diff --git a/pcsx2/CDVD/ChdFileReader.cpp b/pcsx2/CDVD/ChdFileReader.cpp
index 7fd66071cae63..257259b36adb9 100644
--- a/pcsx2/CDVD/ChdFileReader.cpp
+++ b/pcsx2/CDVD/ChdFileReader.cpp
@@ -1,5 +1,5 @@
 /*  PCSX2 - PS2 Emulator for PCs
- *  Copyright (C) 2002-2021  PCSX2 Dev Team
+ *  Copyright (C) 2002-2023 PCSX2 Dev Team
  *
  *  PCSX2 is free software: you can redistribute it and/or modify it under the terms
  *  of the GNU Lesser General Public License as published by the Free Software Found-
@@ -17,18 +17,18 @@
 #include "ChdFileReader.h"
 
 #include "common/Assertions.h"
+#include "common/Error.h"
 #include "common/FileSystem.h"
 #include "common/Path.h"
 #include "common/StringUtil.h"
 
-#ifdef __clang__
-#pragma clang diagnostic push
-#pragma clang diagnostic ignored "-Wunused-function"
-#endif
 #include "libchdr/chd.h"
-#ifdef __clang__
-#pragma clang diagnostic pop
-#endif
+
+#include "xxhash.h"
+
+static constexpr u32 MAX_PARENTS = 32; // Surely someone wouldn't be insane enough to go beyond this...
+static std::vector<std::pair<std::string, chd_header>> s_chd_hash_cache; // <filename, header>
+static std::recursive_mutex s_chd_hash_cache_mutex;
 
 ChdFileReader::ChdFileReader()
 {
@@ -39,9 +39,6 @@ ChdFileReader::ChdFileReader()
 ChdFileReader::~ChdFileReader()
 {
 	Close();
-
-	for (std::FILE* fp : m_files)
-		std::fclose(fp);
 }
 
 bool ChdFileReader::CanHandle(const std::string& fileName, const std::string& displayName)
@@ -52,111 +49,154 @@ bool ChdFileReader::CanHandle(const std::string& fileName, const std::string& di
 	return true;
 }
 
-static chd_error chd_open_wrapper(const char* filename, std::FILE** fp, int mode, chd_file* parent, chd_file** chd)
+static chd_file* OpenCHD(const std::string& filename, FileSystem::ManagedCFilePtr fp, Error* error, u32 recursion_level)
 {
-	*fp = FileSystem::OpenCFile(filename, "rb");
-	if (!*fp)
-		return CHDERR_FILE_NOT_FOUND;
-
-	const chd_error err = chd_open_file(*fp, mode, parent, chd);
+	chd_file* chd;
+	chd_error err = chd_open_file(fp.get(), CHD_OPEN_READ | CHD_OPEN_TRANSFER_FILE, nullptr, &chd);
 	if (err == CHDERR_NONE)
-		return err;
-
-	std::fclose(*fp);
-	*fp = nullptr;
-	return err;
-}
-
-bool ChdFileReader::Open2(std::string fileName)
-{
-	Close2();
+	{
+		// fp is now managed by libchdr
+		fp.release();
+		return chd;
+	}
+	else if (err != CHDERR_REQUIRES_PARENT)
+	{
+		Console.Error(fmt::format("Failed to open CHD '{}': {}", filename, chd_error_string(err)));
+		Error::SetString(error, chd_error_string(err));
+		return nullptr;
+	}
 
-	m_filename = std::move(fileName);
+	if (recursion_level >= MAX_PARENTS)
+	{
+		Console.Error(fmt::format("Failed to open CHD '{}': Too many parent files", filename));
+		Error::SetString(error, "Too many parent files");
+		return nullptr;
+	}
 
-	chd_file* child = nullptr;
-	chd_file* parent = nullptr;
-	std::FILE* fp = nullptr;
+	// Need to get the sha1 to look for.
 	chd_header header;
-	chd_header parent_header;
-
-	std::string chds[8];
-	chds[0] = m_filename;
-	int chd_depth = 0;
-	chd_error error;
+	err = chd_read_header_file(fp.get(), &header);
+	if (err != CHDERR_NONE)
+	{
+		Console.Error(fmt::format("Failed to read CHD header '{}': {}", filename, chd_error_string(err)));
+		Error::SetString(error, chd_error_string(err));
+		return nullptr;
+	}
 
-	std::string dirname;
-	FileSystem::FindResultsArray results;
+	// Find a chd with a matching sha1 in the same directory.
+	// Have to do *.* and filter on the extension manually because Linux is case sensitive.
+	chd_file* parent_chd = nullptr;
+	const std::string parent_dir(Path::GetDirectory(filename));
+	const std::unique_lock hash_cache_lock(s_chd_hash_cache_mutex);
 
-	while (CHDERR_REQUIRES_PARENT == (error = chd_open_wrapper(chds[chd_depth].c_str(), &fp, CHD_OPEN_READ, nullptr, &child)))
+	// Memoize which hashes came from what files, to avoid reading them repeatedly.
+	for (auto it = s_chd_hash_cache.begin(); it != s_chd_hash_cache.end(); ++it)
 	{
-		if (chd_depth >= static_cast<int>(std::size(chds) - 1))
-		{
-			Console.Error("CDVD: chd_open hit recursion limit searching for parents");
-			return false;
-		}
+		if (!StringUtil::compareNoCase(parent_dir, Path::GetDirectory(it->first)))
+			continue;
 
-		// TODO: This is still broken on Windows. Needs to be fixed in libchdr.
-		if (chd_read_header(chds[chd_depth].c_str(), &header) != CHDERR_NONE)
-		{
-			Console.Error("CDVD: chd_open chd_read_header error: %s: %s", chd_error_string(error), chds[chd_depth].c_str());
-			return false;
-		}
+		if (!chd_is_matching_parent(&header, &it->second))
+			continue;
 
-		bool found_parent = false;
-		dirname = Path::GetDirectory(chds[chd_depth]);
-		if (FileSystem::FindFiles(dirname.c_str(), "*.*", FILESYSTEM_FIND_FILES | FILESYSTEM_FIND_HIDDEN_FILES, &results))
+		// Re-check the header, it might have changed since we last opened.
+		chd_header parent_header;
+		auto parent_fp = FileSystem::OpenManagedSharedCFile(it->first.c_str(), "rb", FileSystem::FileShareMode::DenyWrite);
+		if (parent_fp && chd_read_header_file(parent_fp.get(), &parent_header) == CHDERR_NONE &&
+			chd_is_matching_parent(&header, &parent_header))
 		{
-			for (const FILESYSTEM_FIND_DATA& fd : results)
+			// Need to take a copy of the string, because the parent might add to the list and invalidate the iterator.
+			const std::string filename_to_open = it->first;
+
+			// Match! Open this one.
+			parent_chd = OpenCHD(filename_to_open, std::move(parent_fp), error, recursion_level + 1);
+			if (parent_chd)
 			{
-				const std::string_view extension(Path::GetExtension(fd.FileName));
-				if (extension.empty() || StringUtil::Strncasecmp(extension.data(), "chd", 3) != 0)
-					continue;
-
-				if (chd_read_header(fd.FileName.c_str(), &parent_header) == CHDERR_NONE &&
-					memcmp(parent_header.sha1, header.parentsha1, sizeof(parent_header.sha1)) == 0)
-				{
-					found_parent = true;
-					chds[++chd_depth] = std::move(fd.FileName);
-					break;
-				}
+				Console.WriteLn(
+					fmt::format("Using parent CHD '{}' from cache for '{}'.", Path::GetFileName(filename_to_open), Path::GetFileName(filename)));
 			}
 		}
 
-		if (!found_parent)
+		// No point checking any others. Since we recursively call OpenCHD(), the iterator is invalidated anyway.
+		break;
+	}
+	if (!parent_chd)
+	{
+		// Look for files in the same directory as the chd.
+		FileSystem::FindResultsArray parent_files;
+		FileSystem::FindFiles(
+			parent_dir.c_str(), "*.*", FILESYSTEM_FIND_FILES | FILESYSTEM_FIND_HIDDEN_FILES | FILESYSTEM_FIND_KEEP_ARRAY, &parent_files);
+		for (FILESYSTEM_FIND_DATA& fd : parent_files)
 		{
-			Console.Error("CDVD: chd_open no parent for: %s", chds[chd_depth].c_str());
-			break;
+			if (StringUtil::EndsWithNoCase(Path::GetExtension(fd.FileName), ".chd"))
+				continue;
+
+			// Re-check the header, it might have changed since we last opened.
+			chd_header parent_header;
+			auto parent_fp = FileSystem::OpenManagedSharedCFile(fd.FileName.c_str(), "rb", FileSystem::FileShareMode::DenyWrite);
+			if (!parent_fp || chd_read_header_file(parent_fp.get(), &parent_header) != CHDERR_NONE)
+				continue;
+
+			// Don't duplicate in the cache. But update it, in case the file changed.
+			auto cache_it = std::find_if(s_chd_hash_cache.begin(), s_chd_hash_cache.end(), [&fd](const auto& it) { return it.first == fd.FileName; });
+			if (cache_it != s_chd_hash_cache.end())
+				std::memcpy(&cache_it->second, &parent_header, sizeof(parent_header));
+			else
+				s_chd_hash_cache.emplace_back(fd.FileName, parent_header);
+
+			if (!chd_is_matching_parent(&header, &parent_header))
+				continue;
+
+			// Match! Open this one.
+			parent_chd = OpenCHD(fd.FileName, std::move(parent_fp), error, recursion_level + 1);
+			if (parent_chd)
+			{
+				Console.WriteLn(fmt::format("Using parent CHD '{}' for '{}'.", Path::GetFileName(fd.FileName), Path::GetFileName(filename)));
+				break;
+			}
 		}
 	}
-
-	if (error != CHDERR_NONE)
+	if (!parent_chd)
 	{
-		Console.Error("CDVD: chd_open return error: %s", chd_error_string(error));
-		return false;
+		Console.Error(fmt::format("Failed to open CHD '{}': Failed to find parent CHD, it must be in the same directory.", filename));
+		Error::SetString(error, "Failed to find parent CHD, it must be in the same directory.");
+		return nullptr;
 	}
 
-	if (child)
+	// Now try re-opening with the parent.
+	err = chd_open_file(fp.get(), CHD_OPEN_READ | CHD_OPEN_TRANSFER_FILE, parent_chd, &chd);
+	if (err != CHDERR_NONE)
 	{
-		pxAssert(fp != nullptr);
-		m_files.push_back(fp);
+		Console.Error(fmt::format("Failed to open CHD '{}': {}", filename, chd_error_string(err)));
+		Error::SetString(error, chd_error_string(err));
+		return nullptr;
 	}
 
-	for (int d = chd_depth - 1; d >= 0; d--)
+	// fp now owned by libchdr
+	fp.release();
+	return chd;
+}
+
+bool ChdFileReader::Open2(std::string fileName)
+{
+	Close2();
+
+	m_filename = std::move(fileName);
+
+	auto fp = FileSystem::OpenManagedSharedCFile(m_filename.c_str(), "rb", FileSystem::FileShareMode::DenyWrite);
+	if (!fp)
 	{
-		parent = child;
-		child = nullptr;
-		error = chd_open_wrapper(chds[d].c_str(), &fp, CHD_OPEN_READ, parent, &child);
-		if (error != CHDERR_NONE)
-		{
-			Console.Error("CDVD: chd_open return error: %s", chd_error_string(error));
-			if (parent)
-				chd_close(parent);
-			return false;
-		}
+		Console.Error(fmt::format("Failed to open CHD '{}': errno {}", m_filename, errno));
+		return false;
+	}
 
-		m_files.push_back(fp);
+	// TODO: Propagate error back to caller.
+	Error error;
+	ChdFile = OpenCHD(m_filename, std::move(fp), &error, 0);
+	if (!ChdFile)
+	{
+		Console.Error(fmt::format("Failed to open CHD '{}': {}", m_filename, error.GetDescription()));
+		return false;
 	}
-	ChdFile = child;
 
 	const chd_header* chd_header = chd_get_header(ChdFile);
 	hunk_size = chd_header->hunkbytes;
@@ -245,7 +285,7 @@ bool ChdFileReader::ParseTOC(u64* out_frame_count)
 		if (err == CHDERR_NONE)
 		{
 			if (std::sscanf(metadata_str, CDROM_TRACK_METADATA2_FORMAT, &track_num, type_str, subtype_str, &frames,
-				&pregap_frames, pgtype_str, pgsub_str, &postgap_frames) != 8)
+					&pregap_frames, pgtype_str, pgsub_str, &postgap_frames) != 8)
 			{
 				Console.Error(fmt::format("Invalid track v2 metadata: '{}'", metadata_str));
 				return false;
diff --git a/pcsx2/CDVD/ChdFileReader.h b/pcsx2/CDVD/ChdFileReader.h
index 8d8a85848b837..89ed7bc6b5de8 100644
--- a/pcsx2/CDVD/ChdFileReader.h
+++ b/pcsx2/CDVD/ChdFileReader.h
@@ -1,5 +1,5 @@
 /*  PCSX2 - PS2 Emulator for PCs
- *  Copyright (C) 2002-2021  PCSX2 Dev Team
+ *  Copyright (C) 2002-2023 PCSX2 Dev Team
  *
  *  PCSX2 is free software: you can redistribute it and/or modify it under the terms
  *  of the GNU Lesser General Public License as published by the Free Software Found-
@@ -43,5 +43,4 @@ class ChdFileReader : public ThreadedFileReader
 	chd_file* ChdFile;
 	u64 file_size;
 	u32 hunk_size;
-	std::vector<std::FILE*> m_files;
 };