diff --git a/docs/how_tos/migrate-frontend-app.md b/docs/how_tos/migrate-frontend-app.md
index 890cca7c..c3a0ca23 100644
--- a/docs/how_tos/migrate-frontend-app.md
+++ b/docs/how_tos/migrate-frontend-app.md
@@ -259,8 +259,12 @@ Create a `tsconfig.json` file and add the following contents to it:
 {
   "extends": "@openedx/frontend-base/config/tsconfig.json",
   "compilerOptions": {
+    "baseUrl": ".",
     "rootDir": ".",
     "outDir": "dist",
+    "paths": {
+      "@src/*": ["./src/*"]
+    }
   },
   "include": [
     "src/**/*",
@@ -275,6 +279,26 @@ Create a `tsconfig.json` file and add the following contents to it:
 
 This assumes you have a `src` folder and your build goes in `dist`, which is the best practice.
 
+The `@src` path alias
+---------------------
+
+The `paths` configuration above sets up the `@src` alias, which allows you to import from your app's `src` directory using `@src/...` instead of relative paths. For example:
+
+```typescript
+// Instead of:
+import { MyComponent } from '../../../components/MyComponent';
+
+// You can use:
+import { MyComponent } from '@src/components/MyComponent';
+```
+
+Each consuming app must define its own `@src` path mapping in its `tsconfig.json`. This is because:
+
+1. **TypeScript** uses the static path mapping in your `tsconfig.json` for IDE support (autocomplete, go-to-definition, type checking)
+2. **Webpack** uses a resolver plugin that dynamically finds the closest `src` directory relative to the importing file at build time
+
+This approach ensures that `@src` always resolves to your app's own `src` directory, even in complex project structures.
+
 
 Edit jest.config.js
 ===================
diff --git a/test-site/tsconfig.json b/test-site/tsconfig.json
index e07305c3..704176f4 100644
--- a/test-site/tsconfig.json
+++ b/test-site/tsconfig.json
@@ -1,8 +1,12 @@
 {
   "extends": "@openedx/frontend-base/config/tsconfig.json",
   "compilerOptions": {
+    "baseUrl": ".",
     "rootDir": ".",
-    "outDir": "dist"
+    "outDir": "dist",
+    "paths": {
+      "@src/*": ["./src/*"]
+    }
   },
   "include": [
     "eslint.config.js",
diff --git a/tools/tsconfig.json b/tools/tsconfig.json
index 8cc7f694..c1eb390c 100644
--- a/tools/tsconfig.json
+++ b/tools/tsconfig.json
@@ -5,10 +5,7 @@
     "outDir": "dist",
     "noEmit": false,
     "allowJs": true,
-    "resolveJsonModule": true,
-    "paths": {
-      "@src/*": ["./src/*"]
-    }
+    "resolveJsonModule": true
   },
   "include": [
     "babel/**/*",
diff --git a/tools/webpack/plugins/ClosestSrcResolverPlugin.ts b/tools/webpack/plugins/ClosestSrcResolverPlugin.ts
new file mode 100644
index 00000000..21c733e8
--- /dev/null
+++ b/tools/webpack/plugins/ClosestSrcResolverPlugin.ts
@@ -0,0 +1,62 @@
+import fs from 'fs';
+import path from 'path';
+import { Resolver } from 'webpack';
+
+/**
+ * A webpack resolver plugin that resolves `@src` imports to the closest
+ * `src` directory by walking up from the importing file's location.
+ *
+ * This allows apps to have their own `src` directories, with `@src` always
+ * resolving to the nearest one relative to the file doing the import.
+ */
+class ClosestSrcResolverPlugin {
+  apply(resolver: Resolver) {
+    const target = resolver.ensureHook('resolve');
+
+    resolver.getHook('resolve').tapAsync(
+      'ClosestSrcResolverPlugin',
+      (request: any, resolveContext: any, callback: (err?: null | Error, result?: any) => void) => {
+        if (!request.request?.startsWith('@src')) {
+          return callback();
+        }
+
+        // Get the directory of the file doing the import
+        const issuer = request.context?.issuer;
+        if (!issuer) {
+          return callback();
+        }
+
+        // Walk up from the issuer to find closest 'src' directory,
+        // but don't go above the current working directory
+        const cwd = process.cwd();
+        let dir = path.dirname(issuer);
+        let srcPath: string | null = null;
+
+        while (dir.startsWith(cwd) && dir !== path.parse(dir).root) {
+          const candidate = path.join(dir, 'src');
+          if (fs.existsSync(candidate) && fs.statSync(candidate).isDirectory()) {
+            srcPath = candidate;
+            break;
+          }
+          dir = path.dirname(dir);
+        }
+
+        if (!srcPath) {
+          return callback();
+        }
+
+        // Replace @src with the actual path
+        const newRequest = request.request.replace(/^@src/, srcPath);
+
+        const obj = {
+          ...request,
+          request: newRequest,
+        };
+
+        resolver.doResolve(target, obj, null, resolveContext, callback);
+      }
+    );
+  }
+}
+
+export default ClosestSrcResolverPlugin;
diff --git a/tools/webpack/webpack.config.build.ts b/tools/webpack/webpack.config.build.ts
index 101385a0..918e903f 100644
--- a/tools/webpack/webpack.config.build.ts
+++ b/tools/webpack/webpack.config.build.ts
@@ -13,6 +13,7 @@ import {
   getStylesheetRule
 } from './common-config';
 
+import ClosestSrcResolverPlugin from './plugins/ClosestSrcResolverPlugin';
 import getLocalAliases from './utils/getLocalAliases';
 import getPublicPath from './utils/getPublicPath';
 import getResolvedSiteConfigPath from './utils/getResolvedSiteConfigPath';
@@ -36,9 +37,9 @@ const config: Configuration = {
     alias: {
       ...aliases,
       'site.config': resolvedSiteConfigPath,
-      '@src': path.resolve(process.cwd(), 'src'),
     },
     extensions: ['.js', '.jsx', '.ts', '.tsx'],
+    plugins: [new ClosestSrcResolverPlugin()],
   },
   module: {
     rules: [
diff --git a/tools/webpack/webpack.config.dev.shell.ts b/tools/webpack/webpack.config.dev.shell.ts
index 244731c7..d5c9719e 100644
--- a/tools/webpack/webpack.config.dev.shell.ts
+++ b/tools/webpack/webpack.config.dev.shell.ts
@@ -15,6 +15,7 @@ import {
 } from './common-config';
 
 import HtmlWebpackPlugin from 'html-webpack-plugin';
+import ClosestSrcResolverPlugin from './plugins/ClosestSrcResolverPlugin';
 import getLocalAliases from './utils/getLocalAliases';
 import getPublicPath from './utils/getPublicPath';
 import getResolvedSiteConfigPath from './utils/getResolvedSiteConfigPath';
@@ -34,9 +35,9 @@ const config: Configuration = {
     alias: {
       ...aliases,
       'site.config': resolvedSiteConfigPath,
-      '@src': path.resolve(process.cwd(), 'src'),
     },
     extensions: ['.js', '.jsx', '.ts', '.tsx'],
+    plugins: [new ClosestSrcResolverPlugin()],
   },
   mode: 'development',
   devtool: 'eval-source-map',
diff --git a/tools/webpack/webpack.config.dev.ts b/tools/webpack/webpack.config.dev.ts
index cb9d2ae1..847a09be 100644
--- a/tools/webpack/webpack.config.dev.ts
+++ b/tools/webpack/webpack.config.dev.ts
@@ -14,6 +14,7 @@ import {
   getStylesheetRule
 } from './common-config';
 
+import ClosestSrcResolverPlugin from './plugins/ClosestSrcResolverPlugin';
 import getLocalAliases from './utils/getLocalAliases';
 import getPublicPath from './utils/getPublicPath';
 import getResolvedSiteConfigPath from './utils/getResolvedSiteConfigPath';
@@ -33,9 +34,9 @@ const config: Configuration = {
     alias: {
       ...aliases,
       'site.config': resolvedSiteConfigPath,
-      '@src': path.resolve(process.cwd(), 'src'),
     },
     extensions: ['.js', '.jsx', '.ts', '.tsx'],
+    plugins: [new ClosestSrcResolverPlugin()],
   },
   mode: 'development',
   devtool: 'eval-source-map',
diff --git a/tsconfig.json b/tsconfig.json
index e0f9f58b..6e702bbf 100644
--- a/tsconfig.json
+++ b/tsconfig.json
@@ -2,10 +2,7 @@
   "extends": "./tools/typescript/tsconfig.json",
   "compilerOptions": {
     "rootDir": ".",
-    "outDir": "dist",
-    "paths": {
-      "@src/*": ["./src/*"]
-    }
+    "outDir": "dist"
   },
   "include": [
     "runtime/**/*",