Background: Traditionally, nucleon-nucleus optical potentials are made local for convenience. In recent work we studied the effects of including nonlocal interactions explicitly in the final state for (d,p) reactions, within the distorted wave Born approximation.Purpose: Our goal in this work is to develop an improved formalism for nonlocal interactions that includes deuteron breakup and to use it to study the effects of including nonlocal interactions in transfer (d,p) reactions, in both the deuteron and the proton channel.Method: We extend the finite-range adiabatic distorted wave approximation to include nonlocal nucleon optical potentials. Results: We find that nonlocality in the deuteron scattering state reduces the amplitude of the wave function in the nuclear interior, and shifts the wave function outward. In many cases, this has the effect of increasing the transfer cross section at the first peak of the angular distributions. This increase was most significant for heavy targets and for reactions at high energies.Conclusions: Our systematic study shows that, if only local optical potentials are used in the analysis of experimental (d, p) transfer cross sections, the extracted spectroscopic factors may be incorrect by up to 40% due to the local approximation.