diff --git a/include/pybind11/embed.h b/include/pybind11/embed.h
index d6999cd77..0ac609e0f 100644
--- a/include/pybind11/embed.h
+++ b/include/pybind11/embed.h
@@ -150,6 +150,8 @@ inline void initialize_interpreter(bool init_signal_handlers = true,
 #else
     PyConfig config;
     PyConfig_InitIsolatedConfig(&config);
+    config.isolated = 0;
+    config.use_environment = 1;
     config.install_signal_handlers = init_signal_handlers ? 1 : 0;
 
     PyStatus status = PyConfig_SetBytesArgv(&config, argc, const_cast<char *const *>(argv));
diff --git a/tests/test_embed/catch.cpp b/tests/test_embed/catch.cpp
index 96d2e3f92..a03a8b37c 100644
--- a/tests/test_embed/catch.cpp
+++ b/tests/test_embed/catch.cpp
@@ -20,7 +20,25 @@
 namespace py = pybind11;
 
 int main(int argc, char *argv[]) {
+    // Setup for TEST_CASE in test_interpreter.cpp, tagging on a large random number:
+    std::string updated_pythonpath("pybind11_test_embed_PYTHONPATH_2099743835476552");
+    const char *preexisting_pythonpath = getenv("PYTHONPATH");
+    if (preexisting_pythonpath != nullptr) {
+#if defined(_WIN32)
+        updated_pythonpath += ';';
+#else
+        updated_pythonpath += ':';
+#endif
+        updated_pythonpath += preexisting_pythonpath;
+    }
+#if defined(_WIN32)
+    _putenv_s("PYTHONPATH", updated_pythonpath.c_str());
+#else
+    setenv("PYTHONPATH", updated_pythonpath.c_str(), /*replace=*/1);
+#endif
+
     py::scoped_interpreter guard{};
+
     auto result = Catch::Session().run(argc, argv);
 
     return result < 0xff ? result : 0xff;
diff --git a/tests/test_embed/test_interpreter.cpp b/tests/test_embed/test_interpreter.cpp
index 1c45457a0..6299293b9 100644
--- a/tests/test_embed/test_interpreter.cpp
+++ b/tests/test_embed/test_interpreter.cpp
@@ -75,6 +75,13 @@ PYBIND11_EMBEDDED_MODULE(throw_error_already_set, ) {
     d["missing"].cast<py::object>();
 }
 
+TEST_CASE("PYTHONPATH is used to update sys.path") {
+    // The setup for this TEST_CASE is in catch.cpp!
+    auto sys_path = py::str(py::module_::import("sys").attr("path")).cast<std::string>();
+    REQUIRE_THAT(sys_path,
+                 Catch::Matchers::Contains("pybind11_test_embed_PYTHONPATH_2099743835476552"));
+}
+
 TEST_CASE("Pass classes and data between modules defined in C++ and Python") {
     auto module_ = py::module_::import("test_interpreter");
     REQUIRE(py::hasattr(module_, "DerivedWidget"));