Adding local .aar files to my gradle build

You put your flatDir block in the wrong repostories block. The repositories block inside buildscript tells Gradle where to find the Android-Gradle plugin, but not the rest of the dependencies. You need to have another top-level repositories block like this:

repositories {
    mavenCentral()
    flatDir {
        dirs 'aars'
    }
}

I tested this and it works okay on my setup.

With recent versions of Android Studio, tested with 1.3, to use local .AAR file and not one fetched from maven/jcenter repository, just go to File > New > New module and choose Import .JAR/.AAR Package.

What you will end up with is a new module in your project that contains very simple build.gradle file that looks more or less like this:

configurations.create("default")
artifacts.add("default", file('this-is-yours-package-in-aar-format.aar'))

Of course, other projects have to reference this new module with regular compile project directive. So in a project that uses this new module which is simple a local .aar file has this in it's build.gradle

[...]
dependencies {
    compile fileTree(dir: 'libs', include: ['*.jar'])
    testCompile 'junit:junit:4.12'
    compile 'com.android.support:appcompat-v7:23.1.0'
    compile 'com.android.support:design:23.1.0'
    [...]

    compile project(':name-of-module-created-via-new-module-option-described-above')
}
[...]

In Android Studio 3.1.3 with gradle 3.0.1.
Simply adding implementation fileTree(dir: 'libs', include: ['*.aar']) or implementation files('libs/app-release.aar') without any other flatdir works.

These days (over 1 year after this question) with Android Studio >1.0, local dependency does work properly:

The android sdk looks for dependencies in a default local repo of: $ANDROID_HOME/extras/android/m2repository/

In a local library project you can publish the aar to this directory. Here's a snippet that can be added to your module's build.gradle file (ex: sdk/build.gradle)

apply plugin: 'maven'

uploadArchives {
    repositories {
        mavenDeployer {
            repository(url: "file://localhost" + System.getenv("ANDROID_HOME")
                + "/extras/android/m2repository/")
            pom.version = '1.0-SNAPSHOT'
            pom.groupId = 'your.package'
            pom.artifactId = 'sdk-name'
        }
    }
}

some reference gradle docs http://gradle.org/docs/current/userguide/artifact_management.html

In your library project, run ./gradlew uploadArchives to publish the aar to that directory
In the application project you want to use the library in, add the dependency to your project/app/build.gradle. compile 'your.package:sdk-name:1.0-SNAPSHOT'

For local dependency, the next gradle build should find the previously deployed archive and that's it!

In my case, I use the above for local dev, but also have a Bamboo continuous integration server for the Library that publishes each build to a shared Nexus artifact repository. The full library code to deploy the artifact then becomes:

uploadArchives {
    repositories {
        mavenDeployer {
            if (System.getenv("BAMBOO_BUILDNUMBER") != null) {
                // Deploy to shared repository
                repository(url: "http://internal-nexus.url/path/") {
                    authentication(userName: "user", password: "****")
                }
                pom.version = System.getenv("BAMBOO_BUILDNUMBER")
            } else {
                // Deploy to local Android sdk m2repository
                repository(url: "file://localhost" + System.getenv("ANDROID_HOME")
                        + "/extras/android/m2repository/")
                pom.version = '1.0-SNAPSHOT'
            }

            pom.groupId = 'your.package'
            pom.artifactId = 'sdk-name'
        }
    }
}

In order to tell applications to download from my internal Nexus repository, I added the internal Nexus maven repository just above jcenter() in both "repositories" blocks in the project/build.gradle

repositories {
    maven {
        url "http://internal-nexus.url/path/"
    }
    jcenter()
}

And application dependency then looks like compile 'your.package:sdk-name:45' When I update the 45 version to 46 is when my project will grab the new artifact from the Nexus server.

Adding local .aar files to my gradle build

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