updates

Author: eleanorjboyd

src/client/testing/common/debugLauncher.ts

@@ -177,7 +177,7 @@ export class DebugLauncher implements ITestDebugLauncher {
             include: false,
         });
 
-        DebugLauncher.applyDefaults(debugConfig!, workspaceFolder, configSettings);
+        DebugLauncher.applyDefaults(debugConfig!, workspaceFolder, configSettings, options.cwd);
 
         return this.convertConfigToArgs(debugConfig!, workspaceFolder, options);
     }
@@ -224,14 +224,17 @@ export class DebugLauncher implements ITestDebugLauncher {
         cfg: LaunchRequestArguments,
         workspaceFolder: WorkspaceFolder,
         configSettings: IPythonSettings,
+        optionsCwd?: string,
     ) {
         // cfg.pythonPath is handled by LaunchConfigurationResolver.
 
         if (!cfg.console) {
             cfg.console = 'internalConsole';
         }
         if (!cfg.cwd) {
-            cfg.cwd = configSettings.testing.cwd || workspaceFolder.uri.fsPath;
+            // For project-based testing, use the project's cwd (optionsCwd) if provided.
+            // Otherwise fall back to settings.testing.cwd or the workspace folder.
+            cfg.cwd = optionsCwd || configSettings.testing.cwd || workspaceFolder.uri.fsPath;
         }
         if (!cfg.env) {
             cfg.env = {};

src/client/testing/testController/common/testDiscoveryHandler.ts

@@ -5,7 +5,7 @@ import { CancellationToken, TestController, Uri, MarkdownString } from 'vscode';
 import * as util from 'util';
 import { DiscoveredTestPayload } from './types';
 import { TestProvider } from '../../types';
-import { traceError } from '../../../logging';
+import { traceError, traceWarn } from '../../../logging';
 import { Testing } from '../../../common/utils/localize';
 import { createErrorTestItem } from './testItemUtilities';
 import { buildErrorNodeOptions, populateTestTree } from './utils';
@@ -92,6 +92,28 @@ export class TestDiscoveryHandler {
 
         traceError(testingErrorConst, 'for workspace: ', workspacePath, '\r\n', error?.join('\r\n\r\n') ?? '');
 
+        // For unittest in project-based mode, check if the error might be caused by nested project imports
+        // This helps users understand that import errors from nested projects can be safely ignored
+        // if those tests are covered by a different project with the correct environment.
+        if (testProvider === 'unittest' && projectId) {
+            const errorText = error?.join(' ') ?? '';
+            const isImportError =
+                errorText.includes('ModuleNotFoundError') ||
+                errorText.includes('ImportError') ||
+                errorText.includes('No module named');
+
+            if (isImportError) {
+                traceWarn(
+                    `---
+                    [test-by-project] Import error during unittest discovery for project at ${workspacePath}. ` +
+                        `This may be caused by test files in nested project directories that require different dependencies. ` +
+                        `If these tests are discovered successfully by their own project (with the correct Python environment), ` +
+                        `this error can be safely ignored. To avoid this, consider excluding nested project paths from parent project discovery.
+                        ---`,
+                );
+            }
+        }
+
         const errorNodeId = projectId
             ? `${projectId}${PROJECT_ID_SEPARATOR}DiscoveryError:${workspacePath}`
             : `DiscoveryError:${workspacePath}`;