diff --git a/llvm/utils/lit/lit/TestRunner.py b/llvm/utils/lit/lit/TestRunner.py
index b4d7c98692337..f8e1c58d7671f 100644
--- a/llvm/utils/lit/lit/TestRunner.py
+++ b/llvm/utils/lit/lit/TestRunner.py
@@ -2417,6 +2417,22 @@ def runOnce(
     )
 
 
+def _expandLateSubstitutionsExternal(commandLine):
+    filePaths = []
+
+    def _replaceReadFile(match):
+        filePath = match.group(1)
+        filePaths.append(filePath)
+        return "$(cat %s)" % shlex.quote(filePath)
+
+    commandLine = re.sub(r"%{readfile:([^}]*)}", _replaceReadFile, commandLine)
+    # Add test commands before the command to check if the file exists as
+    # cat inside a subshell will never return a non-zero exit code outside
+    # of the subshell.
+    for filePath in filePaths:
+        commandLine = "%s && test -e %s" % (commandLine, filePath)
+    return commandLine
+
 def executeShTest(
     test, litConfig, useExternalSh, extra_substitutions=[], preamble_commands=[]
 ):
@@ -2447,4 +2463,8 @@ def executeShTest(
         recursion_limit=test.config.recursiveExpansionLimit,
     )
 
+    if useExternalSh:
+        for index, command in enumerate(script):
+            script[index] = _expandLateSubstitutionsExternal(command)
+
     return _runShTest(test, litConfig, useExternalSh, script, tmpBase)
diff --git a/llvm/utils/lit/tests/Inputs/shtest-readfile/lit.cfg b/llvm/utils/lit/tests/Inputs/shtest-readfile/lit.cfg
index cf453e1ea786f..ee496674fdb62 100644
--- a/llvm/utils/lit/tests/Inputs/shtest-readfile/lit.cfg
+++ b/llvm/utils/lit/tests/Inputs/shtest-readfile/lit.cfg
@@ -1,7 +1,19 @@
+import os
+
 import lit.formats
+import lit.util
 
 config.name = "shtest-readfile"
 config.suffixes = [".txt"]
-config.test_format = lit.formats.ShTest(execute_external=False)
+lit_shell_env = os.environ.get("LIT_USE_INTERNAL_SHELL")
+use_lit_shell = lit.util.pythonize_bool(lit_shell_env)
+config.test_format = lit.formats.ShTest(execute_external=not use_lit_shell)
 config.test_source_root = None
 config.test_exec_root = None
+
+# If we are testing with the external shell, remove the fake-externals from
+# PATH so that we use mkdir in the tests.
+if not use_lit_shell:
+    path_parts = config.environment["PATH"].split(os.path.pathsep)
+    path_parts = [path_part for path_part in path_parts if "fake-externals" not in path_part]
+    config.environment["PATH"] = os.path.pathsep.join(path_parts)
diff --git a/llvm/utils/lit/tests/shtest-readfile-external.py b/llvm/utils/lit/tests/shtest-readfile-external.py
new file mode 100644
index 0000000000000..99b0160d933fe
--- /dev/null
+++ b/llvm/utils/lit/tests/shtest-readfile-external.py
@@ -0,0 +1,22 @@
+## Tests the readfile substitution.
+
+# UNSUPPORTED: system-windows
+# RUN: env LIT_USE_INTERNAL_SHELL=0 not %{lit} -a -v %{inputs}/shtest-readfile | FileCheck -match-full-lines -DTEMP_PATH=%S/Inputs/shtest-readfile/Output %s
+
+# CHECK: -- Testing: 4 tests{{.*}}
+
+# CHECK-LABEL: FAIL: shtest-readfile :: absolute-paths.txt ({{[^)]*}})
+# CHECK: echo $(cat [[TEMP_PATH]]/absolute-paths.txt.tmp) && test -e [[TEMP_PATH]]/absolute-paths.txt.tmp {{.*}}
+# CHECK: + echo hello
+
+# CHECK-LABEL: FAIL: shtest-readfile :: file-does-not-exist.txt ({{[^)]*}})
+# CHECK: echo $(cat /file/does/not/exist) && test -e /file/does/not/exist {{.*}}
+# CHECK: cat: /file/does/not/exist: No such file or directory
+
+# CHECK-LABEL: FAIL: shtest-readfile :: relative-paths.txt ({{[^)]*}})
+# CHECK: echo $(cat rel_path_test_folder/test_file) && test -e rel_path_test_folder/test_file {{.*}}
+# CHECK: + echo hello
+
+# CHECK-LABEL: FAIL: shtest-readfile :: two-same-line.txt ({{[^)]*}})
+# CHECK: echo $(cat [[TEMP_PATH]]/two-same-line.txt.tmp.1) $(cat [[TEMP_PATH]]/two-same-line.txt.tmp.2) && test -e [[TEMP_PATH]]/two-same-line.txt.tmp.1 && test -e [[TEMP_PATH]]/two-same-line.txt.tmp.2 {{.*}}
+# CHECK: + echo hello bye
diff --git a/llvm/utils/lit/tests/shtest-readfile.py b/llvm/utils/lit/tests/shtest-readfile.py
index 91250b2afb3f2..a122dd7664272 100644
--- a/llvm/utils/lit/tests/shtest-readfile.py
+++ b/llvm/utils/lit/tests/shtest-readfile.py
@@ -1,6 +1,6 @@
 ## Tests the readfile substitution.
 
-# RUN: not %{lit} -a -v %{inputs}/shtest-readfile | FileCheck -match-full-lines -DTEMP_PATH=%S%{fs-sep}Inputs%{fs-sep}shtest-readfile%{fs-sep}Output %s
+# RUN: env LIT_USE_INTERNAL_SHELL=1  not %{lit} -a -v %{inputs}/shtest-readfile | FileCheck -match-full-lines -DTEMP_PATH=%S%{fs-sep}Inputs%{fs-sep}shtest-readfile%{fs-sep}Output %s
 
 # CHECK: -- Testing: 4 tests{{.*}}