diff --git a/crates/bevy_asset/src/lib.rs b/crates/bevy_asset/src/lib.rs
index bd210d3218c26..9a2182d37aadc 100644
--- a/crates/bevy_asset/src/lib.rs
+++ b/crates/bevy_asset/src/lib.rs
@@ -926,6 +926,35 @@ mod tests {
         storage.0.extend(reader.read().cloned());
     }
 
+    #[test]
+    fn load_relative_path() {
+        let dir = Dir::default();
+        let d_path = "a/b/c/d.cool.ron";
+        let d_ron = r#"
+(
+    text: "hello",
+    dependencies: [],
+    embedded_dependencies: [],
+    sub_texts: [],
+)"#;
+        dir.insert_asset_text(Path::new(d_path), d_ron);
+
+        let (mut app, gate_opener) = test_app(dir);
+        gate_opener.open(d_path);
+        app.init_asset::<CoolText>()
+            .register_asset_loader(CoolTextLoader);
+        let asset_server = app.world().resource::<AssetServer>().clone();
+        let handle: Handle<CoolText> = asset_server.load("a/b/c/../c/d.cool.ron");
+        let d_id = handle.id();
+        app.update();
+
+        let handle2: Handle<CoolText> = asset_server.load("a/b/../b/c/d.cool.ron");
+        let handle3: Handle<CoolText> = asset_server.load("a/b/c/./d.cool.ron");
+
+        assert_eq!(handle2.id(), d_id);
+        assert_eq!(handle3.id(), d_id);
+    }
+
     #[test]
     fn load_dependencies() {
         let dir = Dir::default();
diff --git a/crates/bevy_asset/src/path.rs b/crates/bevy_asset/src/path.rs
index de9dfa5ca583a..319720d1d47a0 100644
--- a/crates/bevy_asset/src/path.rs
+++ b/crates/bevy_asset/src/path.rs
@@ -129,7 +129,7 @@ impl<'a> AssetPath<'a> {
                 Some(source) => AssetSourceId::Name(CowArc::Borrowed(source)),
                 None => AssetSourceId::Default,
             },
-            path: CowArc::Borrowed(path),
+            path: normalize_atomicow_path(CowArc::Borrowed(path)),
             label: label.map(CowArc::Borrowed),
         })
     }
@@ -227,7 +227,7 @@ impl<'a> AssetPath<'a> {
     #[inline]
     pub fn from_path_buf(path_buf: PathBuf) -> AssetPath<'a> {
         AssetPath {
-            path: CowArc::Owned(path_buf.into()),
+            path: normalize_atomicow_path(CowArc::Owned(path_buf.into())),
             source: AssetSourceId::Default,
             label: None,
         }
@@ -237,7 +237,7 @@ impl<'a> AssetPath<'a> {
     #[inline]
     pub fn from_path(path: &'a Path) -> AssetPath<'a> {
         AssetPath {
-            path: CowArc::Borrowed(path),
+            path: normalize_atomicow_path(CowArc::Borrowed(path)),
             source: AssetSourceId::Default,
             label: None,
         }
@@ -339,6 +339,18 @@ impl<'a> AssetPath<'a> {
         }
     }
 
+    /// Normalizes the path component of the `AssetPath` by collapsing all
+    /// occurrences of '.' and '..' dot-segments where possible as per [RFC
+    /// 1808](https://datatracker.ietf.org/doc/html/rfc1808).
+    /// If the path is already normalized, this will return `self` unchanged.
+    pub fn normalized(self) -> AssetPath<'a> {
+        AssetPath {
+            source: self.source,
+            path: normalize_atomicow_path(self.path),
+            label: self.label,
+        }
+    }
+
     /// Clones this into an "owned" value. If internally a value is borrowed, it will be cloned into an "owned [`Arc`]".
     /// If internally a value is a static reference, the static reference will be used unchanged.
     /// If internally a value is an "owned [`Arc`]", the [`Arc`] will be cloned.
@@ -448,14 +460,20 @@ impl<'a> AssetPath<'a> {
                 PathBuf::new()
             };
             result_path.push(rpath);
-            result_path = normalize_path(result_path.as_path());
+
+            // Boxing the result_path into a CowArc<Path> after normalization to
+            // avoid a potential unnecessary allocation.
+            let path: CowArc<Path> = maybe_normalize_path(&result_path).map_or_else(
+                || CowArc::Owned(result_path.into()),
+                |path| CowArc::Owned(path.into()),
+            );
 
             Ok(AssetPath {
                 source: match source {
                     Some(source) => AssetSourceId::Name(CowArc::Owned(source.into())),
                     None => self.source.clone_owned(),
                 },
-                path: CowArc::Owned(result_path.into()),
+                path,
                 label: rlabel.map(|l| CowArc::Owned(l.into())),
             })
         }
@@ -544,7 +562,7 @@ impl From<&'static str> for AssetPath<'static> {
         let (source, path, label) = Self::parse_internal(asset_path).unwrap();
         AssetPath {
             source: source.into(),
-            path: CowArc::Static(path),
+            path: normalize_atomicow_path(CowArc::Static(path)),
             label: label.map(CowArc::Static),
         }
     }
@@ -569,7 +587,7 @@ impl From<&'static Path> for AssetPath<'static> {
     fn from(path: &'static Path) -> Self {
         Self {
             source: AssetSourceId::Default,
-            path: CowArc::Static(path),
+            path: normalize_atomicow_path(CowArc::Static(path)),
             label: None,
         }
     }
@@ -578,9 +596,10 @@ impl From<&'static Path> for AssetPath<'static> {
 impl From<PathBuf> for AssetPath<'static> {
     #[inline]
     fn from(path: PathBuf) -> Self {
+        let path: CowArc<'_, Path> = path.into();
         Self {
             source: AssetSourceId::Default,
-            path: path.into(),
+            path: normalize_atomicow_path(path),
             label: None,
         }
     }
@@ -642,29 +661,86 @@ impl<'de> Visitor<'de> for AssetPathVisitor {
 
 /// Normalizes the path by collapsing all occurrences of '.' and '..' dot-segments where possible
 /// as per [RFC 1808](https://datatracker.ietf.org/doc/html/rfc1808)
-pub(crate) fn normalize_path(path: &Path) -> PathBuf {
-    let mut result_path = PathBuf::new();
-    for elt in path.iter() {
+#[cfg_attr(
+    not(feature = "file_watcher"),
+    expect(dead_code, reason = "used in file_watcher feature")
+)]
+pub(crate) fn normalize_path(path: &Path) -> alloc::borrow::Cow<'_, Path> {
+    match maybe_normalize_path(path) {
+        Some(pathbuf) => alloc::borrow::Cow::Owned(pathbuf),
+        None => alloc::borrow::Cow::Borrowed(path),
+    }
+}
+
+/// Normalizes the path by collapsing all occurrences of '.' and '..' dot-segments where possible
+/// as per [RFC 1808](https://datatracker.ietf.org/doc/html/rfc1808)
+/// Returns `None` if no normalization was performed, otherwise returns a normalized `PathBuf`.
+pub(crate) fn maybe_normalize_path<'a, P: AsRef<Path> + 'a>(as_path: P) -> Option<PathBuf> {
+    let path = as_path.as_ref();
+    let mut result_path: core::cell::OnceCell<PathBuf> = core::cell::OnceCell::new();
+    let init = |i: usize| -> PathBuf { path.iter().take(i).collect() };
+
+    for (i, elt) in path.iter().enumerate() {
         if elt == "." {
-            // Skip
+            result_path.get_or_init(|| init(i));
         } else if elt == ".." {
-            if !result_path.pop() {
+            result_path.get_or_init(|| init(i));
+
+            if let Some(path) = result_path.get_mut()
+                && !path.pop()
+            {
                 // Preserve ".." if insufficient matches (per RFC 1808).
-                result_path.push(elt);
+                path.push(elt);
             }
-        } else {
-            result_path.push(elt);
+        } else if let Some(path) = result_path.get_mut() {
+            path.push(elt);
         }
     }
-    result_path
+
+    result_path.into_inner()
+}
+
+pub(crate) fn normalize_atomicow_path<'a>(path: CowArc<'a, Path>) -> CowArc<'a, Path> {
+    match maybe_normalize_path(&path) {
+        Some(normalized) => CowArc::Owned(normalized.into()),
+        None => path,
+    }
 }
 
 #[cfg(test)]
 mod tests {
-    use crate::AssetPath;
+    use crate::{normalize_atomicow_path, AssetPath};
     use alloc::string::ToString;
+    use atomicow::CowArc;
     use std::path::Path;
 
+    #[test]
+    fn normalize_cow_paths() {
+        let path: CowArc<Path> = Path::new("a/../a/b").into();
+
+        assert_eq!(
+            normalize_atomicow_path(path),
+            CowArc::<Path>::Owned(Path::new("a/b").into())
+        );
+
+        let path: CowArc<Path> = Path::new("a/b").into();
+        assert_eq!(
+            normalize_atomicow_path(path),
+            CowArc::Static(Path::new("a/b"))
+        );
+
+        let path = "a/b";
+        let donor = 3;
+        fn steal_lifetime<'a, 'b: 'a, T, U: ?Sized>(_: &'a T, u: &'b U) -> &'a U {
+            u
+        }
+        let path = CowArc::<Path>::Borrowed(steal_lifetime(&donor, Path::new(path)));
+        assert_eq!(
+            normalize_atomicow_path(path),
+            CowArc::Borrowed(Path::new("a/b"))
+        );
+    }
+
     #[test]
     fn parse_asset_path() {
         let result = AssetPath::parse_internal("a/b.test");