diff --git a/tests/run-tests.py b/tests/run-tests.py
--- a/tests/run-tests.py
+++ b/tests/run-tests.py
@@ -722,6 +722,7 @@
 
         shell is the shell to execute tests in.
         """
+
         if timeout is None:
             timeout = defaults['timeout']
         if startport is None:
@@ -2516,6 +2517,7 @@
 
     def run(self, args, parser=None):
         """Run the test suite."""
+
         oldmask = os.umask(0o22)
         try:
             parser = parser or getparser()
@@ -2542,17 +2544,19 @@
             os.umask(oldmask)
 
     def _run(self, testdescs):
+        testdir = getcwdb()
         self._testdir = osenvironb[b'TESTDIR'] = getcwdb()
         # assume all tests in same folder for now
         if testdescs:
             pathname = os.path.dirname(testdescs[0]['path'])
             if pathname:
-                osenvironb[b'TESTDIR'] = os.path.join(osenvironb[b'TESTDIR'],
-                                                      pathname)
+                testdir = os.path.join(testdir,pathname)
+
+        self._testdir = osenvironb[b'TESTDIR'] = testdir
         if self.options.outputdir:
             self._outputdir = canonpath(_bytespath(self.options.outputdir))
         else:
-            self._outputdir = self._testdir
+            self._outputdir = getcwdb()
             if testdescs and pathname:
                 self._outputdir = os.path.join(self._outputdir, pathname)
         previoustimes = {}
@@ -2891,6 +2895,7 @@
         Returns a Test instance. The Test may not be runnable if it doesn't
         map to a known type.
         """
+
         path = testdesc['path']
         lctest = path.lower()
         testcls = Test
@@ -2900,7 +2905,7 @@
                 testcls = cls
                 break
 
-        refpath = os.path.join(self._testdir, path)
+        refpath = os.path.join(getcwdb(), path)
         tmpdir = os.path.join(self._hgtmp, b'child%d' % count)
 
         # extra keyword parameters. 'case' is used by .t tests