diff --git a/CHANGELOG.md b/CHANGELOG.md
index 39f0223e4a..7734a45fe4 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -102,6 +102,9 @@ Other changes:
 * (bootstrap) Fixed incorrect runfiles path construction in bootstrap
   scripts when binary is defined in another bazel module
   ([#3563](https://github.com/bazel-contrib/rules_python/issues/3563)).
+* (bootstrap) Resolve `RUNFILES_DIR` inheritance issues, which lead to a child
+  Python binary incorrectly using it's parent's Python binary environment
+  ([#3518](https://github.com/bazel-contrib/rules_python/issues/3518)).
 * (uv) Downloads for versions `>=0.10` work again. In order to fix this we had
   drop support for `powerpc64` platform. People interested in the platform can
   bring it back via the `uv.default` API. Like:
diff --git a/python/private/python_bootstrap_template.txt b/python/private/python_bootstrap_template.txt
index 4efd46690a..51c9013e9d 100644
--- a/python/private/python_bootstrap_template.txt
+++ b/python/private/python_bootstrap_template.txt
@@ -214,6 +214,13 @@ def find_runfiles_root(main_rel_path):
   if runfiles_dir and os.path.exists(os.path.join(runfiles_dir, main_rel_path)):
     return runfiles_dir
 
+  # Clear RUNFILES_DIR & RUNFILES_MANIFEST_FILE since the runfiles dir was
+  # not found. These can be correctly set for a parent Python process, but
+  # inherited by the child, and not correct for it. Later bootstrap code
+  # assumes they're are correct if set.
+  os.environ.pop('RUNFILES_DIR', None)
+  os.environ.pop('RUNFILES_MANIFEST_FILE', None)
+
   stub_filename = sys.argv[0]
   # On Windows, the path may contain both forward and backslashes.
   # Normalize to the OS separator because the regex used later assumes
diff --git a/python/private/stage2_bootstrap_template.py b/python/private/stage2_bootstrap_template.py
index c03a4a2e62..3c2d6807cc 100644
--- a/python/private/stage2_bootstrap_template.py
+++ b/python/private/stage2_bootstrap_template.py
@@ -185,6 +185,13 @@ def find_runfiles_root(main_rel_path):
     if runfiles_dir and os.path.exists(os.path.join(runfiles_dir, main_rel_path)):
         return runfiles_dir
 
+    # Clear RUNFILES_DIR & RUNFILES_MANIFEST_FILE since the runfiles dir was
+    # not found. These can be correctly set for a parent Python process, but
+    # inherited by the child, and not correct for it. Later bootstrap code
+    # assumes they're are correct if set.
+    os.environ.pop('RUNFILES_DIR', None)
+    os.environ.pop('RUNFILES_MANIFEST_FILE', None)
+
     stub_filename = sys.argv[0]
     if not os.path.isabs(stub_filename):
         stub_filename = os.path.join(os.getcwd(), stub_filename)
diff --git a/tests/bootstrap_impls/bin_calls_bin/BUILD.bazel b/tests/bootstrap_impls/bin_calls_bin/BUILD.bazel
index 1822ccd08e..b5ba68f987 100644
--- a/tests/bootstrap_impls/bin_calls_bin/BUILD.bazel
+++ b/tests/bootstrap_impls/bin_calls_bin/BUILD.bazel
@@ -1,7 +1,14 @@
 load("@rules_shell//shell:sh_test.bzl", "sh_test")
+load("//python:py_library.bzl", "py_library")
 load("//tests/support:py_reconfig.bzl", "py_reconfig_binary")
 load("//tests/support:support.bzl", "NOT_WINDOWS", "SUPPORTS_BOOTSTRAP_SCRIPT")
 
+py_library(
+    name = "inner_lib",
+    srcs = ["inner_lib.py"],
+    tags = ["manual"],
+)
+
 # =====
 # bootstrap_impl=system_python testing
 # =====
@@ -19,6 +26,7 @@ py_reconfig_binary(
     bootstrap_impl = "system_python",
     main = "inner.py",
     tags = ["manual"],
+    deps = [":inner_lib"],
 )
 
 genrule(
@@ -54,6 +62,7 @@ py_reconfig_binary(
     bootstrap_impl = "script",
     main = "inner.py",
     tags = ["manual"],
+    deps = [":inner_lib"],
 )
 
 py_reconfig_binary(
diff --git a/tests/bootstrap_impls/bin_calls_bin/inner.py b/tests/bootstrap_impls/bin_calls_bin/inner.py
index 96409eb8f8..6fef455a84 100644
--- a/tests/bootstrap_impls/bin_calls_bin/inner.py
+++ b/tests/bootstrap_impls/bin_calls_bin/inner.py
@@ -1,4 +1,14 @@
 import os
 
 runfiles_root = os.environ.get("RULES_PYTHON_TESTING_RUNFILES_ROOT")
+runfiles_dir = os.environ.get("RUNFILES_DIR")
+runfiles_manifest_file = os.environ.get("RUNFILES_MANIFEST_FILE")
 print(f"inner: RULES_PYTHON_TESTING_RUNFILES_ROOT='{runfiles_root}'")
+print(f"inner: RUNFILES_DIR='{runfiles_dir}'")
+print(f"inner: RUNFILES_MANIFEST_FILE='{runfiles_manifest_file}'")
+
+try:
+    import tests.bootstrap_impls.bin_calls_bin.inner_lib as inner_lib
+    print(f"inner: import_result='{inner_lib.confirm()}'")
+except ImportError as e:
+    print(f"inner: import_result='{e}'")
diff --git a/tests/bootstrap_impls/bin_calls_bin/inner_lib.py b/tests/bootstrap_impls/bin_calls_bin/inner_lib.py
new file mode 100644
index 0000000000..97efbb1565
--- /dev/null
+++ b/tests/bootstrap_impls/bin_calls_bin/inner_lib.py
@@ -0,0 +1,3 @@
+# Rather than having a completely empty file...
+def confirm():
+    return "success"
\ No newline at end of file
diff --git a/tests/bootstrap_impls/bin_calls_bin/outer.py b/tests/bootstrap_impls/bin_calls_bin/outer.py
index f995c24ff6..a4432dff59 100644
--- a/tests/bootstrap_impls/bin_calls_bin/outer.py
+++ b/tests/bootstrap_impls/bin_calls_bin/outer.py
@@ -11,8 +11,8 @@
         [inner_binary_path],
         capture_output=True,
         text=True,
-        check=True,
     )
     print(result.stdout, end="")
     if result.stderr:
         print(result.stderr, end="", file=sys.stderr)
+    sys.exit(result.returncode)
diff --git a/tests/bootstrap_impls/bin_calls_bin/verify.sh b/tests/bootstrap_impls/bin_calls_bin/verify.sh
index 9a9a17c6c6..bbe4252cc1 100755
--- a/tests/bootstrap_impls/bin_calls_bin/verify.sh
+++ b/tests/bootstrap_impls/bin_calls_bin/verify.sh
@@ -11,6 +11,18 @@ verify_output() {
   echo "Outer runfiles root: $OUTER_RUNFILES_ROOT"
   echo "Inner runfiles root: $INNER_RUNFILES_ROOT"
 
+  # Extract the inner runfiles values
+  local INNER_RUNFILES_DIR=$(grep "inner: RUNFILES_DIR" "$OUTPUT_FILE" | sed "s/inner: RUNFILES_DIR='\(.*\)'/\1/")
+  local INNER_RUNFILES_MANIFEST_FILE=$(grep "inner: RUNFILES_MANIFEST_FILE" "$OUTPUT_FILE" | sed "s/inner: RUNFILES_MANIFEST_FILE='\(.*\)'/\1/")
+
+  echo "Inner runfiles dir: $INNER_RUNFILES_DIR"
+  echo "Inner runfiles manifest file: $INNER_RUNFILES_MANIFEST_FILE"
+
+  # Extract the inner lib import result
+  local INNER_LIB_IMPORT=$(grep "inner: import_result" "$OUTPUT_FILE" | sed "s/inner: import_result='\(.*\)'/\1/")
+  echo "Inner lib import result: $INNER_LIB_IMPORT"
+
+
   # Check 1: The two values are different
   if [ "$OUTER_RUNFILES_ROOT" == "$INNER_RUNFILES_ROOT" ]; then
     echo "Error: Outer and Inner runfiles roots are the same."
@@ -28,5 +40,11 @@ verify_output() {
       ;;
   esac
 
+  # Check 3: inner_lib was imported
+  if [ "$INNER_LIB_IMPORT" != "success" ]; then
+    echo "Error: Inner lib was not successfully imported."
+    exit 1
+  fi
+
   echo "Verification successful."
 }