diff --git a/compiler.go b/compiler.go
index 348a072898..39fe926528 100644
--- a/compiler.go
+++ b/compiler.go
@@ -90,19 +90,6 @@ func (c *Compiler) getVariables(t *ast.Task, call *Call, evaluateShVars bool) (*
 	}
 	rangeFunc := getRangeFunc(c.Dir)
 
-	var taskRangeFunc func(k string, v ast.Var) error
-	if t != nil {
-		// NOTE(@andreynering): We're manually joining these paths here because
-		// this is the raw task, not the compiled one.
-		cache := &templater.Cache{Vars: result}
-		dir := templater.Replace(t.Dir, cache)
-		if err := cache.Err(); err != nil {
-			return nil, err
-		}
-		dir = filepathext.SmartJoin(c.Dir, dir)
-		taskRangeFunc = getRangeFunc(dir)
-	}
-
 	for k, v := range c.TaskfileEnv.All() {
 		if err := rangeFunc(k, v); err != nil {
 			return nil, err
@@ -113,31 +100,60 @@ func (c *Compiler) getVariables(t *ast.Task, call *Call, evaluateShVars bool) (*
 			return nil, err
 		}
 	}
+
 	if t != nil {
 		for k, v := range t.IncludeVars.All() {
 			if err := rangeFunc(k, v); err != nil {
 				return nil, err
 			}
 		}
+
+		if !evaluateShVars {
+			// Add includedTaskfile.Vars, and replace/overwrite taskfile.Vars,
+			// _before_ calculating the t.Dir using the templater. Because
+			// evaluateShVars is not set, the dir used when creating rangeFunc
+			// will not be used (sh vars are evaluated on subsequent calls).
+			for k, v := range t.IncludedTaskfileVars.All() {
+				if err := rangeFunc(k, v); err != nil {
+					return nil, err
+				}
+			}
+		}
+
+		// Calculate the t.Dir now based on values saved during AST parsing
+		// and then get a Task RangeFunc.
+		dir := c.Dir
+		if len(t.Dir) == 0 {
+			// Use the saved include task.Dir.
+			t.Dir = t.IncludeTaskDir
+		} else {
+			cache := &templater.Cache{Vars: result}
+			taskDir := templater.Replace(t.Dir, cache)
+			if err := cache.Err(); err != nil {
+				return nil, err
+			}
+			t.Dir = filepathext.SmartJoin(t.IncludeDir, taskDir)
+			// Update dir (esp. if taskDir is a relative path).
+			dir = filepathext.SmartJoin(c.Dir, taskDir)
+		}
+		taskRangeFunc := getRangeFunc(dir)
+
 		for k, v := range t.IncludedTaskfileVars.All() {
 			if err := taskRangeFunc(k, v); err != nil {
 				return nil, err
 			}
 		}
-	}
-
-	if t == nil || call == nil {
-		return result, nil
-	}
-
-	for k, v := range call.Vars.All() {
-		if err := rangeFunc(k, v); err != nil {
-			return nil, err
+		if call != nil {
+			for k, v := range call.Vars.All() {
+				if err := rangeFunc(k, v); err != nil {
+					return nil, err
+				}
+			}
 		}
-	}
-	for k, v := range t.Vars.All() {
-		if err := taskRangeFunc(k, v); err != nil {
-			return nil, err
+		for k, v := range t.Vars.All() {
+			if err := taskRangeFunc(k, v); err != nil {
+				return nil, err
+			}
 		}
 	}
 
diff --git a/task_test.go b/task_test.go
index cc8098fd32..39521df0c1 100644
--- a/task_test.go
+++ b/task_test.go
@@ -1310,6 +1310,23 @@ func TestIncludedTaskfileVarMerging(t *testing.T) {
 	}
 }
 
+func TestIncludedDirWithTemplate(t *testing.T) {
+	t.Parallel()
+
+	const dir = "testdata/included_dir_with_template"
+	var buff bytes.Buffer
+	e := task.NewExecutor(
+		task.WithDir(dir),
+		task.WithStdout(&buff),
+		task.WithStderr(&buff),
+		task.WithSilent(true),
+	)
+	require.NoError(t, e.Setup())
+	err := e.Run(t.Context(), &task.Call{Task: "default"})
+	require.NoError(t, err)
+	assert.Contains(t, buff.String(), "Build WORKING_DIR: /tmp")
+}
+
 func TestInternalTask(t *testing.T) {
 	t.Parallel()
 
diff --git a/taskfile/ast/task.go b/taskfile/ast/task.go
index 325b713eff..c92950e37c 100644
--- a/taskfile/ast/task.go
+++ b/taskfile/ast/task.go
@@ -44,6 +44,8 @@ type Task struct {
 	Location      *Location
 	// Populated during merging
 	Namespace            string `hash:"ignore"`
+	IncludeDir           string
+	IncludeTaskDir       string
 	IncludeVars          *Vars
 	IncludedTaskfileVars *Vars
 
diff --git a/taskfile/ast/tasks.go b/taskfile/ast/tasks.go
index 6cda20bfc9..738c9d7490 100644
--- a/taskfile/ast/tasks.go
+++ b/taskfile/ast/tasks.go
@@ -11,7 +11,6 @@ import (
 	"go.yaml.in/yaml/v4"
 
 	"github.com/go-task/task/v3/errors"
-	"github.com/go-task/task/v3/internal/filepathext"
 	"github.com/go-task/task/v3/internal/sort"
 )
 
@@ -171,7 +170,14 @@ func (t1 *Tasks) Merge(t2 *Tasks, include *Include, includedTaskfileVars *Vars)
 		}
 
 		if include.AdvancedImport {
-			task.Dir = filepathext.SmartJoin(include.Dir, task.Dir)
+			// Save the include.Dir and task.Dir so that the final task.dir can
+			// be calculated when the task is compiled (and templating is available).
+			task.IncludeDir = include.Dir
+			task.IncludeTaskDir = task.Dir
+			// If task.dir is not set then use the include.dir.
+			if len(task.Dir) == 0 {
+				task.Dir = include.Dir
+			}
 			if task.IncludeVars == nil {
 				task.IncludeVars = NewVars()
 			}
diff --git a/testdata/included_dir_with_template/taskfile.builder.yml b/testdata/included_dir_with_template/taskfile.builder.yml
new file mode 100644
index 0000000000..91c86e903f
--- /dev/null
+++ b/testdata/included_dir_with_template/taskfile.builder.yml
@@ -0,0 +1,8 @@
+version: '3'
+
+tasks:
+  build:
+    dir: '{{.WORKING_DIR}}'
+    cmds:
+      - |
+        echo "Build WORKING_DIR: $(pwd)"
\ No newline at end of file
diff --git a/testdata/included_dir_with_template/taskfile.yml b/testdata/included_dir_with_template/taskfile.yml
new file mode 100644
index 0000000000..13354ba2dc
--- /dev/null
+++ b/testdata/included_dir_with_template/taskfile.yml
@@ -0,0 +1,12 @@
+version: '3'
+
+vars:
+  WORKING_DIR: '/tmp'
+
+includes:
+  builder: ./taskfile.builder.yml 
+
+tasks:
+  default:
+    cmds:
+      - task: builder:build
\ No newline at end of file