diff --git a/src/PowerShellEditorServices/Services/PowerShell/Host/PsesInternalHost.cs b/src/PowerShellEditorServices/Services/PowerShell/Host/PsesInternalHost.cs
index 97ee2edd7..1826d4ce7 100644
--- a/src/PowerShellEditorServices/Services/PowerShell/Host/PsesInternalHost.cs
+++ b/src/PowerShellEditorServices/Services/PowerShell/Host/PsesInternalHost.cs
@@ -475,9 +475,11 @@ internal Task LoadHostProfilesAsync(CancellationToken cancellationToken)
 
         public Task SetInitialWorkingDirectoryAsync(string path, CancellationToken cancellationToken)
         {
-            return ExecutePSCommandAsync(
-                new PSCommand().AddCommand("Set-Location").AddParameter("LiteralPath", path),
-                cancellationToken);
+            return Directory.Exists(path)
+                ? ExecutePSCommandAsync(
+                    new PSCommand().AddCommand("Set-Location").AddParameter("LiteralPath", path),
+                    cancellationToken)
+                : Task.CompletedTask;
         }
 
         private void Run()
diff --git a/test/PowerShellEditorServices.Test/Session/PsesInternalHostTests.cs b/test/PowerShellEditorServices.Test/Session/PsesInternalHostTests.cs
index 7412ac59d..f0d82c0d9 100644
--- a/test/PowerShellEditorServices.Test/Session/PsesInternalHostTests.cs
+++ b/test/PowerShellEditorServices.Test/Session/PsesInternalHostTests.cs
@@ -186,5 +186,20 @@ await psesHost.ExecutePSCommandAsync(
                 new PSCommand().AddScript("\"protocol=https`nhost=myhost.com`nusername=john`npassword=doe`n`n\" | git.exe credential approve; if ($LastExitCode) { throw }"),
                 CancellationToken.None).ConfigureAwait(true);
         }
+
+        [Theory]
+        [InlineData("")] // Regression test for "unset" path.
+        [InlineData("C:\\Some\\Bad\\Directory")] // Non-existent directory.
+        [InlineData("testhost.dll")] // Existent file.
+        public async Task CanHandleBadInitialWorkingDirectory(string path)
+        {
+            string cwd = Environment.CurrentDirectory;
+            await psesHost.SetInitialWorkingDirectoryAsync(path, CancellationToken.None).ConfigureAwait(true);
+
+            IReadOnlyList<string> getLocation = await psesHost.ExecutePSCommandAsync<string>(
+                new PSCommand().AddCommand("Get-Location"),
+                CancellationToken.None).ConfigureAwait(true);
+            Assert.Collection(getLocation, (d) => Assert.Equal(cwd, d, ignoreCase: true));
+        }
     }
 }