diff --git a/core/config/project_settings.cpp b/core/config/project_settings.cpp
index 715ed6177033..8bde75d3642b 100644
--- a/core/config/project_settings.cpp
+++ b/core/config/project_settings.cpp
@@ -146,30 +146,30 @@ const PackedStringArray ProjectSettings::_trim_to_supported_features(const Packe
 #endif // TOOLS_ENABLED
 
 String ProjectSettings::localize_path(const String &p_path) const {
-	if (resource_path.is_empty() || (p_path.is_absolute_path() && !p_path.begins_with(resource_path))) {
-		return p_path.simplify_path();
+	String path = p_path.simplify_path();
+
+	if (resource_path.is_empty() || (path.is_absolute_path() && !path.begins_with(resource_path))) {
+		return path;
 	}
 
 	// Check if we have a special path (like res://) or a protocol identifier.
-	int p = p_path.find("://");
+	int p = path.find("://");
 	bool found = false;
 	if (p > 0) {
 		found = true;
 		for (int i = 0; i < p; i++) {
-			if (!is_ascii_alphanumeric_char(p_path[i])) {
+			if (!is_ascii_alphanumeric_char(path[i])) {
 				found = false;
 				break;
 			}
 		}
 	}
 	if (found) {
-		return p_path.simplify_path();
+		return path;
 	}
 
 	Ref<DirAccess> dir = DirAccess::create(DirAccess::ACCESS_FILESYSTEM);
 
-	String path = p_path.replace("\\", "/").simplify_path();
-
 	if (dir->change_dir(path) == OK) {
 		String cwd = dir->get_current_dir();
 		cwd = cwd.replace("\\", "/");
@@ -187,7 +187,7 @@ String ProjectSettings::localize_path(const String &p_path) const {
 		cwd = cwd.path_join("");
 
 		if (!cwd.begins_with(res_path)) {
-			return p_path;
+			return path;
 		}
 
 		return cwd.replace_first(res_path, "res://");
diff --git a/core/config/project_settings.h b/core/config/project_settings.h
index b89e6694b0c6..a1f52fa1e0eb 100644
--- a/core/config/project_settings.h
+++ b/core/config/project_settings.h
@@ -43,6 +43,7 @@ class TypedArray;
 class ProjectSettings : public Object {
 	GDCLASS(ProjectSettings, Object);
 	_THREAD_SAFE_CLASS_
+	friend class TestProjectSettingsInternalsAccessor;
 
 public:
 	typedef HashMap<String, Variant> CustomMap;
diff --git a/tests/core/config/test_project_settings.h b/tests/core/config/test_project_settings.h
index 1deafccde1a7..9bd072f51112 100644
--- a/tests/core/config/test_project_settings.h
+++ b/tests/core/config/test_project_settings.h
@@ -32,9 +32,17 @@
 #define TEST_PROJECT_SETTINGS_H
 
 #include "core/config/project_settings.h"
+#include "core/io/dir_access.h"
 #include "core/variant/variant.h"
 #include "tests/test_macros.h"
 
+class TestProjectSettingsInternalsAccessor {
+public:
+	static String &resource_path() {
+		return ProjectSettings::get_singleton()->resource_path;
+	};
+};
+
 namespace TestProjectSettings {
 
 TEST_CASE("[ProjectSettings] Get existing setting") {
@@ -97,6 +105,58 @@ TEST_CASE("[ProjectSettings] Set value should be returned when retrieved") {
 	CHECK(ProjectSettings::get_singleton()->has_setting("my_custom_setting"));
 }
 
+TEST_CASE("[ProjectSettings] localize_path") {
+	String old_resource_path = TestProjectSettingsInternalsAccessor::resource_path();
+	TestProjectSettingsInternalsAccessor::resource_path() = DirAccess::create(DirAccess::ACCESS_FILESYSTEM)->get_current_dir();
+	String root_path = ProjectSettings::get_singleton()->get_resource_path();
+#ifdef WINDOWS_ENABLED
+	String root_path_win = ProjectSettings::get_singleton()->get_resource_path().replace("/", "\\");
+#endif
+
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("filename"), "res://filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path/filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path/something/../filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path/./filename"), "res://path/filename");
+#ifdef WINDOWS_ENABLED
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path\\filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path\\something\\..\\filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("path\\.\\filename"), "res://path/filename");
+#endif
+
+	// FIXME?: These checks pass, but that doesn't seems correct
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("../filename"), "res://filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("../path/filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("..\\path\\filename"), "res://path/filename");
+
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("/testroot/filename"), "/testroot/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("/testroot/path/filename"), "/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("/testroot/path/something/../filename"), "/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("/testroot/path/./filename"), "/testroot/path/filename");
+#ifdef WINDOWS_ENABLED
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:/testroot/filename"), "C:/testroot/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:/testroot/path/filename"), "C:/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:/testroot/path/something/../filename"), "C:/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:/testroot/path/./filename"), "C:/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:\\testroot\\filename"), "C:/testroot/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:\\testroot\\path\\filename"), "C:/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:\\testroot\\path\\something\\..\\filename"), "C:/testroot/path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path("C:\\testroot\\path\\.\\filename"), "C:/testroot/path/filename");
+#endif
+
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path + "/filename"), "res://filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path + "/path/filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path + "/path/something/../filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path + "/path/./filename"), "res://path/filename");
+#ifdef WINDOWS_ENABLED
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path_win + "\\filename"), "res://filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path_win + "\\path\\filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path_win + "\\path\\something\\..\\filename"), "res://path/filename");
+	CHECK_EQ(ProjectSettings::get_singleton()->localize_path(root_path_win + "\\path\\.\\filename"), "res://path/filename");
+#endif
+
+	TestProjectSettingsInternalsAccessor::resource_path() = old_resource_path;
+}
+
 } // namespace TestProjectSettings
 
 #endif // TEST_PROJECT_SETTINGS_H