diff --git a/cli.py b/cli.py
index 937a5332e..7d47f5073 100755
--- a/cli.py
+++ b/cli.py
@@ -173,10 +173,19 @@ def load_cli_config() -> Dict[str, Any]:
     if "backend" in terminal_config:
         terminal_config["env_type"] = terminal_config["backend"]
     
-    # Handle special cwd values: "." or "auto" means use current working directory
+    # Handle special cwd values: "." or "auto" means use current working directory.
+    # Only resolve to the host's CWD for the local backend where the host
+    # filesystem is directly accessible.  For ALL remote/container backends
+    # (ssh, docker, modal, singularity), the host path doesn't exist on the
+    # target -- remove the key so terminal_tool.py uses its per-backend default.
     if terminal_config.get("cwd") in (".", "auto", "cwd"):
-        terminal_config["cwd"] = os.getcwd()
-        defaults["terminal"]["cwd"] = terminal_config["cwd"]
+        effective_backend = terminal_config.get("env_type", "local")
+        if effective_backend == "local":
+            terminal_config["cwd"] = os.getcwd()
+            defaults["terminal"]["cwd"] = terminal_config["cwd"]
+        else:
+            # Remove so TERMINAL_CWD stays unset → tool picks backend default
+            terminal_config.pop("cwd", None)
     
     env_mappings = {
         "env_type": "TERMINAL_ENV",
diff --git a/tools/file_operations.py b/tools/file_operations.py
index 7d399dc9b..4f7510622 100644
--- a/tools/file_operations.py
+++ b/tools/file_operations.py
@@ -257,9 +257,12 @@ class ShellFileOperations(FileOperations):
             cwd: Working directory (defaults to env's cwd or current directory)
         """
         self.env = terminal_env
-        # Determine cwd from various possible sources
+        # Determine cwd from various possible sources.
+        # IMPORTANT: do NOT fall back to os.getcwd() -- that's the HOST's local
+        # path which doesn't exist inside container/cloud backends (modal, docker).
+        # If nothing provides a cwd, use "/" as a safe universal default.
         self.cwd = cwd or getattr(terminal_env, 'cwd', None) or \
-                   getattr(getattr(terminal_env, 'config', None), 'cwd', None) or os.getcwd()
+                   getattr(getattr(terminal_env, 'config', None), 'cwd', None) or "/"
         
         # Cache for command availability checks
         self._command_cache: Dict[str, bool] = {}
diff --git a/tools/terminal_tool.py b/tools/terminal_tool.py
index c48508a8a..776a34a9c 100644
--- a/tools/terminal_tool.py
+++ b/tools/terminal_tool.py
@@ -1197,22 +1197,42 @@ def _get_env_config() -> Dict[str, Any]:
     env_type = os.getenv("TERMINAL_ENV", "local")
     
     # Default cwd depends on backend:
-    #   - local/ssh: current working directory (CLI resolves "." before we get here)
-    #   - docker/singularity: /tmp inside the container (singularity bind-mounts /scratch there)
-    #   - modal: /root (ephemeral cloud container, full filesystem access)
+    #   - local: host's current working directory
+    #   - ssh: remote user's home (agent code is local, execution is remote)
+    #   - docker: / inside the container
+    #   - singularity/modal: /root (ephemeral cloud/container)
     if env_type in ("modal", "singularity"):
         default_cwd = "/root"
     elif env_type == "docker":
         default_cwd = "/"
+    elif env_type == "ssh":
+        default_cwd = "~"
     else:
         default_cwd = os.getcwd()
     
+    # Read TERMINAL_CWD but sanity-check it for non-local backends.
+    # If the CWD looks like a host-local path that can't exist inside a
+    # container/sandbox, fall back to the backend's own default.  This
+    # catches the case where cli.py (or .env) leaked the host's CWD.
+    cwd = os.getenv("TERMINAL_CWD", default_cwd)
+    if env_type in ("modal", "docker", "singularity", "ssh") and cwd:
+        # Paths containing common host-only prefixes are clearly wrong
+        # inside a container.  Also catch Windows-style paths (C:\...).
+        host_prefixes = ("/Users/", "/home/", "C:\\", "C:/")
+        if any(cwd.startswith(p) for p in host_prefixes) and cwd != default_cwd:
+            if not os.getenv("HERMES_QUIET"):
+                print(
+                    f"[Terminal] Ignoring TERMINAL_CWD={cwd!r} for {env_type} backend "
+                    f"(host path won't exist in sandbox). Using {default_cwd!r} instead."
+                )
+            cwd = default_cwd
+
     return {
         "env_type": env_type,
         "docker_image": os.getenv("TERMINAL_DOCKER_IMAGE", default_image),
         "singularity_image": os.getenv("TERMINAL_SINGULARITY_IMAGE", f"docker://{default_image}"),
         "modal_image": os.getenv("TERMINAL_MODAL_IMAGE", default_image),
-        "cwd": os.getenv("TERMINAL_CWD", default_cwd),
+        "cwd": cwd,
         "timeout": int(os.getenv("TERMINAL_TIMEOUT", "60")),
         "lifetime_seconds": int(os.getenv("TERMINAL_LIFETIME_SECONDS", "300")),
         # SSH-specific config