diff --git a/crates/avante-templates/src/lib.rs b/crates/avante-templates/src/lib.rs
index ee62381..5387362 100644
--- a/crates/avante-templates/src/lib.rs
+++ b/crates/avante-templates/src/lib.rs
@@ -1,6 +1,7 @@
-use minijinja::{context, path_loader, Environment};
+use minijinja::{context, Environment};
 use mlua::prelude::*;
 use serde::{Deserialize, Serialize};
+use std::path::Path;
 use std::sync::{Arc, Mutex};
 
 struct State<'a> {
@@ -79,11 +80,39 @@ fn render(state: &State, template: &str, context: TemplateContext) -> LuaResult<
     }
 }
 
-fn initialize(state: &State, directory: String) {
+fn initialize(state: &State, cache_directory: String, project_directory: String) {
     let mut environment_mutex = state.environment.lock().unwrap();
-    // add directory as a base path for base directory template path
     let mut env = Environment::new();
-    env.set_loader(path_loader(directory));
+
+    // Create a custom loader that searches both cache and project directories
+    let cache_dir = cache_directory.clone();
+    let project_dir = project_directory.clone();
+
+    env.set_loader(
+        move |name: &str| -> Result<Option<String>, minijinja::Error> {
+            // First try the cache directory (for built-in templates)
+            let cache_path = Path::new(&cache_dir).join(name);
+            if cache_path.exists() {
+                match std::fs::read_to_string(&cache_path) {
+                    Ok(content) => return Ok(Some(content)),
+                    Err(_) => {} // Continue to try project directory
+                }
+            }
+
+            // Then try the project directory (for custom includes)
+            let project_path = Path::new(&project_dir).join(name);
+            if project_path.exists() {
+                match std::fs::read_to_string(&project_path) {
+                    Ok(content) => return Ok(Some(content)),
+                    Err(_) => {} // File not found or read error
+                }
+            }
+
+            // Template not found in either directory
+            Ok(None)
+        },
+    );
+
     *environment_mutex = Some(env);
 }
 
@@ -96,10 +125,12 @@ fn avante_templates(lua: &Lua) -> LuaResult<LuaTable> {
     let exports = lua.create_table()?;
     exports.set(
         "initialize",
-        lua.create_function(move |_, model: String| {
-            initialize(&state, model);
-            Ok(())
-        })?,
+        lua.create_function(
+            move |_, (cache_directory, project_directory): (String, String)| {
+                initialize(&state, cache_directory, project_directory);
+                Ok(())
+            },
+        )?,
     )?;
     exports.set(
         "render",
diff --git a/lua/avante/llm.lua b/lua/avante/llm.lua
index 28e867e..bb16a09 100644
--- a/lua/avante/llm.lua
+++ b/lua/avante/llm.lua
@@ -145,7 +145,7 @@ function M.generate_prompts(opts)
   end
 
   local project_root = Utils.root.get()
-  Path.prompts.initialize(Path.prompts.get_templates_dir(project_root))
+  Path.prompts.initialize(Path.prompts.get_templates_dir(project_root), project_root)
 
   local tool_id_to_tool_name = {}
   local tool_id_to_path = {}
diff --git a/lua/avante/path.lua b/lua/avante/path.lua
index 4e1d053..b573540 100644
--- a/lua/avante/path.lua
+++ b/lua/avante/path.lua
@@ -167,7 +167,7 @@ function Prompt.get_custom_prompts_filepath(mode) return string.format("custom.%
 function Prompt.get_builtin_prompts_filepath(mode) return string.format("%s.avanterules", mode) end
 
 ---@class AvanteTemplates
----@field initialize fun(directory: string): nil
+---@field initialize fun(cache_directory: string, project_directory: string): nil
 ---@field render fun(template: string, context: AvanteTemplateOptions): string
 local _templates_lib = nil
 
@@ -244,7 +244,9 @@ function Prompt.render_mode(mode, opts)
   return _templates_lib.render(filepath, opts)
 end
 
-function Prompt.initialize(directory) _templates_lib.initialize(directory) end
+function Prompt.initialize(cache_directory, project_directory)
+  _templates_lib.initialize(cache_directory, project_directory)
+end
 
 P.prompts = Prompt