diff --git a/dir.c b/dir.c
index 26c4d141ab..e45e117875 100644
--- a/dir.c
+++ b/dir.c
@@ -1893,9 +1893,28 @@ static enum path_treatment treat_directory(struct dir_struct *dir,
 
 	if ((dir->flags & DIR_SKIP_NESTED_GIT) ||
 		!(dir->flags & DIR_NO_GITLINKS)) {
+		/*
+		 * Determine if `dirname` is a nested repo by confirming that:
+		 * 1) we are in a nonbare repository, and
+		 * 2) `dirname` is not an immediate parent of `the_repository->gitdir`,
+		 *    which could occur if the git_dir or worktree location was
+		 *    manually configured by the user; see t2205 testcases 1-3 for
+		 *    examples where this matters
+		 */
 		struct strbuf sb = STRBUF_INIT;
 		strbuf_addstr(&sb, dirname);
 		nested_repo = is_nonbare_repository_dir(&sb);
+
+		if (nested_repo) {
+			char *real_dirname, *real_gitdir;
+			strbuf_addstr(&sb, ".git");
+			real_dirname = real_pathdup(sb.buf, 1);
+			real_gitdir = real_pathdup(the_repository->gitdir, 1);
+
+			nested_repo = !!strcmp(real_dirname, real_gitdir);
+			free(real_gitdir);
+			free(real_dirname);
+		}
 		strbuf_release(&sb);
 	}
 	if (nested_repo) {
diff --git a/t/t2205-add-worktree-config.sh b/t/t2205-add-worktree-config.sh
new file mode 100755
index 0000000000..056894eb94
--- /dev/null
+++ b/t/t2205-add-worktree-config.sh
@@ -0,0 +1,274 @@
+#!/bin/sh
+
+test_description='directory traversal respects user config
+
+This test verifies the traversal of the directory tree when the traversal begins
+outside the repository.  Two instances for which this can occur are tested:
+
+	1) The user manually sets the worktree.  For this instance, the test sets
+	   the worktree two levels above the `.git` directory and checks whether we
+	   are able to add to the index those files that are in either (1) the
+	   manually configured worktree directory or (2) the standard worktree
+	   location with respect to the `.git` directory (i.e. ensuring that the
+	   encountered `.git` directory is not treated as belonging to a foreign
+	   nested repository).
+	2) The user manually sets the `git_dir` while the working directory is
+	   outside the repository.  The test checks that files inside the
+	   repository can be added to the index.
+	'
+
+. ./test-lib.sh
+
+test_expect_success '1a: setup--config worktree' '
+	mkdir test1 &&
+	(
+	cd test1 &&
+	test_create_repo repo &&
+	git --git-dir="repo/.git" config core.worktree "$(pwd)" &&
+
+	mkdir -p outside-tracked outside-untracked &&
+	mkdir -p repo/inside-tracked repo/inside-untracked &&
+	>file-tracked &&
+	>file-untracked &&
+	>outside-tracked/file &&
+	>outside-untracked/file &&
+	>repo/file-tracked &&
+	>repo/file-untracked &&
+	>repo/inside-tracked/file &&
+	>repo/inside-untracked/file &&
+
+	cat >expect-tracked-unsorted <<-EOF &&
+	../file-tracked
+	../outside-tracked/file
+	file-tracked
+	inside-tracked/file
+	EOF
+
+	cat >expect-untracked-unsorted <<-EOF &&
+	../file-untracked
+	../outside-untracked/file
+	file-untracked
+	inside-untracked/file
+	EOF
+
+	cat >expect-all-dir-unsorted <<-EOF &&
+	../file-untracked
+	../file-tracked
+	../outside-untracked/
+	../outside-tracked/
+	./
+	EOF
+
+	cat expect-tracked-unsorted expect-untracked-unsorted >expect-all-unsorted &&
+
+	cat >.gitignore <<-EOF
+	.gitignore
+	actual-*
+	expect-*
+	EOF
+	)
+'
+
+test_expect_success '1b: pre-add all' '
+	(
+	cd test1 &&
+	local parent_dir="$(pwd)" &&
+	(
+		cd repo &&
+		git ls-files -o --exclude-standard "$parent_dir" >../actual-all-unsorted
+	) &&
+	sort actual-all-unsorted >actual-all &&
+	sort expect-all-unsorted >expect-all &&
+	test_cmp expect-all actual-all
+	)
+'
+
+test_expect_success '1c: pre-add dir all' '
+	(
+	cd test1 &&
+	local parent_dir="$(pwd)" &&
+	(
+		cd repo &&
+		git ls-files -o --directory --exclude-standard "$parent_dir" >../actual-all-dir-unsorted
+	) &&
+	sort actual-all-dir-unsorted >actual-all &&
+	sort expect-all-dir-unsorted >expect-all &&
+	test_cmp expect-all actual-all
+	)
+'
+
+test_expect_success '1d: post-add tracked' '
+	(
+	cd test1 &&
+	local parent_dir="$(pwd)" &&
+	(
+		cd repo &&
+		git add file-tracked &&
+		git add inside-tracked &&
+		git add ../outside-tracked &&
+		git add "$parent_dir/file-tracked" &&
+		git ls-files "$parent_dir" >../actual-tracked-unsorted
+	) &&
+	sort actual-tracked-unsorted >actual-tracked &&
+	sort expect-tracked-unsorted >expect-tracked &&
+	test_cmp expect-tracked actual-tracked
+	)
+'
+
+test_expect_success '1e: post-add untracked' '
+	(
+	cd test1 &&
+	local parent_dir="$(pwd)" &&
+	(
+		cd repo &&
+		git ls-files -o --exclude-standard "$parent_dir" >../actual-untracked-unsorted
+	) &&
+	sort actual-untracked-unsorted >actual-untracked &&
+	sort expect-untracked-unsorted >expect-untracked &&
+	test_cmp expect-untracked actual-untracked
+	)
+'
+
+test_expect_success '2a: setup--set git-dir' '
+	mkdir test2 &&
+	(
+	cd test2 &&
+	test_create_repo repo &&
+	# create two foreign repositories that should remain untracked
+	test_create_repo repo-outside &&
+	test_create_repo repo/repo-inside &&
+
+	mkdir -p repo/inside-tracked repo/inside-untracked &&
+	>repo/file-tracked &&
+	>repo/file-untracked &&
+	>repo/inside-tracked/file &&
+	>repo/inside-untracked/file &&
+	>repo-outside/file &&
+	>repo/repo-inside/file &&
+
+	cat >expect-tracked-unsorted <<-EOF &&
+	repo/file-tracked
+	repo/inside-tracked/file
+	EOF
+
+	cat >expect-untracked-unsorted <<-EOF &&
+	repo/file-untracked
+	repo/inside-untracked/file
+	repo/repo-inside/
+	repo-outside/
+	EOF
+
+	cat >expect-all-dir-unsorted <<-EOF &&
+	repo/
+	repo-outside/
+	EOF
+
+	cat expect-tracked-unsorted expect-untracked-unsorted >expect-all-unsorted &&
+
+	cat >.gitignore <<-EOF
+	.gitignore
+	actual-*
+	expect-*
+	EOF
+	)
+'
+
+test_expect_success '2b: pre-add all' '
+	(
+	cd test2 &&
+	git --git-dir=repo/.git ls-files -o --exclude-standard >actual-all-unsorted &&
+	sort actual-all-unsorted >actual-all &&
+	sort expect-all-unsorted >expect-all &&
+	test_cmp expect-all actual-all
+	)
+'
+
+test_expect_success '2c: pre-add dir all' '
+	(
+	cd test2 &&
+	git --git-dir=repo/.git ls-files -o --directory --exclude-standard >actual-all-dir-unsorted &&
+	sort actual-all-dir-unsorted >actual-all &&
+	sort expect-all-dir-unsorted >expect-all &&
+	test_cmp expect-all actual-all
+	)
+'
+
+test_expect_success '2d: post-add tracked' '
+	(
+	cd test2 &&
+	git --git-dir=repo/.git add repo/file-tracked &&
+	git --git-dir=repo/.git add repo/inside-tracked &&
+	git --git-dir=repo/.git ls-files >actual-tracked-unsorted &&
+	sort actual-tracked-unsorted >actual-tracked &&
+	sort expect-tracked-unsorted >expect-tracked &&
+	test_cmp expect-tracked actual-tracked
+	)
+'
+
+test_expect_success '2e: post-add untracked' '
+	(
+	cd test2 &&
+	git --git-dir=repo/.git ls-files -o --exclude-standard >actual-untracked-unsorted &&
+	sort actual-untracked-unsorted >actual-untracked &&
+	sort expect-untracked-unsorted >expect-untracked &&
+	test_cmp expect-untracked actual-untracked
+	)
+'
+
+test_expect_success '3a: setup--add repo dir' '
+	mkdir test3 &&
+	(
+	cd test3 &&
+	test_create_repo repo &&
+
+	mkdir -p repo/inside-tracked repo/inside-ignored &&
+	>repo/file-tracked &&
+	>repo/file-ignored &&
+	>repo/inside-tracked/file &&
+	>repo/inside-ignored/file &&
+
+	cat >.gitignore <<-EOF &&
+	.gitignore
+	actual-*
+	expect-*
+	*ignored
+	EOF
+
+	cat >expect-tracked-unsorted <<-EOF &&
+	repo/file-tracked
+	repo/inside-tracked/file
+	EOF
+
+	cat >expect-ignored-unsorted <<-EOF
+	repo/file-ignored
+	repo/inside-ignored/
+	.gitignore
+	actual-ignored-unsorted
+	expect-ignored-unsorted
+	expect-tracked-unsorted
+	EOF
+	)
+'
+
+test_expect_success '3b: ignored' '
+	(
+	cd test3 &&
+	git --git-dir=repo/.git ls-files -io --directory --exclude-standard >actual-ignored-unsorted &&
+	sort actual-ignored-unsorted >actual-ignored &&
+	sort expect-ignored-unsorted >expect-ignored &&
+	test_cmp expect-ignored actual-ignored
+	)
+'
+
+test_expect_success '3c: add repo' '
+	(
+	cd test3 &&
+	git --git-dir=repo/.git add repo &&
+	git --git-dir=repo/.git ls-files >actual-tracked-unsorted &&
+	sort actual-tracked-unsorted >actual-tracked &&
+	sort expect-tracked-unsorted >expect-tracked &&
+	test_cmp expect-tracked actual-tracked
+	)
+'
+
+test_done
