diff --git a/pkg/hostagent/inotify.go b/pkg/hostagent/inotify.go
index 4a9fec00b95..3971b0cf4cb 100644
--- a/pkg/hostagent/inotify.go
+++ b/pkg/hostagent/inotify.go
@@ -20,8 +20,9 @@ import (
 const CacheSize = 10000
 
 var (
-	inotifyCache  = make(map[string]int64)
-	mountSymlinks = make(map[string]string)
+	inotifyCache   = make(map[string]int64)
+	mountSymlinks  = make(map[string]string)
+	mountLocations = make(map[string]string)
 )
 
 func (a *HostAgent) startInotify(ctx context.Context) error {
@@ -54,11 +55,8 @@ func (a *HostAgent) startInotify(ctx context.Context) error {
 				continue
 			}
 
-			for k, v := range mountSymlinks {
-				if strings.HasPrefix(watchPath, k) {
-					watchPath = strings.ReplaceAll(watchPath, k, v)
-				}
-			}
+			watchPath = translateToGuestPath(watchPath, mountSymlinks, mountLocations)
+
 			utcTimestamp := timestamppb.New(stat.ModTime().UTC())
 			event := &guestagentapi.Inotify{MountPath: watchPath, Time: utcTimestamp}
 			err = inotifyClient.Send(event)
@@ -81,6 +79,9 @@ func (a *HostAgent) setupWatchers(events chan notify.EventInfo) error {
 		if m.Location != symlink {
 			mountSymlinks[symlink] = m.Location
 		}
+		if m.MountPoint != nil && m.Location != *m.MountPoint {
+			mountLocations[m.Location] = *m.MountPoint
+		}
 
 		logrus.Infof("enable inotify for writable mount: %s", m.Location)
 		err = notify.Watch(path.Join(m.Location, "..."), events, GetNotifyEvent())
@@ -91,6 +92,24 @@ func (a *HostAgent) setupWatchers(events chan notify.EventInfo) error {
 	return nil
 }
 
+func translateToGuestPath(hostPath string, symlinks, locations map[string]string) string {
+	result := hostPath
+
+	for symlink, original := range symlinks {
+		if strings.HasPrefix(result, symlink) {
+			result = strings.ReplaceAll(result, symlink, original)
+		}
+	}
+
+	for location, mountPoint := range locations {
+		if suffix, ok := strings.CutPrefix(result, location); ok {
+			return mountPoint + suffix
+		}
+	}
+
+	return result
+}
+
 func filterEvents(event notify.EventInfo, stat os.FileInfo) bool {
 	currTime := stat.ModTime()
 	eventPath := event.Path()
diff --git a/pkg/hostagent/inotify_test.go b/pkg/hostagent/inotify_test.go
new file mode 100644
index 00000000000..6adf0353261
--- /dev/null
+++ b/pkg/hostagent/inotify_test.go
@@ -0,0 +1,137 @@
+// SPDX-FileCopyrightText: Copyright The Lima Authors
+// SPDX-License-Identifier: Apache-2.0
+
+package hostagent
+
+import (
+	"testing"
+
+	"gotest.tools/v3/assert"
+)
+
+func TestTranslateToGuestPath(t *testing.T) {
+	tests := []struct {
+		name      string
+		hostPath  string
+		symlinks  map[string]string
+		locations map[string]string
+		expected  string
+	}{
+		{
+			name:      "no translation needed - empty maps",
+			hostPath:  "/Users/user/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{},
+			expected:  "/Users/user/file.txt",
+		},
+		{
+			name:      "no translation needed - location equals mountPoint",
+			hostPath:  "/Users/user/project/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user": "/Users/user"},
+			expected:  "/Users/user/project/file.txt",
+		},
+		{
+			name:      "translate location to different mountPoint",
+			hostPath:  "/Users/user/source/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/dest"},
+			expected:  "/mnt/dest/file.txt",
+		},
+		{
+			name:      "translate location to different mountPoint - nested path",
+			hostPath:  "/Users/user/source/subdir/deep/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/dest"},
+			expected:  "/mnt/dest/subdir/deep/file.txt",
+		},
+		{
+			name:      "translate location to different mountPoint - root file",
+			hostPath:  "/Users/user/source/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/dest"},
+			expected:  "/mnt/dest/file.txt",
+		},
+		{
+			name:      "symlink resolution only",
+			hostPath:  "/private/tmp/file.txt",
+			symlinks:  map[string]string{"/private/tmp": "/tmp"},
+			locations: map[string]string{},
+			expected:  "/tmp/file.txt",
+		},
+		{
+			name:      "symlink resolution with location translation",
+			hostPath:  "/private/var/folders/source/file.txt",
+			symlinks:  map[string]string{"/private/var": "/var"},
+			locations: map[string]string{"/var/folders/source": "/mnt/dest"},
+			expected:  "/mnt/dest/file.txt",
+		},
+		{
+			name:      "more specific location matches",
+			hostPath:  "/Users/user/source/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/source"},
+			expected:  "/mnt/source/file.txt",
+		},
+		{
+			name:      "less specific location matches when more specific not present",
+			hostPath:  "/Users/user/other/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user": "/mnt/home"},
+			expected:  "/mnt/home/other/file.txt",
+		},
+		{
+			name:      "path not matching any location",
+			hostPath:  "/other/path/file.txt",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/dest"},
+			expected:  "/other/path/file.txt",
+		},
+		{
+			name:      "exact location match - file at mount root",
+			hostPath:  "/Users/user/source",
+			symlinks:  map[string]string{},
+			locations: map[string]string{"/Users/user/source": "/mnt/dest"},
+			expected:  "/mnt/dest",
+		},
+		{
+			name:     "multiple locations - non-overlapping",
+			hostPath: "/Users/user/project/file.txt",
+			symlinks: map[string]string{},
+			locations: map[string]string{
+				"/Users/user/project": "/mnt/project",
+				"/Users/user/other":   "/mnt/other",
+			},
+			expected: "/mnt/project/file.txt",
+		},
+		{
+			name:     "multiple symlinks",
+			hostPath: "/private/var/tmp/file.txt",
+			symlinks: map[string]string{
+				"/private/var": "/var",
+				"/private/tmp": "/tmp",
+			},
+			locations: map[string]string{},
+			expected:  "/var/tmp/file.txt",
+		},
+		{
+			name:     "multiple locations and symlinks combined",
+			hostPath: "/private/var/folders/source/file.txt",
+			symlinks: map[string]string{
+				"/private/var": "/var",
+			},
+			locations: map[string]string{
+				"/var/folders/source": "/mnt/dest1",
+				"/tmp/test":           "/mnt/dest2",
+			},
+			expected: "/mnt/dest1/file.txt",
+		},
+	}
+
+	for _, tc := range tests {
+		t.Run(tc.name, func(t *testing.T) {
+			result := translateToGuestPath(tc.hostPath, tc.symlinks, tc.locations)
+			assert.Equal(t, result, tc.expected)
+		})
+	}
+}