +64,7 @@
 - Update to v2.0.1 of `@actions/http-client` [#1087](https://github.com/actions/toolkit/pull/1087)
 
 ### 2.0.5
-- Fix to avoid saving empty cache when no files are available for caching. ([issue](https://github.com/actions/cache/issues/624))
\ No newline at end of file
+- Fix to avoid saving empty cache when no files are available for caching. ([issue](https://github.com/actions/cache/issues/624))
+
+### 2.0.6
+- Fix `Tar failed with error: The process '/usr/bin/tar' failed with exit code 1` issue when temp directory where tar is getting created is actually the subdirectory of the path mentioned by the user for caching. ([issue](https://github.com/actions/cache/issues/689))
\ No newline at end of file
diff --git a/packages/cache/__tests__/tar.test.ts b/packages/cache/__tests__/tar.test.ts
index fa81af9513..4aed759e95 100644
--- a/packages/cache/__tests__/tar.test.ts
+++ b/packages/cache/__tests__/tar.test.ts
@@ -143,6 +143,8 @@ test('zstd create tar', async () => {
       'zstd -T0 --long=30',
       '-cf',
       IS_WINDOWS ? CacheFilename.Zstd.replace(/\\/g, '/') : CacheFilename.Zstd,
+      '--exclude',
+      IS_WINDOWS ? CacheFilename.Zstd.replace(/\\/g, '/') : CacheFilename.Zstd,
       '-P',
       '-C',
       IS_WINDOWS ? workspace?.replace(/\\/g, '/') : workspace,
@@ -180,6 +182,8 @@ test('gzip create tar', async () => {
       '-z',
       '-cf',
       IS_WINDOWS ? CacheFilename.Gzip.replace(/\\/g, '/') : CacheFilename.Gzip,
+      '--exclude',
+      IS_WINDOWS ? CacheFilename.Gzip.replace(/\\/g, '/') : CacheFilename.Gzip,
       '-P',
       '-C',
       IS_WINDOWS ? workspace?.replace(/\\/g, '/') : workspace,
diff --git a/packages/cache/package-lock.json b/packages/cache/package-lock.json
index 6a7414de9a..1971ba1a53 100644
--- a/packages/cache/package-lock.json
+++ b/packages/cache/package-lock.json
@@ -1,12 +1,12 @@
 {
   "name": "@actions/cache",
-  "version": "2.0.5",
+  "version": "2.0.6",
   "lockfileVersion": 2,
   "requires": true,
   "packages": {
     "": {
       "name": "@actions/cache",
-      "version": "2.0.5",
+      "version": "2.0.6",
       "license": "MIT",
       "dependencies": {
         "@actions/core": "^1.2.6",
diff --git a/packages/cache/package.json b/packages/cache/package.json
index 813ac88050..d2f8d10d4b 100644
--- a/packages/cache/package.json
+++ b/packages/cache/package.json
@@ -1,6 +1,6 @@
 {
   "name": "@actions/cache",
-  "version": "2.0.5",
+  "version": "2.0.6",
   "preview": true,
   "description": "Actions cache lib",
   "keywords": [
diff --git a/packages/cache/src/internal/tar.ts b/packages/cache/src/internal/tar.ts
index fbea7c2e2e..c80919198f 100644
--- a/packages/cache/src/internal/tar.ts
+++ b/packages/cache/src/internal/tar.ts
@@ -118,6 +118,8 @@ export async function createTar(
     ...getCompressionProgram(),
     '-cf',
     cacheFileName.replace(new RegExp(`\\${path.sep}`, 'g'), '/'),
+    '--exclude',
+    cacheFileName.replace(new RegExp(`\\${path.sep}`, 'g'), '/'),
     '-P',
     '-C',
     workingDirectory.replace(new RegExp(`\\${path.sep}`, 'g'), '/'),