diff --git a/src/vs/workbench/contrib/terminal/browser/terminalService.ts b/src/vs/workbench/contrib/terminal/browser/terminalService.ts
index 3ac4d9721bd3d..0b2f9875b408b 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalService.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalService.ts
@@ -981,6 +981,9 @@ export class TerminalService implements ITerminalService {
 
 		// Shell launch config was provided
 		if (shellLaunchConfigOrProfile) {
+			if (cwd) {
+				shellLaunchConfigOrProfile.cwd = cwd;
+			}
 			return shellLaunchConfigOrProfile;
 		}