diff --git a/internal/gcs-sidecar/handlers.go b/internal/gcs-sidecar/handlers.go
index f5a7c48d5e..6406ef7029 100644
--- a/internal/gcs-sidecar/handlers.go
+++ b/internal/gcs-sidecar/handlers.go
@@ -4,6 +4,7 @@
 package bridge
 
 import (
+	"context"
 	"encoding/hex"
 	"encoding/json"
 	"fmt"
@@ -130,6 +131,15 @@ func (b *Bridge) createContainer(req *request) (err error) {
 			return fmt.Errorf("CreateContainer operation is denied by policy: %w", err)
 		}
 
+		// Create the source directory for each mapped directory if it does not
+		// already exist. In non-confidential WCOW the host does this for
+		// sandbox:// mounts by exec'ing `cmd /c mkdir ... & dir ...` inside the
+		// UVM (see resources_wcow.go:setupMounts), but for confidential, we
+		// handle this here in the sidecar GCS.
+		if err := createMappedDirectorySourceDirs(ctx, container.MappedDirectories); err != nil {
+			return fmt.Errorf("failed to create mapped directory source directories: %w", err)
+		}
+
 		commandLine := len(spec.Process.Args) > 0
 		c := &Container{
 			id:              containerID,
@@ -201,6 +211,28 @@ func (b *Bridge) createContainer(req *request) (err error) {
 	return nil
 }
 
+// createMappedDirectorySourceDirs creates the host-side source directory for
+// every mapped directory (i.e. "mounts") in the container document, if it does
+// not already exist.
+func createMappedDirectorySourceDirs(ctx context.Context, mappedDirectories []hcsschema.MappedDirectory) error {
+	for _, md := range mappedDirectories {
+		source := md.HostPath
+
+		if _, err := os.Stat(source); err == nil {
+			// exists
+			continue
+		} else if !os.IsNotExist(err) {
+			return fmt.Errorf("failed to stat mapped directory source %q: %w", source, err)
+		}
+
+		if err := os.MkdirAll(source, 0755); err != nil {
+			return fmt.Errorf("failed to create mapped directory source %q: %w", source, err)
+		}
+		log.G(ctx).WithField("source", source).Debug("created mapped directory source directory")
+	}
+	return nil
+}
+
 // processParamEnvToOCIEnv converts an Environment field from ProcessParameters
 // (a map from environment variable to value) into an array of environment
 // variable assignments (where each is in the form "<variable>=<value>") which
diff --git a/internal/hcsoci/resources_wcow.go b/internal/hcsoci/resources_wcow.go
index baa5d7fb7d..31b35f4246 100644
--- a/internal/hcsoci/resources_wcow.go
+++ b/internal/hcsoci/resources_wcow.go
@@ -206,20 +206,27 @@ func setupMounts(ctx context.Context, coi *createOptionsInternal, r *resources.R
 			// Now we need to exec a process in the vm that will make these directories as theres
 			// no functionality in the Windows gcs to create an arbitrary directory.
 			//
-			// Create the directory, but also run dir afterwards regardless of if mkdir succeeded to handle the case where the directory already exists
-			// e.g. from a previous container specifying the same mount (and thus creating the same directory).
-			b := &bytes.Buffer{}
-			stderr, err := cmd.CreatePipeAndListen(b, false)
-			if err != nil {
-				return err
-			}
-			req := &cmd.CmdProcessRequest{
-				Args:   []string{"cmd", "/c", "mkdir", sandboxPath, "&", "dir", sandboxPath},
-				Stderr: stderr,
-			}
-			exitCode, err := coi.HostingSystem.ExecInUVM(ctx, req)
-			if err != nil {
-				return errors.Wrapf(err, "failed to create sandbox mount directory in utility VM with exit code %d %q", exitCode, b.String())
+			// We do not need to do this for Confidential WCOW, because in that case the gcs-sidecar
+			// handles the create container request and will do this for us.  This way the policy
+			// does not have to have exceptions for allowing such mkdir commands.
+			//
+			// Create the directory, but also run dir afterwards regardless of if mkdir succeeded to
+			// handle the case where the directory already exists e.g. from a previous container
+			// specifying the same mount (and thus creating the same directory).
+			if !coi.HostingSystem.HasConfidentialPolicy() {
+				b := &bytes.Buffer{}
+				stderr, err := cmd.CreatePipeAndListen(b, false)
+				if err != nil {
+					return err
+				}
+				req := &cmd.CmdProcessRequest{
+					Args:   []string{"cmd", "/c", "mkdir", sandboxPath, "&", "dir", sandboxPath},
+					Stderr: stderr,
+				}
+				exitCode, err := coi.HostingSystem.ExecInUVM(ctx, req)
+				if err != nil {
+					return errors.Wrapf(err, "failed to create sandbox mount directory in utility VM with exit code %d %q", exitCode, b.String())
+				}
 			}
 		} else if np, ok := uvm.ParseNamedPipe(coi.HostingSystem, mount); ok {
 			if !np.UVMPipe {