diff --git a/crates/acp_thread/src/terminal.rs b/crates/acp_thread/src/terminal.rs
index 77474beb1d9fb85cb8b040d21a60a77fa6d6e6ae..e35b8c5df5d59bfcff69e02eac88c62c736c5be4 100644
--- a/crates/acp_thread/src/terminal.rs
+++ b/crates/acp_thread/src/terminal.rs
@@ -266,7 +266,7 @@ pub async fn create_terminal_entity(
             }
             let project_dir = cwd
                 .clone()
-                .unwrap_or_else(|| std::env::current_dir().unwrap_or_default());
+                .unwrap_or_else(|| std::env::current_dir().unwrap_or_else(|_| ".".into()));
             Some(terminal::terminal_settings::SandboxConfig::from_settings(
                 sandbox,
                 project_dir,
diff --git a/crates/project/src/terminals.rs b/crates/project/src/terminals.rs
index 2510d70531279390737e66b22d4fef99a90eaf7c..faf0c56976167664dc6341f037dc12f6ce6b4f7f 100644
--- a/crates/project/src/terminals.rs
+++ b/crates/project/src/terminals.rs
@@ -426,7 +426,9 @@ impl Project {
                         let project_dir = local_path
                             .as_ref()
                             .map(|p| p.to_path_buf())
-                            .unwrap_or_else(|| std::env::current_dir().unwrap_or_default());
+                            .unwrap_or_else(|| {
+                                std::env::current_dir().unwrap_or_else(|_| ".".into())
+                            });
                         Some(terminal::terminal_settings::SandboxConfig::from_settings(
                             sandbox,
                             project_dir,