diff --git a/src/env.cpp b/src/env.cpp
index c5a83ed43..7c617cb2e 100644
--- a/src/env.cpp
+++ b/src/env.cpp
@@ -962,7 +962,11 @@ void env_init(const struct config_paths_t *paths /* or NULL */) {
 
     // initialize the PWD variable if necessary
     // Note we may inherit a virtual PWD that doesn't match what getcwd would return; respect that.
-    if (env_get(L"PWD").missing_or_empty()) {
+    // Note we treat PWD as read-only so it was not set in vars.
+    const char *incoming_pwd = getenv("PWD");
+    if (incoming_pwd && incoming_pwd[0]) {
+        env_set_one(L"PWD",  ENV_EXPORT | ENV_GLOBAL, str2wcstring(incoming_pwd));
+    } else {
         env_set_pwd_from_getcwd();
     }
     env_set_termsize();    // initialize the terminal size variables
diff --git a/tests/cd.err b/tests/cd.err
index 80bc5c0e6..4653e2ee6 100644
--- a/tests/cd.err
+++ b/tests/cd.err
@@ -4,3 +4,6 @@
 
 ####################
 # cd symlink completion
+
+####################
+# Virtual PWD inheritance
diff --git a/tests/cd.in b/tests/cd.in
index fa3964a22..fde7cd558 100644
--- a/tests/cd.in
+++ b/tests/cd.in
@@ -38,6 +38,16 @@ complete -C'ls ../'
 echo "cd:"
 complete -C'cd ../'
 
+logmsg Virtual PWD inheritance
+# PWD should be imported and respected by fish
+
+cd $oldpwd
+mkdir -p $base/realhome
+set fish_path $PWD/../test/root/bin/fish
+ln -s $base/realhome $base/linkhome
+cd $base/linkhome
+env HOME=$base/linkhome $fish_path -c 'echo PWD is $PWD'
+
 # cd back before removing the test directory again.
 cd $oldpwd
 rm -Rf $base
diff --git a/tests/cd.out b/tests/cd.out
index 86ea3299c..73081263d 100644
--- a/tests/cd.out
+++ b/tests/cd.out
@@ -17,3 +17,7 @@ cd:
 ../a2/
 ../a3/
 ../rabbithole/
+
+####################
+# Virtual PWD inheritance
+PWD is /tmp/cdcomp_test/linkhome