diff --git a/packages/zowe-explorer/CHANGELOG.md b/packages/zowe-explorer/CHANGELOG.md
index d5dec5dda2..9820263bc2 100644
--- a/packages/zowe-explorer/CHANGELOG.md
+++ b/packages/zowe-explorer/CHANGELOG.md
@@ -9,6 +9,7 @@ All notable changes to the "vscode-extension-for-zowe" extension will be documen
 ### Bug fixes
 
 - Fix issue where the Zowe Explorer VS Code command `Refresh Zowe Explorer` failed catastrophically. [#3100](https://github.com/zowe/zowe-explorer-vscode/issues/3100)
+- Fixed an issue where the `ProfilesUtils.getProfileInfo` function returned a new `ProfileInfo` instance that did not respect the `ZOWE_CLI_HOME` environment variable and workspace paths. [#3168](https://github.com/zowe/zowe-explorer-vscode/issues/3168)
 
 ## `2.18.0`
 
diff --git a/packages/zowe-explorer/__tests__/__unit__/utils/ProfilesUtils.unit.test.ts b/packages/zowe-explorer/__tests__/__unit__/utils/ProfilesUtils.unit.test.ts
index 88eec5a8a1..34d55863bb 100644
--- a/packages/zowe-explorer/__tests__/__unit__/utils/ProfilesUtils.unit.test.ts
+++ b/packages/zowe-explorer/__tests__/__unit__/utils/ProfilesUtils.unit.test.ts
@@ -1077,4 +1077,15 @@ describe("ProfilesUtils unit tests", () => {
             );
         });
     });
+
+    describe("setupDefaultCredentialManager", () => {
+        it("calls readProfilesFromDisk with homeDir and projectDir", async () => {
+            const readProfilesFromDiskMock = jest.spyOn(zowe.imperative.ProfileInfo.prototype, "readProfilesFromDisk").mockImplementation();
+            await profUtils.ProfilesUtils.setupDefaultCredentialManager();
+            expect(readProfilesFromDiskMock).toHaveBeenCalledWith({
+                homeDir: zowe.getZoweDir(),
+                projectDir: vscode.workspace.workspaceFolders?.[0].uri.fsPath,
+            });
+        });
+    });
 });
diff --git a/packages/zowe-explorer/src/utils/ProfilesUtils.ts b/packages/zowe-explorer/src/utils/ProfilesUtils.ts
index 11a94b5a39..4a7dee995e 100644
--- a/packages/zowe-explorer/src/utils/ProfilesUtils.ts
+++ b/packages/zowe-explorer/src/utils/ProfilesUtils.ts
@@ -371,8 +371,12 @@ export class ProfilesUtils {
             const profileInfo = new imperative.ProfileInfo("zowe", {
                 credMgrOverride: defaultCredentialManager,
             });
+            const workspaceFolder = vscode.workspace.workspaceFolders?.[0]?.uri.fsPath;
             // Trigger initialize() function of credential manager to throw an error early if failed to load
-            await profileInfo.readProfilesFromDisk();
+            await profileInfo.readProfilesFromDisk({
+                homeDir: getZoweDir(),
+                projectDir: workspaceFolder ? getFullPath(workspaceFolder) : undefined,
+            });
             return profileInfo;
         } catch (err) {
             if (err instanceof imperative.ProfInfoErr && err.errorCode === imperative.ProfInfoErr.LOAD_CRED_MGR_FAILED) {