diff --git a/pkg/model/action.go b/pkg/model/action.go
index 4478271c39c..80e0935b5df 100644
--- a/pkg/model/action.go
+++ b/pkg/model/action.go
@@ -93,6 +93,7 @@ type Action struct {
 	Inputs      map[string]Input  `yaml:"inputs"`
 	Outputs     map[string]Output `yaml:"outputs"`
 	Runs        ActionRuns        `yaml:"runs"`
+	ActionPath  string            `yaml:"-"`
 	Branding    struct {
 		Color string `yaml:"color"`
 		Icon  string `yaml:"icon"`
diff --git a/pkg/runner/action.go b/pkg/runner/action.go
index b46a4d03a75..13580a0baf0 100644
--- a/pkg/runner/action.go
+++ b/pkg/runner/action.go
@@ -67,6 +67,7 @@ func readActionImpl(ctx context.Context, step *model.Step, actionDir string, act
 						Using: "docker",
 						Image: "Dockerfile",
 					},
+					ActionPath: actionPath,
 				}
 				logger.Debugf("Using synthetic action %v for Dockerfile", action)
 				return action, nil
@@ -99,6 +100,7 @@ func readActionImpl(ctx context.Context, step *model.Step, actionDir string, act
 							Using: "node12",
 							Main:  "trampoline.js",
 						},
+						ActionPath: actionPath,
 					}
 					logger.Debugf("Using synthetic action %v", action)
 					return action, nil
@@ -107,11 +109,75 @@ func readActionImpl(ctx context.Context, step *model.Step, actionDir string, act
 		}
 	}
 	if allErrors != nil {
+		baseDir := filepath.Join(actionDir, actionPath)
+		// ActionCache case: actionDir is a SHA hash, not a real directory.
+		// os.Stat/ReadDir won't work with tar-backed readers.
+		// We explicitly check and return a clear error so users know why discovery failed.
+		info, statErr := os.Stat(baseDir)
+		if statErr != nil {
+			// baseDir doesn't exist at all — likely ActionCache is enabled.
+			// Return original errors plus a clear explanation.
+			return nil, errors.Join(
+				errors.Join(allErrors...),
+				fmt.Errorf("subdir discovery failed for %q: directory not accessible (ActionCache may be enabled, which uses a tar-backed reader incompatible with filesystem discovery): %w", baseDir, statErr),
+			)
+		}
+		if info.IsDir() {
+			entries, readErr := os.ReadDir(baseDir)
+			if readErr != nil {
+				return nil, errors.Join(
+					errors.Join(allErrors...),
+					fmt.Errorf("failed to read action directory %q: %w", baseDir, readErr),
+				)
+			}
+			var discoveredFile string
+			var discoveredSubdir string
+			for _, entry := range entries {
+				if !entry.IsDir() {
+					continue
+				}
+				subdir := entry.Name()
+				actionYml := filepath.Join(baseDir, subdir, "action.yml")
+				actionYaml := filepath.Join(baseDir, subdir, "action.yaml")
+				if _, err := os.Stat(actionYml); err == nil {
+					if discoveredFile != "" {
+						return nil, fmt.Errorf("ambiguous action: found action.yml in multiple subdirectories: %q and %q (in %q)", discoveredFile, actionYml, baseDir)
+					}
+					discoveredFile = actionYml
+					discoveredSubdir = subdir
+					continue
+				}
+				if _, err := os.Stat(actionYaml); err == nil {
+					if discoveredFile != "" {
+						return nil, fmt.Errorf("ambiguous action: found action.yml in multiple subdirectories: %q and %q (in %q)", discoveredFile, actionYaml, baseDir)
+					}
+					discoveredFile = actionYaml
+					discoveredSubdir = subdir
+				}
+			}
+			if discoveredFile != "" {
+				file, openErr := os.Open(discoveredFile)
+				if openErr != nil {
+					return nil, fmt.Errorf("%s failed to open discovered action file %q (action path %q, base dir %q): %w", step.String(), discoveredFile, actionPath, baseDir, openErr)
+				}
+				defer file.Close()
+				action, readErr := model.ReadAction(file)
+				if readErr != nil {
+					return nil, fmt.Errorf("%s failed to read discovered action file %q (action path %q, base dir %q): %w", step.String(), discoveredFile, actionPath, baseDir, readErr)
+				}
+				action.ActionPath = path.Join(actionPath, discoveredSubdir)
+				logger.Debugf("Read action %v from '%s'", action, discoveredFile)
+				return action, nil
+			}
+		}
 		return nil, errors.Join(allErrors...)
 	}
 	defer closer.Close()
 
 	action, err := model.ReadAction(reader)
+	if err == nil {
+		action.ActionPath = actionPath
+	}
 	logger.Debugf("Read action %v from '%s'", action, "Unknown")
 	return action, err
 }
@@ -191,7 +257,11 @@ func runActionImpl(step actionStep, actionDir string, remoteAction *remoteAction
 				actionDir = ""
 				actionPath = containerActionDir
 			}
-			return execAsDocker(ctx, step, actionName, actionDir, actionPath, remoteAction == nil, "entrypoint")
+			dockerSubpath := actionPath
+			if remoteAction != nil && action.ActionPath != "" {
+				dockerSubpath = action.ActionPath
+			}
+			return execAsDocker(ctx, step, actionName, actionDir, dockerSubpath, remoteAction == nil, "entrypoint")
 		case x.IsComposite():
 			if err := maybeCopyToActionDir(ctx, step, actionDir, actionPath, containerActionDir); err != nil {
 				return err
@@ -463,31 +533,24 @@ func getContainerActionPaths(step *model.Step, actionDir string, rc *RunContext)
 	actionName := ""
 	containerActionDir := "."
 	if step.Type() != model.StepTypeUsesActionRemote {
-		actionName = getOsSafeRelativePath(actionDir, rc.Config.Workdir)
-		containerActionDir = rc.JobContainer.ToContainerPath(rc.Config.Workdir) + "/" + actionName
-		actionName = "./" + actionName
+		actionName = "./" + getOsSafeRelativePath(actionDir, rc.Config.Workdir)
+		containerActionDir = rc.JobContainer.ToContainerPath(actionDir)
 	} else if step.Type() == model.StepTypeUsesActionRemote {
 		actionName = getOsSafeRelativePath(actionDir, rc.ActionCacheDir())
 		containerActionDir = rc.JobContainer.GetActPath() + "/actions/" + actionName
 	}
-
-	if actionName == "" {
-		actionName = filepath.Base(actionDir)
-		if runtime.GOOS == "windows" {
-			actionName = strings.ReplaceAll(actionName, "\\", "/")
-		}
-	}
 	return actionName, containerActionDir
 }
 
-func getOsSafeRelativePath(s, prefix string) string {
-	actionName := strings.TrimPrefix(s, prefix)
-	if runtime.GOOS == "windows" {
-		actionName = strings.ReplaceAll(actionName, "\\", "/")
-	}
-	actionName = strings.TrimPrefix(actionName, "/")
 
-	return actionName
+func getOsSafeRelativePath(s, basepath string) string {
+	if relpath, err := filepath.Rel(basepath, s); err == nil {
+		if runtime.GOOS == "windows" {
+			relpath = strings.ReplaceAll(relpath, "\\", "/")
+		}
+		return relpath
+	}
+	return filepath.Base(s)
 }
 
 func shouldRunPreStep(step actionStep) common.Conditional {
@@ -567,7 +630,11 @@ func runPreStep(step actionStep) common.Executor {
 				actionDir = ""
 				actionPath = containerActionDir
 			}
-			return execAsDocker(ctx, step, actionName, actionDir, actionPath, remoteAction == nil, "pre-entrypoint")
+			dockerSubpath := actionPath
+			if remoteAction != nil && action.ActionPath != "" {
+				dockerSubpath = action.ActionPath
+			}
+			return execAsDocker(ctx, step, actionName, actionDir, dockerSubpath, remoteAction == nil, "pre-entrypoint")
 
 		case x.IsComposite():
 			if step.getCompositeSteps() == nil {
@@ -670,7 +737,11 @@ func runPostStep(step actionStep) common.Executor {
 				actionDir = ""
 				actionPath = containerActionDir
 			}
-			return execAsDocker(ctx, step, actionName, actionDir, actionPath, remoteAction == nil, "post-entrypoint")
+			dockerSubpath := actionPath
+			if remoteAction != nil && action.ActionPath != "" {
+				dockerSubpath = action.ActionPath
+			}
+			return execAsDocker(ctx, step, actionName, actionDir, dockerSubpath, remoteAction == nil, "post-entrypoint")
 
 		case x.IsComposite():
 			if err := maybeCopyToActionDir(ctx, step, actionDir, actionPath, containerActionDir); err != nil {
diff --git a/pkg/runner/action_test.go b/pkg/runner/action_test.go
index bc55bd7716e..c0e0a992091 100644
--- a/pkg/runner/action_test.go
+++ b/pkg/runner/action_test.go
@@ -2,8 +2,11 @@ package runner
 
 import (
 	"context"
+	"fmt"
 	"io"
 	"io/fs"
+	"os"
+	"path/filepath"
 	"strings"
 	"testing"
 
@@ -49,6 +52,7 @@ runs:
 					PreIf:  "always()",
 					PostIf: "always()",
 				},
+				ActionPath: "actionPath",
 			},
 		},
 		{
@@ -64,6 +68,7 @@ runs:
 					PreIf:  "always()",
 					PostIf: "always()",
 				},
+				ActionPath: "actionPath",
 			},
 		},
 		{
@@ -77,6 +82,7 @@ runs:
 					Using: "docker",
 					Image: "Dockerfile",
 				},
+				ActionPath: "actionPath",
 			},
 		},
 		{
@@ -104,6 +110,7 @@ runs:
 					Using: "node12",
 					Main:  "trampoline.js",
 				},
+				ActionPath: "actionPath",
 			},
 		},
 	}
@@ -140,6 +147,38 @@ runs:
 	}
 }
 
+func TestActionReaderDiscoverSubdir(t *testing.T) {
+	yaml := `
+name: 'name'
+runs:
+  using: 'node16'
+  main: 'main.js'
+`
+
+	baseDir := t.TempDir()
+	subdir := filepath.Join(baseDir, "github-action")
+	if err := os.MkdirAll(subdir, 0o755); err != nil {
+		t.Fatalf("failed to create subdir: %v", err)
+	}
+	if err := os.WriteFile(filepath.Join(subdir, "action.yml"), []byte(yaml), 0o644); err != nil {
+		t.Fatalf("failed to write action.yml: %v", err)
+	}
+
+	readFile := func(filename string) (io.Reader, io.Closer, error) {
+		return nil, nil, fs.ErrNotExist
+	}
+
+	writeFile := func(filename string, _ []byte, perm fs.FileMode) error {
+		t.Fatalf("unexpected writeFile call: %s %v", filename, perm)
+		return nil
+	}
+
+	action, err := readActionImpl(context.Background(), &model.Step{}, baseDir, "", readFile, writeFile)
+
+	assert.Nil(t, err)
+	assert.Equal(t, "github-action", action.ActionPath)
+}
+
 func TestActionRunner(t *testing.T) {
 	table := []struct {
 		name        string
@@ -225,9 +264,10 @@ func TestActionRunner(t *testing.T) {
 	for _, tt := range table {
 		t.Run(tt.name, func(t *testing.T) {
 			ctx := context.Background()
+			actionDir := fmt.Sprintf("%s/dir", tt.step.getRunContext().ActionCacheDir())
 
 			cm := &containerMock{}
-			cm.On("CopyDir", "/var/run/act/actions/dir/", "dir/", false).Return(func(_ context.Context) error { return nil })
+			cm.On("CopyDir", "/var/run/act/actions/dir/", actionDir+"/", false).Return(func(_ context.Context) error { return nil })
 
 			envMatcher := mock.MatchedBy(func(env map[string]string) bool {
 				for k, v := range tt.expectedEnv {
@@ -242,10 +282,77 @@ func TestActionRunner(t *testing.T) {
 
 			tt.step.getRunContext().JobContainer = cm
 
-			err := runActionImpl(tt.step, "dir", newRemoteAction("org/repo/path@ref"))(ctx)
+			err := runActionImpl(tt.step, actionDir, newRemoteAction("org/repo/path@ref"))(ctx)
 
 			assert.Nil(t, err)
 			cm.AssertExpectations(t)
 		})
 	}
 }
+
+func TestActionReaderDiscoverSubdirMultipleMatches(t *testing.T) {
+	yaml := `
+name: 'name'
+runs:
+  using: 'node16'
+  main: 'main.js'
+`
+	baseDir := t.TempDir()
+	for _, dir := range []string{"github-action", "nested-action"} {
+		subdir := filepath.Join(baseDir, dir)
+		if err := os.MkdirAll(subdir, 0o755); err != nil {
+			t.Fatalf("failed to create subdir %q: %v", dir, err)
+		}
+		if err := os.WriteFile(filepath.Join(subdir, "action.yml"), []byte(yaml), 0o644); err != nil {
+			t.Fatalf("failed to write action.yml in %q: %v", dir, err)
+		}
+	}
+
+	readFile := func(filename string) (io.Reader, io.Closer, error) {
+		return nil, nil, fs.ErrNotExist
+	}
+
+	writeFile := func(filename string, _ []byte, perm fs.FileMode) error {
+		t.Fatalf("unexpected writeFile call: %s %v", filename, perm)
+		return nil
+	}
+
+	action, err := readActionImpl(context.Background(), &model.Step{}, baseDir, "", readFile, writeFile)
+
+	assert.Nil(t, action)
+	if assert.Error(t, err) {
+		assert.True(t,
+			strings.Contains(strings.ToLower(err.Error()), "multiple") ||
+				strings.Contains(strings.ToLower(err.Error()), "ambiguous"),
+			"expected a clear error for multiple discovered action subdirectories, got: %v", err,
+		)
+	}
+}
+
+func TestActionReaderDiscoverSubdirActionCacheUnsupported(t *testing.T) {
+	// When ActionCache is enabled, actionDir is a SHA hash (not a real path).
+	// Discovery should fail with a clear, actionable error — not silently.
+	nonExistentDir := filepath.Join(t.TempDir(), "sha-abc123def456")
+
+	readFile := func(filename string) (io.Reader, io.Closer, error) {
+		return nil, nil, fs.ErrNotExist
+	}
+
+	writeFile := func(filename string, _ []byte, perm fs.FileMode) error {
+		t.Fatalf("unexpected writeFile call: %s %v", filename, perm)
+		return nil
+	}
+
+	action, err := readActionImpl(context.Background(), &model.Step{}, nonExistentDir, "", readFile, writeFile)
+
+	assert.Nil(t, action)
+	if assert.Error(t, err) {
+		assert.True(t,
+			strings.Contains(strings.ToLower(err.Error()), "actioncache") ||
+				strings.Contains(strings.ToLower(err.Error()), "tar") ||
+				strings.Contains(strings.ToLower(err.Error()), "subdir") ||
+				strings.Contains(strings.ToLower(err.Error()), "accessible"),
+			"expected a clear error about ActionCache/discovery failure, got: %v", err,
+		)
+	}
+}
diff --git a/pkg/runner/runner_test.go b/pkg/runner/runner_test.go
index 5c3959af2cd..144384ff3b2 100644
--- a/pkg/runner/runner_test.go
+++ b/pkg/runner/runner_test.go
@@ -243,6 +243,7 @@ func TestRunEvent(t *testing.T) {
 		{workdir, "local-action-docker-url", "push", "", platforms, secrets},
 		{workdir, "local-action-dockerfile", "push", "", platforms, secrets},
 		{workdir, "local-action-via-composite-dockerfile", "push", "", platforms, secrets},
+		{workdir, "local-action-outside-workspace", "push", "", platforms, secrets},
 		{workdir, "local-action-js", "push", "", platforms, secrets},
 
 		// Uses
diff --git a/pkg/runner/testdata/local-action-outside-workspace/push.yml b/pkg/runner/testdata/local-action-outside-workspace/push.yml
new file mode 100644
index 00000000000..d9c0b63a899
--- /dev/null
+++ b/pkg/runner/testdata/local-action-outside-workspace/push.yml
@@ -0,0 +1,17 @@
+name: local-action-outside-workspace
+on: push
+jobs:
+  test:
+    runs-on: ubuntu-latest
+    steps:
+      - run: mkdir ../action-outside-workspace
+      - run: |
+          cat <<-ACTIONEOF > ../action-outside-workspace/action.yml
+          name: test
+          runs:
+            using: composite
+            steps:
+              - run: echo hello
+                shell: bash
+          ACTIONEOF
+      - uses: ./../action-outside-workspace