diff --git a/test/xUnit/csharp/test_InitialSessionState.cs b/test/xUnit/csharp/test_InitialSessionState.cs
new file mode 100644
index 00000000000..4abfdd90f0f
--- /dev/null
+++ b/test/xUnit/csharp/test_InitialSessionState.cs
@@ -0,0 +1,77 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+using System;
+using System.IO;
+using System.Linq;
+using System.Management.Automation;
+using System.Management.Automation.Runspaces;
+using Xunit;
+using DriveNotFoundException = System.Management.Automation.DriveNotFoundException;
+
+namespace PSTests.Parallel;
+
+public class InitialSessionStateTests
+{
+    [Fact]
+    public void TestDefaultLocation()
+    {
+        var iss = InitialSessionState.CreateDefault2();
+
+        var wd = GetIssLocation(iss);
+        Assert.Equal(Environment.CurrentDirectory, wd.Path);
+    }
+
+    [Fact]
+    public void TestCustomFileSystemLocation()
+    {
+        // any path different from the process working directory would work here
+        var location = Path.GetTempPath().TrimEnd(Path.DirectorySeparatorChar);
+
+        // sanity check to ensure the test is not running from the tmp dir
+        Assert.NotEqual(location, Environment.CurrentDirectory);
+
+        var iss = InitialSessionState.CreateDefault2();
+        iss.Location = location;
+
+        var wd = GetIssLocation(iss);
+        Assert.Equal(location, wd.Path);
+    }
+
+    [Fact]
+    public void TestCustomEnvLocation()
+    {
+        var iss = InitialSessionState.CreateDefault2();
+        iss.Location = "Env:\\";
+
+        var wd = GetIssLocation(iss);
+        Assert.Equal("Env:\\", wd.Path);
+    }
+
+    [Fact]
+    public void TestInvalidCustomLocationDrive()
+    {
+        var iss = InitialSessionState.CreateDefault2();
+        iss.Location = "NonExistentDrive:\\";
+
+        Assert.Throws<DriveNotFoundException>(() => { GetIssLocation(iss); });
+    }
+
+    [Fact]
+    public void TestInvalidCustomLocationPath()
+    {
+        var iss = InitialSessionState.CreateDefault2();
+        iss.Location = Path.GetTempPath() + Path.DirectorySeparatorChar + "a nonexistent test directory";
+
+        Assert.Throws<ItemNotFoundException>(() => { GetIssLocation(iss); });
+    }
+
+    private static PathInfo GetIssLocation(InitialSessionState iss)
+    {
+        using var runspace = RunspaceFactory.CreateRunspace(iss);
+        runspace.Open();
+
+        using var ps = PowerShell.Create(runspace);
+        return ps.AddCommand("pwd").Invoke<PathInfo>().Single();
+    }
+}