diff --git a/setup.py b/setup.py
--- a/setup.py
+++ b/setup.py
@@ -782,6 +782,9 @@
 
         pythonlib = None
 
+        dir = os.path.dirname(self.get_ext_fullpath('dummy'))
+        self.hgtarget = os.path.join(dir, 'hg')
+
         if getattr(sys, 'dllhandle', None):
             # Different Python installs can have different Python library
             # names. e.g. the official CPython distribution uses pythonXY.dll
@@ -807,6 +810,19 @@
                     )
                 pythonlib = dllbasename[:-4]
 
+                # Copy the pythonXY.dll next to the binary so that it runs
+                # without tampering with PATH.
+                fsdecode = lambda x: x
+                if sys.version_info[0] >= 3:
+                    fsdecode = os.fsdecode
+                dest = os.path.join(
+                    os.path.dirname(self.hgtarget),
+                    fsdecode(dllbasename),
+                )
+
+                if not os.path.exists(dest):
+                    shutil.copy(buf.value, dest)
+
         if not pythonlib:
             log.warn(
                 'could not determine Python DLL filename; assuming pythonXY'
@@ -829,8 +845,6 @@
             output_dir=self.build_temp,
             macros=macros,
         )
-        dir = os.path.dirname(self.get_ext_fullpath('dummy'))
-        self.hgtarget = os.path.join(dir, 'hg')
         self.compiler.link_executable(
             objects, self.hgtarget, libraries=[], output_dir=self.build_temp
         )