Fix cwd setting in workspace file

Fixes #136099

Co-Authored-By: Megan Rogge <[email protected]>

src/vs/workbench/contrib/terminal/browser/terminalActions.ts

@@ -1742,6 +1742,7 @@ export function registerTerminalActions() {
 			const workspaceContextService = accessor.get(IWorkspaceContextService);
 			const commandService = accessor.get(ICommandService);
 			const configurationService = accessor.get(IConfigurationService);
+			const configurationResolverService = accessor.get(IConfigurationResolverService);
 			const folders = workspaceContextService.getWorkspace().folders;
 			if (eventOrOptions && eventOrOptions instanceof MouseEvent && (eventOrOptions.altKey || eventOrOptions.ctrlKey)) {
 				await terminalService.createTerminal({ location: { splitActiveTerminal: true } });
@@ -1768,13 +1769,14 @@ export function registerTerminalActions() {
 					eventOrOptions.cwd = workspace.uri;
 					const cwdConfig = configurationService.getValue(TerminalSettingId.Cwd, { resource: workspace.uri });
 					if (typeof cwdConfig === 'string' && cwdConfig.length > 0) {
-						if (isAbsolute(cwdConfig) || cwdConfig.startsWith(AbstractVariableResolverService.VARIABLE_LHS)) {
+						const resolvedCwdConfig = await configurationResolverService.resolveAsync(workspace, cwdConfig);
+						if (isAbsolute(resolvedCwdConfig) || resolvedCwdConfig.startsWith(AbstractVariableResolverService.VARIABLE_LHS)) {
 							eventOrOptions.cwd = URI.from({
 								scheme: workspace.uri.scheme,
-								path: cwdConfig
+								path: resolvedCwdConfig
 							});
 						} else {
-							eventOrOptions.cwd = URI.joinPath(workspace.uri, cwdConfig);
+							eventOrOptions.cwd = URI.joinPath(workspace.uri, resolvedCwdConfig);
 						}
 					}
 					instance = await terminalService.createTerminal(eventOrOptions);