diff --git a/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts b/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
index a67986b071e4d..81699fd9fad46 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
@@ -2279,7 +2279,9 @@ export class TerminalLabelComputer extends Disposable {
 		const detection = this._instance.capabilities.has(TerminalCapability.CwdDetection) || this._instance.capabilities.has(TerminalCapability.NaiveCwdDetection);
 		const zeroRootWorkspace = this._workspaceContextService.getWorkspace().folders.length === 0 && this.pathsEqual(templateProperties.cwd, this._instance.userHome || this._configHelper.config.cwd);
 		const singleRootWorkspace = this._workspaceContextService.getWorkspace().folders.length === 1 && this.pathsEqual(templateProperties.cwd, this._configHelper.config.cwd || this._workspaceContextService.getWorkspace().folders[0]?.uri.fsPath);
-		templateProperties.cwdFolder = (!templateProperties.cwd || !detection || zeroRootWorkspace || singleRootWorkspace) ? '' : path.basename(templateProperties.cwd);
+		if (this._instance.cwd !== this._instance.initialCwd) {
+			templateProperties.cwdFolder = (!templateProperties.cwd || !detection || zeroRootWorkspace || singleRootWorkspace) ? '' : path.basename(templateProperties.cwd);
+		}
 
 		//Remove special characters that could mess with rendering
 		let label = template(labelTemplate, (templateProperties as unknown) as { [key: string]: string | ISeparator | undefined | null; }).replace(/[\n\r\t]/g, '').trim();