diff --git a/compiler/ghci/GhciMonad.hs b/compiler/ghci/GhciMonad.hs
index ef1879dbbd6fe01fd11b8d1b712f58bfdb482bcd..8374491891ceafc71ca7a5ab4d6ce6af6a20ee14 100644
--- a/compiler/ghci/GhciMonad.hs
+++ b/compiler/ghci/GhciMonad.hs
@@ -36,7 +36,6 @@ import Data.Int         ( Int64 )
 import Data.IORef
 import Data.List
 import System.CPUTime
-import System.Directory
 import System.Environment
 import System.IO
 import Control.Monad as Monad
@@ -73,7 +72,6 @@ data GHCiState = GHCiState
              -- were supposed to be in the context but currently had errors,
              -- but this was complicated.  Just replaying the :module commands
              -- seems to be the right thing.
-        virtual_path   :: FilePath,
         ghc_e :: Bool -- True if this is 'ghc -e' (or runghc)
      }
 
@@ -239,19 +237,8 @@ printForUserPartWay doc = do
   unqual <- GHC.getPrintUnqual
   io $ Outputable.printForUserPartWay stdout opt_PprUserLength unqual doc
 
-withVirtualPath :: GHCi a -> GHCi a
-withVirtualPath m = do
-  ghci_wd <- io getCurrentDirectory                -- Store the cwd of GHCi
-  st  <- getGHCiState
-  io$ setCurrentDirectory (virtual_path st)
-  result <- m                                  -- Evaluate in the virtual wd..
-  vwd <- io getCurrentDirectory
-  setGHCiState (st{ virtual_path = vwd})       -- Update the virtual path
-  io$ setCurrentDirectory ghci_wd                  -- ..and restore GHCi wd
-  return result
-
 runStmt :: String -> GHC.SingleStep -> GHCi GHC.RunResult
-runStmt expr step = withVirtualPath$ do
+runStmt expr step = do
   st <- getGHCiState
   reifyGHCi $ \x ->
     withProgName (progname st) $
@@ -262,9 +249,7 @@ runStmt expr step = withVirtualPath$ do
           GHC.runStmt expr step
 
 resume :: GHC.SingleStep -> GHCi GHC.RunResult
-resume step = withVirtualPath$ do
-  GHC.resume step
-
+resume step = GHC.resume step
 
 -- --------------------------------------------------------------------------
 -- timing & statistics
diff --git a/compiler/ghci/InteractiveUI.hs b/compiler/ghci/InteractiveUI.hs
index d62b3709d96b680b7e0164f55933bae5722e8705..70a602f16e27c61817c6304bd90c650835e9e8d2 100644
--- a/compiler/ghci/InteractiveUI.hs
+++ b/compiler/ghci/InteractiveUI.hs
@@ -340,8 +340,6 @@ interactiveUI srcs maybe_exprs = withTerminalReset $ do
 
    default_editor <- liftIO $ findEditor
 
-   cwd <- liftIO $ getCurrentDirectory
-
    startGHCi (runGHCi srcs maybe_exprs)
         GHCiState{ progname = "<interactive>",
                    args = [],
@@ -357,7 +355,6 @@ interactiveUI srcs maybe_exprs = withTerminalReset $ do
                    last_command = Nothing,
                    cmdqueue = [],
                    remembered_ctx = [],
-                   virtual_path   = cwd,
                    ghc_e = isJust maybe_exprs
                  }
 
diff --git a/compiler/main/HscTypes.lhs b/compiler/main/HscTypes.lhs
index a6ff043922c79359f53d79d6d8761f0202b9c02e..6b59a5915deed4bb786707579a18790f3ff898c8 100644
--- a/compiler/main/HscTypes.lhs
+++ b/compiler/main/HscTypes.lhs
@@ -1149,6 +1149,8 @@ data InteractiveContext
 #ifdef GHCI
         , ic_resume :: [Resume]         -- ^ The stack of breakpoint contexts
 #endif
+
+        , ic_cwd :: Maybe FilePath      -- virtual CWD of the program
     }
 
 
@@ -1162,6 +1164,7 @@ emptyInteractiveContext
 #ifdef GHCI
                          , ic_resume = []
 #endif
+                         , ic_cwd = Nothing
                        }
 
 icPrintUnqual :: DynFlags -> InteractiveContext -> PrintUnqualified
diff --git a/compiler/main/InteractiveEval.hs b/compiler/main/InteractiveEval.hs
index 510d87672463e7590314a75442880f3c6bd9c050..36e6f7c2c82fbdcab7b262133bec2fb0f55c7a22 100644
--- a/compiler/main/InteractiveEval.hs
+++ b/compiler/main/InteractiveEval.hs
@@ -71,6 +71,7 @@ import Outputable
 import FastString
 import MonadUtils
 
+import System.Directory
 import Data.Dynamic
 import Data.List (find)
 import Control.Monad
@@ -212,6 +213,7 @@ runStmt expr step =
         clearWarnings
 
         status <-
+          withVirtualCWD $
             withBreakAction (isStep step) dflags' breakMVar statusMVar $ do
                 let thing_to_run = unsafeCoerce# hval :: IO [HValue]
                 liftIO $ sandboxIO dflags' statusMVar thing_to_run
@@ -227,6 +229,28 @@ runStmt expr step =
               handleRunStatus expr bindings ids
                                breakMVar statusMVar status emptyHistory
 
+withVirtualCWD :: GhcMonad m => m a -> m a
+withVirtualCWD m = do
+  hsc_env <- getSession
+  let ic = hsc_IC hsc_env
+
+  let set_cwd = do
+        dir <- liftIO $ getCurrentDirectory
+        case ic_cwd ic of 
+           Just dir -> liftIO $ setCurrentDirectory dir
+           Nothing  -> return ()
+        return dir
+
+      reset_cwd orig_dir = do
+        virt_dir <- liftIO $ getCurrentDirectory
+        hsc_env <- getSession
+        let old_IC = hsc_IC hsc_env
+        setSession hsc_env{  hsc_IC = old_IC{ ic_cwd = Just virt_dir } }
+        liftIO $ setCurrentDirectory orig_dir
+
+  gbracket set_cwd reset_cwd $ \_ -> m
+
+
 emptyHistory :: BoundedList History
 emptyHistory = nilBL 50 -- keep a log of length 50
 
@@ -436,6 +460,7 @@ resume step
         case r of 
           Resume expr tid breakMVar statusMVar bindings 
               final_ids apStack info _ hist _ -> do
+               withVirtualCWD $ do
                 withBreakAction (isStep step) (hsc_dflags hsc_env) 
                                         breakMVar statusMVar $ do
                 status <- liftIO $ withInterruptsSentTo tid $ do