Type: Bug

Behaviour

Pytest test discovery fails with error (see the logs below).

Steps to reproduce:

My project structure is:

/my-project
  /backend
    /.venv/
    /tests/
  /frontend/...
  ...

I have the following project-level settings:

  "python.testing.cwd": "${workspaceFolder}/backend",
  "python.testing.pytestArgs": [
    "tests",
    "-vvv"
  ],

This setup worked for my for at least 6 months. It stopped working a few days ago, so it looks like a regression.

I found that some related code was changed recently in #25974

Diagnostic data

  File "/home/user/.vscode/extensions/ms-python.python-2026.4.0-linux-x64/python_files/vscode_pytest/__init__.py", line 817, in build_nested_folders
    raise ValueError(
    ...<4 lines>...
    )
ValueError: ('[vscode-pytest]: Infinite loop occurred in build_nested_folders. iterator_path: ', PosixPath('/'), 'session_node_path: ', PosixPath('/home/user/my-project/backend'))

Extension version: 2026.4.0
VS Code version: Code 1.119.0 (8b640eef5a6c6089c029249d48efa5c99adf7d51, 2026-05-05T11:23:50-07:00)
OS version: Linux x64 6.18.33
Modes:

• Python version (& distribution if applicable, e.g. Anaconda): 3.14.3
• Type of virtual environment used (e.g. conda, venv, virtualenv, etc.): Venv
• Value of the python.languageServer setting: Default

languageServer: "Pylance"

testing
• cwd: "${workspaceFolder}/backend"
• pytestArgs: ["tests", "-vvv"]
• pytestEnabled: true