diff --git a/lib/ruby_indexer/lib/ruby_indexer/configuration.rb b/lib/ruby_indexer/lib/ruby_indexer/configuration.rb
index a3377fbf85..6f6642085a 100644
--- a/lib/ruby_indexer/lib/ruby_indexer/configuration.rb
+++ b/lib/ruby_indexer/lib/ruby_indexer/configuration.rb
@@ -16,15 +16,19 @@ class Configuration
       T::Hash[String, T.untyped],
     )
 
+    sig { params(workspace_path: String).void }
+    attr_writer :workspace_path
+
     sig { void }
     def initialize
+      @workspace_path = T.let(Dir.pwd, String)
       @excluded_gems = T.let(initial_excluded_gems, T::Array[String])
       @included_gems = T.let([], T::Array[String])
       @excluded_patterns = T.let([File.join("**", "*_test.rb"), File.join("**", "tmp", "**", "*")], T::Array[String])
       path = Bundler.settings["path"]
-      @excluded_patterns << File.join(File.expand_path(path, Dir.pwd), "**", "*.rb") if path
+      @excluded_patterns << File.join(File.expand_path(path, @workspace_path), "**", "*.rb") if path
 
-      @included_patterns = T.let([File.join(Dir.pwd, "**", "*.rb")], T::Array[String])
+      @included_patterns = T.let([File.join(@workspace_path, "**", "*.rb")], T::Array[String])
       @excluded_magic_comments = T.let(
         [
           "frozen_string_literal:",
@@ -59,8 +63,8 @@ def indexables
           path = File.expand_path(path)
           # All entries for the same pattern match the same $LOAD_PATH entry. Since searching the $LOAD_PATH for every
           # entry is expensive, we memoize it until we find a path that doesn't belong to that $LOAD_PATH. This happens
-          # on repositories that define multiple gems, like Rails. All frameworks are defined inside the Dir.pwd, but
-          # each one of them belongs to a different $LOAD_PATH entry
+          # on repositories that define multiple gems, like Rails. All frameworks are defined inside the current
+          # workspace directory, but each one of them belongs to a different $LOAD_PATH entry
           if load_path_entry.nil? || !path.start_with?(load_path_entry)
             load_path_entry = $LOAD_PATH.find { |load_path| path.start_with?(load_path) }
           end
@@ -122,7 +126,7 @@ def indexables
         # When working on a gem, it will be included in the locked_gems list. Since these are the project's own files,
         # we have already included and handled exclude patterns for it and should not re-include or it'll lead to
         # duplicates or accidentally ignoring exclude patterns
-        next if spec.full_gem_path == Dir.pwd
+        next if spec.full_gem_path == @workspace_path
 
         indexables.concat(
           spec.require_paths.flat_map do |require_path|
@@ -185,7 +189,7 @@ def initial_excluded_gems
       # If the dependency is prerelease, `to_spec` may return `nil` due to a bug in older version of Bundler/RubyGems:
       # https://github.com/Shopify/ruby-lsp/issues/1246
       this_gem = Bundler.definition.dependencies.find do |d|
-        d.to_spec&.full_gem_path == Dir.pwd
+        d.to_spec&.full_gem_path == @workspace_path
       rescue Gem::MissingSpecError
         false
       end
diff --git a/lib/ruby_lsp/listeners/definition.rb b/lib/ruby_lsp/listeners/definition.rb
index 55d85c6753..2eedc685ce 100644
--- a/lib/ruby_lsp/listeners/definition.rb
+++ b/lib/ruby_lsp/listeners/definition.rb
@@ -250,7 +250,7 @@ def handle_require_definition(node, message)
         when :require_relative
           required_file = "#{node.content}.rb"
           path = @uri.to_standardized_path
-          current_folder = path ? Pathname.new(CGI.unescape(path)).dirname : Dir.pwd
+          current_folder = path ? Pathname.new(CGI.unescape(path)).dirname : @global_state.workspace_path
           candidate = File.expand_path(File.join(current_folder, required_file))
 
           @response_builder << Interface::Location.new(
diff --git a/lib/ruby_lsp/server.rb b/lib/ruby_lsp/server.rb
index 7e1bfd125a..561f93ab76 100644
--- a/lib/ruby_lsp/server.rb
+++ b/lib/ruby_lsp/server.rb
@@ -773,6 +773,7 @@ def perform_initial_indexing
       # stuck indexing files
       Thread.new do
         begin
+          RubyIndexer.configuration.workspace_path = @global_state.workspace_path
           @global_state.index.index_all do |percentage|
             progress("indexing-progress", percentage)
             true
diff --git a/lib/ruby_lsp/setup_bundler.rb b/lib/ruby_lsp/setup_bundler.rb
index 55f5fe0596..a810915646 100644
--- a/lib/ruby_lsp/setup_bundler.rb
+++ b/lib/ruby_lsp/setup_bundler.rb
@@ -43,7 +43,7 @@ def initialize(project_path, **options)
       @gemfile_name = T.let(@gemfile&.basename&.to_s || "Gemfile", String)
 
       # Custom bundle paths
-      @custom_dir = T.let(Pathname.new(".ruby-lsp").expand_path(Dir.pwd), Pathname)
+      @custom_dir = T.let(Pathname.new(".ruby-lsp").expand_path(@project_path), Pathname)
       @custom_gemfile = T.let(@custom_dir + @gemfile_name, Pathname)
       @custom_lockfile = T.let(@custom_dir + (@lockfile&.basename || "Gemfile.lock"), Pathname)
       @lockfile_hash_path = T.let(@custom_dir + "main_lockfile_hash", Pathname)
@@ -182,14 +182,14 @@ def run_bundle_install(bundle_gemfile = @gemfile)
       # `.ruby-lsp` folder, which is not the user's intention. For example, if the path is configured as `vendor`, we
       # want to install it in the top level `vendor` and not `.ruby-lsp/vendor`
       path = Bundler.settings["path"]
-      expanded_path = File.expand_path(path, Dir.pwd) if path
+      expanded_path = File.expand_path(path, @project_path) if path
 
       # Use the absolute `BUNDLE_PATH` to prevent accidentally creating unwanted folders under `.ruby-lsp`
       env = {}
       env["BUNDLE_GEMFILE"] = bundle_gemfile.to_s
       env["BUNDLE_PATH"] = expanded_path if expanded_path
 
-      local_config_path = File.join(Dir.pwd, ".bundle")
+      local_config_path = File.join(@project_path, ".bundle")
       env["BUNDLE_APP_CONFIG"] = local_config_path if Dir.exist?(local_config_path)
 
       # If `ruby-lsp` and `debug` (and potentially `ruby-lsp-rails`) are already in the Gemfile, then we shouldn't try
diff --git a/test/setup_bundler_test.rb b/test/setup_bundler_test.rb
index 6b9a06fe13..fa94c6abc7 100644
--- a/test/setup_bundler_test.rb
+++ b/test/setup_bundler_test.rb
@@ -34,16 +34,6 @@ def test_removes_ruby_lsp_folder_if_both_gems_were_added_to_the_bundle
     FileUtils.rm_r(".ruby-lsp") if Dir.exist?(".ruby-lsp")
   end
 
-  def test_in_a_rails_app_does_nothing_if_ruby_lsp_and_ruby_lsp_rails_and_debug_are_in_the_bundle
-    Object.any_instance.expects(:system).with(bundle_env, "(bundle check || bundle install) 1>&2").returns(true)
-    Bundler::LockfileParser.any_instance.expects(:dependencies)
-      .returns({ "ruby-lsp" => true, "ruby-lsp-rails" => true, "debug" => true })
-    run_script
-    refute_path_exists(".ruby-lsp")
-  ensure
-    FileUtils.rm_r(".ruby-lsp") if Dir.exist?(".ruby-lsp")
-  end
-
   def test_in_a_rails_app_removes_ruby_lsp_folder_if_all_gems_were_added_to_the_bundle
     Object.any_instance.expects(:system).with(bundle_env, "(bundle check || bundle install) 1>&2").returns(true)
     Bundler::LockfileParser.any_instance.expects(:dependencies)
@@ -57,7 +47,7 @@ def test_in_a_rails_app_removes_ruby_lsp_folder_if_all_gems_were_added_to_the_bu
 
   def test_creates_custom_bundle
     Object.any_instance.expects(:system).with(
-      bundle_env(".ruby-lsp/Gemfile"),
+      bundle_env(Dir.pwd, ".ruby-lsp/Gemfile"),
       "(bundle check || bundle install) 1>&2",
     ).returns(true)
     Bundler::LockfileParser.any_instance.expects(:dependencies).returns({}).at_least_once
@@ -76,7 +66,7 @@ def test_creates_custom_bundle
 
   def test_creates_custom_bundle_for_a_rails_app
     Object.any_instance.expects(:system).with(
-      bundle_env(".ruby-lsp/Gemfile"),
+      bundle_env(Dir.pwd, ".ruby-lsp/Gemfile"),
       "(bundle check || bundle install) 1>&2",
     ).returns(true)
     Bundler::LockfileParser.any_instance.expects(:dependencies).returns({ "rails" => true }).at_least_once
@@ -107,7 +97,7 @@ def test_changing_lockfile_causes_custom_bundle_to_be_rebuilt
             system("bundle install")
 
             # Run the script once to generate a custom bundle
-            run_script
+            run_script(dir)
           end
         end
 
@@ -132,11 +122,11 @@ def test_changing_lockfile_causes_custom_bundle_to_be_rebuilt
         # we evaluate lazily, then we only find dependencies after the lockfile was copied, and then run bundle install
         # instead, which re-locks and adds the ruby-lsp
         Object.any_instance.expects(:system).with(
-          bundle_env(".ruby-lsp/Gemfile"),
+          bundle_env(dir, ".ruby-lsp/Gemfile"),
           "(bundle check || bundle install) 1>&2",
         ).returns(true)
         Bundler.with_unbundled_env do
-          run_script
+          run_script(dir)
         end
       end
     end
@@ -156,7 +146,7 @@ def test_does_not_copy_gemfile_lock_when_not_modified
             system("bundle install")
 
             # Run the script once to generate a custom bundle
-            run_script
+            run_script(dir)
           end
         end
 
@@ -164,7 +154,7 @@ def test_does_not_copy_gemfile_lock_when_not_modified
 
         capture_subprocess_io do
           Object.any_instance.expects(:system).with(
-            bundle_env(".ruby-lsp/Gemfile"),
+            bundle_env(dir, ".ruby-lsp/Gemfile"),
             "((bundle check && bundle update ruby-lsp debug) || bundle install) 1>&2",
           ).returns(true)
 
@@ -172,7 +162,7 @@ def test_does_not_copy_gemfile_lock_when_not_modified
 
           Bundler.with_unbundled_env do
             # Run the script again without having the lockfile modified
-            run_script
+            run_script(dir)
           end
         end
       end
@@ -193,7 +183,7 @@ def test_does_only_updates_every_4_hours
             system("bundle install")
 
             # Run the script once to generate a custom bundle
-            run_script
+            run_script(dir)
           end
         end
 
@@ -201,13 +191,13 @@ def test_does_only_updates_every_4_hours
 
         capture_subprocess_io do
           Object.any_instance.expects(:system).with(
-            bundle_env(".ruby-lsp/Gemfile"),
+            bundle_env(dir, ".ruby-lsp/Gemfile"),
             "(bundle check || bundle install) 1>&2",
           ).returns(true)
 
           Bundler.with_unbundled_env do
             # Run the script again without having the lockfile modified
-            run_script
+            run_script(dir)
           end
         end
       end
@@ -217,7 +207,7 @@ def test_does_only_updates_every_4_hours
   def test_uses_absolute_bundle_path_for_bundle_install
     Bundler.settings.temporary(path: "vendor/bundle") do
       Object.any_instance.expects(:system).with(
-        bundle_env(".ruby-lsp/Gemfile"),
+        bundle_env(Dir.pwd, ".ruby-lsp/Gemfile"),
         "(bundle check || bundle install) 1>&2",
       ).returns(true)
       Bundler::LockfileParser.any_instance.expects(:dependencies).returns({}).at_least_once
@@ -231,14 +221,14 @@ def test_creates_custom_bundle_if_no_gemfile
     # Create a temporary directory with no Gemfile or Gemfile.lock
     Dir.mktmpdir do |dir|
       Dir.chdir(dir) do
-        bundle_gemfile = Pathname.new(".ruby-lsp").expand_path(Dir.pwd) + "Gemfile"
+        bundle_gemfile = Pathname.new(".ruby-lsp").expand_path(dir) + "Gemfile"
         Object.any_instance.expects(:system).with(
-          bundle_env(bundle_gemfile.to_s),
+          bundle_env(dir, bundle_gemfile.to_s),
           "(bundle check || bundle install) 1>&2",
         ).returns(true)
 
         Bundler.with_unbundled_env do
-          run_script
+          run_script(dir)
         end
 
         assert_path_exists(".ruby-lsp")
@@ -257,7 +247,7 @@ def test_raises_if_bundle_is_not_locked
 
         Bundler.with_unbundled_env do
           assert_raises(RubyLsp::SetupBundler::BundleNotLocked) do
-            run_script
+            run_script(dir)
           end
         end
       end
@@ -297,9 +287,12 @@ def test_does_nothing_if_both_ruby_lsp_and_debug_are_gemspec_dependencies
         FileUtils.touch(File.join(dir, "Gemfile.lock"))
 
         Bundler.with_unbundled_env do
-          Object.any_instance.expects(:system).with(bundle_env, "(bundle check || bundle install) 1>&2").returns(true)
+          Object.any_instance.expects(:system).with(
+            bundle_env(File.realpath(dir)),
+            "(bundle check || bundle install) 1>&2",
+          ).returns(true)
           Bundler::LockfileParser.any_instance.expects(:dependencies).returns({})
-          run_script
+          run_script(dir)
         end
 
         refute_path_exists(".ruby-lsp")
@@ -312,12 +305,12 @@ def test_creates_custom_bundle_with_specified_branch
       Dir.chdir(dir) do
         bundle_gemfile = Pathname.new(".ruby-lsp").expand_path(Dir.pwd) + "Gemfile"
         Object.any_instance.expects(:system).with(
-          bundle_env(bundle_gemfile.to_s),
+          bundle_env(dir, bundle_gemfile.to_s),
           "(bundle check || bundle install) 1>&2",
         ).returns(true)
 
         Bundler.with_unbundled_env do
-          run_script(branch: "test-branch")
+          run_script(File.realpath(dir), branch: "test-branch")
         end
 
         assert_path_exists(".ruby-lsp")
@@ -342,18 +335,18 @@ def test_install_prerelease_versions_if_experimental_is_true
             system("bundle install")
 
             # Run the script once to generate a custom bundle
-            run_script
+            run_script(dir)
           end
         end
 
         capture_subprocess_io do
           Object.any_instance.expects(:system).with(
-            bundle_env(".ruby-lsp/Gemfile"),
+            bundle_env(dir, ".ruby-lsp/Gemfile"),
             "((bundle check && bundle update ruby-lsp debug --pre) || bundle install) 1>&2",
           ).returns(true)
 
           Bundler.with_unbundled_env do
-            run_script(experimental: true)
+            run_script(dir, experimental: true)
           end
         end
       end
@@ -367,11 +360,11 @@ def test_returns_bundle_app_config_if_there_is_local_config
         Bundler.with_unbundled_env do
           Bundler.settings.temporary(without: "production") do
             Object.any_instance.expects(:system).with(
-              bundle_env(bundle_gemfile.to_s),
+              bundle_env(dir, bundle_gemfile.to_s),
               "(bundle check || bundle install) 1>&2",
             ).returns(true)
 
-            run_script
+            run_script(File.realpath(dir))
           end
         end
       end
@@ -389,7 +382,7 @@ def test_custom_bundle_uses_alternative_gemfiles
         Bundler.with_unbundled_env do
           capture_subprocess_io do
             system("bundle install")
-            run_script
+            run_script(dir)
           end
         end
 
@@ -467,7 +460,7 @@ def test_ensures_lockfile_remotes_are_relative_to_default_gemfile
         Bundler.with_unbundled_env do
           capture_subprocess_io do
             system("bundle install")
-            run_script
+            run_script(File.realpath(dir))
           end
         end
 
@@ -494,11 +487,11 @@ def test_ruby_lsp_rails_is_automatically_included_in_rails_apps
         end
 
         Object.any_instance.expects(:system).with(
-          bundle_env(".ruby-lsp/Gemfile"),
+          bundle_env(dir, ".ruby-lsp/Gemfile"),
           "(bundle check || bundle install) 1>&2",
         ).returns(true)
         Bundler.with_unbundled_env do
-          run_script
+          run_script(dir)
         end
 
         assert_path_exists(".ruby-lsp/Gemfile")
@@ -563,7 +556,7 @@ def test_recovers_from_stale_lockfiles
         LOCKFILE
 
         Bundler.with_unbundled_env do
-          run_script
+          run_script(dir)
         end
 
         # Verify that the script recovered and re-generated the custom bundle from scratch
@@ -578,7 +571,7 @@ def test_recovers_from_stale_lockfiles
 
   # This method runs the script and then immediately unloads it. This allows us to make assertions against the effects
   # of running the script multiple times
-  def run_script(path = "/fake/project/path", expected_path: nil, **options)
+  def run_script(path = Dir.pwd, expected_path: nil, **options)
     bundle_path = T.let(nil, T.nilable(String))
 
     stdout, _stderr = capture_subprocess_io do
@@ -589,12 +582,12 @@ def run_script(path = "/fake/project/path", expected_path: nil, **options)
     assert_equal(expected_path, bundle_path) if expected_path
   end
 
-  def bundle_env(bundle_gemfile = "Gemfile")
-    bundle_gemfile_path = Pathname.new(bundle_gemfile)
+  def bundle_env(base_path = Dir.pwd, bundle_gemfile = "Gemfile")
+    bundle_gemfile_path = Pathname.new(base_path).join(bundle_gemfile)
     path = Bundler.settings["path"]
 
     env = {}
-    env["BUNDLE_PATH"] = File.expand_path(path, Dir.pwd) if path
+    env["BUNDLE_PATH"] = File.expand_path(path, base_path) if path
     env["BUNDLE_GEMFILE"] =
       bundle_gemfile_path.absolute? ? bundle_gemfile_path.to_s : bundle_gemfile_path.expand_path(Dir.pwd).to_s