diff --git a/src/index.ts b/src/index.ts
index 92e2a59..a335b88 100644
--- a/src/index.ts
+++ b/src/index.ts
@@ -469,7 +469,19 @@ function generateShShim (src: string, to: string, opts: InternalOptions): string
   let progArgs = opts.progArgs ? `${opts.progArgs.join(` `)} ` : ''
 
   // #!/bin/sh
-  // basedir=$(dirname "$(echo "$0" | sed -e 's,\\,/,g')")
+  // # Resolve $0 through symlinks so basedir is the shim's real directory.
+  // # Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+  // link="$0"
+  // hops=0
+  // while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  //   hops=$((hops+1))
+  //   target=$(readlink "$link")
+  //   case "$target" in
+  //     /*) link="$target" ;;
+  //     *)  link="$(dirname "$link")/$target" ;;
+  //   esac
+  // done
+  // basedir=$(dirname "$(echo "$link" | sed -e 's,\\,/,g')")
   // basedir_win="$basedir"
   // exe=""
   // msys=""
@@ -510,7 +522,19 @@ function generateShShim (src: string, to: string, opts: InternalOptions): string
 
   let sh = `\
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
diff --git a/test/e2e.test.js b/test/e2e.test.js
index 514fdbb..1fd97f4 100644
--- a/test/e2e.test.js
+++ b/test/e2e.test.js
@@ -108,3 +108,91 @@ describeOnPosix('sh shim uses POSIX runtime from PATH', () => {
     assert.doesNotMatch(r.stderr, /node\.exe/)
   })
 })
+
+describeOnPosix('sh shim invoked through a chain of external symlinks', () => {
+  // POSIX shells set $0 to the invoked symlink, not the shim it points at,
+  // so the shim must follow the chain before deriving basedir
+  // (https://github.com/pnpm/pnpm/issues/13405).
+  const makeShimmedTool = async (tempDir) => {
+    const binDir = path.join(tempDir, 'node_modules', '.bin')
+    const targetDir = path.join(tempDir, 'node_modules', 'typescript', 'bin')
+    fs.mkdirSync(binDir, { recursive: true })
+    fs.mkdirSync(targetDir, { recursive: true })
+
+    const target = path.join(targetDir, 'tsc')
+    fs.writeFileSync(target, '#!/bin/sh\necho "tsc-output"\n', 'utf8')
+    fs.chmodSync(target, 0o755)
+
+    const shim = path.join(binDir, 'tsc')
+    await cmdShim(target, shim)
+    return shim
+  }
+
+  const runShim = (cmd) => {
+    const r = spawnSync(cmd, {
+      encoding: 'utf8',
+      stdio: ['ignore', 'pipe', 'pipe'],
+    })
+    assert.equal(r.status, 0, `shim exited ${r.status}\nstdout: ${r.stdout}\nstderr: ${r.stderr}`)
+    return r.stdout.trim()
+  }
+
+  test('follows a chain of absolute symlinks', async () => {
+    const tempDir = tempy.directory()
+    const shim = await makeShimmedTool(tempDir)
+
+    const hop1 = path.join(tempDir, 'symlink_hop_1')
+    const hop2 = path.join(tempDir, 'symlink_hop_2')
+    fs.symlinkSync(shim, hop1)
+    fs.symlinkSync(hop1, hop2)
+
+    assert.equal(runShim(hop2), 'tsc-output')
+  })
+
+  test('follows relative symlinks from another directory', async () => {
+    const tempDir = tempy.directory()
+    await makeShimmedTool(tempDir)
+
+    // Both hops use relative targets, exercising the shim's
+    // dirname-composition branch rather than the absolute one.
+    const localBin = path.join(tempDir, 'usr', 'local', 'bin')
+    fs.mkdirSync(localBin, { recursive: true })
+    const hop1 = path.join(tempDir, 'usr', 'tsc')
+    fs.symlinkSync(path.join('..', 'node_modules', '.bin', 'tsc'), hop1)
+    const hop2 = path.join(localBin, 'tsc')
+    fs.symlinkSync(path.join('..', '..', 'tsc'), hop2)
+
+    assert.equal(runShim(hop2), 'tsc-output')
+  })
+
+  test('resolves symlinks when directories contain spaces', async () => {
+    const tempDir = path.join(tempy.directory(), 'dir with spaces')
+    fs.mkdirSync(tempDir, { recursive: true })
+    await makeShimmedTool(tempDir)
+
+    const hopDir = path.join(tempDir, 'link dir')
+    fs.mkdirSync(hopDir)
+    const hop = path.join(hopDir, 'tsc')
+    fs.symlinkSync(path.join('..', 'node_modules', '.bin', 'tsc'), hop)
+
+    assert.equal(runShim(hop), 'tsc-output')
+  })
+
+  test('runs a node-shebang bin through a symlink chain', async () => {
+    const tempDir = tempy.directory()
+    const binDir = path.join(tempDir, 'node_modules', '.bin')
+    const pkgDir = path.join(tempDir, 'node_modules', 'tool')
+    fs.mkdirSync(binDir, { recursive: true })
+    fs.mkdirSync(pkgDir, { recursive: true })
+
+    const target = path.join(pkgDir, 'cli.js')
+    fs.writeFileSync(target, '#!/usr/bin/env node\nconsole.log("NODE_BIN_OK")\n', 'utf8')
+    const shim = path.join(binDir, 'tool')
+    await cmdShim(target, shim, { createCmdFile: false })
+
+    const hop = path.join(tempDir, 'tool')
+    fs.symlinkSync(path.join('node_modules', '.bin', 'tool'), hop)
+
+    assert.equal(runShim(hop), 'NODE_BIN_OK')
+  })
+})
diff --git a/test/e2e.test.js.snapshot b/test/e2e.test.js.snapshot
index 6490475..20db918 100644
--- a/test/e2e.test.js.snapshot
+++ b/test/e2e.test.js.snapshot
@@ -1,7 +1,19 @@
 exports[`create a command shim for a .exe file > shim files 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
diff --git a/test/test.js.snapshot b/test/test.js.snapshot
index 0dfcfff..9b29f19 100644
--- a/test/test.js.snapshot
+++ b/test/test.js.snapshot
@@ -1,7 +1,19 @@
 exports[`batch script > shim files > bat.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -104,7 +116,19 @@ exit $ret
 exports[`custom node executable > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -165,7 +189,19 @@ exit $LASTEXITCODE
 exports[`env shebang > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -252,7 +288,19 @@ exit $ret
 exports[`env shebang with NODE_PATH > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -362,7 +410,19 @@ exit $ret
 exports[`env shebang with PATH extending > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -461,7 +521,19 @@ exit $ret
 exports[`env shebang with args > shim files > env.args.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -548,7 +620,19 @@ exit $ret
 exports[`env shebang with default args > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -635,7 +719,19 @@ exit $ret
 exports[`env shebang with no NODE_PATH > shim files > env.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -722,7 +818,19 @@ exit $ret
 exports[`explicit shebang > shim files > sh.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -809,7 +917,19 @@ exit $ret
 exports[`explicit shebang with args > shim files > sh.args.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -896,7 +1016,19 @@ exit $ret
 exports[`explicit shebang with args, linking to another drive on Windows > shim files > sh.args.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -983,7 +1115,19 @@ exit $ret
 exports[`explicit shebang with prog args > shim files > sh.args.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -1070,7 +1214,19 @@ exit $ret
 exports[`no cmd file > shim files > exe.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -1124,7 +1280,19 @@ exit $LASTEXITCODE
 exports[`no shebang > shim files > exe.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""
@@ -1185,7 +1353,19 @@ exit $LASTEXITCODE
 exports[`shebang with -S > shim files > from.env.s.shim 1`] = `
 
 #!/bin/sh
-basedir=$(dirname "$(echo "$0" | sed -e 's,\\\\,/,g')")
+# Resolve $0 through symlinks so basedir is the shim's real directory.
+# Cap hops at the kernel's ELOOP limit so a cycle cannot hang the shim.
+link="$0"
+hops=0
+while [ -L "$link" ] && [ "$hops" -lt 40 ]; do
+  hops=$((hops+1))
+  target=$(readlink "$link")
+  case "$target" in
+    /*) link="$target" ;;
+    *)  link="$(dirname "$link")/$target" ;;
+  esac
+done
+basedir=$(dirname "$(echo "$link" | sed -e 's,\\\\,/,g')")
 basedir_win="$basedir"
 exe=""
 msys=""