diff --git a/package.json b/package.json
index 38069022..995847d5 100644
--- a/package.json
+++ b/package.json
@@ -49,6 +49,10 @@
 				"pester.pesterModulePath": {
 					"type": "string",
 					"markdownDescription": "This allows to specify a custom path to the Pester module. A relative path under the current project is allowed. If this is not set then Pester module is expected to be found in one of the paths specified by `$env:PSModulePath`."
+				},
+				"pester.workingDirectory": {
+					"type": "string",
+					"markdownDescription": "Specifies the working directory of the dedicated Pester Instance. While $PSScriptRoot is recommended when using relative paths in Pester Tests, the runner will also default to the path of the current first workspace folder. Specify this if you want a different working directory."
 				}
 			}
 		},
diff --git a/src/pesterTestController.ts b/src/pesterTestController.ts
index f70b8cd3..e1ab10d0 100644
--- a/src/pesterTestController.ts
+++ b/src/pesterTestController.ts
@@ -1,5 +1,4 @@
-import { join, isAbsolute } from 'path'
-import { existsSync } from 'fs'
+import { join, isAbsolute, dirname } from 'path'
 import {
 	debug as vscodeDebug,
 	DebugSession,
@@ -494,15 +493,28 @@ export class PesterTestController implements Disposable {
 			? (await this.powerShellExtensionClient!.GetVersionDetails()).exePath
 			: undefined
 
+		const cwd = this.getPesterWorkingDirectory()
+
 		// Restart PS to use the requested version if it is different from the current one
-		if (this.ps === undefined || this.ps.exePath !== exePath) {
-			log.info(`Starting PowerShell testing instance: ${exePath}`)
+		if (
+			this.ps === undefined ||
+			this.ps.exePath !== exePath ||
+			this.ps.cwd !== cwd
+		) {
 			if (this.ps !== undefined) {
 				log.warn(
 					`Detected PowerShell Session change from ${this.ps.exePath} to ${exePath}. Restarting Pester Runner.`
 				)
 			}
-			this.ps = new PowerShell(exePath)
+			const exePathDir = exePath
+				? dirname(exePath)
+				: '*DEFAULT POWERSHELL PATH*'
+			log.debug(
+				`Starting PowerShell Pester testing instance ${exePath} with working directory ${
+					cwd ? cwd : exePathDir
+				}`
+			)
+			this.ps = new PowerShell(exePath, cwd)
 		}
 
 		// Objects from the run will return to the success stream, which we then send to the return handler
@@ -543,6 +555,25 @@ export class PesterTestController implements Disposable {
 			await this.ps.run(script, psOutput, undefined, true, useNewProcess)
 		}
 	}
+	// Fetches the current working directory that Pester should use.
+	getPesterWorkingDirectory() {
+		const customCwd = workspace
+			.getConfiguration('pester')
+			.get<string>('workingDirectory')
+		if (customCwd) {
+			return customCwd
+		}
+
+		// TODO: Multi-root workspace support, for now this just looks for the first defined workspace
+		if (workspace.workspaceFolders && workspace.workspaceFolders.length > 1) {
+			log.warn(
+				'Multi-root workspace detected. Relative paths in Pester files will only work for the first workspace.'
+			)
+		}
+		return workspace.workspaceFolders
+			? workspace.workspaceFolders[0].uri.fsPath
+			: undefined
+	}
 
 	/** Fetches the current pester module path if a custom path was defined, otherwise returns undefined */
 	getPesterCustomModulePath() {
@@ -571,16 +602,6 @@ export class PesterTestController implements Disposable {
 		return resolvedPath
 	}
 
-	// Fetches the current working directory that Pester should use.
-	getPesterWorkingDirectory() {
-		const customCwd = workspace
-			.getConfiguration('pester')
-			.get<string>('workingDirectory')
-		if (customCwd) {
-			return customCwd
-		}
-	}
-
 	/** Returns a list of relative patterns based on user configuration for matching Pester files in the workspace */
 	getPesterRelativePatterns() {
 		const pesterFilePatterns = new Array<RelativePattern>()
diff --git a/src/powershell.ts b/src/powershell.ts
index 0c9ff0a0..1256f9e1 100644
--- a/src/powershell.ts
+++ b/src/powershell.ts
@@ -148,12 +148,14 @@ export function createSplitPSOutputStream(streams: IPSOutput) {
 /** Represents an instance of a PowerShell process. By default this will use pwsh if installed, and will fall back to PowerShell on Windows,
  * unless the exepath parameter is specified. Use the exePath parameter to specify specific powershell executables
  * such as pwsh-preview or a pwsh executable not located in the PATH
+ * @param exePath The path to the powershell executable to use. If not specified, the default will be used.
+ * @param cwd The current working directory of the process. All paths will be relative to this. Defaults to the folder where pwsh.exe resides.
  */
 export class PowerShell {
 	psProcess: ChildProcessWithoutNullStreams | undefined
-	private currentInvocation: Promise<any> | undefined
+	private currentInvocation: Promise<void> | undefined
 	private resolvedExePath: string | undefined
-	constructor(public exePath?: string) {}
+	constructor(public exePath?: string, public cwd?: string) {}
 
 	/** lazy-start a pwsh instance. If pwsh is not found but powershell is present, it will silently use that instead. */
 	private async initialize() {
@@ -169,13 +171,11 @@ export class PowerShell {
 					'pwsh not found in your path and you are not on Windows so PowerShell 5.1 is not an option. Did you install PowerShell first?'
 				)
 			}
-			this.psProcess = spawn(this.resolvedExePath, [
-				'-NoProfile',
-				'-NonInteractive',
-				'-NoExit',
-				'-Command',
-				'-'
-			])
+			this.psProcess = spawn(
+				this.resolvedExePath,
+				['-NoProfile', '-NonInteractive', '-NoExit', '-Command', '-'],
+				{ cwd: this.cwd }
+			)
 			// Warn if we have more than one listener set on a process
 			this.psProcess.stdout.setMaxListeners(1)
 			this.psProcess.stderr.setMaxListeners(1)