diff --git a/jupyter_server/terminal/api_handlers.py b/jupyter_server/terminal/api_handlers.py
index 99f7e91d2a..bc2d4cd3f7 100644
--- a/jupyter_server/terminal/api_handlers.py
+++ b/jupyter_server/terminal/api_handlers.py
@@ -1,4 +1,5 @@
 import json
+import os
 
 from tornado import web
 
@@ -26,6 +27,15 @@ def post(self):
         """POST /terminals creates a new terminal and redirects to it"""
         data = self.get_json_body() or {}
 
+        # if cwd is a relative path, it should be relative to the root_dir,
+        # but if we pass it as relative, it will we be considered as relative to
+        # the path jupyter_server was started in
+        if "cwd" in data.keys():
+            if not os.path.isabs(data["cwd"]):
+                cwd = data["cwd"]
+                cwd = os.path.join(self.settings["server_root_dir"], cwd)
+                data["cwd"] = cwd
+
         model = self.terminal_manager.create(**data)
         self.finish(json.dumps(model))