diff --git a/.github/workflows/test.yml b/.github/workflows/test.yml
index 2e22d686..aacac2da 100644
--- a/.github/workflows/test.yml
+++ b/.github/workflows/test.yml
@@ -79,6 +79,41 @@ jobs:
       - name: Check binary exists
         run: deno_foo -V
 
+  test-setup-cache:
+    runs-on: ${{ matrix.os }}
+    strategy:
+      matrix:
+        os: [ubuntu-latest, windows-latest, macos-latest]
+    steps:
+      - uses: actions/checkout@v4
+
+      - name: Setup Deno
+        uses: ./
+        with:
+          cache: true
+          cache-hash: ${{ hashFiles('**/package-lock.json') }}
+
+      - name: Download dependencies for cache
+        run: deno install --global npm:cowsay@1.6.0
+
+  test-cache:
+    needs: test-setup-cache
+    runs-on: ${{ matrix.os }}
+    strategy:
+      matrix:
+        os: [ubuntu-latest, windows-latest, macos-latest]
+    steps:
+      - uses: actions/checkout@v4
+
+      - name: Setup Deno
+        uses: ./
+        with:
+          cache: true
+          cache-hash: ${{ hashFiles('**/package-lock.json') }}
+
+      - name: Run with cached dependencies
+        run: deno run --cached-only -RE npm:cowsay@1.6.0 "It works!"
+
   lint:
     runs-on: ubuntu-latest
     steps:
diff --git a/README.md b/README.md
index 385aa209..45db988b 100644
--- a/README.md
+++ b/README.md
@@ -133,3 +133,23 @@ number.
 
 - run: echo "Deno version is ${{ steps.deno.outputs.deno-version }}"
 ```
+
+### Caching dependencies downloaded by Deno automatically
+
+Dependencies installed by Deno can be cached automatically, which is similar to
+the [`cache` option in `setup-node`](https://github.com/actions/setup-node).
+
+To enable the cache, use `cache: true`. It's recommended to also add the
+`cache-hash` property, to scope caches based on lockfile changes.
+
+```yaml
+- uses: denoland/setup-deno@v2
+  with:
+    cache: true
+    cache-hash: ${{ hashFiles('**/deno.lock') }}
+```
+
+> [!WARNING]
+> If an environment variable `DENO_DIR` is set for steps that run/download
+> dependencies, then `DENO_DIR` must also be set for the `denoland/setup-deno`
+> Action, for the caching to work as intended.
diff --git a/action.yml b/action.yml
index 831ef21e..8d5bf9e2 100644
--- a/action.yml
+++ b/action.yml
@@ -13,7 +13,14 @@ inputs:
   deno-binary-name:
     description: The name to use for the binary.
     default: "deno"
+  cache:
+    description: Cache downloaded modules & packages automatically in GitHub Actions cache.
+    default: "false"
+  cache-hash:
+    description: A hash used as part of the cache key. Use e.g. `$\{{ hashFiles('**/deno.lock') }}` to cache based on the lockfile contents.
 outputs:
+  cache-hit:
+    description: A boolean indicating whether the cache was hit.
   deno-version:
     description: "The Deno version that was installed."
   release-channel:
@@ -21,3 +28,5 @@ outputs:
 runs:
   using: "node20"
   main: "main.mjs"
+  post: "save-cache.mjs"
+  post-if: always()
diff --git a/main.mjs b/main.mjs
index 9e59fd89..e5eef337 100644
--- a/main.mjs
+++ b/main.mjs
@@ -42,6 +42,11 @@ async function main() {
     core.setOutput("release-channel", version.kind);
 
     core.info("Installation complete.");
+
+    if (core.getInput("cache") === "true") {
+      const { restoreCache } = await import("./src/cache.mjs");
+      await restoreCache(core.getInput("cache-hash"));
+    }
   } catch (err) {
     core.setFailed((err instanceof Error) ? err : String(err));
     process.exit();
diff --git a/package.json b/package.json
index a8eec546..1e86aca0 100644
--- a/package.json
+++ b/package.json
@@ -6,6 +6,7 @@
   "license": "MIT",
   "type": "module",
   "dependencies": {
+    "@actions/cache": "^3.3.0",
     "@actions/core": "^1.10.1",
     "@actions/tool-cache": "^2.0.1",
     "semver": "^7.6.3",
diff --git a/save-cache.mjs b/save-cache.mjs
new file mode 100644
index 00000000..dce1db01
--- /dev/null
+++ b/save-cache.mjs
@@ -0,0 +1,14 @@
+import process from "node:process";
+import core from "@actions/core";
+import { saveCache } from "./src/cache.mjs";
+
+async function main() {
+  try {
+    await saveCache();
+  } catch (err) {
+    core.setFailed((err instanceof Error) ? err : String(err));
+    process.exit();
+  }
+}
+
+main();
diff --git a/src/cache.mjs b/src/cache.mjs
new file mode 100644
index 00000000..6e357039
--- /dev/null
+++ b/src/cache.mjs
@@ -0,0 +1,80 @@
+import process from "node:process";
+import cache from "@actions/cache";
+import core from "@actions/core";
+
+const state = {
+  DENO_DIR: "DENO_DIR",
+  CACHE_HIT: "CACHE_HIT",
+  CACHE_SAVE: "CACHE_SAVE",
+};
+
+export async function saveCache() {
+  if (!cache.isFeatureAvailable()) {
+    core.warning("Caching is not available. Caching is skipped.");
+    return;
+  }
+
+  const denoDir = core.getState(state.DENO_DIR);
+  const saveKey = core.getState(state.CACHE_SAVE);
+  if (!denoDir || !saveKey) {
+    core.info("Caching is not enabled. Caching is skipped.");
+    return;
+  } else if (core.getState(state.CACHE_HIT) === "true") {
+    core.info(
+      `Cache hit occurred on the primary key "${saveKey}", not saving cache.`,
+    );
+    return;
+  }
+
+  await cache.saveCache([denoDir], saveKey);
+  core.info(`Cache saved with key: "${saveKey}".`);
+}
+
+/**
+ * @param {string} cacheHash Should be a hash of any lockfiles or similar.
+ */
+export async function restoreCache(cacheHash) {
+  try {
+    const denoDir = await resolveDenoDir();
+    core.saveState(state.DENO_DIR, denoDir);
+
+    const { GITHUB_JOB, RUNNER_OS, RUNNER_ARCH } = process.env;
+    const restoreKey = `deno-cache-${RUNNER_OS}-${RUNNER_ARCH}`;
+    // CI jobs often download different dependencies, so include Job ID in the cache key.
+    const primaryKey = `${restoreKey}-${GITHUB_JOB}-${cacheHash}`;
+    core.saveState(state.CACHE_SAVE, primaryKey);
+
+    const loadedCacheKey = await cache.restoreCache([denoDir], primaryKey, [
+      restoreKey,
+    ]);
+    const cacheHit = primaryKey === loadedCacheKey;
+    core.setOutput("cache-hit", cacheHit);
+    core.saveState(state.CACHE_HIT, cacheHit);
+
+    const message = loadedCacheKey
+      ? `Cache key used: "${loadedCacheKey}".`
+      : `No cache found for restore key: "${restoreKey}".`;
+    core.info(message);
+  } catch (err) {
+    core.warning(
+      new Error("Failed to restore cache. Continuing without cache.", {
+        cause: err,
+      }),
+    );
+  }
+}
+
+/**
+ * @returns {Promise<string>}
+ */
+async function resolveDenoDir() {
+  const { DENO_DIR } = process.env;
+  if (DENO_DIR) return DENO_DIR;
+
+  // Retrieve the DENO_DIR from `deno info --json`
+  const { exec } = await import("node:child_process");
+  const output = await new Promise((res, rej) => {
+    exec("deno info --json", (err, stdout) => err ? rej(err) : res(stdout));
+  });
+  return JSON.parse(output).denoDir;
+}