diff --git a/submodule.c b/submodule.c
index bf78636195..8e0fd077db 100644
--- a/submodule.c
+++ b/submodule.c
@@ -2271,8 +2271,13 @@ int validate_submodule_git_dir(char *git_dir, const char *submodule_name)
 
 	if (len <= suffix_len || (p = git_dir + len - suffix_len)[-1] != '/' ||
 	    strcmp(p, submodule_name))
-		BUG("submodule name '%s' not a suffix of git dir '%s'",
-		    submodule_name, git_dir);
+		/*
+		 * TODO: revisit and cleanup this test short-circuit, because
+		 * submodules with encoded names are expected to take this path.
+		 * Likely just move the invariants to submodule_name_to_gitdir()
+		 * and delete this entire function in a future commit.
+		 */
+		return 0;
 
 	/*
 	 * We prevent the contents of sibling submodules' git directories to
@@ -2588,30 +2593,26 @@ cleanup:
 	return ret;
 }
 
+static void strbuf_addstr_case_encode(struct strbuf *dst, const char *src)
+{
+	for (; *src; src++) {
+		unsigned char c = *src;
+		if (c >= 'A' && c <= 'Z') {
+			strbuf_addch(dst, '_');
+			strbuf_addch(dst, c - 'A' + 'a');
+		} else {
+			strbuf_addch(dst, c);
+		}
+	}
+}
+
 void submodule_name_to_gitdir(struct strbuf *buf, struct repository *r,
 			      const char *submodule_name)
 {
-	/*
-	 * NEEDSWORK: The current way of mapping a submodule's name to
-	 * its location in .git/modules/ has problems with some naming
-	 * schemes. For example, if a submodule is named "foo" and
-	 * another is named "foo/bar" (whether present in the same
-	 * superproject commit or not - the problem will arise if both
-	 * superproject commits have been checked out at any point in
-	 * time), or if two submodule names only have different cases in
-	 * a case-insensitive filesystem.
-	 *
-	 * There are several solutions, including encoding the path in
-	 * some way, introducing a submodule.<name>.gitdir config in
-	 * .git/config (not .gitmodules) that allows overriding what the
-	 * gitdir of a submodule would be (and teach Git, upon noticing
-	 * a clash, to automatically determine a non-clashing name and
-	 * to write such a config), or introducing a
-	 * submodule.<name>.gitdir config in .gitmodules that repo
-	 * administrators can explicitly set. Nothing has been decided,
-	 * so for now, just append the name at the end of the path.
-	 */
+	struct strbuf encoded_sub_name = STRBUF_INIT, tmp = STRBUF_INIT;
+	size_t base_len, encoded_len;
 	char *gitdir_path, *key;
+	long name_max;
 
 	/* Allow config override. */
 	key = xstrfmt("submodule.%s.gitdirpath", submodule_name);
@@ -2632,5 +2633,13 @@ void submodule_name_to_gitdir(struct strbuf *buf, struct repository *r,
 	/* New style (encoded) paths go under submodules/<encoded>. */
 	strbuf_reset(buf);
 	repo_git_path_append(r, buf, "submodules/");
-	strbuf_addstr(buf, submodule_name);
+	base_len = buf->len;
+
+	/* URL-encode then case case-encode A to _a, B to _b and so on */
+	strbuf_addstr_urlencode(&tmp, submodule_name, is_rfc3986_unreserved);
+	strbuf_addstr_case_encode(&encoded_sub_name, tmp.buf);
+	strbuf_release(&tmp);
+	strbuf_addbuf(buf, &encoded_sub_name);
+
+	strbuf_release(&encoded_sub_name);
 }
diff --git a/t/t7400-submodule-basic.sh b/t/t7400-submodule-basic.sh
index a632f47b73..fe772fa244 100755
--- a/t/t7400-submodule-basic.sh
+++ b/t/t7400-submodule-basic.sh
@@ -1047,7 +1047,7 @@ test_expect_success 'recursive relative submodules stay relative' '
 		cd clone2 &&
 		git submodule update --init --recursive &&
 		echo "gitdir: ../.git/submodules/sub3" >./sub3/.git_expect &&
-		echo "gitdir: ../../../.git/submodules/sub3/submodules/dirdir/subsub" >./sub3/dirdir/subsub/.git_expect
+		echo "gitdir: ../../../.git/submodules/sub3/submodules/dirdir%2fsubsub" >./sub3/dirdir/subsub/.git_expect
 	) &&
 	test_cmp clone2/sub3/.git_expect clone2/sub3/.git &&
 	test_cmp clone2/sub3/dirdir/subsub/.git_expect clone2/sub3/dirdir/subsub/.git
diff --git a/t/t7406-submodule-update.sh b/t/t7406-submodule-update.sh
index f0c4da1ffa..c44a7e9513 100755
--- a/t/t7406-submodule-update.sh
+++ b/t/t7406-submodule-update.sh
@@ -864,8 +864,8 @@ test_expect_success 'submodule add places git-dir in superprojects git-dir' '
 	 (cd deeper/submodule &&
 	  git log > ../../expected
 	 ) &&
-	 (cd .git/submodules/deeper/submodule &&
-	  git log > ../../../../actual
+	 (cd .git/submodules/deeper%2fsubmodule &&
+	  git log > ../../../actual
 	 ) &&
 	 test_cmp expected actual
 	)
@@ -882,8 +882,8 @@ test_expect_success 'submodule update places git-dir in superprojects git-dir' '
 	 (cd deeper/submodule &&
 	  git log > ../../expected
 	 ) &&
-	 (cd .git/submodules/deeper/submodule &&
-	  git log > ../../../../actual
+	 (cd .git/submodules/deeper%2fsubmodule &&
+	  git log > ../../../actual
 	 ) &&
 	 test_cmp expected actual
 	)
@@ -899,7 +899,7 @@ test_expect_success 'submodule add places git-dir in superprojects git-dir recur
 	  git commit -m "added subsubmodule" &&
 	  git push origin :
 	 ) &&
-	 (cd .git/submodules/deeper/submodule/submodules/subsubmodule &&
+	 (cd .git/submodules/deeper%2fsubmodule/submodules/subsubmodule &&
 	  git log > ../../../../../actual
 	 ) &&
 	 git add deeper/submodule &&
diff --git a/t/t7450-bad-git-dotfiles.sh b/t/t7450-bad-git-dotfiles.sh
index 4e2ced3636..27254300f8 100755
--- a/t/t7450-bad-git-dotfiles.sh
+++ b/t/t7450-bad-git-dotfiles.sh
@@ -15,6 +15,7 @@ Such as:
 
 . ./test-lib.sh
 . "$TEST_DIRECTORY"/lib-pack.sh
+. "$TEST_DIRECTORY"/lib-verify-submodule-gitdir-path.sh
 
 test_expect_success 'setup' '
 	git config --global protocol.file.allow always
@@ -319,6 +320,8 @@ test_expect_success WINDOWS 'prevent git~1 squatting on Windows' '
 	fi
 '
 
+# TODO: move these nested gitdir tests to another location in a later commit because
+# they are not pathological cases anymore: by encoding the gitdir paths do not conflict.
 test_expect_success 'setup submodules with nested git dirs' '
 	git init nested &&
 	test_commit -C nested nested &&
@@ -341,35 +344,35 @@ test_expect_success 'setup submodules with nested git dirs' '
 '
 
 test_expect_success 'git dirs of sibling submodules must not be nested' '
-	test_must_fail git clone --recurse-submodules nested clone 2>err &&
-	test_grep "is inside git dir" err
+	git clone --recurse-submodules nested clone_nested &&
+	verify_submodule_gitdir_path clone_nested hippo submodules/hippo &&
+	verify_submodule_gitdir_path clone_nested hippo/hooks submodules/hippo%2fhooks
 '
 
 test_expect_success 'submodule git dir nesting detection must work with parallel cloning' '
-	test_must_fail git clone --recurse-submodules --jobs=2 nested clone_parallel 2>err &&
-	cat err &&
-	grep -E "(already exists|is inside git dir|not a git repository)" err &&
-	{
-		test_path_is_missing .git/submodules/hippo/HEAD ||
-		test_path_is_missing .git/submodules/hippo/hooks/HEAD
-	}
+	git clone --recurse-submodules --jobs=2 nested clone_parallel &&
+	verify_submodule_gitdir_path clone_nested hippo submodules/hippo &&
+	verify_submodule_gitdir_path clone_nested hippo/hooks submodules/hippo%2fhooks
 '
 
-test_expect_success 'checkout -f --recurse-submodules must not use a nested gitdir' '
-	git clone nested nested_checkout &&
+test_expect_success 'checkout -f --recurse-submodules must corectly handle nested gitdirs' '
+	git clone nested clone_recursive_checkout &&
 	(
-		cd nested_checkout &&
+		cd clone_recursive_checkout &&
+
 		git submodule init &&
-		git submodule update thing1 &&
+		git submodule update thing1 thing2 &&
+
+		# simulate a malicious nested alternate which git should not follow
 		mkdir -p .git/submodules/hippo/hooks/refs &&
 		mkdir -p .git/submodules/hippo/hooks/objects/info &&
 		echo "../../../../objects" >.git/submodules/hippo/hooks/objects/info/alternates &&
-		echo "ref: refs/heads/master" >.git/submodules/hippo/hooks/HEAD
+		echo "ref: refs/heads/master" >.git/submodules/hippo/hooks/HEAD &&
+
+		git checkout -f --recurse-submodules HEAD
 	) &&
-	test_must_fail git -C nested_checkout checkout -f --recurse-submodules HEAD 2>err &&
-	cat err &&
-	grep "is inside git dir" err &&
-	test_path_is_missing nested_checkout/thing2/.git
+	verify_submodule_gitdir_path clone_nested hippo submodules/hippo &&
+	verify_submodule_gitdir_path clone_nested hippo/hooks submodules/hippo%2fhooks
 '
 
 test_expect_success SYMLINKS,!WINDOWS,!MINGW 'submodule must not checkout into different directory' '
diff --git a/t/t7527-builtin-fsmonitor.sh b/t/t7527-builtin-fsmonitor.sh
index ded482fdf2..15e44a6979 100755
--- a/t/t7527-builtin-fsmonitor.sh
+++ b/t/t7527-builtin-fsmonitor.sh
@@ -895,7 +895,7 @@ test_expect_success "submodule absorbgitdirs implicitly starts daemon" '
 	cat >expect <<-EOF &&
 	Migrating git directory of '\''dir_1/dir_2/sub'\'' from
 	'\''$cwd/dir_1/dir_2/sub/.git'\'' to
-	'\''$cwd/.git/submodules/dir_1/dir_2/sub'\''
+	'\''$cwd/.git/submodules/dir_1%2fdir_2%2fsub'\''
 	EOF
 	GIT_TRACE2_EVENT="$PWD/super-sub.trace" \
 		git -C super submodule absorbgitdirs >out 2>actual &&