diff --git a/.config/nextest.toml b/.config/nextest.toml
index ba9dab796c36b..179ced7f2c9d8 100644
--- a/.config/nextest.toml
+++ b/.config/nextest.toml
@@ -10,6 +10,10 @@ turborepo-process-serial = { max-threads = 1 }
 # race conditions with binary detection and stdout/stderr capture
 turborepo-integration-serial = { max-threads = 1 }
 
+# turborepo-dirs tests should run serially to avoid race conditions
+# with environment variable manipulation
+turborepo-dirs-serial = { max-threads = 1 }
+
 [[profile.default.overrides]]
 # Run all tests in the turborepo-process crate serially
 filter = 'package(turborepo-process)'
@@ -20,3 +24,9 @@ test-group = 'turborepo-process-serial'
 # These tests spawn turbo processes and parse JSON from stdout
 filter = 'package(turbo) and (test(boundaries) or test(query) or test(ls))'
 test-group = 'turborepo-integration-serial'
+
+[[profile.default.overrides]]
+# Run all tests in the turborepo-dirs crate serially
+# These tests manipulate environment variables
+filter = 'package(turborepo-dirs)'
+test-group = 'turborepo-dirs-serial'
diff --git a/.github/actions/setup-capnproto/action.yml b/.github/actions/setup-capnproto/action.yml
index 32964e2c2a1bd..458fe1db3af7c 100644
--- a/.github/actions/setup-capnproto/action.yml
+++ b/.github/actions/setup-capnproto/action.yml
@@ -14,16 +14,6 @@ runs:
           /usr/bin/capnpc
         key: ${{ runner.os }}-capnproto-0.11.2
 
-    - name: "Cache capnproto (Windows)"
-      if: runner.os == 'Windows' && (github.event_name != 'pull_request' || github.event.pull_request.head.repo.full_name == github.repository)
-      uses: actions/cache@v4
-      id: cache-capnp-windows
-      with:
-        path: |
-          C:\ProgramData\chocolatey\bin\capnp.exe
-          C:\ProgramData\chocolatey\bin\capnpc.exe
-        key: ${{ runner.os }}-capnproto-0.11.2
-
     - name: "Setup capnproto for Linux"
       if: runner.os == 'Linux' && (steps.cache-capnp-linux.outcome == 'skipped' || steps.cache-capnp-linux.outputs.cache-hit != 'true')
       shell: bash
@@ -35,6 +25,6 @@ runs:
       run: brew install capnp
 
     - name: "Setup capnproto for Windows"
-      if: runner.os == 'Windows' && (steps.cache-capnp-windows.outcome == 'skipped' || steps.cache-capnp-windows.outputs.cache-hit != 'true')
+      if: runner.os == 'Windows'
       shell: bash
       run: choco install capnproto
diff --git a/crates/turborepo-dirs/src/lib.rs b/crates/turborepo-dirs/src/lib.rs
index c8c28b9cfa02b..678adcffb9705 100644
--- a/crates/turborepo-dirs/src/lib.rs
+++ b/crates/turborepo-dirs/src/lib.rs
@@ -41,3 +41,238 @@ pub enum Error {
     #[error("Config directory not found.")]
     ConfigDirNotFound,
 }
+
+#[cfg(test)]
+mod tests {
+    use std::env;
+
+    use super::*;
+
+    #[test]
+    fn test_config_dir_with_env_var() {
+        // Set TURBO_CONFIG_DIR_PATH to an absolute path
+        let test_path = if cfg!(windows) {
+            "C:\\test\\config"
+        } else {
+            "/test/config"
+        };
+
+        unsafe {
+            env::set_var("TURBO_CONFIG_DIR_PATH", test_path);
+        }
+
+        let result = config_dir();
+        assert!(result.is_ok());
+        let path = result.unwrap();
+        assert!(path.is_some());
+        assert_eq!(path.unwrap().as_str(), test_path);
+
+        unsafe {
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_config_dir_with_invalid_env_var() {
+        // Set TURBO_CONFIG_DIR_PATH to a relative path (invalid)
+        unsafe {
+            env::set_var("TURBO_CONFIG_DIR_PATH", "relative/path");
+        }
+
+        let result = config_dir();
+        assert!(result.is_err());
+
+        unsafe {
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_config_dir_without_env_var() {
+        // Ensure TURBO_CONFIG_DIR_PATH is not set
+        unsafe {
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+
+        let result = config_dir();
+        assert!(result.is_ok());
+        // On most systems, config_dir should return Some path
+        // We can't assert the exact path since it's platform-specific
+        let path = result.unwrap();
+        if let Some(p) = path {
+            // Verify it's an absolute path
+            assert!(p.as_path().is_absolute());
+        }
+    }
+
+    #[test]
+    fn test_vercel_config_dir_with_env_var() {
+        // Set VERCEL_CONFIG_DIR_PATH to an absolute path
+        let test_path = if cfg!(windows) {
+            "C:\\vercel\\config"
+        } else {
+            "/vercel/config"
+        };
+
+        unsafe {
+            env::set_var("VERCEL_CONFIG_DIR_PATH", test_path);
+        }
+
+        let result = vercel_config_dir();
+        assert!(result.is_ok());
+        let path = result.unwrap();
+        assert!(path.is_some());
+        assert_eq!(path.unwrap().as_str(), test_path);
+
+        unsafe {
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_vercel_config_dir_with_invalid_env_var() {
+        // Set VERCEL_CONFIG_DIR_PATH to a relative path (invalid)
+        unsafe {
+            env::set_var("VERCEL_CONFIG_DIR_PATH", "relative/path");
+        }
+
+        let result = vercel_config_dir();
+        assert!(result.is_err());
+
+        unsafe {
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_vercel_config_dir_without_env_var() {
+        // Ensure VERCEL_CONFIG_DIR_PATH is not set
+        unsafe {
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+
+        let result = vercel_config_dir();
+        assert!(result.is_ok());
+        // On most systems, config_dir should return Some path
+        // We can't assert the exact path since it's platform-specific
+        let path = result.unwrap();
+        if let Some(p) = path {
+            // Verify it's an absolute path
+            assert!(p.as_path().is_absolute());
+        }
+    }
+
+    #[test]
+    fn test_config_dir_empty_env_var() {
+        // Set TURBO_CONFIG_DIR_PATH to empty string
+        unsafe {
+            env::set_var("TURBO_CONFIG_DIR_PATH", "");
+        }
+
+        let result = config_dir();
+        // Empty string should be invalid as it's not an absolute path
+        assert!(result.is_err());
+
+        unsafe {
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_vercel_config_dir_empty_env_var() {
+        // Set VERCEL_CONFIG_DIR_PATH to empty string
+        unsafe {
+            env::set_var("VERCEL_CONFIG_DIR_PATH", "");
+        }
+
+        let result = vercel_config_dir();
+        // Empty string should be invalid as it's not an absolute path
+        assert!(result.is_err());
+
+        unsafe {
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_config_dir_and_vercel_config_dir_independence() {
+        // Test that TURBO_CONFIG_DIR_PATH doesn't affect vercel_config_dir
+        // Use a path that would be created by dirs_config_dir to ensure both succeed
+        let turbo_path = if cfg!(windows) {
+            "C:\\Users\\test\\config"
+        } else {
+            "/Users/test/config"
+        };
+
+        unsafe {
+            env::set_var("TURBO_CONFIG_DIR_PATH", turbo_path);
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+
+        let turbo_result = config_dir();
+        let vercel_result = vercel_config_dir();
+
+        assert!(turbo_result.is_ok(), "turbo_result should be ok");
+        let turbo_path_result = turbo_result.unwrap();
+        assert!(turbo_path_result.is_some(), "turbo path should be some");
+        assert_eq!(turbo_path_result.unwrap().as_str(), turbo_path);
+
+        assert!(vercel_result.is_ok(), "vercel_result should be ok");
+        // vercel_config_dir should return the default, not turbo_path
+        if let Some(vercel_path) = vercel_result.unwrap() {
+            assert_ne!(vercel_path.as_str(), turbo_path);
+        }
+
+        unsafe {
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_vercel_config_dir_and_config_dir_independence() {
+        // Test that VERCEL_CONFIG_DIR_PATH doesn't affect config_dir
+        let vercel_path = if cfg!(windows) {
+            "C:\\Users\\test\\vercel"
+        } else {
+            "/Users/test/vercel"
+        };
+
+        unsafe {
+            env::set_var("VERCEL_CONFIG_DIR_PATH", vercel_path);
+            env::remove_var("TURBO_CONFIG_DIR_PATH");
+        }
+
+        let vercel_result = vercel_config_dir();
+        let turbo_result = config_dir();
+
+        assert!(vercel_result.is_ok(), "vercel_result should be ok");
+        let vercel_path_result = vercel_result.unwrap();
+        assert!(vercel_path_result.is_some(), "vercel path should be some");
+        assert_eq!(vercel_path_result.unwrap().as_str(), vercel_path);
+
+        assert!(turbo_result.is_ok(), "turbo_result should be ok");
+        // config_dir should return the default, not vercel_path
+        if let Some(turbo_path) = turbo_result.unwrap() {
+            assert_ne!(turbo_path.as_str(), vercel_path);
+        }
+
+        unsafe {
+            env::remove_var("VERCEL_CONFIG_DIR_PATH");
+        }
+    }
+
+    #[test]
+    fn test_error_display() {
+        // Test that the Error enum formats correctly
+        let error = Error::ConfigDirNotFound;
+        assert_eq!(error.to_string(), "Config directory not found.");
+    }
+
+    #[test]
+    fn test_error_debug() {
+        // Test that the Error enum can be debug formatted
+        let error = Error::ConfigDirNotFound;
+        let debug_str = format!("{:?}", error);
+        assert!(debug_str.contains("ConfigDirNotFound"));
+    }
+}