diff --git a/docs/release-notes.md b/docs/release-notes.md
index e4015a63f..95d3ad5a6 100644
--- a/docs/release-notes.md
+++ b/docs/release-notes.md
@@ -14,6 +14,7 @@ nav_order: 9
 
 ### Bug fixes
 
+- Resolve intermediate symlinks in relabel paths, fixing SELinux relabeling failures for users with `home_dir` on OSTree platforms after policycoreutils 3.11 ([#2316](https://github.com/coreos/ignition/pull/2316))
 
 ## Ignition 2.27.0 (2026-08-26)
 
diff --git a/internal/exec/stages/files/passwd.go b/internal/exec/stages/files/passwd.go
index 737e9cced..85f661945 100644
--- a/internal/exec/stages/files/passwd.go
+++ b/internal/exec/stages/files/passwd.go
@@ -80,17 +80,26 @@ func (s *stage) createPasswd(config types.Config) error {
 				return err
 			}
 
+			// Resolve intermediate symlinks in the homedir path.
+			// This is relevant on OSTree-based platforms, where
+			// /home is a symlink to var/home.
+			resolvedPath, err := s.JoinPath(homedir)
+			if err != nil {
+				return err
+			}
+			unprefixed := resolvedPath[len(s.DestDir):]
+
 			// Check if the homedir is actually a symlink, and make sure we
 			// relabel the target instead in that case. This is relevant on
 			// OSTree-based platforms, where /root is a link to /var/roothome.
-			if resolved, err := s.ResolveSymlink(homedir); err != nil {
+			if target, err := s.ResolveSymlink(unprefixed); err != nil {
 				return err
-			} else if resolved != "" {
+			} else if target != "" {
 				// note we don't relabel the symlink itself; we assume it's
 				// already properly labeled
-				s.relabel(resolved)
+				s.relabel(target)
 			} else {
-				s.relabel(homedir)
+				s.relabel(unprefixed)
 			}
 		}
 	}