diff --git a/lib/ruby_indexer/lib/ruby_indexer/index.rb b/lib/ruby_indexer/lib/ruby_indexer/index.rb
index eedf2926a1..ddc60a5312 100644
--- a/lib/ruby_indexer/lib/ruby_indexer/index.rb
+++ b/lib/ruby_indexer/lib/ruby_indexer/index.rb
@@ -140,36 +140,59 @@ def method_completion_candidates(name, receiver_name)
       candidates
     end
 
-    # Try to find the entry based on the nesting from the most specific to the least specific. For example, if we have
-    # the nesting as ["Foo", "Bar"] and the name as "Baz", we will try to find it in this order:
-    # 1. Foo::Bar::Baz
-    # 2. Foo::Baz
-    # 3. Baz
-    sig { params(name: String, nesting: T::Array[String]).returns(T.nilable(T::Array[Entry])) }
-    def resolve(name, nesting)
+    # Resolve a constant to its declaration based on its name and the nesting where the reference was found
+    sig do
+      params(
+        name: String,
+        nesting: T::Array[String],
+        seen_names: T::Array[String],
+      ).returns(T.nilable(T::Array[Entry]))
+    end
+    def resolve(name, nesting, seen_names = [])
+      # If we have a top level reference, then we just search for it straight away ignoring the nesting
       if name.start_with?("::")
-        name = name.delete_prefix("::")
-        results = @entries[name] || @entries[follow_aliased_namespace(name)]
-        return results&.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e) : e }
+        full_name = name.delete_prefix("::")
+        entries = @entries[full_name] || @entries[follow_aliased_namespace(full_name, seen_names)]
+        return entries&.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e, seen_names) : e }
       end
 
-      nesting.length.downto(0).each do |i|
-        namespace = T.must(nesting[0...i]).join("::")
-        full_name = namespace.empty? ? name : "#{namespace}::#{name}"
+      # If the name is qualified (has any namespace parts), then Ruby will search for the constant only in the exact
+      # namespace where the reference was found across the entire ancestor chain
+      if name.include?("::")
+        # Concatenate to the full name only non-redundant parts of the nesting. For example, if we found a reference to
+        # `A::B::Foo` inside the `A::B` nesting, then we should only use `A::B::Foo` and not `A::B::A::B::Foo`
+        full_name = name.dup
+        parts = name.split("::")
 
-        # If we find an entry with `full_name` directly, then we can already return it, even if it contains aliases -
-        # because the user might be trying to jump to the alias definition.
-        #
-        # However, if we don't find it, then we need to search for possible aliases in the namespace. For example, in
-        # the LSP itself we alias `RubyLsp::Interface` to `LanguageServer::Protocol::Interface`, which means doing
-        # `RubyLsp::Interface::Location` is allowed. For these cases, we need some way to realize that the
-        # `RubyLsp::Interface` part is an alias, that has to be resolved
-        entries = @entries[full_name] || @entries[follow_aliased_namespace(full_name)]
-        return entries.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e) : e } if entries
+        nesting.length.times do |i|
+          next if parts[i] == nesting[i]
+
+          full_name.prepend("#{nesting[i]}::")
+        end
+
+        return lookup_ancestor_chain(full_name, seen_names)
       end
 
-      nil
-    rescue UnresolvableAliasError
+      full_name = nesting.any? ? "#{nesting.join("::")}::#{name}" : name
+      # When the name is not qualified with any namespaces, Ruby will take several steps to try to the resolve the
+      # constant. First, it will try to find the constant in the exact namespace where the reference was found
+      entries = @entries[full_name] || @entries[follow_aliased_namespace(full_name, seen_names)]
+      return entries.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e, seen_names) : e } if entries
+
+      # If the constant is not found yet, then Ruby will try to find the constant in the enclosing lexical scopes,
+      # unwrapping each level one by one. Important note: the top level is not included because that's the fallback of
+      # the algorithm after every other possibility has been exhausted
+      entries = lookup_enclosing_scopes(name, nesting, seen_names)
+      return entries if entries
+
+      # If the constant does not exist in any enclosing scopes, then Ruby will search for it in the ancestors of the
+      # specific namespace where the reference was found
+      entries = lookup_ancestor_chain(full_name, seen_names)
+      return entries if entries
+
+      # Finally, as a fallback, Ruby will search for the constant in the top level namespace
+      @entries[name]
+    rescue UnresolvableAliasError, NonExistingNamespaceError
       nil
     end
 
@@ -222,8 +245,8 @@ def index_single(indexable_path, source = nil)
     # If we find an alias, then we want to follow its target. In the same example, if `Foo::Bar` is an alias to
     # `Something::Else`, then we first discover `Something::Else::Baz`. But `Something::Else::Baz` might contain other
     # aliases, so we have to invoke `follow_aliased_namespace` again to check until we only return a real name
-    sig { params(name: String).returns(String) }
-    def follow_aliased_namespace(name)
+    sig { params(name: String, seen_names: T::Array[String]).returns(String) }
+    def follow_aliased_namespace(name, seen_names = [])
       return name if @entries[name]
 
       parts = name.split("::")
@@ -236,16 +259,16 @@ def follow_aliased_namespace(name)
         case entry
         when Entry::Alias
           target = entry.target
-          return follow_aliased_namespace("#{target}::#{real_parts.join("::")}")
+          return follow_aliased_namespace("#{target}::#{real_parts.join("::")}", seen_names)
         when Entry::UnresolvedAlias
-          resolved = resolve_alias(entry)
+          resolved = resolve_alias(entry, seen_names)
 
           if resolved.is_a?(Entry::UnresolvedAlias)
             raise UnresolvableAliasError, "The constant #{resolved.name} is an alias to a non existing constant"
           end
 
           target = resolved.target
-          return follow_aliased_namespace("#{target}::#{real_parts.join("::")}")
+          return follow_aliased_namespace("#{target}::#{real_parts.join("::")}", seen_names)
         else
           real_parts.unshift(T.must(parts[i]))
         end
@@ -291,16 +314,17 @@ def linearized_ancestors_of(fully_qualified_name)
       cached_ancestors = @ancestors[fully_qualified_name]
       return cached_ancestors if cached_ancestors
 
-      ancestors = [fully_qualified_name]
+      # If we don't have an entry for `name`, raise
+      entries = resolve(fully_qualified_name, [])
+      raise NonExistingNamespaceError, "No entry found for #{fully_qualified_name}" unless entries
+
+      resolved_name = T.must(entries.first).name
+      ancestors = [resolved_name]
 
       # Cache the linearized ancestors array eagerly. This is important because we might have circular dependencies and
       # this will prevent us from falling into an infinite recursion loop. Because we mutate the ancestors array later,
       # the cache will reflect the final result
-      @ancestors[fully_qualified_name] = ancestors
-
-      # If we don't have an entry for `name`, raise
-      entries = resolve(fully_qualified_name, [])
-      raise NonExistingNamespaceError, "No entry found for #{fully_qualified_name}" unless entries
+      @ancestors[resolved_name] = ancestors
 
       # If none of the entries for `name` are namespaces, raise
       namespaces = entries.filter_map do |entry|
@@ -367,7 +391,7 @@ def linearized_ancestors_of(fully_qualified_name)
         resolved_parent_class = resolve(parent_class, nesting)
         parent_class_name = resolved_parent_class&.first&.name
 
-        if parent_class_name && fully_qualified_name != parent_class_name
+        if parent_class_name && resolved_name != parent_class_name
           ancestors.concat(linearized_ancestors_of(parent_class_name))
         end
       end
@@ -434,22 +458,98 @@ def handle_change(indexable)
 
     # Attempts to resolve an UnresolvedAlias into a resolved Alias. If the unresolved alias is pointing to a constant
     # that doesn't exist, then we return the same UnresolvedAlias
-    sig { params(entry: Entry::UnresolvedAlias).returns(T.any(Entry::Alias, Entry::UnresolvedAlias)) }
-    def resolve_alias(entry)
-      target = resolve(entry.target, entry.nesting)
-      return entry unless target
+    sig do
+      params(
+        entry: Entry::UnresolvedAlias,
+        seen_names: T::Array[String],
+      ).returns(T.any(Entry::Alias, Entry::UnresolvedAlias))
+    end
+    def resolve_alias(entry, seen_names)
+      alias_name = entry.name
+      return entry if seen_names.include?(alias_name)
+
+      seen_names << alias_name
+
+      target = entry.target
+
+      # Because we resolve aliases lazily, if we have a qualified alias target, we need to try to resolve it for each
+      # level of nesting. The reason is because we could be aliasing to a constant that's outside the current nesting,
+      # which wouldn't find anything. For a complete example of a qualified alias target pointing to a different
+      # namespace, see ConstantTest#test_aliasing_namespaces
+      resolved_target = if target.include?("::")
+        nesting = entry.nesting
+        results = T.let(nil, T.nilable(T::Array[Entry]))
+
+        nesting.length.downto(0).each do |i|
+          current_nesting = T.must(nesting[0...i])
+          results = resolve(target, current_nesting, seen_names)
+          break if results
+        end
+
+        results
+      else
+        resolve(target, entry.nesting, seen_names)
+      end
+
+      return entry unless resolved_target
 
-      target_name = T.must(target.first).name
+      target_name = T.must(resolved_target.first).name
       resolved_alias = Entry::Alias.new(target_name, entry)
 
       # Replace the UnresolvedAlias by a resolved one so that we don't have to do this again later
-      original_entries = T.must(@entries[entry.name])
+      original_entries = T.must(@entries[alias_name])
       original_entries.delete(entry)
       original_entries << resolved_alias
 
-      @entries_tree.insert(entry.name, original_entries)
+      @entries_tree.insert(alias_name, original_entries)
 
       resolved_alias
     end
+
+    sig do
+      params(
+        name: String,
+        nesting: T::Array[String],
+        seen_names: T::Array[String],
+      ).returns(T.nilable(T::Array[Entry]))
+    end
+    def lookup_enclosing_scopes(name, nesting, seen_names)
+      nesting.length.downto(1).each do |i|
+        namespace = T.must(nesting[0...i]).join("::")
+        full_name = "#{namespace}::#{name}"
+
+        # If we find an entry with `full_name` directly, then we can already return it, even if it contains aliases -
+        # because the user might be trying to jump to the alias definition.
+        #
+        # However, if we don't find it, then we need to search for possible aliases in the namespace. For example, in
+        # the LSP itself we alias `RubyLsp::Interface` to `LanguageServer::Protocol::Interface`, which means doing
+        # `RubyLsp::Interface::Location` is allowed. For these cases, we need some way to realize that the
+        # `RubyLsp::Interface` part is an alias, that has to be resolved
+        entries = @entries[full_name] || @entries[follow_aliased_namespace(full_name)]
+        return entries.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e, seen_names) : e } if entries
+      end
+
+      nil
+    end
+
+    sig { params(name: String, seen_names: T::Array[String]).returns(T.nilable(T::Array[Entry])) }
+    def lookup_ancestor_chain(name, seen_names)
+      results = @entries[name] || @entries[follow_aliased_namespace(name, seen_names)]
+      return results.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e, seen_names) : e } if results
+
+      *nesting_parts, constant_name = name.split("::")
+
+      ancestors = T.must(nesting_parts).empty? ? [] : linearized_ancestors_of(T.must(nesting_parts).join("::"))
+      ancestors.each do |ancestor_name|
+        complete_name = "#{ancestor_name}::#{constant_name}"
+        ancestor_results = @entries[complete_name] || @entries[follow_aliased_namespace(complete_name, seen_names)]
+
+        if ancestor_results
+          return ancestor_results.map { |e| e.is_a?(Entry::UnresolvedAlias) ? resolve_alias(e, seen_names) : e }
+        end
+      end
+
+      nil
+    end
   end
 end
diff --git a/lib/ruby_indexer/test/index_test.rb b/lib/ruby_indexer/test/index_test.rb
index ffcac974ef..bd8abd2e10 100644
--- a/lib/ruby_indexer/test/index_test.rb
+++ b/lib/ruby_indexer/test/index_test.rb
@@ -64,10 +64,7 @@ class Something
       refute_empty(entries)
       assert_equal("Foo::Bar", entries.first.name)
 
-      entries = @index.resolve("Foo::Bar", ["Foo", "Baz"])
-      refute_empty(entries)
-      assert_equal("Foo::Bar", entries.first.name)
-
+      assert_nil(@index.resolve("Foo::Bar", ["Foo", "Baz"]))
       assert_nil(@index.resolve("DoesNotExist", ["Foo"]))
     end
 
@@ -181,6 +178,9 @@ class Bar; end
 
     def test_resolving_aliases_to_non_existing_constants_with_conflicting_names
       @index.index_single(IndexablePath.new("/fake", "/fake/path/foo.rb"), <<~RUBY)
+        class Float
+        end
+
         module Foo
           class Float < self
             INFINITY = ::Float::INFINITY
@@ -841,5 +841,212 @@ class Bar
         end
       end
     end
+
+    def test_resolving_inherited_constants
+      index(<<~RUBY)
+        module Foo
+          CONST = 1
+        end
+
+        module Baz
+          CONST = 2
+        end
+
+        module Qux
+          include Foo
+        end
+
+        module Namespace
+          CONST = 3
+
+          include Baz
+
+          class Bar
+            include Qux
+          end
+        end
+
+        CONST = 4
+      RUBY
+
+      entry = T.must(@index.resolve("CONST", ["Namespace", "Bar"])&.first)
+      assert_equal(14, entry.location.start_line)
+    end
+
+    def test_resolving_inherited_alised_namespace
+      index(<<~RUBY)
+        module Bar
+          TARGET = 123
+        end
+
+        module Foo
+          CONST = Bar
+        end
+
+        module Namespace
+          class Bar
+            include Foo
+          end
+        end
+      RUBY
+
+      entry = T.must(@index.resolve("Foo::CONST::TARGET", [])&.first)
+      assert_equal(2, entry.location.start_line)
+
+      entry = T.must(@index.resolve("Namespace::Bar::CONST::TARGET", [])&.first)
+      assert_equal(2, entry.location.start_line)
+    end
+
+    def test_resolving_same_constant_from_different_scopes
+      index(<<~RUBY)
+        module Namespace
+          CONST = 123
+
+          class Parent
+            CONST = 321
+          end
+
+          class Child < Parent
+          end
+        end
+      RUBY
+
+      entry = T.must(@index.resolve("CONST", ["Namespace", "Child"])&.first)
+      assert_equal(2, entry.location.start_line)
+
+      entry = T.must(@index.resolve("Namespace::Child::CONST", [])&.first)
+      assert_equal(5, entry.location.start_line)
+    end
+
+    def test_resolving_prepended_constants
+      index(<<~RUBY)
+        module Included
+          CONST = 123
+        end
+
+        module Prepended
+          CONST = 321
+        end
+
+        class Foo
+          include Included
+          prepend Prepended
+        end
+
+        class Bar
+          CONST = 456
+          include Included
+          prepend Prepended
+        end
+      RUBY
+
+      entry = T.must(@index.resolve("CONST", ["Foo"])&.first)
+      assert_equal(6, entry.location.start_line)
+
+      entry = T.must(@index.resolve("Foo::CONST", [])&.first)
+      assert_equal(6, entry.location.start_line)
+
+      entry = T.must(@index.resolve("Bar::CONST", [])&.first)
+      assert_equal(15, entry.location.start_line)
+    end
+
+    def test_resolving_constants_favors_ancestors_over_top_level
+      index(<<~RUBY)
+        module Value1
+          CONST = 1
+        end
+
+        module Value2
+          CONST = 2
+        end
+
+        CONST = 3
+        module First
+          include Value1
+
+          module Second
+            include Value2
+          end
+        end
+      RUBY
+
+      entry = T.must(@index.resolve("CONST", ["First", "Second"])&.first)
+      assert_equal(6, entry.location.start_line)
+    end
+
+    def test_resolving_circular_alias
+      index(<<~RUBY)
+        module Namespace
+          FOO = BAR
+          BAR = FOO
+        end
+      RUBY
+
+      foo_entry = T.must(@index.resolve("FOO", ["Namespace"])&.first)
+      assert_equal(2, foo_entry.location.start_line)
+      assert_instance_of(Entry::Alias, foo_entry)
+
+      bar_entry = T.must(@index.resolve("BAR", ["Namespace"])&.first)
+      assert_equal(3, bar_entry.location.start_line)
+      assert_instance_of(Entry::Alias, bar_entry)
+    end
+
+    def test_resolving_circular_alias_three_levels
+      index(<<~RUBY)
+        module Namespace
+          FOO = BAR
+          BAR = BAZ
+          BAZ = FOO
+        end
+      RUBY
+
+      foo_entry = T.must(@index.resolve("FOO", ["Namespace"])&.first)
+      assert_equal(2, foo_entry.location.start_line)
+      assert_instance_of(Entry::Alias, foo_entry)
+
+      bar_entry = T.must(@index.resolve("BAR", ["Namespace"])&.first)
+      assert_equal(3, bar_entry.location.start_line)
+      assert_instance_of(Entry::Alias, bar_entry)
+
+      baz_entry = T.must(@index.resolve("BAZ", ["Namespace"])&.first)
+      assert_equal(4, baz_entry.location.start_line)
+      assert_instance_of(Entry::Alias, baz_entry)
+    end
+
+    def test_resolving_top_level_compact_reference
+      index(<<~RUBY)
+        class Foo::Bar
+        end
+      RUBY
+
+      foo_entry = T.must(@index.resolve("Foo::Bar", [])&.first)
+      assert_equal(1, foo_entry.location.start_line)
+      assert_instance_of(Entry::Class, foo_entry)
+    end
+
+    def test_resolving_references_with_redundant_namespaces
+      index(<<~RUBY)
+        module Bar
+          CONST = 1
+        end
+
+        module A
+          CONST = 2
+
+          module B
+            CONST = 3
+
+            class Foo
+              include Bar
+            end
+
+            A::B::Foo::CONST
+          end
+        end
+      RUBY
+
+      foo_entry = T.must(@index.resolve("A::B::Foo::CONST", ["A", "B"])&.first)
+      assert_equal(2, foo_entry.location.start_line)
+    end
   end
 end