diff --git a/lib/src/git_backend.rs b/lib/src/git_backend.rs
index 85816e5b3..38cf285e7 100644
--- a/lib/src/git_backend.rs
+++ b/lib/src/git_backend.rs
@@ -75,14 +75,13 @@ impl GitBackend {
     }
 
     pub fn init_external(store_path: PathBuf, git_repo_path: PathBuf) -> Self {
-        let git_repo_path = std::fs::canonicalize(git_repo_path).unwrap();
         let extra_path = store_path.join("extra");
         std::fs::create_dir(&extra_path).unwrap();
         let mut git_target_file = File::create(store_path.join("git_target")).unwrap();
         git_target_file
             .write_all(git_repo_path.to_str().unwrap().as_bytes())
             .unwrap();
-        let repo = git2::Repository::open(git_repo_path).unwrap();
+        let repo = git2::Repository::open(store_path.join(git_repo_path)).unwrap();
         let extra_metadata_store = TableStore::init(extra_path, HASH_LENGTH);
         GitBackend::new(repo, extra_metadata_store)
     }
diff --git a/src/commands.rs b/src/commands.rs
index 5a7268bde..0b09e8870 100644
--- a/src/commands.rs
+++ b/src/commands.rs
@@ -1731,12 +1731,22 @@ fn cmd_init(ui: &mut Ui, command: &CommandHelper, args: &ArgMatches) -> Result<(
     } else {
         fs::create_dir(&wc_path).unwrap();
     }
+    let wc_path = std::fs::canonicalize(&wc_path).unwrap();
 
     if let Some(git_store_str) = args.value_of("git-repo") {
         let mut git_store_path = ui.cwd().join(git_store_str);
         if !git_store_path.ends_with(".git") {
             git_store_path = git_store_path.join(".git");
         }
+        git_store_path = std::fs::canonicalize(&git_store_path).unwrap();
+        // If the git repo is inside the workspace, use a relative path to it so the
+        // whole workspace can be moved without breaking.
+        if let Ok(relative_path) = git_store_path.strip_prefix(&wc_path) {
+            git_store_path = PathBuf::from("..")
+                .join("..")
+                .join("..")
+                .join(relative_path.to_path_buf());
+        }
         let (workspace, repo) =
             Workspace::init_external_git(ui.settings(), wc_path.clone(), git_store_path)?;
         let git_repo = repo.store().git_repo().unwrap();
diff --git a/tests/test_init_command.rs b/tests/test_init_command.rs
index 521fb99f0..731892a4a 100644
--- a/tests/test_init_command.rs
+++ b/tests/test_init_command.rs
@@ -21,18 +21,18 @@ fn test_init_git_internal() {
         .jj_cmd(test_env.env_root(), &["init", "repo", "--git"])
         .assert()
         .success();
-
     let workspace_root = test_env.env_root().join("repo");
+    assert.stdout(format!(
+        "Initialized repo in \"{}\"\n",
+        workspace_root.to_str().unwrap()
+    ));
+
     let jj_path = workspace_root.join(".jj");
     let repo_path = jj_path.join("repo");
     let store_path = repo_path.join("store");
     assert!(workspace_root.is_dir());
     assert!(jj_path.is_dir());
     assert!(jj_path.join("working_copy").is_dir());
-    assert.stdout(format!(
-        "Initialized repo in \"{}\"\n",
-        workspace_root.to_str().unwrap()
-    ));
     assert!(repo_path.is_dir());
     assert!(store_path.is_dir());
     assert!(store_path.join("git").is_dir());
@@ -45,7 +45,8 @@ fn test_init_git_internal() {
 fn test_init_git_external() {
     let test_env = TestEnvironment::default();
     let git_repo_path = test_env.env_root().join("git-repo");
-    git2::Repository::init(git_repo_path.clone()).unwrap();
+    git2::Repository::init(&git_repo_path).unwrap();
+
     let assert = test_env
         .jj_cmd(
             test_env.env_root(),
@@ -58,18 +59,18 @@ fn test_init_git_external() {
         )
         .assert()
         .success();
-
     let workspace_root = test_env.env_root().join("repo");
+    assert.stdout(format!(
+        "Initialized repo in \"{}\"\n",
+        workspace_root.display()
+    ));
+
     let jj_path = workspace_root.join(".jj");
     let repo_path = jj_path.join("repo");
     let store_path = repo_path.join("store");
     assert!(workspace_root.is_dir());
     assert!(jj_path.is_dir());
     assert!(jj_path.join("working_copy").is_dir());
-    assert.stdout(format!(
-        "Initialized repo in \"{}\"\n",
-        workspace_root.display()
-    ));
     assert!(repo_path.is_dir());
     assert!(store_path.is_dir());
     let git_target_file_contents = std::fs::read_to_string(store_path.join("git_target")).unwrap();
@@ -79,24 +80,52 @@ fn test_init_git_external() {
 }
 
 #[test]
-fn test_init_local() {
+fn test_init_git_colocated() {
     let test_env = TestEnvironment::default();
+    let workspace_root = test_env.env_root().join("repo");
+    git2::Repository::init(&workspace_root).unwrap();
     let assert = test_env
-        .jj_cmd(test_env.env_root(), &["init", "repo"])
+        .jj_cmd(&workspace_root, &["init", "--git-repo", "."])
         .assert()
         .success();
+    assert.stdout(format!(
+        "Initialized repo in \"{}\"\n",
+        workspace_root.display()
+    ));
 
-    let workspace_root = test_env.env_root().join("repo");
     let jj_path = workspace_root.join(".jj");
     let repo_path = jj_path.join("repo");
     let store_path = repo_path.join("store");
     assert!(workspace_root.is_dir());
     assert!(jj_path.is_dir());
     assert!(jj_path.join("working_copy").is_dir());
+    assert!(repo_path.is_dir());
+    assert!(store_path.is_dir());
+    let git_target_file_contents = std::fs::read_to_string(store_path.join("git_target")).unwrap();
+    assert!(git_target_file_contents
+        .replace('\\', "/")
+        .ends_with("../../../.git"));
+}
+
+#[test]
+fn test_init_local() {
+    let test_env = TestEnvironment::default();
+    let assert = test_env
+        .jj_cmd(test_env.env_root(), &["init", "repo"])
+        .assert()
+        .success();
+    let workspace_root = test_env.env_root().join("repo");
     assert.stdout(format!(
         "Initialized repo in \"{}\"\n",
         workspace_root.display()
     ));
+
+    let jj_path = workspace_root.join(".jj");
+    let repo_path = jj_path.join("repo");
+    let store_path = repo_path.join("store");
+    assert!(workspace_root.is_dir());
+    assert!(jj_path.is_dir());
+    assert!(jj_path.join("working_copy").is_dir());
     assert!(repo_path.is_dir());
     assert!(store_path.is_dir());
     assert!(store_path.join("commits").is_dir());