diff --git a/tests/run-tests.py b/tests/run-tests.py
--- a/tests/run-tests.py
+++ b/tests/run-tests.py
@@ -1812,6 +1812,8 @@ class TestRunner(object):
             realfile = os.path.realpath(fileb)
             realdir = os.path.abspath(os.path.dirname(realfile))
             path.insert(2, realdir)
+        if self._testdir != runtestdir:
+            path = [self._testdir] + path
         if self._tmpbindir != self._bindir:
             path = [self._tmpbindir] + path
         osenvironb[b"PATH"] = sepb.join(path)
diff --git a/tests/test-run-tests.t b/tests/test-run-tests.t
--- a/tests/test-run-tests.t
+++ b/tests/test-run-tests.t
@@ -602,3 +602,22 @@ running is placed.
   $ run-tests.py test-runtestdir.t
   .
   # Ran 1 tests, 0 skipped, 0 warned, 0 failed.
+
+#if execbit
+
+test that TESTDIR is referred in PATH
+
+  $ cat > custom-command.sh <<EOF
+  > #!/bin/sh
+  > echo "hello world"
+  > EOF
+  $ chmod +x custom-command.sh
+  $ cat > test-testdir-path.t <<EOF
+  >   $ custom-command.sh
+  >   hello world
+  > EOF
+  $ run-tests.py test-testdir-path.t
+  .
+  # Ran 1 tests, 0 skipped, 0 warned, 0 failed.
+
+#endif