diff --git a/src/install/PackageManager/PackageManagerDirectories.zig b/src/install/PackageManager/PackageManagerDirectories.zig
index ed24ca03e3..dfcc1ff0a4 100644
--- a/src/install/PackageManager/PackageManagerDirectories.zig
+++ b/src/install/PackageManager/PackageManagerDirectories.zig
@@ -179,12 +179,23 @@ pub fn fetchCacheDirectoryPath(env: *DotEnv.Loader, options: ?*const Options) Ca
     return CacheDir{ .is_node_modules = true, .path = Fs.FileSystem.instance.abs(&fallback_parts) };
 }
 
-pub fn cachedGitFolderNamePrint(buf: []u8, resolved: string, patch_hash: ?u64) stringZ {
+pub fn cachedGitFolderNamePrint(buf: []u8, resolved: string, subdirectory: ?string, patch_hash: ?u64) stringZ {
+    if (subdirectory) |subdir| {
+        if (subdir.len > 0) {
+            // Include subdirectory in cache path to separate different subdirs from same repo
+            const subdir_hash = bun.hash(subdir);
+            return std.fmt.bufPrintZ(buf, "@G@{s}+{x}{}", .{ resolved, subdir_hash, PatchHashFmt{ .hash = patch_hash } }) catch unreachable;
+        }
+    }
     return std.fmt.bufPrintZ(buf, "@G@{s}{}", .{ resolved, PatchHashFmt{ .hash = patch_hash } }) catch unreachable;
 }
 
 pub fn cachedGitFolderName(this: *const PackageManager, repository: *const Repository, patch_hash: ?u64) stringZ {
-    return cachedGitFolderNamePrint(&PackageManager.cached_package_folder_name_buf, this.lockfile.str(&repository.resolved), patch_hash);
+    const subdirectory: ?string = if (!repository.subdirectory.isEmpty())
+        this.lockfile.str(&repository.subdirectory)
+    else
+        null;
+    return cachedGitFolderNamePrint(&PackageManager.cached_package_folder_name_buf, this.lockfile.str(&repository.resolved), subdirectory, patch_hash);
 }
 
 pub fn cachedGitFolderNamePrintAuto(this: *const PackageManager, repository: *const Repository, patch_hash: ?u64) stringZ {
diff --git a/src/install/PackageManager/PackageManagerEnqueue.zig b/src/install/PackageManager/PackageManagerEnqueue.zig
index a8c32df74f..6a0256498b 100644
--- a/src/install/PackageManager/PackageManagerEnqueue.zig
+++ b/src/install/PackageManager/PackageManagerEnqueue.zig
@@ -166,7 +166,11 @@ pub fn enqueueGitForCheckout(
     const url = this.lockfile.str(&repository.repo);
     const clone_id = Task.Id.forGitClone(url);
     const resolved = this.lockfile.str(&repository.resolved);
-    const checkout_id = Task.Id.forGitCheckout(url, resolved);
+    const subdirectory: ?string = if (!repository.subdirectory.isEmpty())
+        this.lockfile.str(&repository.subdirectory)
+    else
+        null;
+    const checkout_id = Task.Id.forGitCheckout(url, resolved, subdirectory);
     var checkout_queue = this.task_queue.getOrPut(this.allocator, checkout_id) catch unreachable;
     if (!checkout_queue.found_existing) {
         checkout_queue.value_ptr.* = .{};
@@ -846,7 +850,11 @@ pub fn enqueueDependencyWithMainAndSuccessFn(
                     this.lockfile.str(&dep.committish),
                     clone_id,
                 );
-                const checkout_id = Task.Id.forGitCheckout(url, resolved);
+                const subdirectory: ?string = if (!dep.subdirectory.isEmpty())
+                    this.lockfile.str(&dep.subdirectory)
+                else
+                    null;
+                const checkout_id = Task.Id.forGitCheckout(url, resolved, subdirectory);
 
                 var entry = this.task_queue.getOrPutContext(this.allocator, checkout_id, .{}) catch unreachable;
                 if (!entry.found_existing) entry.value_ptr.* = .{};
@@ -1267,6 +1275,11 @@ pub fn enqueueGitCheckout(
                     *FileSystem.FilenameStore,
                     FileSystem.FilenameStore.instance,
                 ) catch unreachable,
+                .subdirectory = strings.StringOrTinyString.initAppendIfNeeded(
+                    this.lockfile.str(&resolution.value.git.subdirectory),
+                    *FileSystem.FilenameStore,
+                    FileSystem.FilenameStore.instance,
+                ) catch unreachable,
                 .env = Repository.shared_env.get(this.allocator, this.env),
             },
         },
diff --git a/src/install/PackageManager/runTasks.zig b/src/install/PackageManager/runTasks.zig
index 1b9553d0cb..82c6ccd155 100644
--- a/src/install/PackageManager/runTasks.zig
+++ b/src/install/PackageManager/runTasks.zig
@@ -760,7 +760,11 @@ pub fn runTasks(
                         task.id,
                     );
 
-                    const checkout_id = Task.Id.forGitCheckout(repo, resolved);
+                    const subdirectory: ?string = if (!clone.res.value.git.subdirectory.isEmpty())
+                        manager.lockfile.str(&clone.res.value.git.subdirectory)
+                    else
+                        null;
+                    const checkout_id = Task.Id.forGitCheckout(repo, resolved, subdirectory);
 
                     if (manager.hasCreatedNetworkTask(checkout_id, dep.behavior.isRequired())) continue;
 
diff --git a/src/install/PackageManagerTask.zig b/src/install/PackageManagerTask.zig
index b34acf6a0f..1a260912c1 100644
--- a/src/install/PackageManagerTask.zig
+++ b/src/install/PackageManagerTask.zig
@@ -59,11 +59,17 @@ pub const Id = enum(u64) {
         return @enumFromInt(@as(u64, 4 << 61) | @as(u64, @as(u61, @truncate(hasher.final()))));
     }
 
-    pub fn forGitCheckout(url: string, resolved: string) Id {
+    pub fn forGitCheckout(url: string, resolved: string, subdirectory: ?string) Id {
         var hasher = bun.Wyhash11.init(0);
         hasher.update(url);
         hasher.update("@");
         hasher.update(resolved);
+        if (subdirectory) |subdir| {
+            if (subdir.len > 0) {
+                hasher.update("#path:");
+                hasher.update(subdir);
+            }
+        }
         return @enumFromInt(@as(u64, 5 << 61) | @as(u64, @as(u61, @truncate(hasher.final()))));
     }
 };
@@ -208,6 +214,12 @@ pub fn callback(task: *ThreadPool.Task) void {
         },
         .git_checkout => {
             const git_checkout = &this.request.git_checkout;
+            const subdir_slice = git_checkout.subdirectory.slice();
+            const subdirectory: ?string = if (subdir_slice.len == 0)
+                null
+            else
+                subdir_slice;
+
             const data = Repository.checkout(
                 manager.allocator,
                 this.request.git_checkout.env,
@@ -217,6 +229,7 @@ pub fn callback(task: *ThreadPool.Task) void {
                 git_checkout.name.slice(),
                 git_checkout.url.slice(),
                 git_checkout.resolved.slice(),
+                subdirectory,
             ) catch |err| {
                 this.err = err;
                 this.status = Status.fail;
@@ -339,6 +352,7 @@ pub const Request = union {
         name: strings.StringOrTinyString,
         url: strings.StringOrTinyString,
         resolved: strings.StringOrTinyString,
+        subdirectory: strings.StringOrTinyString,
         resolution: Resolution,
         env: DotEnv.Map,
     },
diff --git a/src/install/dependency.zig b/src/install/dependency.zig
index 6e3ce8e255..76b9155adb 100644
--- a/src/install/dependency.zig
+++ b/src/install/dependency.zig
@@ -606,8 +606,14 @@ pub const Version = struct {
                                             },
                                             else => false,
                                         }) {
+                                            // Check for path: parameter anywhere in the URL before routing to GitHub
+                                            if (strings.indexOf(dependency, "&path:") != null or strings.indexOf(dependency, "#path:") != null) {
+                                                return .git;
+                                            }
+
                                             if (strings.hasPrefixComptime(url, "github.com/")) {
-                                                if (hosted_git_info.isGitHubShorthand(url["github.com/".len..])) return .github;
+                                                const gh_path = url["github.com/".len..];
+                                                if (hosted_git_info.isGitHubShorthand(gh_path)) return .github;
                                             }
 
                                             if (hosted_git_info.HostedGitInfo.fromUrl(allocator, dependency) catch null) |info| {
@@ -621,7 +627,12 @@ pub const Version = struct {
                                 },
                                 'h' => {
                                     if (strings.hasPrefixComptime(url, "hub:")) {
-                                        if (hosted_git_info.isGitHubShorthand(url["hub:".len..])) return .github;
+                                        const shorthand = url["hub:".len..];
+                                        // If it contains path: parameter, use git instead of github API
+                                        if (strings.indexOf(shorthand, "&path:") != null or strings.indexOf(shorthand, "#path:") != null) {
+                                            return .git;
+                                        }
+                                        if (hosted_git_info.isGitHubShorthand(shorthand)) return .github;
                                     }
                                 },
                                 else => {},
@@ -653,6 +664,10 @@ pub const Version = struct {
                             if (strings.hasPrefixComptime(url, "github.com/")) {
                                 const path = url["github.com/".len..];
                                 if (isGitHubTarballPath(path)) return .tarball;
+                                // If it contains path: parameter, use git instead of github API
+                                if (strings.indexOf(path, "&path:") != null or strings.indexOf(path, "#path:") != null) {
+                                    return .git;
+                                }
                                 if (hosted_git_info.isGitHubShorthand(path)) return .github;
                             }
 
@@ -1027,13 +1042,37 @@ pub fn parseWithTag(
             }
             const hash_index = strings.lastIndexOfChar(input, '#');
 
+            // Parse committish and subdirectory
+            var committish_slice: []const u8 = "";
+            var subdirectory_slice: []const u8 = "";
+
+            if (hash_index) |index| {
+                const after_hash = input[index + 1 ..];
+
+                // Check for &path: or #path: format
+                if (strings.indexOf(after_hash, "&path:")) |amp_idx| {
+                    committish_slice = after_hash[0..amp_idx];
+                    subdirectory_slice = after_hash[amp_idx + "&path:".len ..];
+                } else if (strings.hasPrefixComptime(after_hash, "path:")) {
+                    subdirectory_slice = after_hash["path:".len..];
+                } else {
+                    committish_slice = after_hash;
+                }
+            }
+
+            // Normalize subdirectory: strip leading slash once during parsing
+            if (subdirectory_slice.len > 0 and subdirectory_slice[0] == '/') {
+                subdirectory_slice = subdirectory_slice[1..];
+            }
+
             return .{
                 .literal = sliced.value(),
                 .value = .{
                     .git = .{
                         .owner = String.from(""),
                         .repo = sliced.sub(if (hash_index) |index| input[0..index] else input).value(),
-                        .committish = if (hash_index) |index| sliced.sub(input[index + 1 ..]).value() else String.from(""),
+                        .committish = if (committish_slice.len > 0) sliced.sub(committish_slice).value() else String.from(""),
+                        .subdirectory = if (subdirectory_slice.len > 0) sliced.sub(subdirectory_slice).value() else String.from(""),
                     },
                 },
                 .tag = .git,
@@ -1053,7 +1092,22 @@ pub fn parseWithTag(
             // to create String objects that point to the original buffer
             const owner_str = info.user orelse "";
             const repo_str = info.project;
-            const committish_str = info.committish orelse "";
+            var committish_str = info.committish orelse "";
+
+            // Parse subdirectory from committish if present
+            var subdirectory_str: []const u8 = "";
+            if (strings.indexOf(committish_str, "&path:")) |amp_idx| {
+                subdirectory_str = committish_str[amp_idx + "&path:".len ..];
+                committish_str = committish_str[0..amp_idx];
+            } else if (strings.hasPrefixComptime(committish_str, "path:")) {
+                subdirectory_str = committish_str["path:".len..];
+                committish_str = "";
+            }
+
+            // Normalize subdirectory: strip leading slash once during parsing
+            if (subdirectory_str.len > 0 and subdirectory_str[0] == '/') {
+                subdirectory_str = subdirectory_str[1..];
+            }
 
             // Find owner in dependency string
             const owner_idx = strings.indexOf(dependency, owner_str);
@@ -1078,6 +1132,15 @@ pub fn parseWithTag(
                     String.from("");
             } else String.from("");
 
+            // Find subdirectory in dependency string
+            const subdirectory = if (subdirectory_str.len > 0) blk: {
+                const subdir_idx = strings.indexOf(dependency, subdirectory_str);
+                break :blk if (subdir_idx) |idx|
+                    sliced.sub(dependency[idx .. idx + subdirectory_str.len]).value()
+                else
+                    String.from("");
+            } else String.from("");
+
             return .{
                 .literal = sliced.value(),
                 .value = .{
@@ -1085,6 +1148,7 @@ pub fn parseWithTag(
                         .owner = owner,
                         .repo = repo,
                         .committish = committish,
+                        .subdirectory = subdirectory,
                     },
                 },
                 .tag = .github,
diff --git a/src/install/repository.zig b/src/install/repository.zig
index fcf74988f9..517adda4a9 100644
--- a/src/install/repository.zig
+++ b/src/install/repository.zig
@@ -105,6 +105,7 @@ pub const Repository = extern struct {
     committish: String = .{},
     resolved: String = .{},
     package_name: String = .{},
+    subdirectory: String = .{},
 
     pub var shared_env: struct {
         env: ?DotEnv.Map = null,
@@ -150,10 +151,37 @@ pub const Repository = extern struct {
             remain = remain["git+".len..];
         }
         if (strings.lastIndexOfChar(remain, '#')) |hash| {
-            return .{
+            // Parse committish and possible path parameter
+            // Formats: repo#committish or repo#path:/subdir or repo#committish&path:/subdir
+            const after_hash = remain[hash + 1 ..];
+
+            // Look for &path: or path: in the committish part
+            var committish_str: []const u8 = after_hash;
+            var subdirectory_str: ?[]const u8 = null;
+
+            if (strings.indexOf(after_hash, "&path:")) |amp_idx| {
+                // Format: committish&path:/subdir
+                committish_str = after_hash[0..amp_idx];
+                subdirectory_str = after_hash[amp_idx + "&path:".len ..];
+            } else if (strings.hasPrefixComptime(after_hash, "path:")) {
+                // Format: path:/subdir (no committish)
+                committish_str = "";
+                subdirectory_str = after_hash["path:".len..];
+            }
+
+            var result = Repository{
                 .repo = try buf.append(remain[0..hash]),
-                .committish = try buf.append(remain[hash + 1 ..]),
             };
+
+            if (committish_str.len > 0) {
+                result.committish = try buf.append(committish_str);
+            }
+
+            if (subdirectory_str) |subdir| {
+                result.subdirectory = try buf.append(subdir);
+            }
+
+            return result;
         }
         return .{
             .repo = try buf.append(remain),
@@ -183,7 +211,29 @@ pub const Repository = extern struct {
         };
 
         if (hash != 0) {
-            result.committish = try buf.append(remain[hash + 1 ..]);
+            const after_hash = remain[hash + 1 ..];
+
+            // Parse committish and possible path parameter
+            var committish_str: []const u8 = after_hash;
+            var subdirectory_str: ?[]const u8 = null;
+
+            if (strings.indexOf(after_hash, "&path:")) |amp_idx| {
+                // Format: committish&path:/subdir
+                committish_str = after_hash[0..amp_idx];
+                subdirectory_str = after_hash[amp_idx + "&path:".len ..];
+            } else if (strings.hasPrefixComptime(after_hash, "path:")) {
+                // Format: path:/subdir (no committish)
+                committish_str = "";
+                subdirectory_str = after_hash["path:".len..];
+            }
+
+            if (committish_str.len > 0) {
+                result.committish = try buf.append(committish_str);
+            }
+
+            if (subdirectory_str) |subdir| {
+                result.subdirectory = try buf.append(subdir);
+            }
         }
 
         return result;
@@ -234,8 +284,10 @@ pub const Repository = extern struct {
         if (owner_order != .eq) return owner_order;
         const repo_order = lhs.repo.order(&rhs.repo, lhs_buf, rhs_buf);
         if (repo_order != .eq) return repo_order;
+        const committish_order = lhs.committish.order(&rhs.committish, lhs_buf, rhs_buf);
+        if (committish_order != .eq) return committish_order;
 
-        return lhs.committish.order(&rhs.committish, lhs_buf, rhs_buf);
+        return lhs.subdirectory.order(&rhs.subdirectory, lhs_buf, rhs_buf);
     }
 
     pub fn count(this: *const Repository, buf: []const u8, comptime StringBuilder: type, builder: StringBuilder) void {
@@ -244,6 +296,7 @@ pub const Repository = extern struct {
         builder.count(this.committish.slice(buf));
         builder.count(this.resolved.slice(buf));
         builder.count(this.package_name.slice(buf));
+        builder.count(this.subdirectory.slice(buf));
     }
 
     pub fn clone(this: *const Repository, buf: []const u8, comptime StringBuilder: type, builder: StringBuilder) Repository {
@@ -253,12 +306,14 @@ pub const Repository = extern struct {
             .committish = builder.append(String, this.committish.slice(buf)),
             .resolved = builder.append(String, this.resolved.slice(buf)),
             .package_name = builder.append(String, this.package_name.slice(buf)),
+            .subdirectory = builder.append(String, this.subdirectory.slice(buf)),
         };
     }
 
     pub fn eql(lhs: *const Repository, rhs: *const Repository, lhs_buf: []const u8, rhs_buf: []const u8) bool {
         if (!lhs.owner.eql(rhs.owner, lhs_buf, rhs_buf)) return false;
         if (!lhs.repo.eql(rhs.repo, lhs_buf, rhs_buf)) return false;
+        if (!lhs.subdirectory.eql(rhs.subdirectory, lhs_buf, rhs_buf)) return false;
         if (lhs.resolved.isEmpty() or rhs.resolved.isEmpty()) return lhs.committish.eql(rhs.committish, lhs_buf, rhs_buf);
         return lhs.resolved.eql(rhs.resolved, lhs_buf, rhs_buf);
     }
@@ -595,49 +650,154 @@ pub const Repository = extern struct {
         name: string,
         url: string,
         resolved: string,
+        subdirectory: ?string,
     ) !ExtractData {
         bun.analytics.Features.git_dependencies += 1;
-        const folder_name = PackageManager.cachedGitFolderNamePrint(&folder_name_buf, resolved, null);
+        const folder_name = PackageManager.cachedGitFolderNamePrint(&folder_name_buf, resolved, subdirectory, null);
 
         var package_dir = bun.openDir(cache_dir, folder_name) catch |not_found| brk: {
             if (not_found != error.ENOENT) return not_found;
 
             const target = Path.joinAbsString(PackageManager.get().cache_directory_path, &.{folder_name}, .auto);
 
-            _ = exec(allocator, env, &[_]string{
-                "git",
-                "clone",
-                "-c core.longpaths=true",
-                "--quiet",
-                "--no-checkout",
-                try bun.getFdPath(.fromStdDir(repo_dir), &final_path_buf),
-                target,
-            }) catch |err| {
-                log.addErrorFmt(
-                    null,
-                    logger.Loc.Empty,
-                    allocator,
-                    "\"git clone\" for \"{s}\" failed",
-                    .{name},
-                ) catch unreachable;
-                return err;
-            };
+            // Modern git sparse checkout approach for subdirectories
+            const use_sparse = subdirectory != null and subdirectory.?.len > 0;
 
-            const folder = Path.joinAbsString(PackageManager.get().cache_directory_path, &.{folder_name}, .auto);
+            if (use_sparse) {
+                // Clone with sparse checkout support (Git 2.25+)
+                // Note: We're cloning from a local bare repository, so we can't use --filter
+                // The --filter flag was already used when creating the bare repo
+                _ = exec(allocator, env, &[_]string{
+                    "git",
+                    "clone",
+                    "-c core.longpaths=true",
+                    "--quiet",
+                    "--no-checkout",
+                    try bun.getFdPath(.fromStdDir(repo_dir), &final_path_buf),
+                    target,
+                }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git clone\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+
+                const folder = Path.joinAbsString(PackageManager.get().cache_directory_path, &.{folder_name}, .auto);
+
+                // Initialize sparse checkout in cone mode (faster)
+                _ = exec(allocator, env, &[_]string{ "git", "-C", folder, "sparse-checkout", "init", "--cone" }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git sparse-checkout init\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+
+                // Set sparse checkout to only the requested subdirectory
+                // Note: subdirectory is already normalized (no leading slash) during parsing
+                _ = exec(allocator, env, &[_]string{ "git", "-C", folder, "sparse-checkout", "set", subdirectory.? }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git sparse-checkout set\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+
+                // Now checkout the commit
+                _ = exec(allocator, env, &[_]string{ "git", "-C", folder, "checkout", "--quiet", resolved }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git checkout\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+            } else {
+                // Standard clone without sparse checkout
+                _ = exec(allocator, env, &[_]string{
+                    "git",
+                    "clone",
+                    "-c core.longpaths=true",
+                    "--quiet",
+                    "--no-checkout",
+                    try bun.getFdPath(.fromStdDir(repo_dir), &final_path_buf),
+                    target,
+                }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git clone\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+
+                const folder = Path.joinAbsString(PackageManager.get().cache_directory_path, &.{folder_name}, .auto);
+
+                _ = exec(allocator, env, &[_]string{ "git", "-C", folder, "checkout", "--quiet", resolved }) catch |err| {
+                    log.addErrorFmt(
+                        null,
+                        logger.Loc.Empty,
+                        allocator,
+                        "\"git checkout\" for \"{s}\" failed",
+                        .{name},
+                    ) catch unreachable;
+                    return err;
+                };
+            }
 
-            _ = exec(allocator, env, &[_]string{ "git", "-C", folder, "checkout", "--quiet", resolved }) catch |err| {
-                log.addErrorFmt(
-                    null,
-                    logger.Loc.Empty,
-                    allocator,
-                    "\"git checkout\" for \"{s}\" failed",
-                    .{name},
-                ) catch unreachable;
-                return err;
-            };
             var dir = try bun.openDir(cache_dir, folder_name);
             dir.deleteTree(".git") catch {};
 
+            // For sparse checkout with subdirectories, we need to restructure the directory
+            // Move the subdirectory contents to the root since PackageInstaller expects package at root
+            // Note: subdirectory is already normalized (no leading slash) during parsing
+            if (use_sparse and subdirectory != null and subdirectory.?.len > 0) {
+                // Use a single atomic rename via intermediary to avoid partial state
+                var path_buf: bun.PathBuffer = undefined;
+                const cache_path = PackageManager.get().cache_directory_path;
+
+                // Source: cache/folder/subdir -> Dest: cache/folder
+                const subdir_absolute = std.fmt.bufPrint(&path_buf, "{s}/{s}/{s}", .{ cache_path, folder_name, subdirectory.? }) catch unreachable;
+
+                // Temp path outside the folder to avoid conflicts
+                var temp_buf: bun.PathBuffer = undefined;
+                const temp_path = std.fmt.bufPrintZ(&temp_buf, "{s}/.bun-tmp-{x}", .{ cache_path, @as(u64, @intCast(@intFromPtr(subdirectory.?.ptr))) }) catch unreachable;
+
+                // Atomic operations: 1) move subdir out, 2) delete old structure, 3) move subdir back
+                std.posix.rename(subdir_absolute, temp_path) catch |err| {
+                    log.addErrorFmt(null, logger.Loc.Empty, allocator, "failed to move subdirectory during sparse checkout", .{}) catch unreachable;
+                    return err;
+                };
+
+                // Clean up old structure
+                dir.close();
+                cache_dir.deleteTree(folder_name) catch {};
+
+                // Move temp to final location
+                const final_absolute = std.fmt.bufPrint(&path_buf, "{s}/{s}", .{ cache_path, folder_name }) catch unreachable;
+                std.posix.rename(temp_path, final_absolute) catch |err| {
+                    log.addErrorFmt(null, logger.Loc.Empty, allocator, "failed to finalize subdirectory during sparse checkout", .{}) catch unreachable;
+                    return err;
+                };
+
+                // Reopen the directory
+                dir = try bun.openDir(cache_dir, folder_name);
+            }
+
             if (resolved.len > 0) insert_tag: {
                 const git_tag = dir.createFileZ(".bun-tag", .{ .truncate = true }) catch break :insert_tag;
                 defer git_tag.close();
diff --git a/test/cli/install/git-sparse-checkout.test.ts b/test/cli/install/git-sparse-checkout.test.ts
new file mode 100644
index 0000000000..d8b15b6a51
--- /dev/null
+++ b/test/cli/install/git-sparse-checkout.test.ts
@@ -0,0 +1,137 @@
+import { describe, expect, test } from "bun:test";
+import { existsSync, readdirSync } from "fs";
+import { bunEnv, bunExe, tempDir } from "harness";
+import { join } from "path";
+
+// Test both regular install and isolated install
+describe.each([{ isolated: false }, { isolated: true }])("git sparse checkout (isolated=$isolated)", ({ isolated }) => {
+  const installCmd = isolated ? ["install", "--isolated"] : ["install"];
+
+  test("should install from git subdirectory - bun-types from Bun repo", async () => {
+    using dir = tempDir("git-sparse-bun-types", {
+      "package.json": JSON.stringify({
+        name: "test-sparse-checkout",
+        dependencies: {
+          // Install bun-types from the packages/bun-types subdirectory
+          // Using specific commit for stability
+          "bun-types": "git+https://github.com/oven-sh/bun.git#6f8138b6e4&path:packages/bun-types",
+        },
+      }),
+    });
+
+    await using proc = Bun.spawn({
+      cmd: [bunExe(), ...installCmd],
+      env: bunEnv,
+      cwd: String(dir),
+      stdout: "pipe",
+      stderr: "pipe",
+    });
+
+    const [stdout, stderr, exitCode] = await Promise.all([proc.stdout.text(), proc.stderr.text(), proc.exited]);
+
+    expect(stderr).not.toContain("panic");
+    expect(stderr).not.toContain("uncaught exception");
+    expect(exitCode).toBe(0);
+
+    // Verify the package was installed
+    const nodeModulesPath = join(String(dir), "node_modules", "bun-types");
+    expect(existsSync(nodeModulesPath)).toBe(true);
+
+    // Verify package.json exists in the installed package
+    const packageJsonPath = join(nodeModulesPath, "package.json");
+    expect(existsSync(packageJsonPath)).toBe(true);
+
+    // Verify it's actually bun-types by checking the package.json
+    const packageJson = JSON.parse(await Bun.file(packageJsonPath).text());
+    expect(packageJson.name).toBe("bun-types");
+
+    // CRITICAL: Verify the main .d.ts file exists
+    const bunDtsPath = join(nodeModulesPath, "bun.d.ts");
+    expect(existsSync(bunDtsPath)).toBe(true);
+
+    const bunDtsContent = await Bun.file(bunDtsPath).text();
+    expect(bunDtsContent).toContain("declare module");
+    expect(bunDtsContent.length).toBeGreaterThan(1000); // Should be a substantial file
+
+    // Verify other key .d.ts files exist
+    expect(existsSync(join(nodeModulesPath, "fetch.d.ts"))).toBe(true);
+    expect(existsSync(join(nodeModulesPath, "test.d.ts"))).toBe(true);
+
+    // Verify we didn't download the entire repo (shouldn't have root-level files)
+    const files = readdirSync(nodeModulesPath);
+    expect(files).not.toContain("CMakeLists.txt"); // Root file from bun repo
+    expect(files).not.toContain("build.zig"); // Root file from bun repo
+    expect(files).not.toContain("src"); // Root dir from bun repo
+
+    // Should NOT have a nested packages directory (means sparse checkout moved files correctly)
+    expect(files).not.toContain("packages");
+  }, 180000); // 3 min timeout for git clone
+
+  test("should handle path parameter without leading slash", async () => {
+    using dir = tempDir("git-sparse-no-slash", {
+      "package.json": JSON.stringify({
+        name: "test-sparse-no-slash",
+        dependencies: {
+          // Path without leading /
+          "bun-types": "git+https://github.com/oven-sh/bun.git#6f8138b6e4&path:packages/bun-types",
+        },
+      }),
+    });
+
+    await using proc = Bun.spawn({
+      cmd: [bunExe(), ...installCmd],
+      env: bunEnv,
+      cwd: String(dir),
+      stdout: "pipe",
+      stderr: "pipe",
+    });
+
+    const exitCode = await proc.exited;
+    expect(exitCode).toBe(0);
+
+    const bunDtsPath = join(String(dir), "node_modules", "bun-types", "bun.d.ts");
+    expect(existsSync(bunDtsPath)).toBe(true);
+  }, 180000);
+
+  test("should cache subdirectory separately from full repo", async () => {
+    using dir = tempDir("git-sparse-cache", {
+      "package.json": JSON.stringify({
+        name: "test-sparse-cache",
+        dependencies: {
+          "types": "git+https://github.com/oven-sh/bun.git#6f8138b6e4&path:packages/bun-types",
+        },
+      }),
+    });
+
+    // First install
+    await using proc1 = Bun.spawn({
+      cmd: [bunExe(), ...installCmd],
+      env: bunEnv,
+      cwd: String(dir),
+      stdout: "pipe",
+      stderr: "pipe",
+    });
+
+    const exitCode1 = await proc1.exited;
+    expect(exitCode1).toBe(0);
+
+    // Verify package installed
+    const pkgPath = join(String(dir), "node_modules", "types", "bun.d.ts");
+    expect(existsSync(pkgPath)).toBe(true);
+
+    // Second install should reuse cache
+    await using proc2 = Bun.spawn({
+      cmd: [bunExe(), ...installCmd],
+      env: bunEnv,
+      cwd: String(dir),
+      stdout: "pipe",
+      stderr: "pipe",
+    });
+
+    const [stdout, exitCode2] = await Promise.all([proc2.stdout.text(), proc2.exited]);
+
+    expect(exitCode2).toBe(0);
+    // Verify it's still installed correctly
+    expect(existsSync(pkgPath)).toBe(true);
+  }, 240000);
+});