diff --git a/CHANGELOG.md b/CHANGELOG.md
index 76e298a55..2f4cd1a43 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -56,6 +56,10 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 * SSH authentication can now use ed25519 and ed25519-sk keys. They still need
   to be password-less.
 
+* Git repository managed by the repo tool can now be detected as a "colocated"
+  repository.
+  [#2011](https://github.com/martinvonz/jj/issues/2011)
+
 ## [0.8.0] - 2023-07-09
 
 ### Breaking changes
diff --git a/cli/src/cli_util.rs b/cli/src/cli_util.rs
index acc10bf8c..36a947609 100644
--- a/cli/src/cli_util.rs
+++ b/cli/src/cli_util.rs
@@ -696,14 +696,7 @@ impl WorkspaceCommandHelper {
         )?;
         let loaded_at_head = command.global_args.at_operation == "@";
         let may_update_working_copy = loaded_at_head && !command.global_args.ignore_working_copy;
-        let mut working_copy_shared_with_git = false;
-        let maybe_git_backend = repo.store().backend_impl().downcast_ref::<GitBackend>();
-        if let Some(git_workdir) = maybe_git_backend
-            .and_then(|git_backend| git_backend.git_repo().workdir().map(ToOwned::to_owned))
-            .and_then(|workdir| workdir.canonicalize().ok())
-        {
-            working_copy_shared_with_git = git_workdir == workspace.workspace_root().as_path();
-        }
+        let working_copy_shared_with_git = is_colocated_git_workspace(&workspace, &repo);
         Ok(Self {
             cwd: command.cwd.clone(),
             string_args: command.string_args.clone(),
@@ -1599,6 +1592,23 @@ jj init --git-repo=.",
     }
 }
 
+fn is_colocated_git_workspace(workspace: &Workspace, repo: &ReadonlyRepo) -> bool {
+    let Some(git_backend) = repo.store().backend_impl().downcast_ref::<GitBackend>() else {
+        return false;
+    };
+    let git_repo = git_backend.git_repo();
+    let Some(git_workdir) = git_repo.workdir().and_then(|path| path.canonicalize().ok()) else {
+        return false; // Bare repository
+    };
+    // Colocated workspace should have ".git" directory, file, or symlink. Since the
+    // backend is loaded from the canonical path, its working directory should also
+    // be resolved from the canonical ".git" path.
+    let Ok(dot_git_path) = workspace.workspace_root().join(".git").canonicalize() else {
+        return false;
+    };
+    Some(git_workdir.as_ref()) == dot_git_path.parent()
+}
+
 pub fn start_repo_transaction(
     repo: &Arc<ReadonlyRepo>,
     settings: &UserSettings,
diff --git a/cli/tests/test_init_command.rs b/cli/tests/test_init_command.rs
index fe3afdbce..7162742dd 100644
--- a/cli/tests/test_init_command.rs
+++ b/cli/tests/test_init_command.rs
@@ -12,7 +12,7 @@
 // See the License for the specific language governing permissions and
 // limitations under the License.
 
-use std::path::PathBuf;
+use std::path::Path;
 
 use test_case::test_case;
 
@@ -20,10 +20,12 @@ use crate::common::TestEnvironment;
 
 pub mod common;
 
-fn init_git_repo(git_repo_path: &PathBuf, bare: bool) {
-    let git_repo =
-        git2::Repository::init_opts(git_repo_path, git2::RepositoryInitOptions::new().bare(bare))
-            .unwrap();
+fn init_git_repo(git_repo_path: &Path, bare: bool) {
+    init_git_repo_with_opts(git_repo_path, git2::RepositoryInitOptions::new().bare(bare));
+}
+
+fn init_git_repo_with_opts(git_repo_path: &Path, opts: &git2::RepositoryInitOptions) {
+    let git_repo = git2::Repository::init_opts(git_repo_path, opts).unwrap();
     let git_blob_oid = git_repo.blob(b"some content").unwrap();
     let mut git_tree_builder = git_repo.treebuilder(None).unwrap();
     git_tree_builder
@@ -185,6 +187,152 @@ fn test_init_git_colocated() {
     │  My commit message
     ~
     "###);
+
+    // Check that the Git repo's HEAD moves
+    test_env.jj_cmd_success(&workspace_root, &["new"]);
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  sqpuoqvx test.user@example.com 2001-02-03 04:05:07.000 +07:00 HEAD@git f61b77cd
+    │  (no description set)
+    ~
+    "###);
+}
+
+#[test]
+fn test_init_git_colocated_gitlink() {
+    let test_env = TestEnvironment::default();
+    // <workspace_root>/.git -> <git_repo_path>
+    let git_repo_path = test_env.env_root().join("git-repo");
+    let workspace_root = test_env.env_root().join("repo");
+    init_git_repo_with_opts(
+        &git_repo_path,
+        git2::RepositoryInitOptions::new().workdir_path(&workspace_root),
+    );
+    assert!(workspace_root.join(".git").is_file());
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["init", "--git-repo", "."]);
+    insta::assert_snapshot!(stdout, @r###"
+    Initialized repo in "."
+    "###);
+
+    // Check that the Git repo's HEAD got checked out
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  mwrttmos git.user@example.com 1970-01-01 01:02:03.000 +01:00 my-branch HEAD@git 8d698d4a
+    │  My commit message
+    ~
+    "###);
+
+    // Check that the Git repo's HEAD moves
+    test_env.jj_cmd_success(&workspace_root, &["new"]);
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  sqpuoqvx test.user@example.com 2001-02-03 04:05:07.000 +07:00 HEAD@git f61b77cd
+    │  (no description set)
+    ~
+    "###);
+}
+
+#[cfg(unix)]
+#[test]
+fn test_init_git_colocated_symlink_directory() {
+    let test_env = TestEnvironment::default();
+    // <workspace_root>/.git -> <git_repo_path>
+    let git_repo_path = test_env.env_root().join("git-repo");
+    let workspace_root = test_env.env_root().join("repo");
+    init_git_repo(&git_repo_path, false);
+    std::fs::create_dir(&workspace_root).unwrap();
+    std::os::unix::fs::symlink(git_repo_path.join(".git"), workspace_root.join(".git")).unwrap();
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["init", "--git-repo", "."]);
+    insta::assert_snapshot!(stdout, @r###"
+    Initialized repo in "."
+    "###);
+
+    // Check that the Git repo's HEAD got checked out
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  mwrttmos git.user@example.com 1970-01-01 01:02:03.000 +01:00 my-branch HEAD@git 8d698d4a
+    │  My commit message
+    ~
+    "###);
+
+    // Check that the Git repo's HEAD moves
+    test_env.jj_cmd_success(&workspace_root, &["new"]);
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  sqpuoqvx test.user@example.com 2001-02-03 04:05:07.000 +07:00 HEAD@git f61b77cd
+    │  (no description set)
+    ~
+    "###);
+}
+
+#[cfg(unix)]
+#[test]
+fn test_init_git_colocated_symlink_gitlink() {
+    let test_env = TestEnvironment::default();
+    // <workspace_root>/.git -> <git_workdir_path>/.git -> <git_repo_path>
+    let git_repo_path = test_env.env_root().join("git-repo");
+    let git_workdir_path = test_env.env_root().join("git-workdir");
+    let workspace_root = test_env.env_root().join("repo");
+    init_git_repo_with_opts(
+        &git_repo_path,
+        git2::RepositoryInitOptions::new().workdir_path(&git_workdir_path),
+    );
+    assert!(git_workdir_path.join(".git").is_file());
+    std::fs::create_dir(&workspace_root).unwrap();
+    std::os::unix::fs::symlink(git_workdir_path.join(".git"), workspace_root.join(".git")).unwrap();
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["init", "--git-repo", "."]);
+    insta::assert_snapshot!(stdout, @r###"
+    Initialized repo in "."
+    "###);
+
+    // Check that the Git repo's HEAD got checked out
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  mwrttmos git.user@example.com 1970-01-01 01:02:03.000 +01:00 my-branch HEAD@git 8d698d4a
+    │  My commit message
+    ~
+    "###);
+
+    // Check that the Git repo's HEAD moves
+    test_env.jj_cmd_success(&workspace_root, &["new"]);
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  sqpuoqvx test.user@example.com 2001-02-03 04:05:07.000 +07:00 HEAD@git f61b77cd
+    │  (no description set)
+    ~
+    "###);
+}
+
+#[test]
+fn test_init_git_external_but_git_dir_exists() {
+    let test_env = TestEnvironment::default();
+    let git_repo_path = test_env.env_root().join("git-repo");
+    let workspace_root = test_env.env_root().join("repo");
+    git2::Repository::init(&git_repo_path).unwrap();
+    init_git_repo(&workspace_root, false);
+    let stdout = test_env.jj_cmd_success(
+        &workspace_root,
+        &["init", "--git-repo", git_repo_path.to_str().unwrap()],
+    );
+    insta::assert_snapshot!(stdout, @r###"
+    Initialized repo in "."
+    "###);
+
+    // The local ".git" repository is unrelated, so no commits should be imported
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  zzzzzzzz 1970-01-01 00:00:00.000 +00:00 00000000
+       (empty) (no description set)
+    "###);
+
+    // Check that Git HEAD is not set because this isn't a colocated repo
+    test_env.jj_cmd_success(&workspace_root, &["new"]);
+    let stdout = test_env.jj_cmd_success(&workspace_root, &["log", "-r", "@-"]);
+    insta::assert_snapshot!(stdout, @r###"
+    ◉  qpvuntsm test.user@example.com 2001-02-03 04:05:07.000 +07:00 230dd059
+    │  (empty) (no description set)
+    ~
+    "###);
 }
 
 #[test]