diff --git a/internal/virtualenvironment/virtualenvironment.go b/internal/virtualenvironment/virtualenvironment.go
index 2edc976b4e..055bc890fc 100644
--- a/internal/virtualenvironment/virtualenvironment.go
+++ b/internal/virtualenvironment/virtualenvironment.go
@@ -42,14 +42,12 @@ func (v *VirtualEnvironment) GetEnv(inherit bool, useExecutors bool, projectDir,
 	}
 
 	if projectDir != "" {
-		configFile := filepath.Join(projectDir, constants.ConfigFileName)
-
 		envMap[constants.ActivatedStateEnvVarName] = projectDir
-		envMap[constants.ProjectEnvVarName] = configFile
 		envMap[constants.ActivatedStateIDEnvVarName] = v.activationID
 		envMap[constants.ActivatedStateNamespaceEnvVarName] = namespace
 
 		// Get project from explicitly defined configuration file
+		configFile := filepath.Join(projectDir, constants.ConfigFileName)
 		pj, err := project.Parse(configFile)
 		if err != nil {
 			return envMap, locale.WrapError(err, "err_parse_project", "", configFile)
diff --git a/pkg/projectfile/projectfile.go b/pkg/projectfile/projectfile.go
index 977835feb9..cf2e749387 100644
--- a/pkg/projectfile/projectfile.go
+++ b/pkg/projectfile/projectfile.go
@@ -752,6 +752,7 @@ func GetProjectFilePath() (string, error) {
 	lookup := []func() (string, error){
 		getProjectFilePathFromEnv,
 		getProjectFilePathFromWd,
+		getProjectFilePathFromShell,
 		getProjectFilePathFromDefault,
 	}
 	for _, getProjectFilePath := range lookup {
@@ -792,6 +793,18 @@ func getProjectFilePathFromWd() (string, error) {
 	return path, nil
 }
 
+func getProjectFilePathFromShell() (string, error) {
+	projectFilePath := os.Getenv(constants.ActivatedStateEnvVarName)
+	if projectFilePath != "" {
+		configFile := filepath.Join(projectFilePath, constants.ConfigFileName)
+		if fileutils.FileExists(configFile) {
+			return configFile, nil
+		}
+		return "", &ErrorNoProject{locale.NewInputError("err_shell_no_projectfile", "The project for the shell you are in no longer exists.")}
+	}
+	return "", nil
+}
+
 func getProjectFilePathFromDefault() (_ string, rerr error) {
 	cfg, err := config.New()
 	if err != nil {
diff --git a/pkg/projectfile/projectfile_test.go b/pkg/projectfile/projectfile_test.go
index cf1fd8f2d0..1b596023cc 100644
--- a/pkg/projectfile/projectfile_test.go
+++ b/pkg/projectfile/projectfile_test.go
@@ -236,6 +236,14 @@ func TestGetProjectFilePath(t *testing.T) {
 	assert.Equal(t, expectedPath, configPath, "Project path is properly detected using the ProjectEnvVarName")
 
 	os.Unsetenv(constants.ProjectEnvVarName)
+
+	os.Setenv(constants.ActivatedStateEnvVarName, "/some/path")
+	defer os.Unsetenv(constants.ActivatedStateEnvVarName)
+	configPath, err = GetProjectFilePath()
+	require.Nil(t, err)
+	assert.Equal(t, expectedPath, configPath, "Project path prioritizes working directory project over activated project")
+	os.Unsetenv(constants.ActivatedStateEnvVarName)
+
 	cfg, err := config.New()
 	require.NoError(t, err)
 	defer func() { require.NoError(t, cfg.Close()) }()
@@ -246,6 +254,11 @@ func TestGetProjectFilePath(t *testing.T) {
 	os.Chdir(tmpDir)
 	_, err = GetProjectFilePath()
 	assert.Error(t, err, "GetProjectFilePath should fail")
+	os.Setenv(constants.ActivatedStateEnvVarName, filepath.Dir(expectedPath))
+	configPath, err = GetProjectFilePath()
+	require.Nil(t, err)
+	assert.Equal(t, expectedPath, configPath, "Project path falls back on activated project path")
+	os.Unsetenv(constants.ActivatedStateEnvVarName)
 	cfg.Set(constants.GlobalDefaultPrefname, expectedPath)
 	configPath, err = GetProjectFilePath()
 	assert.NoError(t, err, "GetProjectFilePath should succeed")