diff --git a/crates/paths/src/paths.rs b/crates/paths/src/paths.rs
index 2f3b188980..47a0f12c06 100644
--- a/crates/paths/src/paths.rs
+++ b/crates/paths/src/paths.rs
@@ -35,6 +35,7 @@ pub fn remote_server_dir_relative() -> &'static Path {
 
 /// Sets a custom directory for all user data, overriding the default data directory.
 /// This function must be called before any other path operations that depend on the data directory.
+/// The directory's path will be canonicalized to an absolute path by a blocking FS operation.
 /// The directory will be created if it doesn't exist.
 ///
 /// # Arguments
@@ -50,13 +51,20 @@ pub fn remote_server_dir_relative() -> &'static Path {
 ///
 /// Panics if:
 /// * Called after the data directory has been initialized (e.g., via `data_dir` or `config_dir`)
+/// * The directory's path cannot be canonicalized to an absolute path
 /// * The directory cannot be created
 pub fn set_custom_data_dir(dir: &str) -> &'static PathBuf {
     if CURRENT_DATA_DIR.get().is_some() || CONFIG_DIR.get().is_some() {
         panic!("set_custom_data_dir called after data_dir or config_dir was initialized");
     }
     CUSTOM_DATA_DIR.get_or_init(|| {
-        let path = PathBuf::from(dir);
+        let mut path = PathBuf::from(dir);
+        if path.is_relative() {
+            let abs_path = path
+                .canonicalize()
+                .expect("failed to canonicalize custom data directory's path to an absolute path");
+            path = PathBuf::from(util::paths::SanitizedPath::from(abs_path))
+        }
         std::fs::create_dir_all(&path).expect("failed to create custom data directory");
         path
     })