diff --git a/lib/tests/windows_utils/BUILD.bazel b/lib/tests/windows_utils/BUILD.bazel
index 99c4e628e..502cf586a 100644
--- a/lib/tests/windows_utils/BUILD.bazel
+++ b/lib/tests/windows_utils/BUILD.bazel
@@ -1,10 +1,48 @@
+load(":directory_runfiles_test.bzl", "windows_directory_runfiles_test")
 load(":exact_manifest_match_test.bzl", "windows_exact_manifest_match_test")
 
+WINDOWS_ONLY = select({
+    "@platforms//os:windows": [],
+    "//conditions:default": ["@platforms//:incompatible"],
+})
+
 windows_exact_manifest_match_test(
     name = "exact_manifest_match_test",
     size = "small",
-    target_compatible_with = select({
-        "@platforms//os:windows": [],
-        "//conditions:default": ["@platforms//:incompatible"],
-    }),
+    target_compatible_with = WINDOWS_ONLY,
+)
+
+windows_directory_runfiles_test(
+    name = "explicit_manifest_test",
+    size = "small",
+    scenario = "explicit_manifest",
+    target_compatible_with = WINDOWS_ONLY,
+)
+
+windows_directory_runfiles_test(
+    name = "explicit_directory_test",
+    size = "small",
+    scenario = "explicit_directory",
+    target_compatible_with = WINDOWS_ONLY,
+)
+
+windows_directory_runfiles_test(
+    name = "adjacent_nested_manifest_test",
+    size = "small",
+    scenario = "adjacent_nested_manifest",
+    target_compatible_with = WINDOWS_ONLY,
+)
+
+windows_directory_runfiles_test(
+    name = "adjacent_sibling_manifest_test",
+    size = "small",
+    scenario = "adjacent_sibling_manifest",
+    target_compatible_with = WINDOWS_ONLY,
+)
+
+windows_directory_runfiles_test(
+    name = "adjacent_directory_test",
+    size = "small",
+    scenario = "adjacent_directory",
+    target_compatible_with = WINDOWS_ONLY,
 )
diff --git a/lib/tests/windows_utils/directory_runfiles_test.bzl b/lib/tests/windows_utils/directory_runfiles_test.bzl
new file mode 100644
index 000000000..3b92ac8ad
--- /dev/null
+++ b/lib/tests/windows_utils/directory_runfiles_test.bzl
@@ -0,0 +1,211 @@
+"Tests for Windows launcher runfiles lookup."
+
+load("//lib:paths.bzl", "BASH_RLOCATION_FUNCTION")
+load("//lib:windows_utils.bzl", "create_windows_native_launcher_script")
+load("//lib/private:paths.bzl", "paths")
+
+_SUCCESS_MARKER = "WINDOWS_LAUNCHER_RUNFILES_OK"
+_DOWNSTREAM_MARKER = "WINDOWS_LAUNCHER_DOWNSTREAM_RLOCATION_OK"
+
+_SCENARIOS = {
+    "explicit_manifest": r"""
+set "case_manifest=!test_root!\explicit.MANIFEST"
+set "case_runfiles_dir=!test_root!\explicit.runfiles"
+call :copy_runtime_runfiles "!case_runfiles_dir!"
+if errorlevel 1 exit /b 1
+> "!case_runfiles_dir!\{shell_script_windows}" echo echo WRONG_RUNFILES_SOURCE
+> "!case_runfiles_dir!\{downstream_windows}" echo WRONG_RUNFILES_SOURCE
+call :write_manifest "!case_manifest!"
+set "RUNFILES_MANIFEST_FILE=!case_manifest!"
+set "RUNFILES_DIR=!case_runfiles_dir!"
+set "RUNFILES_MANIFEST_ONLY="
+""",
+    "explicit_directory": r"""
+set "case_runfiles_dir=!test_root!\explicit.runfiles"
+call :copy_runtime_runfiles "!case_runfiles_dir!"
+if errorlevel 1 exit /b 1
+> "!case_launcher!.runfiles_manifest" echo {shell_script_rlocation} !test_root!\stale-sibling-payload.sh
+mkdir "!case_launcher!.runfiles"
+> "!case_launcher!.runfiles\MANIFEST" echo {shell_script_rlocation} !test_root!\stale-nested-payload.sh
+set "RUNFILES_MANIFEST_FILE=!test_root!\missing.MANIFEST"
+set "RUNFILES_DIR=!case_runfiles_dir!"
+set "RUNFILES_MANIFEST_ONLY=1"
+""",
+    "adjacent_nested_manifest": r"""
+mkdir "!case_launcher!.runfiles"
+call :write_manifest "!case_launcher!.runfiles\MANIFEST"
+> "!case_launcher!.runfiles_manifest" echo {shell_script_rlocation} !test_root!\stale-sibling-payload.sh
+set "RUNFILES_MANIFEST_FILE="
+set "RUNFILES_DIR="
+set "RUNFILES_MANIFEST_ONLY="
+""",
+    "adjacent_sibling_manifest": r"""
+call :write_manifest "!case_launcher!.runfiles_manifest"
+set "RUNFILES_MANIFEST_FILE="
+set "RUNFILES_DIR="
+set "RUNFILES_MANIFEST_ONLY="
+""",
+    "adjacent_directory": r"""
+set "case_runfiles_dir=!case_launcher!.runfiles"
+call :copy_runtime_runfiles "!case_runfiles_dir!"
+if errorlevel 1 exit /b 1
+set "RUNFILES_MANIFEST_FILE="
+set "RUNFILES_DIR="
+set "RUNFILES_MANIFEST_ONLY=1"
+""",
+}
+
+def _windows_directory_runfiles_test_impl(ctx):
+    downstream = ctx.actions.declare_file(ctx.label.name + "_downstream.txt")
+    ctx.actions.write(
+        output = downstream,
+        content = _DOWNSTREAM_MARKER + "\n",
+    )
+
+    shell_script = ctx.actions.declare_file(ctx.label.name + "_payload.sh")
+    ctx.actions.write(
+        output = shell_script,
+        content = "\n".join([
+            "#!/usr/bin/env bash",
+            BASH_RLOCATION_FUNCTION,
+            'downstream="$(rlocation "{}")"'.format(paths.to_rlocation_path(ctx, downstream)),
+            'grep -Fqx "{}" "$downstream"'.format(_DOWNSTREAM_MARKER),
+            "echo {}".format(_SUCCESS_MARKER),
+            "",
+        ]),
+        is_executable = True,
+    )
+    launcher = create_windows_native_launcher_script(ctx, shell_script)
+
+    launcher_rlocation = paths.to_rlocation_path(ctx, launcher)
+    downstream_rlocation = paths.to_rlocation_path(ctx, downstream)
+    runfiles_bash_rlocation = paths.to_rlocation_path(ctx, ctx.file._runfiles_bash)
+    shell_script_rlocation = paths.to_rlocation_path(ctx, shell_script)
+    substitutions = {
+        "downstream_rlocation": downstream_rlocation,
+        "downstream_windows": downstream_rlocation.replace("/", "\\"),
+        "launcher_rlocation": launcher_rlocation,
+        "runfiles_bash_rlocation": runfiles_bash_rlocation,
+        "runfiles_bash_windows": runfiles_bash_rlocation.replace("/", "\\"),
+        "shell_script_rlocation": shell_script_rlocation,
+        "shell_script_windows": shell_script_rlocation.replace("/", "\\"),
+        "success_marker": _SUCCESS_MARKER,
+    }
+    scenario_setup = _SCENARIOS[ctx.attr.scenario].format(**substitutions)
+
+    test = ctx.actions.declare_file(ctx.label.name + ".bat")
+    ctx.actions.write(
+        output = test,
+        content = "\r\n".join(r"""@echo off
+SETLOCAL ENABLEEXTENSIONS
+SETLOCAL ENABLEDELAYEDEXPANSION
+goto :test_main
+
+:resolve_test_runfile
+set "logical_path=%~1"
+set "resolved_path="
+if defined RUNFILES_MANIFEST_FILE if exist "!RUNFILES_MANIFEST_FILE!" (
+  set "test_manifest=!RUNFILES_MANIFEST_FILE:/=\!"
+  for /F "tokens=1,* usebackq" %%i in (`%SYSTEMROOT%\system32\findstr.exe /l /c:"!logical_path! " "!test_manifest!"`) do (
+    set "resolved_path=%%j"
+  )
+)
+if not defined resolved_path if defined RUNFILES_DIR if exist "!RUNFILES_DIR!\!logical_path:/=\!" (
+  set "resolved_path=!RUNFILES_DIR!\!logical_path:/=\!"
+)
+if not defined resolved_path (
+  echo>&2 ERROR: Test setup could not resolve !logical_path!
+  exit /b 1
+)
+set "resolved_path=!resolved_path:/=\!"
+set "%~2=!resolved_path!"
+exit /b 0
+
+:copy_runfile
+set "runfile_source=%~1"
+set "runfile_destination=%~2"
+for %%i in ("!runfile_destination!") do if not exist "%%~dpi" mkdir "%%~dpi"
+copy /y "!runfile_source!" "!runfile_destination!" >NUL
+if errorlevel 1 (
+  echo>&2 ERROR: Could not copy !runfile_source! to !runfile_destination!
+  exit /b 1
+)
+exit /b 0
+
+:copy_runtime_runfiles
+set "runtime_runfiles_dir=%~1"
+call :copy_runfile "!payload!" "!runtime_runfiles_dir!\{shell_script_windows}"
+if errorlevel 1 exit /b 1
+call :copy_runfile "!downstream!" "!runtime_runfiles_dir!\{downstream_windows}"
+if errorlevel 1 exit /b 1
+call :copy_runfile "!runfiles_bash!" "!runtime_runfiles_dir!\{runfiles_bash_windows}"
+exit /b !ERRORLEVEL!
+
+:write_manifest
+set "manifest_destination=%~1"
+> "!manifest_destination!" echo {shell_script_rlocation} !payload!
+>> "!manifest_destination!" echo {downstream_rlocation} !downstream!
+>> "!manifest_destination!" echo {runfiles_bash_rlocation} !runfiles_bash!
+exit /b 0
+
+:test_main
+call :resolve_test_runfile "{launcher_rlocation}" launcher
+if errorlevel 1 exit /b 1
+call :resolve_test_runfile "{shell_script_rlocation}" payload
+if errorlevel 1 exit /b 1
+call :resolve_test_runfile "{downstream_rlocation}" downstream
+if errorlevel 1 exit /b 1
+call :resolve_test_runfile "{runfiles_bash_rlocation}" runfiles_bash
+if errorlevel 1 exit /b 1
+
+set "test_root=%TEST_TMPDIR:/=\%\windows-launcher-{scenario}"
+if exist "!test_root!" rmdir /s /q "!test_root!"
+mkdir "!test_root!"
+set "case_launcher=!test_root!\launcher.bat"
+copy /y "!launcher!" "!case_launcher!" >NUL
+if errorlevel 1 exit /b 1
+
+{scenario_setup}
+
+set "case_output=%TEST_TMPDIR:/=\%\{scenario}-output.txt"
+call "!case_launcher!" > "!case_output!" 2>&1
+if errorlevel 1 (
+  echo>&2 ERROR: Launcher failed for {scenario}
+  type "!case_output!" 1>&2
+  exit /b 1
+)
+%SYSTEMROOT%\system32\findstr.exe /c:"{success_marker}" "!case_output!" >NUL
+if errorlevel 1 (
+  echo>&2 ERROR: Launcher did not execute the runfile for {scenario}
+  type "!case_output!" 1>&2
+  exit /b 1
+)
+exit /b 0
+""".format(
+            scenario = ctx.attr.scenario,
+            scenario_setup = scenario_setup,
+            **substitutions
+        ).splitlines()),
+        is_executable = True,
+    )
+
+    return [DefaultInfo(
+        executable = test,
+        runfiles = ctx.runfiles(files = [ctx.file._runfiles_bash, downstream, launcher, shell_script]),
+    )]
+
+windows_directory_runfiles_test = rule(
+    attrs = {
+        "scenario": attr.string(
+            mandatory = True,
+            values = _SCENARIOS.keys(),
+        ),
+        "_runfiles_bash": attr.label(
+            allow_single_file = True,
+            default = Label("@bazel_tools//tools/bash/runfiles:runfiles"),
+        ),
+    },
+    implementation = _windows_directory_runfiles_test_impl,
+    test = True,
+    toolchains = ["@bazel_tools//tools/sh:toolchain_type"],
+)
diff --git a/lib/windows_utils.bzl b/lib/windows_utils.bzl
index 64683b27d..c53ad0f2c 100644
--- a/lib/windows_utils.bzl
+++ b/lib/windows_utils.bzl
@@ -26,8 +26,8 @@ rem Usage of rlocation function:
 rem        call :rlocation <runfile_path> <abs_path>
 rem        The rlocation function maps the given <runfile_path> to its absolute
 rem        path and stores the result in a variable named <abs_path>.
-rem        This function fails if the <runfile_path> doesn't exist in mainifest
-rem        file.
+rem        This function fails if the <runfile_path> cannot be found in either
+rem        the runfiles manifest or directory.
 :: Start of rlocation
 goto :rlocation_end
 :rlocation
@@ -35,34 +35,54 @@ if "%~2" equ "" (
   echo>&2 ERROR: Expected two arguments for rlocation function.
   exit 1
 )
-if "%RUNFILES_MANIFEST_ONLY%" neq "1" (
-  set %~2=%~1
-  exit /b 0
+set "MF="
+set "RF="
+if defined RUNFILES_MANIFEST_FILE if exist "!RUNFILES_MANIFEST_FILE!" (
+  set "MF=!RUNFILES_MANIFEST_FILE:/=\!"
 )
-if exist "%RUNFILES_DIR%" (
-  set RUNFILES_MANIFEST_FILE=%RUNFILES_DIR%_manifest
+if not defined MF if defined RUNFILES_DIR if exist "!RUNFILES_DIR!\" (
+  set "RF=!RUNFILES_DIR:/=\!"
 )
-if "%RUNFILES_MANIFEST_FILE%" equ "" (
-  set RUNFILES_MANIFEST_FILE=%~f0.runfiles\MANIFEST
+if not defined MF if not defined RF if exist "%~f0.runfiles\MANIFEST" (
+  set "MF=%~f0.runfiles\MANIFEST"
 )
-if not exist "%RUNFILES_MANIFEST_FILE%" (
-  set RUNFILES_MANIFEST_FILE=%~f0.runfiles_manifest
+if not defined MF if not defined RF if exist "%~f0.runfiles_manifest" (
+  set "MF=%~f0.runfiles_manifest"
 )
-set MF=%RUNFILES_MANIFEST_FILE:/=\%
-if not exist "%MF%" (
-  echo>&2 ERROR: Manifest file %MF% does not exist.
-  exit 1
+if not defined MF if not defined RF if exist "%~f0.runfiles\" (
+  set "RF=%~f0.runfiles"
 )
-set runfile_path=%~1
-for /F "tokens=2* usebackq" %%i in (`%SYSTEMROOT%\system32\findstr.exe /b /l /c:"!runfile_path! " "%MF%"`) do (
-  set abs_path=%%i
+if defined MF (
+  set "RUNFILES_DIR="
+  set "RUNFILES_MANIFEST_FILE=!MF:\=/!"
+  set "RUNFILES_MANIFEST_ONLY=1"
+  set "runfile_path=%~1"
+  set "abs_path="
+  for /F "tokens=2* usebackq" %%i in (`%SYSTEMROOT%\system32\findstr.exe /b /l /c:"!runfile_path! " "!MF!"`) do (
+    set "abs_path=%%i"
+  )
+  if "!abs_path!" equ "" (
+    echo>&2 ERROR: !runfile_path! not found in runfiles manifest
+    exit 1
+  )
+  set "%~2=!abs_path!"
+  exit /b 0
 )
-if "!abs_path!" equ "" (
-  echo>&2 ERROR: !runfile_path! not found in runfiles manifest
-  exit 1
+if defined RF (
+  set "RUNFILES_MANIFEST_FILE="
+  set "RUNFILES_DIR=!RF:\=/!"
+  set "RUNFILES_MANIFEST_ONLY="
+  set "runfile_path=%~1"
+  set "abs_path=!RF!\!runfile_path:/=\!"
+  if not exist "!abs_path!" (
+    echo>&2 ERROR: !runfile_path! not found under runfiles directory !RF!
+    exit 1
+  )
+  set "%~2=!abs_path!"
+  exit /b 0
 )
-set %~2=!abs_path!
-exit /b 0
+echo>&2 ERROR: Cannot find a runfiles manifest or directory.
+exit 1
 :rlocation_end
 :: End of rlocation
 """
@@ -88,9 +108,9 @@ def create_windows_native_launcher_script(ctx, shell_script):
         content = "\r\n".join(r"""@echo off
 SETLOCAL ENABLEEXTENSIONS
 SETLOCAL ENABLEDELAYEDEXPANSION
-set RUNFILES_MANIFEST_ONLY=1
 {rlocation_function}
 call :rlocation "{sh_script}" run_script
+set "run_script=!run_script:\=/!"
 for %%a in ("{bash_bin}") do set "bash_bin_dir=%%~dpa"
 set PATH=%bash_bin_dir%;%PATH%
 set args=%*