diff --git a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
index a8bf65de..595620ad 100644
--- a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
+++ b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
@@ -108,6 +108,17 @@ def _find_bundled_cli(self) -> str | None:
 
         return None
 
+    def _resolve_settings_path(self, path_str: str) -> Path:
+        """Resolve a settings file path.
+
+        Relative paths are resolved against `options.cwd` when provided to keep
+        behavior consistent with how the CLI itself resolves paths.
+        """
+        path = Path(path_str).expanduser()
+        if not path.is_absolute() and self._cwd:
+            path = Path(self._cwd) / path
+        return path
+
     def _build_settings_value(self) -> str | None:
         """Build settings value, merging sandbox settings if provided.
 
@@ -143,13 +154,13 @@ def _build_settings_value(self) -> str | None:
                         f"Failed to parse settings as JSON, treating as file path: {settings_str}"
                     )
                     # Read the file
-                    settings_path = Path(settings_str)
+                    settings_path = self._resolve_settings_path(settings_str)
                     if settings_path.exists():
                         with settings_path.open(encoding="utf-8") as f:
                             settings_obj = json.load(f)
             else:
                 # It's a file path - read and parse
-                settings_path = Path(settings_str)
+                settings_path = self._resolve_settings_path(settings_str)
                 if settings_path.exists():
                     with settings_path.open(encoding="utf-8") as f:
                         settings_obj = json.load(f)
diff --git a/tests/test_transport.py b/tests/test_transport.py
index 13657e0e..ef74685d 100644
--- a/tests/test_transport.py
+++ b/tests/test_transport.py
@@ -844,6 +844,33 @@ def test_build_command_with_sandbox_and_settings_json(self):
         assert parsed["sandbox"]["enabled"] is True
         assert parsed["sandbox"]["excludedCommands"] == ["git", "docker"]
 
+    def test_build_command_with_sandbox_and_relative_settings_file_uses_cwd(
+        self, tmp_path
+    ):
+        """Test sandbox+settings resolves relative paths against cwd before merging."""
+        import json
+
+        settings_path = tmp_path / "settings.json"
+        settings_path.write_text(
+            json.dumps({"permissions": {"allow": ["Read"]}}), encoding="utf-8"
+        )
+
+        transport = SubprocessCLITransport(
+            prompt="test",
+            options=make_options(
+                cwd=tmp_path,
+                settings="settings.json",
+                sandbox={"enabled": True},
+            ),
+        )
+
+        cmd = transport._build_command()
+        settings_idx = cmd.index("--settings")
+        merged = json.loads(cmd[settings_idx + 1])
+
+        assert merged["permissions"] == {"allow": ["Read"]}
+        assert merged["sandbox"] == {"enabled": True}
+
     def test_build_command_with_settings_file_and_no_sandbox(self):
         """Test that settings file path is passed through when no sandbox."""
         transport = SubprocessCLITransport(