diff --git a/CHANGELOG.md b/CHANGELOG.md
index e05df1d3..fc318070 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,6 +7,7 @@
 
 ### Fixes
 - Stop stderr leakage from workflow policies (`require-push-before-stop`, `require-pr-before-stop`, `require-ci-green-before-stop`, etc.): git probes that are expected to sometimes fail no longer leak "fatal: Needed a single revision" or similar messages to the user's terminal (#132)
+- `block-read-outside-cwd` now uses `CLAUDE_PROJECT_DIR` (the stable project root) instead of the live hook `cwd`, which drifts when Claude `cd`s into a subdirectory. Reads at the project root are no longer wrongly denied after a `cd`. Falls back to `ctx.session.cwd` when that variable is unset (#134)
 
 ## 0.0.6-beta.2 — 2026-04-21
 
diff --git a/__tests__/hooks/block-read-outside-cwd.test.ts b/__tests__/hooks/block-read-outside-cwd.test.ts
index 9deea6f5..ef20884c 100644
--- a/__tests__/hooks/block-read-outside-cwd.test.ts
+++ b/__tests__/hooks/block-read-outside-cwd.test.ts
@@ -1,5 +1,5 @@
 // @vitest-environment node
-import { describe, it, expect } from "vitest";
+import { describe, it, expect, beforeEach, afterEach } from "vitest";
 import type { PolicyContext } from "../../src/hooks/policy-types";
 
 // Import the builtin policies array to get the policy function
@@ -18,6 +18,19 @@ function makeCtx(overrides: Partial<PolicyContext>): PolicyContext {
 }
 
 describe("block-read-outside-cwd policy", () => {
+  // Ensure CLAUDE_PROJECT_DIR does not leak in from the outer env (the test
+  // runner may itself be launched under Claude Code). The env-var precedence
+  // block below sets it explicitly where relevant.
+  const originalProjectDir = process.env.CLAUDE_PROJECT_DIR;
+  beforeEach(() => {
+    delete process.env.CLAUDE_PROJECT_DIR;
+  });
+  afterEach(() => {
+    if (originalProjectDir === undefined) delete process.env.CLAUDE_PROJECT_DIR;
+    else process.env.CLAUDE_PROJECT_DIR = originalProjectDir;
+  });
+
+
   it("exists in BUILTIN_POLICIES", () => {
     expect(policy).toBeDefined();
     expect(policy.defaultEnabled).toBe(false);
@@ -482,4 +495,64 @@ describe("block-read-outside-cwd policy", () => {
     const result = await policy.fn(ctx);
     expect(result.decision).toBe("deny");
   });
+
+  // -- $CLAUDE_PROJECT_DIR precedence tests --
+  // Claude Code's hook JSON `cwd` follows live shell CWD (it drifts on `cd`),
+  // but $CLAUDE_PROJECT_DIR is the stable project root. The policy should
+  // prefer the env var so reads at the project root aren't wrongly blocked
+  // after Claude cd's into a subdirectory.
+
+  it("uses $CLAUDE_PROJECT_DIR to allow a sibling-dir read after Claude cd'd into a subdir", async () => {
+    process.env.CLAUDE_PROJECT_DIR = "/home/user/project";
+    const ctx = makeCtx({
+      toolInput: { file_path: "/home/user/project/README.md" },
+      session: { cwd: "/home/user/project/server" },
+    });
+    const result = await policy.fn(ctx);
+    expect(result.decision).toBe("allow");
+  });
+
+  it("denies reads outside $CLAUDE_PROJECT_DIR even when session.cwd is deeper inside it", async () => {
+    process.env.CLAUDE_PROJECT_DIR = "/home/user/project";
+    const ctx = makeCtx({
+      toolInput: { file_path: "/etc/passwd" },
+      session: { cwd: "/home/user/project/server" },
+    });
+    const result = await policy.fn(ctx);
+    expect(result.decision).toBe("deny");
+    expect(result.reason).toContain("/etc/passwd");
+  });
+
+  it("$CLAUDE_PROJECT_DIR takes precedence when both env var and session.cwd are set", async () => {
+    // Boundary = env var /home/user/project. session.cwd points elsewhere but
+    // should be ignored. The target is inside the env-var boundary → allow.
+    process.env.CLAUDE_PROJECT_DIR = "/home/user/project";
+    const ctx = makeCtx({
+      toolInput: { file_path: "/home/user/project/src/index.ts" },
+      session: { cwd: "/somewhere/else" },
+    });
+    const result = await policy.fn(ctx);
+    expect(result.decision).toBe("allow");
+  });
+
+  it("falls back to session.cwd when $CLAUDE_PROJECT_DIR is unset", async () => {
+    // beforeEach already deletes the env var, so this just documents the fallback.
+    const ctx = makeCtx({
+      toolInput: { file_path: "/home/user/project/src/index.ts" },
+      session: { cwd: "/home/user/project" },
+    });
+    const result = await policy.fn(ctx);
+    expect(result.decision).toBe("allow");
+  });
+
+  it("applies Bash read-path checks against $CLAUDE_PROJECT_DIR rather than session.cwd", async () => {
+    process.env.CLAUDE_PROJECT_DIR = "/home/user/project";
+    const ctx = makeCtx({
+      toolName: "Bash",
+      toolInput: { command: "cat /home/user/project/CHANGELOG.md" },
+      session: { cwd: "/home/user/project/deeply/nested" },
+    });
+    const result = await policy.fn(ctx);
+    expect(result.decision).toBe("allow");
+  });
 });
diff --git a/docs/built-in-policies.mdx b/docs/built-in-policies.mdx
index 5ace66e3..361aa4bd 100644
--- a/docs/built-in-policies.mdx
+++ b/docs/built-in-policies.mdx
@@ -216,13 +216,13 @@ Keep agents working inside project boundaries and away from sensitive files.
 ### `block-read-outside-cwd`
 
 **Event:** PreToolUse (Read, Bash)  
-**Default:** Denies reading files outside the current working directory (the project root).
+**Default:** Denies reading files outside the project root. The boundary is `CLAUDE_PROJECT_DIR` (set once per session by Claude Code), with a fallback to the session's current working directory when that variable is unset. Using the project root rather than the live `cwd` means the boundary stays stable even after Claude `cd`s into a subdirectory.
 
 **Parameters:**
 
 | Param | Type | Default | Description |
 |-------|------|---------|-------------|
-| `allowPaths` | `string[]` | `[]` | Absolute path prefixes that are permitted even if outside cwd. |
+| `allowPaths` | `string[]` | `[]` | Absolute path prefixes that are permitted even if outside the project root. |
 
 **Example:**
 
diff --git a/src/hooks/builtin-policies.ts b/src/hooks/builtin-policies.ts
index 6ab6eda4..0555220c 100644
--- a/src/hooks/builtin-policies.ts
+++ b/src/hooks/builtin-policies.ts
@@ -676,7 +676,9 @@ function extractAbsolutePaths(command: string): string[] {
 }
 
 function blockReadOutsideCwd(ctx: PolicyContext): PolicyResult {
-  const cwd = ctx.session?.cwd;
+  // Prefer $CLAUDE_PROJECT_DIR (stable project root) over ctx.session.cwd,
+  // which tracks the live shell CWD and drifts when Claude `cd`s into a subdir.
+  const cwd = process.env.CLAUDE_PROJECT_DIR || ctx.session?.cwd;
   if (!cwd) return allow(); // Can't enforce without cwd
 
   const allowPaths = ((ctx.params?.allowPaths ?? []) as string[]);