diff --git a/dlls/shlwapi/tests/url.c b/dlls/shlwapi/tests/url.c
index cd7a5f2..37c0111 100644
--- a/dlls/shlwapi/tests/url.c
+++ b/dlls/shlwapi/tests/url.c
@@ -74,6 +74,10 @@ static const TEST_URL_CANONICALIZE TEST_CANONICALIZE[] = {
     {"file:///c:/tests\\foo%20bar", URL_UNESCAPE , S_OK, "file:///c:/tests/foo bar", FALSE},
     {"file:///c:/tests/foo%20bar", 0, S_OK, "file:///c:/tests/foo%20bar", FALSE},
     {"file:///c:/tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
+    {"file://localhost/c:/tests/../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
+    {"file://localhost\\c:/tests/../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
+    {"file://localhost\\\\c:/tests/../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
+    {"file://localhost\\c:\\tests/../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
     {"file://c:/tests/../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
     {"file://c:/tests\\../tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
     {"file://c:/tests/foo%20bar", URL_FILE_USE_PATHURL, S_OK, "file://c:\\tests\\foo bar", FALSE},
diff --git a/dlls/shlwapi/url.c b/dlls/shlwapi/url.c
index 2593f96..16031e8 100644
--- a/dlls/shlwapi/url.c
+++ b/dlls/shlwapi/url.c
@@ -319,6 +319,7 @@ HRESULT WINAPI UrlCanonicalizeW(LPCWSTR pszUrl, LPWSTR pszCanonicalized,
     WCHAR slash = '/';
 
     static const WCHAR wszFile[] = {'f','i','l','e',':'};
+    static const WCHAR wszLocalhost[] = {'l','o','c','a','l','h','o','s','t'};
 
     TRACE("(%s, %p, %p, 0x%08x) *pcchCanonicalized: %d\n", debugstr_w(pszUrl), pszCanonicalized,
         pcchCanonicalized, dwFlags, pcchCanonicalized ? *pcchCanonicalized : -1);
@@ -387,6 +388,12 @@ HRESULT WINAPI UrlCanonicalizeW(LPCWSTR pszUrl, LPWSTR pszCanonicalized,
             *wk2++ = *wk1++;
             if (*wk1 != '/') {state = 6; break;}
             *wk2++ = *wk1++;
+            if((dwFlags & URL_FILE_USE_PATHURL) && nByteLen >= sizeof(wszLocalhost)
+                        && !memcmp(wszLocalhost, wk1, sizeof(wszLocalhost))){
+                wk1 += sizeof(wszLocalhost)/sizeof(WCHAR);
+                while(*wk1 == '\\' && (dwFlags & URL_FILE_USE_PATHURL))
+                    wk1++;
+            }
             if(*wk1 == '/' && (dwFlags & URL_FILE_USE_PATHURL))
                 wk1++;
             state = 4;