diff --git a/.github/workflows/test.yml b/.github/workflows/test.yml
index 2a2c254..ad1df46 100644
--- a/.github/workflows/test.yml
+++ b/.github/workflows/test.yml
@@ -386,6 +386,50 @@ jobs:
         env:
           UV_VENV: ${{ steps.setup-uv.outputs.venv }}
 
+  test-activate-environment-custom-path:
+    runs-on: ${{ matrix.os }}
+    strategy:
+      matrix:
+        os: [ubuntu-latest, macos-latest, windows-latest]
+    steps:
+      - uses: actions/checkout@8e8c483db84b4bee98b60c0593521ed34d9990e8 # v6.0.1
+        with:
+          persist-credentials: false
+      - name: Install latest version
+        id: setup-uv
+        uses: ./
+        with:
+          python-version: 3.13.1t
+          activate-environment: true
+          venv-path: ${{ runner.temp }}/custom-venv
+      - name: Verify VIRTUAL_ENV points to custom path
+        run: |
+          if [[ "$VIRTUAL_ENV" != "${{ runner.temp }}/custom-venv" ]]; then
+            echo "VIRTUAL_ENV is not set to custom path: $VIRTUAL_ENV"
+            exit 1
+          fi
+        shell: bash
+      - name: Verify packages can be installed
+        run: uv pip install pip
+        shell: bash
+      - name: Verify python runs from custom venv
+        run: |
+          PYTHON_PATH=$(which python)
+          if [[ "$PYTHON_PATH" != *"custom-venv"* ]]; then
+            echo "Python is not running from custom venv: $PYTHON_PATH"
+            exit 1
+          fi
+        shell: bash
+      - name: Verify output venv matches custom path
+        run: |
+          if [ "$UV_VENV" != "${{ runner.temp }}/custom-venv" ]; then
+            echo "output venv does not match custom path: $UV_VENV"
+            exit 1
+          fi
+        shell: bash
+        env:
+          UV_VENV: ${{ steps.setup-uv.outputs.venv }}
+
   test-musl:
     runs-on: ubuntu-latest
     container: alpine
@@ -1069,6 +1113,7 @@ jobs:
       - test-tilde-expansion-tool-dirs
       - test-python-version
       - test-activate-environment
+      - test-activate-environment-custom-path
       - test-musl
       - test-cache-key-os-version
       - test-cache-local
diff --git a/action.yml b/action.yml
index ebeba73..f222155 100644
--- a/action.yml
+++ b/action.yml
@@ -15,6 +15,9 @@ inputs:
   activate-environment:
     description: "Use uv venv to activate a venv ready to be used by later steps. "
     default: "false"
+  venv-path:
+    description: "Custom path for the virtual environment when using activate-environment. Defaults to '.venv' in the working directory."
+    default: ""
   working-directory:
     description: "The directory to execute all commands in and look for files such as pyproject.toml"
     default: ${{ github.workspace }}
diff --git a/dist/save-cache/index.js b/dist/save-cache/index.js
index 7c28736..ab8ccc4 100644
--- a/dist/save-cache/index.js
+++ b/dist/save-cache/index.js
@@ -91032,7 +91032,7 @@ var __importDefault = (this && this.__importDefault) || function (mod) {
     return (mod && mod.__esModule) ? mod : { "default": mod };
 };
 Object.defineProperty(exports, "__esModule", ({ value: true }));
-exports.resolutionStrategy = exports.addProblemMatchers = exports.manifestFile = exports.githubToken = exports.pythonDir = exports.toolDir = exports.toolBinDir = exports.ignoreEmptyWorkdir = exports.ignoreNothingToCache = exports.cachePython = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.saveCache = exports.restoreCache = exports.enableCache = exports.checkSum = exports.activateEnvironment = exports.pythonVersion = exports.versionFile = exports.version = exports.workingDirectory = exports.CacheLocalSource = void 0;
+exports.resolutionStrategy = exports.addProblemMatchers = exports.manifestFile = exports.githubToken = exports.pythonDir = exports.toolDir = exports.toolBinDir = exports.ignoreEmptyWorkdir = exports.ignoreNothingToCache = exports.cachePython = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.saveCache = exports.restoreCache = exports.enableCache = exports.checkSum = exports.venvPath = exports.activateEnvironment = exports.pythonVersion = exports.versionFile = exports.version = exports.workingDirectory = exports.CacheLocalSource = void 0;
 exports.getUvPythonDir = getUvPythonDir;
 const node_path_1 = __importDefault(__nccwpck_require__(6760));
 const core = __importStar(__nccwpck_require__(7484));
@@ -91049,6 +91049,7 @@ exports.version = core.getInput("version");
 exports.versionFile = getVersionFile();
 exports.pythonVersion = core.getInput("python-version");
 exports.activateEnvironment = core.getBooleanInput("activate-environment");
+exports.venvPath = getVenvPath();
 exports.checkSum = core.getInput("checksum");
 exports.enableCache = getEnableCache();
 exports.restoreCache = core.getInput("restore-cache") === "true";
@@ -91075,6 +91076,14 @@ function getVersionFile() {
     }
     return versionFileInput;
 }
+function getVenvPath() {
+    const venvPathInput = core.getInput("venv-path");
+    if (venvPathInput !== "") {
+        const tildeExpanded = expandTilde(venvPathInput);
+        return resolveRelativePath(tildeExpanded);
+    }
+    return undefined;
+}
 function getEnableCache() {
     const enableCacheInput = core.getInput("enable-cache");
     if (enableCacheInput === "auto") {
diff --git a/dist/setup/index.js b/dist/setup/index.js
index b7a1c19..fa25c0a 100644
--- a/dist/setup/index.js
+++ b/dist/setup/index.js
@@ -96496,10 +96496,10 @@ async function activateEnvironment() {
         if (process.env.UV_NO_MODIFY_PATH !== undefined) {
             throw new Error("UV_NO_MODIFY_PATH and activate-environment cannot be used together.");
         }
-        const execArgs = ["venv", ".venv", "--directory", inputs_1.workingDirectory];
-        core.info("Activating python venv...");
-        await exec.exec("uv", execArgs);
-        const venvPath = path.resolve(`${inputs_1.workingDirectory}${path.sep}.venv`);
+        // Use custom venv path if provided, otherwise default to .venv in working directory
+        const venvPath = inputs_1.venvPath ?? path.resolve(`${inputs_1.workingDirectory}${path.sep}.venv`);
+        core.info(`Activating python venv at ${venvPath}...`);
+        await exec.exec("uv", ["venv", venvPath]);
         let venvBinPath = `${venvPath}${path.sep}bin`;
         if (process.platform === "win32") {
             venvBinPath = `${venvPath}${path.sep}Scripts`;
@@ -96678,7 +96678,7 @@ var __importDefault = (this && this.__importDefault) || function (mod) {
     return (mod && mod.__esModule) ? mod : { "default": mod };
 };
 Object.defineProperty(exports, "__esModule", ({ value: true }));
-exports.resolutionStrategy = exports.addProblemMatchers = exports.manifestFile = exports.githubToken = exports.pythonDir = exports.toolDir = exports.toolBinDir = exports.ignoreEmptyWorkdir = exports.ignoreNothingToCache = exports.cachePython = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.saveCache = exports.restoreCache = exports.enableCache = exports.checkSum = exports.activateEnvironment = exports.pythonVersion = exports.versionFile = exports.version = exports.workingDirectory = exports.CacheLocalSource = void 0;
+exports.resolutionStrategy = exports.addProblemMatchers = exports.manifestFile = exports.githubToken = exports.pythonDir = exports.toolDir = exports.toolBinDir = exports.ignoreEmptyWorkdir = exports.ignoreNothingToCache = exports.cachePython = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.saveCache = exports.restoreCache = exports.enableCache = exports.checkSum = exports.venvPath = exports.activateEnvironment = exports.pythonVersion = exports.versionFile = exports.version = exports.workingDirectory = exports.CacheLocalSource = void 0;
 exports.getUvPythonDir = getUvPythonDir;
 const node_path_1 = __importDefault(__nccwpck_require__(6760));
 const core = __importStar(__nccwpck_require__(7484));
@@ -96695,6 +96695,7 @@ exports.version = core.getInput("version");
 exports.versionFile = getVersionFile();
 exports.pythonVersion = core.getInput("python-version");
 exports.activateEnvironment = core.getBooleanInput("activate-environment");
+exports.venvPath = getVenvPath();
 exports.checkSum = core.getInput("checksum");
 exports.enableCache = getEnableCache();
 exports.restoreCache = core.getInput("restore-cache") === "true";
@@ -96721,6 +96722,14 @@ function getVersionFile() {
     }
     return versionFileInput;
 }
+function getVenvPath() {
+    const venvPathInput = core.getInput("venv-path");
+    if (venvPathInput !== "") {
+        const tildeExpanded = expandTilde(venvPathInput);
+        return resolveRelativePath(tildeExpanded);
+    }
+    return undefined;
+}
 function getEnableCache() {
     const enableCacheInput = core.getInput("enable-cache");
     if (enableCacheInput === "auto") {
diff --git a/src/setup-uv.ts b/src/setup-uv.ts
index 22d8ca8..d55c16b 100644
--- a/src/setup-uv.ts
+++ b/src/setup-uv.ts
@@ -24,6 +24,7 @@ import {
   resolutionStrategy,
   toolBinDir,
   toolDir,
+  venvPath as venvPathInput,
   versionFile as versionFileInput,
   version as versionInput,
   workingDirectory,
@@ -269,12 +270,14 @@ async function activateEnvironment(): Promise<void> {
         "UV_NO_MODIFY_PATH and activate-environment cannot be used together.",
       );
     }
-    const execArgs = ["venv", ".venv", "--directory", workingDirectory];
 
-    core.info("Activating python venv...");
-    await exec.exec("uv", execArgs);
+    // Use custom venv path if provided, otherwise default to .venv in working directory
+    const venvPath =
+      venvPathInput ?? path.resolve(`${workingDirectory}${path.sep}.venv`);
+
+    core.info(`Activating python venv at ${venvPath}...`);
+    await exec.exec("uv", ["venv", venvPath]);
 
-    const venvPath = path.resolve(`${workingDirectory}${path.sep}.venv`);
     let venvBinPath = `${venvPath}${path.sep}bin`;
     if (process.platform === "win32") {
       venvBinPath = `${venvPath}${path.sep}Scripts`;
diff --git a/src/utils/inputs.ts b/src/utils/inputs.ts
index 5490104..3091afe 100644
--- a/src/utils/inputs.ts
+++ b/src/utils/inputs.ts
@@ -14,6 +14,7 @@ export const version = core.getInput("version");
 export const versionFile = getVersionFile();
 export const pythonVersion = core.getInput("python-version");
 export const activateEnvironment = core.getBooleanInput("activate-environment");
+export const venvPath = getVenvPath();
 export const checkSum = core.getInput("checksum");
 export const enableCache = getEnableCache();
 export const restoreCache = core.getInput("restore-cache") === "true";
@@ -45,6 +46,15 @@ function getVersionFile(): string {
   return versionFileInput;
 }
 
+function getVenvPath(): string | undefined {
+  const venvPathInput = core.getInput("venv-path");
+  if (venvPathInput !== "") {
+    const tildeExpanded = expandTilde(venvPathInput);
+    return resolveRelativePath(tildeExpanded);
+  }
+  return undefined;
+}
+
 function getEnableCache(): boolean {
   const enableCacheInput = core.getInput("enable-cache");
   if (enableCacheInput === "auto") {