diff --git a/programs/cmd/tests/test_builtins.cmd b/programs/cmd/tests/test_builtins.cmd
index b9e9b259a9c..775f21bbdc8 100644
--- a/programs/cmd/tests/test_builtins.cmd
+++ b/programs/cmd/tests/test_builtins.cmd
@@ -507,6 +507,23 @@ rem Only the final quote ends the string
 set "WINE_FOO=apple"banana"grape"orange
 echo '%WINE_FOO%'
 set WINE_FOO=
+rem set PATH must work with quotes
+set PATH_BACKUP=%PATH%
+mkdir folder
+mkdir "fol;der"
+echo echo I'm here! > "fol;der\sub1.bat"
+echo echo I'm here! > folder\sub1.bat
+set PATH=nothing;"fol;der"
+call sub1
+set PATH="folder
+call sub1
+set PATH=folder"
+call sub1
+del "fol;der\sub1.bat"
+del folder\sub1.bat
+rmdir "fol;der"
+rmdir folder
+PATH=%PATH_BACKUP%
 
 echo ------------ Testing variable expansion ------------
 call :setError 0
diff --git a/programs/cmd/tests/test_builtins.cmd.exp b/programs/cmd/tests/test_builtins.cmd.exp
index 31183592654..ea4157c09d5 100644
--- a/programs/cmd/tests/test_builtins.cmd.exp
+++ b/programs/cmd/tests/test_builtins.cmd.exp
@@ -475,6 +475,9 @@ foo
 'jim fred'
 'jim'
 'apple"banana"grape'
+I'm here!@space@
+I'm here!@space@
+I'm here!@space@
 ------------ Testing variable expansion ------------
 ~p0 should be path containing batch file
 @path@
diff --git a/programs/cmd/wcmdmain.c b/programs/cmd/wcmdmain.c
index 8fe2d574e56..5135be47516 100644
--- a/programs/cmd/wcmdmain.c
+++ b/programs/cmd/wcmdmain.c
@@ -1099,24 +1099,41 @@ void WCMD_run_program (WCHAR *command, BOOL called)
              wine_dbgstr_w(stemofsearch));
   while (pathposn) {
     WCHAR  thisDir[MAX_PATH] = {'\0'};
+    int    length            = 0;
     WCHAR *pos               = NULL;
     BOOL  found             = FALSE;
+    BOOL inside_quotes      = FALSE;
 
     /* Work on the first directory on the search path */
-    pos = strchrW(pathposn, ';');
-    if (pos) {
+    pos = pathposn;
+    while ((inside_quotes || *pos != ';') && *pos != 0)
+    {
+        if (*pos == '"')
+            inside_quotes = !inside_quotes;
+        pos++;
+    }
+
+    if (*pos) { /* Reached semicolon */
       memcpy(thisDir, pathposn, (pos-pathposn) * sizeof(WCHAR));
       thisDir[(pos-pathposn)] = 0x00;
       pathposn = pos+1;
-
-    } else {
+    } else {    /* Reached string end */
       strcpyW(thisDir, pathposn);
       pathposn = NULL;
     }
 
+    /* Remove quotes */
+    length = strlenW(thisDir);
+    if (thisDir[length - 1] == '"')
+        thisDir[length - 1] = 0;
+
+    if (*thisDir != '"')
+        strcpyW(temp, thisDir);
+    else
+        strcpyW(temp, thisDir + 1);
+
     /* Since you can have eg. ..\.. on the path, need to expand
        to full information                                      */
-    strcpyW(temp, thisDir);
     GetFullPathNameW(temp, MAX_PATH, thisDir, NULL);
 
     /* 1. If extension supplied, see if that file exists */