diff --git a/dvc/repo/data.py b/dvc/repo/data.py
index 2dfa10d10..6a4d25259 100644
--- a/dvc/repo/data.py
+++ b/dvc/repo/data.py
@@ -1,4 +1,5 @@
 import os
+import posixpath
 from collections import defaultdict
 from typing import (
     TYPE_CHECKING,
@@ -11,6 +12,7 @@ from typing import (
     cast,
 )
 
+from dvc.fs.git import GitFileSystem
 from dvc.ui import ui
 
 if TYPE_CHECKING:
@@ -23,6 +25,10 @@ if TYPE_CHECKING:
     from dvc_data.hashfile.obj import HashFile
 
 
+def posixpath_to_os_path(path: str) -> str:
+    return path.replace(posixpath.sep, os.path.sep)
+
+
 def _in_cache(obj: "HashInfo", cache: "HashFileDB") -> bool:
     from dvc_objects.errors import ObjectFormatError
 
@@ -213,6 +219,8 @@ def _diff_head_to_index(
                 continue
 
             root = str(out)
+            if isinstance(out.fs, GitFileSystem):
+                root = posixpath_to_os_path(root)
             typ = "index" if rev == "workspace" else head
             objs[root][typ] = (out.get_obj(), out.hash_info)
 
diff --git a/tests/func/test_data_status.py b/tests/func/test_data_status.py
index 7d5d5f016..484b472eb 100644
--- a/tests/func/test_data_status.py
+++ b/tests/func/test_data_status.py
@@ -1,3 +1,4 @@
+from os import fspath
 from os.path import join
 
 import pytest
@@ -99,6 +100,37 @@ def test_directory(M, tmp_dir, dvc, scm):
     }
 
 
+def test_tracked_directory_deep(M, tmp_dir, dvc, scm):
+    """Test for a directory not in cwd, but nested inside other directories."""
+    (tmp_dir / "sub").gen({"dir": {"foo": "foo"}})
+    dvc.add(fspath(tmp_dir / "sub" / "dir"))
+    scm.add_commit(["sub/dir.dvc", "sub/.gitignore"], message="add sub/dir")
+
+    (tmp_dir / "sub" / "dir").gen("bar", "bar")
+    dvc.commit(None, force=True)
+    (tmp_dir / "sub" / "dir").gen("foobar", "foobar")
+
+    assert dvc.data_status() == {
+        **EMPTY_STATUS,
+        "committed": {"modified": [join("sub", "dir", "")]},
+        "uncommitted": {"modified": [join("sub", "dir", "")]},
+        "git": M.dict(),
+    }
+    assert dvc.data_status(granular=True, untracked_files="all") == {
+        **EMPTY_STATUS,
+        "committed": {
+            "added": [join("sub", "dir", "bar")],
+            "modified": [join("sub", "dir", "")],
+        },
+        "uncommitted": {
+            "added": [join("sub", "dir", "foobar")],
+            "modified": [join("sub", "dir", "")],
+        },
+        "git": M.dict(),
+        "unchanged": [join("sub", "dir", "foo")],
+    }
+
+
 def test_new_empty_git_repo(M, tmp_dir, scm):
     dvc = Repo.init()
     assert dvc.data_status() == {