diff --git a/src/Platform/Microsoft.Testing.Platform/Builder/TestApplication.cs b/src/Platform/Microsoft.Testing.Platform/Builder/TestApplication.cs
index 1421a35431..c976bc61e5 100644
--- a/src/Platform/Microsoft.Testing.Platform/Builder/TestApplication.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Builder/TestApplication.cs
@@ -305,7 +305,7 @@ private static ApplicationLoggingState CreateFileLoggerIfDiagnosticIsEnabled(
         }
 
         // Set the directory to the default test result directory
-        string directory = Path.Combine(testApplicationModuleInfo.GetCurrentTestApplicationDirectory(), AggregatedConfiguration.DefaultTestResultFolderName);
+        string directory = GetDiagnosticDefaultDirectory(environment, testApplicationModuleInfo);
         bool customDirectory = false;
 
         if (result.TryGetOptionArgumentList(PlatformCommandLineProvider.ResultDirectoryOptionKey, out string[]? resultDirectoryArg))
@@ -381,6 +381,17 @@ private static ApplicationLoggingState CreateFileLoggerIfDiagnosticIsEnabled(
                 || ThrowInvalidDiagnosticVerbosity(environmentLogLevel));
     }
 
+    internal /* for testing purposes */ static string GetDiagnosticDefaultDirectory(IEnvironment environment, ITestApplicationModuleInfo testApplicationModuleInfo)
+    {
+        string? effectiveWorkingDirectory = environment.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY);
+        if (RoslynString.IsNullOrWhiteSpace(effectiveWorkingDirectory))
+        {
+            effectiveWorkingDirectory = testApplicationModuleInfo.GetCurrentTestApplicationDirectory();
+        }
+
+        return Path.Combine(effectiveWorkingDirectory, AggregatedConfiguration.DefaultTestResultFolderName);
+    }
+
     private static bool ThrowInvalidDiagnosticVerbosity(string environmentLogLevel)
         => throw new NotSupportedException($"Invalid environment value '{nameof(EnvironmentVariableConstants.TESTINGPLATFORM_DIAGNOSTIC_VERBOSITY)}', was expecting 'Trace', 'Debug', 'Information', 'Warning', 'Error', or 'Critical' but got '{environmentLogLevel}'.");
 }
diff --git a/src/Platform/Microsoft.Testing.Platform/Configurations/AggregatedConfiguration.cs b/src/Platform/Microsoft.Testing.Platform/Configurations/AggregatedConfiguration.cs
index 5fd22d057b..a8279e777d 100644
--- a/src/Platform/Microsoft.Testing.Platform/Configurations/AggregatedConfiguration.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Configurations/AggregatedConfiguration.cs
@@ -12,12 +12,14 @@ internal sealed class AggregatedConfiguration(
     IConfigurationProvider[] configurationProviders,
     ITestApplicationModuleInfo testApplicationModuleInfo,
     IFileSystem fileSystem,
+    IEnvironment environment,
     CommandLineParseResult commandLineParseResult) : IConfiguration
 {
     public const string DefaultTestResultFolderName = "TestResults";
     private readonly IConfigurationProvider[] _configurationProviders = configurationProviders;
     private readonly ITestApplicationModuleInfo _testApplicationModuleInfo = testApplicationModuleInfo;
     private readonly IFileSystem _fileSystem = fileSystem;
+    private readonly IEnvironment _environment = environment;
     private readonly CommandLineParseResult _commandLineParseResult = commandLineParseResult;
     private string? _resultsDirectory;
     private string? _currentWorkingDirectory;
@@ -93,15 +95,36 @@ private string GetResultsDirectoryCore(CommandLineParseResult commandLineParseRe
 
         // If not specified by command line, then use the configuration providers.
         // And finally fallback to DefaultTestResultFolderName relative to the current working directory.
+        // Note: PlatformCurrentWorkingDirectory already incorporates DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY
+        // (via GetCurrentWorkingDirectoryCore), so we don't need to check that env var separately here.
         return CalculateFromConfigurationProviders(PlatformConfigurationConstants.PlatformResultDirectory)
             ?? Path.Combine(this[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]!, DefaultTestResultFolderName);
     }
 
     private string GetCurrentWorkingDirectoryCore()
-         // If the value is already set, use that.
-         => _currentWorkingDirectory
-            // If first time calculating it, prefer the value from configuration,
-            ?? CalculateFromConfigurationProviders(PlatformConfigurationConstants.PlatformCurrentWorkingDirectory)
-            // then fallback to the actual working directory.
-            ?? _testApplicationModuleInfo.GetCurrentTestApplicationDirectory();
+    {
+        // If the value is already set, use that.
+        if (_currentWorkingDirectory is not null)
+        {
+            return _currentWorkingDirectory;
+        }
+
+        // If first time calculating it, prefer the value from configuration,
+        string? fromConfig = CalculateFromConfigurationProviders(PlatformConfigurationConstants.PlatformCurrentWorkingDirectory);
+        if (fromConfig is not null)
+        {
+            return fromConfig;
+        }
+
+        // then check if dotnet test working directory is set (to keep PlatformCurrentWorkingDirectory and
+        // PlatformResultDirectory consistent when running under 'dotnet test'),
+        string? dotnetTestCwd = _environment.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY);
+        if (!RoslynString.IsNullOrWhiteSpace(dotnetTestCwd))
+        {
+            return dotnetTestCwd;
+        }
+
+        // then fallback to the actual working directory.
+        return _testApplicationModuleInfo.GetCurrentTestApplicationDirectory();
+    }
 }
diff --git a/src/Platform/Microsoft.Testing.Platform/Configurations/ConfigurationManager.cs b/src/Platform/Microsoft.Testing.Platform/Configurations/ConfigurationManager.cs
index f550e3c32d..3da0c0b798 100644
--- a/src/Platform/Microsoft.Testing.Platform/Configurations/ConfigurationManager.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Configurations/ConfigurationManager.cs
@@ -12,11 +12,12 @@
 
 namespace Microsoft.Testing.Platform.Configurations;
 
-internal sealed class ConfigurationManager(IFileSystem fileSystem, ITestApplicationModuleInfo testApplicationModuleInfo) : IConfigurationManager
+internal sealed class ConfigurationManager(IFileSystem fileSystem, ITestApplicationModuleInfo testApplicationModuleInfo, IEnvironment environment) : IConfigurationManager
 {
     private readonly List<Func<IConfigurationSource>> _configurationSources = [];
     private readonly IFileSystem _fileSystem = fileSystem;
     private readonly ITestApplicationModuleInfo _testApplicationModuleInfo = testApplicationModuleInfo;
+    private readonly IEnvironment _environment = environment;
 
     public void AddConfigurationSource(Func<IConfigurationSource> source) => _configurationSources.Add(source);
 
@@ -68,6 +69,6 @@ internal async Task<IConfiguration> BuildAsync(IFileLoggerProvider? syncFileLogg
             }
         }
 
-        return new AggregatedConfiguration(configurationProvidersArray, _testApplicationModuleInfo, _fileSystem, commandLineParseResult);
+        return new AggregatedConfiguration(configurationProvidersArray, _testApplicationModuleInfo, _fileSystem, _environment, commandLineParseResult);
     }
 }
diff --git a/src/Platform/Microsoft.Testing.Platform/Helpers/EnvironmentVariableConstants.cs b/src/Platform/Microsoft.Testing.Platform/Helpers/EnvironmentVariableConstants.cs
index 1a62c3ca1a..21fcb57a77 100644
--- a/src/Platform/Microsoft.Testing.Platform/Helpers/EnvironmentVariableConstants.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Helpers/EnvironmentVariableConstants.cs
@@ -39,6 +39,7 @@ internal static class EnvironmentVariableConstants
 
     // dotnet test
     public const string TESTINGPLATFORM_DOTNETTEST_EXECUTIONID = nameof(TESTINGPLATFORM_DOTNETTEST_EXECUTIONID);
+    public const string DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY = nameof(DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY);
 
     // Unhandled Exception
     public const string TESTINGPLATFORM_EXIT_PROCESS_ON_UNHANDLED_EXCEPTION = nameof(TESTINGPLATFORM_EXIT_PROCESS_ON_UNHANDLED_EXCEPTION);
diff --git a/src/Platform/Microsoft.Testing.Platform/Hosts/TestHostBuilder.cs b/src/Platform/Microsoft.Testing.Platform/Hosts/TestHostBuilder.cs
index 6bdabb565b..f63eb424cb 100644
--- a/src/Platform/Microsoft.Testing.Platform/Hosts/TestHostBuilder.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Hosts/TestHostBuilder.cs
@@ -35,7 +35,7 @@ internal sealed partial class TestHostBuilder(IFileSystem fileSystem, IRuntimeFe
 
     public ITestHostManager TestHost { get; } = new TestHostManager();
 
-    public IConfigurationManager Configuration { get; } = new ConfigurationManager(fileSystem, testApplicationModuleInfo);
+    public IConfigurationManager Configuration { get; } = new ConfigurationManager(fileSystem, testApplicationModuleInfo, environment);
 
     public ILoggingManager Logging { get; } = new LoggingManager();
 
diff --git a/src/Platform/Microsoft.Testing.Platform/Services/CurrentTestApplicationModuleInfo.cs b/src/Platform/Microsoft.Testing.Platform/Services/CurrentTestApplicationModuleInfo.cs
index 506004d009..9fe955a27f 100644
--- a/src/Platform/Microsoft.Testing.Platform/Services/CurrentTestApplicationModuleInfo.cs
+++ b/src/Platform/Microsoft.Testing.Platform/Services/CurrentTestApplicationModuleInfo.cs
@@ -113,6 +113,6 @@ public ExecutableInfo GetCurrentExecutableInfo()
             _ => commandLineArguments,
         };
 
-        return new(GetProcessPath(), arguments, GetCurrentTestApplicationDirectory());
+        return new ExecutableInfo(GetProcessPath(), arguments, GetCurrentTestApplicationDirectory());
     }
 }
diff --git a/src/Platform/Microsoft.Testing.Platform/TestHostControllers/TestHostControllersManager.cs b/src/Platform/Microsoft.Testing.Platform/TestHostControllers/TestHostControllersManager.cs
index acaa00bfce..295fb3c94f 100644
--- a/src/Platform/Microsoft.Testing.Platform/TestHostControllers/TestHostControllersManager.cs
+++ b/src/Platform/Microsoft.Testing.Platform/TestHostControllers/TestHostControllersManager.cs
@@ -1,7 +1,6 @@
 // Copyright (c) Microsoft Corporation. All rights reserved.
 // Licensed under the MIT license. See LICENSE file in the project root for full license information.
 
-using Microsoft.Testing.Platform.Configurations;
 using Microsoft.Testing.Platform.Extensions;
 using Microsoft.Testing.Platform.Extensions.TestHostControllers;
 using Microsoft.Testing.Platform.Helpers;
@@ -107,13 +106,6 @@ public void AddDataConsumer<T>(CompositeExtensionFactory<T> compositeServiceFact
 
     internal async Task<TestHostControllerConfiguration> BuildAsync(ServiceProvider serviceProvider)
     {
-        // For now the test host working directory and the current working directory are the same.
-        // In future we could move the test host in a different directory for instance in case of
-        // the need to rewrite binary files. If we don't move files are locked by ourself.
-        var aggregatedConfiguration = (AggregatedConfiguration)serviceProvider.GetConfiguration();
-        string? currentWorkingDirectory = aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory];
-        ApplicationStateGuard.Ensure(currentWorkingDirectory is not null);
-
         List<(ITestHostEnvironmentVariableProvider TestHostEnvironmentVariableProvider, int RegistrationOrder)> environmentVariableProviders = [];
         foreach (Func<IServiceProvider, ITestHostEnvironmentVariableProvider> environmentVariableProviderFactory in _environmentVariableProviderFactories)
         {
diff --git a/test/UnitTests/MSTest.Engine.UnitTests/Adapter_ExecuteRequestAsyncTests.cs b/test/UnitTests/MSTest.Engine.UnitTests/Adapter_ExecuteRequestAsyncTests.cs
index de446c0c19..d7fb5bb4a5 100644
--- a/test/UnitTests/MSTest.Engine.UnitTests/Adapter_ExecuteRequestAsyncTests.cs
+++ b/test/UnitTests/MSTest.Engine.UnitTests/Adapter_ExecuteRequestAsyncTests.cs
@@ -109,7 +109,7 @@ public Services()
             ServiceProvider.AddService(new LoggerFactory());
             ServiceProvider.AddService(new FakeClock());
             ServiceProvider.AddService(new SystemTask());
-            ServiceProvider.AddService(new AggregatedConfiguration([], new CurrentTestApplicationModuleInfo(new SystemEnvironment(), new SystemProcessHandler()), new SystemFileSystem(), new(null, [], [])));
+            ServiceProvider.AddService(new AggregatedConfiguration([], new CurrentTestApplicationModuleInfo(new SystemEnvironment(), new SystemProcessHandler()), new SystemFileSystem(), new SystemEnvironment(), new(null, [], [])));
         }
 
         public MessageBus MessageBus { get; }
diff --git a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/AggregatedConfigurationTests.cs b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/AggregatedConfigurationTests.cs
index 284dd62341..1e84185a34 100644
--- a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/AggregatedConfigurationTests.cs
+++ b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/AggregatedConfigurationTests.cs
@@ -17,6 +17,7 @@ public sealed class AggregatedConfigurationTests
     private const string ExpectedPath = "a/b/c";
     private readonly Mock<ITestApplicationModuleInfo> _testApplicationModuleInfoMock = new();
     private readonly Mock<IFileSystem> _fileSystemMock = new();
+    private readonly Mock<IEnvironment> _environmentMock = new();
 
     [TestMethod]
     [DataRow(PlatformConfigurationConstants.PlatformResultDirectory)]
@@ -33,7 +34,51 @@ public void IndexerTest_DirectoryNotSetAndNoConfigurationProviders(string key)
             _ => throw ApplicationStateGuard.Unreachable(),
         };
 
-        Assert.AreEqual(expected, new AggregatedConfiguration([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, new(null, [], []))[key]);
+        Assert.AreEqual(expected, new AggregatedConfiguration([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []))[key]);
+    }
+
+    [TestMethod]
+    public void IndexerTest_DotnetCliTestCommandWorkingDirectorySet_UsedAsWorkingDirectoryBase()
+    {
+        const string dotnetTestWorkingDir = "DotnetTestWorkingDir";
+        _environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(dotnetTestWorkingDir);
+
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []));
+        Assert.AreEqual(Path.Combine(dotnetTestWorkingDir, "TestResults"), aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
+        Assert.AreEqual(dotnetTestWorkingDir, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
+        Assert.AreEqual(dotnetTestWorkingDir, aggregatedConfiguration[PlatformConfigurationConstants.PlatformTestHostWorkingDirectory]);
+    }
+
+    [TestMethod]
+    [DataRow("")]
+    [DataRow("   ")]
+    public void IndexerTest_DotnetCliTestCommandWorkingDirectoryIsWhitespace_FallsBackToTestApplicationDirectory(string envVarValue)
+    {
+        const string appDirectory = "AppDirectory";
+        _environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(envVarValue);
+        _testApplicationModuleInfoMock.Setup(x => x.GetCurrentTestApplicationDirectory()).Returns(appDirectory);
+
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []));
+        Assert.AreEqual(Path.Combine(appDirectory, "TestResults"), aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
+        Assert.AreEqual(appDirectory, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
+        Assert.AreEqual(appDirectory, aggregatedConfiguration[PlatformConfigurationConstants.PlatformTestHostWorkingDirectory]);
+    }
+
+    [TestMethod]
+    public void IndexerTest_ResultsDirectoryCliArgTakesPrecedenceOverDotnetCliTestCommandWorkingDirectory()
+    {
+        const string dotnetTestWorkingDir = "DotnetTestWorkingDir";
+        _environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(dotnetTestWorkingDir);
+
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
+
+        // --results-directory CLI arg should win over DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY
+        Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
+        // Current working directory still comes from env var
+        Assert.AreEqual(dotnetTestWorkingDir, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
     }
 
     [TestMethod]
@@ -43,7 +88,7 @@ public void IndexerTest_DirectoryNotSetButConfigurationProvidersPresent_Director
     {
         Mock<IConfigurationProvider> mockProvider = new();
 
-        AggregatedConfiguration aggregatedConfiguration = new([mockProvider.Object], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, new(null, [], []));
+        AggregatedConfiguration aggregatedConfiguration = new([mockProvider.Object], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []));
         Assert.IsNull(aggregatedConfiguration[key]);
     }
 
@@ -53,21 +98,21 @@ public void IndexerTest_DirectoryNotSetButConfigurationProvidersPresent_Director
     [DataRow(PlatformConfigurationConstants.PlatformTestHostWorkingDirectory)]
     public void IndexerTest_DirectoryNotSetButConfigurationProvidersPresent_DirectoryIsNotNull(string key)
     {
-        AggregatedConfiguration aggregatedConfiguration = new([new FakeConfigurationProvider(ExpectedPath)], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, new(null, [], []));
+        AggregatedConfiguration aggregatedConfiguration = new([new FakeConfigurationProvider(ExpectedPath)], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []));
         Assert.AreEqual(ExpectedPath, aggregatedConfiguration[key]);
     }
 
     [TestMethod]
     public void IndexerTest_ResultDirectorySet_DirectoryIsNotNull()
     {
-        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
         Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
     }
 
     [TestMethod]
     public void IndexerTest_CurrentWorkingDirectorySet_DirectoryIsNotNull()
     {
-        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, new(null, [], []));
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, _fileSystemMock.Object, _environmentMock.Object, new(null, [], []));
 
         aggregatedConfiguration.SetCurrentWorkingDirectory(ExpectedPath);
         Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
@@ -86,7 +131,7 @@ public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_Results
         Mock<IFileLoggerProvider> mockFileLogger = new();
         mockFileLogger.Setup(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(It.IsAny<string>())).Callback(() => { });
 
-        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
+        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, _environmentMock.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
         await aggregatedConfiguration.CheckTestResultsDirectoryOverrideAndCreateItAsync(mockFileLogger.Object);
 
         mockFileSystem.Verify(x => x.CreateDirectory(ExpectedPath), Times.Once);
@@ -108,13 +153,15 @@ public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_Results
         Mock<IFileLoggerProvider> mockFileLogger = new();
         mockFileLogger.Setup(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(It.IsAny<string>())).Callback(() => { });
 
-        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
+        // Results directory comes from configuration provider (store), not CLI args
+        AggregatedConfiguration aggregatedConfiguration = new([new FakeConfigurationProvider(ExpectedPath)], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, _environmentMock.Object, new(null, [], []));
         await aggregatedConfiguration.CheckTestResultsDirectoryOverrideAndCreateItAsync(mockFileLogger.Object);
 
         mockFileSystem.Verify(x => x.CreateDirectory(ExpectedPath), Times.Once);
         mockFileLogger.Verify(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(ExpectedPath), Times.Once);
         Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
-        Assert.AreEqual("a" + Path.DirectorySeparatorChar + "b", aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
+        // PlatformCurrentWorkingDirectory also comes from the configuration provider
+        Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
     }
 
     [TestMethod]
@@ -130,7 +177,7 @@ public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_Results
         Mock<IFileLoggerProvider> mockFileLogger = new();
         mockFileLogger.Setup(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(It.IsAny<string>())).Callback(() => { });
 
-        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, new(null, [], []));
+        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, _environmentMock.Object, new(null, [], []));
         await aggregatedConfiguration.CheckTestResultsDirectoryOverrideAndCreateItAsync(mockFileLogger.Object);
 
         string expectedPath = "a" + Path.DirectorySeparatorChar + "b" + Path.DirectorySeparatorChar + "TestResults";
@@ -139,6 +186,57 @@ public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_Results
         Assert.AreEqual(expectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
         Assert.AreEqual("a" + Path.DirectorySeparatorChar + "b", aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
     }
+
+    [TestMethod]
+    public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_DotnetCliTestCommandWorkingDirectorySet_UsedAsResultDirectoryBase()
+    {
+        const string dotnetTestWorkingDir = "DotnetTestWorkingDir";
+        _environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(dotnetTestWorkingDir);
+
+        Mock<IFileSystem> mockFileSystem = new();
+        mockFileSystem.Setup(x => x.CreateDirectory(It.IsAny<string>())).Returns((string path) => path);
+
+        Mock<IFileLoggerProvider> mockFileLogger = new();
+        mockFileLogger.Setup(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(It.IsAny<string>())).Callback(() => { });
+
+        AggregatedConfiguration aggregatedConfiguration = new([], _testApplicationModuleInfoMock.Object, mockFileSystem.Object, _environmentMock.Object, new(null, [], []));
+        await aggregatedConfiguration.CheckTestResultsDirectoryOverrideAndCreateItAsync(mockFileLogger.Object);
+
+        string expectedPath = Path.Combine(dotnetTestWorkingDir, "TestResults");
+        mockFileSystem.Verify(x => x.CreateDirectory(expectedPath), Times.Once);
+        mockFileLogger.Verify(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(expectedPath), Times.Once);
+        Assert.AreEqual(expectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
+        Assert.AreEqual(dotnetTestWorkingDir, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
+    }
+
+    [TestMethod]
+    public async ValueTask CheckTestResultsDirectoryOverrideAndCreateItAsync_ResultsDirectoryCliArgTakesPrecedenceOverDotnetCliTestCommandWorkingDirectory()
+    {
+        const string dotnetTestWorkingDir = "DotnetTestWorkingDir";
+        _environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(dotnetTestWorkingDir);
+
+        Mock<ITestApplicationModuleInfo> mockTestApplicationModuleInfo = new();
+        mockTestApplicationModuleInfo.Setup(x => x.GetCurrentTestApplicationFullPath()).Returns(ExpectedPath);
+        mockTestApplicationModuleInfo.Setup(x => x.GetCurrentTestApplicationDirectory()).Returns(Path.GetDirectoryName(ExpectedPath) ?? AppContext.BaseDirectory);
+
+        Mock<IFileSystem> mockFileSystem = new();
+        mockFileSystem.Setup(x => x.CreateDirectory(It.IsAny<string>())).Returns((string path) => path);
+
+        Mock<IFileLoggerProvider> mockFileLogger = new();
+        mockFileLogger.Setup(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(It.IsAny<string>())).Callback(() => { });
+
+        // --results-directory CLI arg takes precedence over DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY
+        AggregatedConfiguration aggregatedConfiguration = new([], mockTestApplicationModuleInfo.Object, mockFileSystem.Object, _environmentMock.Object, new(null, [new CommandLineParseOption("results-directory", [ExpectedPath])], []));
+        await aggregatedConfiguration.CheckTestResultsDirectoryOverrideAndCreateItAsync(mockFileLogger.Object);
+
+        mockFileSystem.Verify(x => x.CreateDirectory(ExpectedPath), Times.Once);
+        mockFileLogger.Verify(x => x.CheckLogFolderAndMoveToTheNewIfNeededAsync(ExpectedPath), Times.Once);
+        Assert.AreEqual(ExpectedPath, aggregatedConfiguration[PlatformConfigurationConstants.PlatformResultDirectory]);
+        // Current working directory still comes from env var
+        Assert.AreEqual(dotnetTestWorkingDir, aggregatedConfiguration[PlatformConfigurationConstants.PlatformCurrentWorkingDirectory]);
+    }
 }
 
 internal sealed class FakeConfigurationProvider : IConfigurationProvider
diff --git a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/ConfigurationManagerTests.cs b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/ConfigurationManagerTests.cs
index 063e9b5116..6304368516 100644
--- a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/ConfigurationManagerTests.cs
+++ b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/Configuration/ConfigurationManagerTests.cs
@@ -27,7 +27,7 @@ public async ValueTask GetConfigurationValueFromJson(string jsonFileConfig, stri
         fileSystem.Setup(x => x.NewFileStream(It.IsAny<string>(), FileMode.Open, FileAccess.Read))
             .Returns(new MemoryFileStream(Encoding.UTF8.GetBytes(jsonFileConfig)));
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo, new SystemEnvironment());
         configurationManager.AddConfigurationSource(() => new JsonConfigurationSource(testApplicationModuleInfo, fileSystem.Object, null));
         IConfiguration configuration = await configurationManager.BuildAsync(null, new CommandLineParseResult(null, new List<CommandLineParseOption>(), []));
         Assert.AreEqual(result, configuration[key], $"Expected '{result}' found '{configuration[key]}'");
@@ -57,7 +57,7 @@ public async ValueTask InvalidJson_Fail()
         fileSystem.Setup(x => x.ExistFile(It.IsAny<string>())).Returns(true);
         fileSystem.Setup(x => x.NewFileStream(It.IsAny<string>(), FileMode.Open, FileAccess.Read)).Returns(() => new MemoryFileStream(Encoding.UTF8.GetBytes(string.Empty)));
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo, new SystemEnvironment());
         configurationManager.AddConfigurationSource(() =>
             new JsonConfigurationSource(testApplicationModuleInfo, fileSystem.Object, null));
 
@@ -87,7 +87,7 @@ public async ValueTask GetConfigurationValueFromJsonWithFileLoggerProvider(strin
         loggerProviderMock.Setup(x => x.CreateLogger(It.IsAny<string>())).Returns(loggerMock.Object);
 
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(fileSystem.Object, testApplicationModuleInfo, new SystemEnvironment());
         configurationManager.AddConfigurationSource(() =>
             new JsonConfigurationSource(testApplicationModuleInfo, fileSystem.Object, null));
 
@@ -101,7 +101,7 @@ public async ValueTask GetConfigurationValueFromJsonWithFileLoggerProvider(strin
     public async ValueTask BuildAsync_EmptyConfigurationSources_ThrowsException()
     {
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo, new SystemEnvironment());
         await Assert.ThrowsAsync<InvalidOperationException>(() => configurationManager.BuildAsync(null, new CommandLineParseResult(null, new List<CommandLineParseOption>(), [])));
     }
 
@@ -112,7 +112,7 @@ public async ValueTask BuildAsync_ConfigurationSourcesNotEnabledAsync_ThrowsExce
         mockConfigurationSource.Setup(x => x.IsEnabledAsync()).ReturnsAsync(false);
 
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo, new SystemEnvironment());
         configurationManager.AddConfigurationSource(() => mockConfigurationSource.Object);
 
         await Assert.ThrowsAsync<InvalidOperationException>(() => configurationManager.BuildAsync(null, new CommandLineParseResult(null, new List<CommandLineParseOption>(), [])));
@@ -132,7 +132,7 @@ public async ValueTask BuildAsync_ConfigurationSourceIsAsyncInitializableExtensi
         };
 
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo);
+        ConfigurationManager configurationManager = new(new SystemFileSystem(), testApplicationModuleInfo, new SystemEnvironment());
         configurationManager.AddConfigurationSource(() => fakeConfigurationSource);
 
         await Assert.ThrowsAsync<InvalidOperationException>(() => configurationManager.BuildAsync(null, new CommandLineParseResult(null, new List<CommandLineParseOption>(), [])));
diff --git a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationBuilderTests.cs b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationBuilderTests.cs
index 294f21ff64..8a67fbfb40 100644
--- a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationBuilderTests.cs
+++ b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationBuilderTests.cs
@@ -21,7 +21,7 @@ public sealed class TestApplicationBuilderTests
     public TestApplicationBuilderTests()
     {
         CurrentTestApplicationModuleInfo testApplicationModuleInfo = new(new SystemEnvironment(), new SystemProcessHandler());
-        AggregatedConfiguration configuration = new([], testApplicationModuleInfo, new SystemFileSystem(), new(null, [], []));
+        AggregatedConfiguration configuration = new([], testApplicationModuleInfo, new SystemFileSystem(), new SystemEnvironment(), new(null, [], []));
         configuration.SetCurrentWorkingDirectory(string.Empty);
         configuration.SetCurrentWorkingDirectory(string.Empty);
         _serviceProvider.AddService(configuration);
diff --git a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationDiagnosticVerbosityTests.cs b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationDiagnosticVerbosityTests.cs
index eb7481ec46..192d219a69 100644
--- a/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationDiagnosticVerbosityTests.cs
+++ b/test/UnitTests/Microsoft.Testing.Platform.UnitTests/TestApplicationDiagnosticVerbosityTests.cs
@@ -1,7 +1,12 @@
 // Copyright (c) Microsoft Corporation. All rights reserved.
 // Licensed under the MIT license. See LICENSE file in the project root for full license information.
 
+using Microsoft.Testing.Platform.Configurations;
+using Microsoft.Testing.Platform.Helpers;
 using Microsoft.Testing.Platform.Logging;
+using Microsoft.Testing.Platform.Services;
+
+using Moq;
 
 namespace Microsoft.Testing.Platform.UnitTests;
 
@@ -29,4 +34,37 @@ public void TryParseDiagnosticVerbosity_WhenNullValue_ReturnsFalse()
     [TestMethod]
     public void TryParseDiagnosticVerbosity_WhenInvalidValue_ThrowsNotSupportedException()
         => Assert.ThrowsExactly<NotSupportedException>(() => _ = TestApplication.TryParseDiagnosticVerbosity("invalid", out _));
+
+    [TestMethod]
+    public void GetDiagnosticDefaultDirectory_WhenDotnetCliTestCommandWorkingDirectorySet_UsesEnvVarAsBase()
+    {
+        const string dotnetTestWorkingDir = "DotnetTestWorkingDir";
+        Mock<IEnvironment> environmentMock = new();
+        environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(dotnetTestWorkingDir);
+        Mock<ITestApplicationModuleInfo> moduleInfoMock = new();
+
+        string result = TestApplication.GetDiagnosticDefaultDirectory(environmentMock.Object, moduleInfoMock.Object);
+
+        Assert.AreEqual(Path.Combine(dotnetTestWorkingDir, AggregatedConfiguration.DefaultTestResultFolderName), result);
+        moduleInfoMock.Verify(x => x.GetCurrentTestApplicationDirectory(), Times.Never);
+    }
+
+    [TestMethod]
+    [DataRow(null)]
+    [DataRow("")]
+    [DataRow("   ")]
+    public void GetDiagnosticDefaultDirectory_WhenDotnetCliTestCommandWorkingDirectoryNullOrWhitespace_FallsBackToAppDirectory(string? envVarValue)
+    {
+        const string appDirectory = "AppDirectory";
+        Mock<IEnvironment> environmentMock = new();
+        environmentMock.Setup(x => x.GetEnvironmentVariable(EnvironmentVariableConstants.DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY))
+            .Returns(envVarValue);
+        Mock<ITestApplicationModuleInfo> moduleInfoMock = new();
+        moduleInfoMock.Setup(x => x.GetCurrentTestApplicationDirectory()).Returns(appDirectory);
+
+        string result = TestApplication.GetDiagnosticDefaultDirectory(environmentMock.Object, moduleInfoMock.Object);
+
+        Assert.AreEqual(Path.Combine(appDirectory, AggregatedConfiguration.DefaultTestResultFolderName), result);
+    }
 }
diff --git a/test/Utilities/Microsoft.Testing.TestInfrastructure/WellKnownEnvironmentVariables.cs b/test/Utilities/Microsoft.Testing.TestInfrastructure/WellKnownEnvironmentVariables.cs
index 4d636c0cec..4921721b60 100644
--- a/test/Utilities/Microsoft.Testing.TestInfrastructure/WellKnownEnvironmentVariables.cs
+++ b/test/Utilities/Microsoft.Testing.TestInfrastructure/WellKnownEnvironmentVariables.cs
@@ -41,6 +41,7 @@ public static class WellKnownEnvironmentVariables
 
         // dotnet test
         "TESTINGPLATFORM_DOTNETTEST_EXECUTIONID",
+        "DOTNET_CLI_TEST_COMMAND_WORKING_DIRECTORY",
 
         // Isolate from the skip banner in case of parent, children tests
         "TESTINGPLATFORM_CONSOLEOUTPUTDEVICE_SKIP_BANNER"