diff --git a/.gitignore b/.gitignore
index 40e51d5c4a72..61f01a7c59cf 100644
--- a/.gitignore
+++ b/.gitignore
@@ -49,4 +49,7 @@ vendor/
 !.vscode/cspell.json
 
 # api view file
-*.gosource
\ No newline at end of file
+*.gosource
+
+# Default Test Proxy Assets restore directory
+.assets
diff --git a/eng/scripts/run_tests.ps1 b/eng/scripts/run_tests.ps1
index 2b7feaa968d9..0181e6f1b10f 100644
--- a/eng/scripts/run_tests.ps1
+++ b/eng/scripts/run_tests.ps1
@@ -1,10 +1,13 @@
 #Requires -Version 7.0
 
 Param(
+    [Parameter(Mandatory = $true)]
     [string] $serviceDirectory,
-    [string] $testTimeout
+    [string] $testTimeout = "10s"
 )
 
+$ErrorActionPreference = 'Stop'
+
 Push-Location sdk/$serviceDirectory
 Write-Host "##[command] Executing 'go test -timeout $testTimeout -v -coverprofile coverage.txt ./...' in sdk/$serviceDirectory"
 
@@ -12,7 +15,7 @@ go test -timeout $testTimeout -v -coverprofile coverage.txt ./... | Tee-Object -
 # go test will return a non-zero exit code on test failures so don't skip generating the report in this case
 $GOTESTEXITCODE = $LASTEXITCODE
 
-Get-Content outfile.txt | go-junit-report > report.xml
+Get-Content -Raw outfile.txt | go-junit-report > report.xml
 
 # if no tests were actually run (e.g. examples) delete the coverage file so it's omitted from the coverage report
 if (Select-String -path ./report.xml -pattern '<testsuites></testsuites>' -simplematch -quiet) {
@@ -32,8 +35,8 @@ if (Select-String -path ./report.xml -pattern '<testsuites></testsuites>' -simpl
     Get-Content ./coverage.json | gocov-xml > ./coverage.xml
     Get-Content ./coverage.json | gocov-html > ./coverage.html
 
-    Move-Item ./coverage.xml $repoRoot
-    Move-Item ./coverage.html $repoRoot
+    Move-Item -Force ./coverage.xml $repoRoot
+    Move-Item -Force ./coverage.html $repoRoot
 
     # use internal tool to fail if coverage is too low
     Pop-Location
diff --git a/sdk/internal/CHANGELOG.md b/sdk/internal/CHANGELOG.md
index abad8b877bf6..2689134d2db1 100644
--- a/sdk/internal/CHANGELOG.md
+++ b/sdk/internal/CHANGELOG.md
@@ -1,14 +1,10 @@
 # Release History
 
-## 1.0.2 (Unreleased)
+## 1.1.0 (2022-10-20)
 
 ### Features Added
 
-### Breaking Changes
-
-### Bugs Fixed
-
-### Other Changes
+* Support test recording assets external to repository
 
 ## 1.0.1 (2022-08-22)
 
diff --git a/sdk/internal/recording/recording.go b/sdk/internal/recording/recording.go
index e7ee2bde3fa3..0c0eebcf4911 100644
--- a/sdk/internal/recording/recording.go
+++ b/sdk/internal/recording/recording.go
@@ -14,12 +14,12 @@ import (
 	"errors"
 	"fmt"
 	"io"
+	"io/fs"
 	"log"
 	"math/rand"
 	"net/http"
 	"os"
 	"os/exec"
-	"path"
 	"path/filepath"
 	"runtime"
 	"strconv"
@@ -54,6 +54,7 @@ const (
 	randomSeedVariableName      = "randomSeed"
 	nowVariableName             = "now"
 	ModeEnvironmentVariableName = "AZURE_TEST_MODE"
+	recordingAssetConfigName    = "assets.json"
 )
 
 // Inspired by https://stackoverflow.com/questions/22892120/how-to-generate-a-random-string-of-a-fixed-length-in-go
@@ -574,7 +575,95 @@ func (r RecordingOptions) baseURL() string {
 }
 
 func getTestId(pathToRecordings string, t *testing.T) string {
-	return path.Join(pathToRecordings, "recordings", t.Name()+".json")
+	return filepath.Join(pathToRecordings, "recordings", t.Name()+".json")
+}
+
+func getGitRoot(fromPath string) (string, error) {
+	absPath, err := filepath.Abs(fromPath)
+	if err != nil {
+		return "", err
+	}
+	cmd := exec.Command("git", "rev-parse", "--show-toplevel")
+	cmd.Dir = absPath
+
+	root, err := cmd.CombinedOutput()
+	if err != nil {
+		return "", fmt.Errorf("Unable to find git root for path '%s'", absPath)
+	}
+
+	// Wrap with Abs() to get os-specific path separators to support sub-path matching
+	return filepath.Abs(strings.TrimSpace(string(root)))
+}
+
+// Traverse up from a recording path until an asset config file is found.
+// Stop searching when the root of the git repository is reached.
+func findAssetsConfigFile(fromPath string, untilPath string) (string, error) {
+	absPath, err := filepath.Abs(fromPath)
+	if err != nil {
+		return "", err
+	}
+	assetConfigPath := filepath.Join(absPath, recordingAssetConfigName)
+
+	if _, err := os.Stat(assetConfigPath); err == nil {
+		return assetConfigPath, nil
+	} else if !errors.Is(err, fs.ErrNotExist) {
+		return "", err
+	}
+
+	if absPath == untilPath {
+		return "", nil
+	}
+
+	parentDir := filepath.Dir(absPath)
+	// This shouldn't be hit due to checks in getGitRoot, but it can't hurt to be defensive
+	if parentDir == absPath || parentDir == "." {
+		return "", nil
+	}
+
+	return findAssetsConfigFile(parentDir, untilPath)
+}
+
+// Returns absolute and relative paths to an asset configuration file, or an error.
+func getAssetsConfigLocation(pathToRecordings string) (string, string, error) {
+	cwd, err := os.Getwd()
+	if err != nil {
+		return "", "", err
+	}
+	gitRoot, err := getGitRoot(cwd)
+	if err != nil {
+		return "", "", err
+	}
+	abs, err := findAssetsConfigFile(filepath.Join(gitRoot, pathToRecordings), gitRoot)
+	if err != nil {
+		return "", "", err
+	}
+
+	// Pass a path relative to the git root to test proxy so that paths
+	// can be resolved when the repo root is mounted as a volume in a container
+	rel := strings.Replace(abs, gitRoot, "", 1)
+	rel = strings.TrimLeft(rel, string(os.PathSeparator))
+	return abs, rel, nil
+}
+
+func requestStart(url string, testId string, assetConfigLocation string) (*http.Response, error) {
+	req, err := http.NewRequest("POST", url, nil)
+	if err != nil {
+		return nil, err
+	}
+
+	req.Header.Set("Content-Type", "application/json")
+	reqBody := map[string]string{"x-recording-file": testId}
+	if assetConfigLocation != "" {
+		reqBody["x-recording-assets-file"] = assetConfigLocation
+	}
+	marshalled, err := json.Marshal(reqBody)
+	if err != nil {
+		return nil, err
+	}
+	req.Body = io.NopCloser(bytes.NewReader(marshalled))
+	req.ContentLength = int64(len(marshalled))
+
+	return client.Do(req)
 }
 
 // Start tells the test proxy to begin accepting requests for a given test
@@ -595,25 +684,27 @@ func Start(t *testing.T, pathToRecordings string, options *RecordingOptions) err
 
 	testId := getTestId(pathToRecordings, t)
 
-	url := fmt.Sprintf("%s/%s/start", options.baseURL(), recordMode)
-
-	req, err := http.NewRequest("POST", url, nil)
+	absAssetLocation, relAssetLocation, err := getAssetsConfigLocation(pathToRecordings)
 	if err != nil {
 		return err
 	}
 
-	req.Header.Set("Content-Type", "application/json")
-	marshalled, err := json.Marshal(map[string]string{"x-recording-file": testId})
-	if err != nil {
-		return err
-	}
-	req.Body = io.NopCloser(bytes.NewReader(marshalled))
-	req.ContentLength = int64(len(marshalled))
+	url := fmt.Sprintf("%s/%s/start", options.baseURL(), recordMode)
 
-	resp, err := client.Do(req)
-	if err != nil {
+	var resp *http.Response
+	if absAssetLocation == "" {
+		resp, err = requestStart(url, testId, "")
+		if err != nil {
+			return err
+		}
+	} else if resp, err = requestStart(url, testId, absAssetLocation); err != nil {
 		return err
+	} else if resp.StatusCode >= 400 {
+		if resp, err = requestStart(url, testId, relAssetLocation); err != nil {
+			return err
+		}
 	}
+
 	recId := resp.Header.Get(IDHeader)
 	if recId == "" {
 		b, err := io.ReadAll(resp.Body)
diff --git a/sdk/internal/recording/recording_test.go b/sdk/internal/recording/recording_test.go
index 9e1c1eceb943..233df18b1286 100644
--- a/sdk/internal/recording/recording_test.go
+++ b/sdk/internal/recording/recording_test.go
@@ -550,6 +550,69 @@ func TestHostAndScheme(t *testing.T) {
 	require.Equal(t, r.host(), "localhost:5000")
 }
 
+func TestGitRootDetection(t *testing.T) {
+	cwd, err := os.Getwd()
+	require.NoError(t, err)
+	gitRoot, err := getGitRoot(cwd)
+	require.NoError(t, err)
+
+	parentDir := filepath.Dir(gitRoot)
+	_, err = getGitRoot(parentDir)
+	require.Error(t, err)
+}
+
+func TestRecordingAssetConfigNotExist(t *testing.T) {
+	absPath, relPath, err := getAssetsConfigLocation(".")
+	require.NoError(t, err)
+	require.Equal(t, "", absPath)
+	require.Equal(t, "", relPath)
+}
+
+func TestRecordingAssetConfigOutOfBounds(t *testing.T) {
+	cwd, err := os.Getwd()
+	require.NoError(t, err)
+	gitRoot, err := getGitRoot(cwd)
+	require.NoError(t, err)
+	parentDir := filepath.Dir(gitRoot)
+
+	absPath, err := findAssetsConfigFile(parentDir, gitRoot)
+	require.NoError(t, err)
+	require.Equal(t, "", absPath)
+}
+
+func TestRecordingAssetConfig(t *testing.T) {
+	cases := []struct{ expectedDirectory, searchDirectory, testFileLocation string }{
+		{"sdk/internal/recording", "sdk/internal/recording", recordingAssetConfigName},
+		{"sdk/internal/recording", "sdk/internal/recording/", recordingAssetConfigName},
+		{"sdk/internal", "sdk/internal/recording", "../" + recordingAssetConfigName},
+		{"sdk/internal", "sdk/internal/recording/", "../" + recordingAssetConfigName},
+	}
+
+	cwd, err := os.Getwd()
+	require.NoError(t, err)
+	gitRoot, err := getGitRoot(cwd)
+	require.NoError(t, err)
+
+	for _, c := range cases {
+		_ = os.Remove(c.testFileLocation)
+		o, err := os.Create(c.testFileLocation)
+		require.NoError(t, err)
+		o.Close()
+
+		absPath, relPath, err := getAssetsConfigLocation(c.searchDirectory)
+		// Clean up first in case of an assertion panic
+		require.NoError(t, os.Remove(c.testFileLocation))
+		require.NoError(t, err)
+
+		expected := c.expectedDirectory + string(os.PathSeparator) + recordingAssetConfigName
+		expected = strings.ReplaceAll(expected, "/", string(os.PathSeparator))
+		require.Equal(t, expected, relPath)
+
+		absPathExpected := filepath.Join(gitRoot, expected)
+		require.Equal(t, absPathExpected, absPath)
+	}
+}
+
 func TestFindProxyCertLocation(t *testing.T) {
 	savedValue, ok := os.LookupEnv("PROXY_CERT")
 	if ok {
diff --git a/sdk/internal/version.go b/sdk/internal/version.go
index f7458f8f5809..5cefa9894960 100644
--- a/sdk/internal/version.go
+++ b/sdk/internal/version.go
@@ -11,5 +11,5 @@ const (
 	Module = "internal"
 
 	// Version is the semantic version (see http://semver.org) of this module.
-	Version = "v1.0.2"
+	Version = "v1.1.0"
 )