diff --git a/internal/filepathext/filepathext.go b/internal/filepathext/filepathext.go
index f2a1ba15a0..947d52b927 100644
--- a/internal/filepathext/filepathext.go
+++ b/internal/filepathext/filepathext.go
@@ -32,12 +32,22 @@ var knownAbsDirs = []string{
 }
 
 func isSpecialDir(dir string) bool {
-	for _, d := range knownAbsDirs {
-		if strings.Contains(dir, d) {
-			return true
+	for {
+		_, action, ok := strings.Cut(dir, "{{")
+		if !ok {
+			return false
+		}
+		action, dir, ok = strings.Cut(action, "}}")
+		if !ok {
+			return false
+		}
+		// Only inspect template actions, not literal path components.
+		for _, d := range knownAbsDirs {
+			if strings.Contains(action, d) {
+				return true
+			}
 		}
 	}
-	return false
 }
 
 // TryAbsToRel tries to convert an absolute path to relative based on the
diff --git a/internal/filepathext/filepathext_test.go b/internal/filepathext/filepathext_test.go
new file mode 100644
index 0000000000..9de492fb14
--- /dev/null
+++ b/internal/filepathext/filepathext_test.go
@@ -0,0 +1,45 @@
+package filepathext
+
+import (
+	"path/filepath"
+	"testing"
+
+	"github.com/stretchr/testify/require"
+)
+
+func TestSmartJoinRelativePathContainingSpecialVariableName(t *testing.T) {
+	t.Parallel()
+
+	base := t.TempDir()
+	for _, variable := range []string{".ROOT_DIR", ".TASKFILE_DIR", ".USER_WORKING_DIR"} {
+		t.Run(variable, func(t *testing.T) {
+			t.Parallel()
+			for _, relative := range []string{
+				filepath.Join("project"+variable, "file.txt"),
+				filepath.Join(variable, "file.txt"),
+				filepath.Join("{{.PROJECT}}"+variable, "file.txt"),
+			} {
+				require.False(t, IsAbs(relative), relative)
+				require.Equal(t, filepath.Join(base, relative), SmartJoin(base, relative))
+			}
+		})
+	}
+}
+
+func TestSmartJoinAbsoluteAndTemplatePaths(t *testing.T) {
+	t.Parallel()
+
+	base := t.TempDir()
+	absolute := filepath.Join(t.TempDir(), "file.txt")
+	for _, path := range []string{
+		absolute,
+		"{{.ROOT_DIR}}/file.txt",
+		"{{ .TASKFILE_DIR }}/file.txt",
+		"{{- .USER_WORKING_DIR -}}/file.txt",
+		"{{.ROOT_DIR | toSlash}}/file.txt",
+		"{{.PROJECT}}/{{.ROOT_DIR}}/file.txt",
+	} {
+		require.True(t, IsAbs(path), path)
+		require.Equal(t, path, SmartJoin(base, path))
+	}
+}
diff --git a/taskfile/node_file_test.go b/taskfile/node_file_test.go
new file mode 100644
index 0000000000..8f8552d550
--- /dev/null
+++ b/taskfile/node_file_test.go
@@ -0,0 +1,33 @@
+package taskfile
+
+import (
+	"os"
+	"path/filepath"
+	"testing"
+
+	"github.com/stretchr/testify/require"
+)
+
+func TestFileNodeResolveLiteralSpecialDir(t *testing.T) {
+	t.Parallel()
+
+	dir := t.TempDir()
+	entrypoint := filepath.Join(dir, "Taskfile.yml")
+	require.NoError(t, os.WriteFile(entrypoint, []byte("version: '3'\n"), 0o600))
+	node, err := NewFileNode(entrypoint, "")
+	require.NoError(t, err)
+
+	for _, name := range []string{"project.ROOT_DIR", "project.TASKFILE_DIR", "project.USER_WORKING_DIR"} {
+		t.Run(name, func(t *testing.T) {
+			t.Parallel()
+
+			resolvedDir, err := node.ResolveDir(name)
+			require.NoError(t, err)
+			require.Equal(t, filepath.Join(dir, name), resolvedDir)
+
+			resolvedEntrypoint, err := node.ResolveEntrypoint(filepath.Join(name, "Taskfile.yml"))
+			require.NoError(t, err)
+			require.Equal(t, filepath.Join(dir, name, "Taskfile.yml"), resolvedEntrypoint)
+		})
+	}
+}