diff --git a/lib/handle-ts-files.ts b/lib/handle-ts-files.ts
index 7cd40dc2..1b93c85b 100644
--- a/lib/handle-ts-files.ts
+++ b/lib/handle-ts-files.ts
@@ -1,10 +1,7 @@
 import path from 'node:path';
 import fs from 'node:fs/promises';
-import {getTsconfig} from 'get-tsconfig';
-import micromatch, {type Options} from 'micromatch';
-import {tsconfigDefaults, cacheDirName} from './constants.js';
-
-const micromatchOptions: Options = {matchBase: true};
+import {getTsconfig, createFilesMatcher} from 'get-tsconfig';
+import {tsconfigDefaults as tsConfig, cacheDirName} from './constants.js';
 
 /**
 This function checks if the files are matched by the tsconfig include, exclude, and it returns the unmatched files.
@@ -15,49 +12,23 @@ If no tsconfig is found, it will create a fallback tsconfig file in the `node_mo
 @returns The unmatched files.
 */
 export async function handleTsconfig({cwd, files}: {cwd: string; files: string[]}) {
-	const {config: tsConfig = tsconfigDefaults, path: tsConfigPath} = getTsconfig(cwd) ?? {};
-
-	tsConfig.compilerOptions ??= {};
-
 	const unincludedFiles: string[] = [];
 
 	for (const filePath of files) {
-		let hasMatch = false;
+		const result = getTsconfig(filePath);
 
-		if (!tsConfigPath) {
+		if (!result) {
 			unincludedFiles.push(filePath);
 			continue;
 		}
 
-		// If there is no files or include property - TS uses `**/*` as default so all TS files are matched.
-		// In tsconfig, excludes override includes - so we need to prioritize that matching logic.
-		if (
-			tsConfig
-			&& !tsConfig.include
-			&& !tsConfig.files
-		) {
-			// If we have an excludes property, we need to check it.
-			// If we match on excluded, then we definitively know that there is no tsconfig match.
-			if (Array.isArray(tsConfig.exclude)) {
-				const exclude = Array.isArray(tsConfig.exclude) ? tsConfig.exclude : [];
-				hasMatch = !micromatch.contains(filePath, exclude, micromatchOptions);
-			} else {
-				// Not explicitly excluded and included by tsconfig defaults
-				hasMatch = true;
-			}
-		} else {
-			// We have either and include or a files property in tsconfig
-			const include = Array.isArray(tsConfig.include) ? tsConfig.include : [];
-			const files = Array.isArray(tsConfig.files) ? tsConfig.files : [];
-			const exclude = Array.isArray(tsConfig.exclude) ? tsConfig.exclude : [];
-			// If we also have an exlcude we need to check all the arrays, (files, include, exclude)
-			// this check not excluded and included in one of the file/include array
-			hasMatch = !micromatch.contains(filePath, exclude, micromatchOptions) && micromatch.isMatch(filePath, [...include, ...files], micromatchOptions);
-		}
+		const filesMatcher = createFilesMatcher(result);
 
-		if (!hasMatch) {
-			unincludedFiles.push(filePath);
+		if (filesMatcher(filePath)) {
+			continue;
 		}
+
+		unincludedFiles.push(filePath);
 	}
 
 	const fallbackTsConfigPath = path.join(cwd, 'node_modules', '.cache', cacheDirName, 'tsconfig.xo.json');
diff --git a/test/cli.test.ts b/test/cli.test.ts
index 9cf915f2..2db2baa1 100644
--- a/test/cli.test.ts
+++ b/test/cli.test.ts
@@ -3,6 +3,8 @@ import path from 'node:path';
 import _test, {type TestFn} from 'ava'; // eslint-disable-line ava/use-test
 import dedent from 'dedent';
 import {$, type ExecaError} from 'execa';
+import {pathExists} from 'path-exists';
+import {type TsConfigJson} from 'get-tsconfig';
 import {copyTestProject} from './helpers/copy-test-project.js';
 
 const test = _test as TestFn<{cwd: string}>;
@@ -352,3 +354,116 @@ test('Config errors bubble up from ESLint when incorrect config options are set'
 	const error = await t.throwsAsync<ExecaError>($`node ./dist/cli --cwd ${t.context.cwd}`);
 	t.true((error.stderr as string)?.includes('ConfigError:') && (error.stderr as string)?.includes('Unexpected key "invalidOption" found'));
 });
+
+test('ts in nested directory', async t => {
+	const filePath = path.join(t.context.cwd, 'nested', 'src', 'test.ts');
+	const baseTsConfigPath = path.join(t.context.cwd, 'tsconfig.json');
+	const tsConfigNestedPath = path.join(t.context.cwd, 'nested', 'tsconfig.json');
+	const tsconfigCachePath = path.join(t.context.cwd, 'node_modules', '.cache', 'xo-linter', 'tsconfig.xo.json');
+
+	// Remove any previous cache file
+	await fs.rm(tsconfigCachePath, {force: true});
+
+	// Write the test.ts file
+	await fs.mkdir(path.dirname(filePath), {recursive: true});
+	await fs.writeFile(filePath, dedent`console.log('hello');\nconst test = 1;\n`, 'utf8');
+
+	// Copy the base tsconfig to the nested directory
+	await fs.copyFile(baseTsConfigPath, tsConfigNestedPath);
+	await fs.rm(baseTsConfigPath);
+	const tsconfig = JSON.parse(await fs.readFile(tsConfigNestedPath, 'utf8')) as TsConfigJson;
+	if (tsconfig.compilerOptions) {
+		tsconfig.compilerOptions.baseUrl = './';
+	}
+
+	tsconfig.include = ['src'];
+
+	await fs.writeFile(tsConfigNestedPath, JSON.stringify(tsconfig, null, 2), 'utf8');
+	// Add an xo config file in root dir
+	const xoConfigPath = path.join(t.context.cwd, 'xo.config.js');
+	const xoConfig = dedent`
+		export default [
+			{ ignores: "xo.config.js" },
+			{
+				rules: {
+					'@typescript-eslint/no-unused-vars': 'off',
+				}
+			}
+		]
+	`;
+	await fs.writeFile(xoConfigPath, xoConfig, 'utf8');
+	await t.notThrowsAsync($`node ./dist/cli --cwd ${t.context.cwd}`);
+	t.false(await pathExists(tsconfigCachePath), 'tsconfig.xo.json should not be created in the cache directory when tsconfig.json is present in the nested directory');
+});
+
+test('handles mixed project structure with nested tsconfig and root ts files', async t => {
+	// Set up nested TypeScript files with a tsconfig
+	const nestedFilePath = path.join(t.context.cwd, 'nested', 'src', 'test.ts');
+	const nestedFile2Path = path.join(t.context.cwd, 'nested', 'src', 'test2.ts');
+	const baseTsConfigPath = path.join(t.context.cwd, 'tsconfig.json');
+	const tsConfigNestedPath = path.join(t.context.cwd, 'nested', 'tsconfig.json');
+	const tsconfigCachePath = path.join(t.context.cwd, 'node_modules', '.cache', 'xo-linter', 'tsconfig.xo.json');
+
+	// Root ts file with no tsconfig
+	const rootTsFilePath = path.join(t.context.cwd, 'root.ts');
+
+	// Remove any previous cache file
+	await fs.rm(tsconfigCachePath, {force: true});
+
+	// Create directory structure and files
+	await fs.mkdir(path.dirname(nestedFilePath), {recursive: true});
+	await fs.writeFile(nestedFilePath, dedent`console.log('nested file 1');\nconst test1 = 1;\n`, 'utf8');
+	await fs.writeFile(nestedFile2Path, dedent`console.log('nested file 2');\nconst test2 = 2;\n`, 'utf8');
+
+	// Create the root TS file with no accompanying tsconfig
+	await fs.writeFile(rootTsFilePath, dedent`console.log('root file');\nconst rootVar = 3;\n`, 'utf8');
+
+	// Copy the base tsconfig to the nested directory only
+	await fs.copyFile(baseTsConfigPath, tsConfigNestedPath);
+	await fs.rm(baseTsConfigPath);
+	const tsconfig = JSON.parse(await fs.readFile(tsConfigNestedPath, 'utf8')) as TsConfigJson;
+
+	if (tsconfig.compilerOptions) {
+		tsconfig.compilerOptions.baseUrl = './';
+	}
+
+	// Configure the nested tsconfig to include only the nested src directory
+	tsconfig.include = ['src'];
+	await fs.writeFile(tsConfigNestedPath, JSON.stringify(tsconfig, null, 2), 'utf8');
+
+	// Add an xo config file in root dir
+	const xoConfigPath = path.join(t.context.cwd, 'xo.config.js');
+	const xoConfig = dedent`
+		export default [
+		    { ignores: "xo.config.js" },
+		    {
+		        rules: {
+		            '@typescript-eslint/no-unused-vars': 'off',
+		        }
+		    }
+		]
+	`;
+	await fs.writeFile(xoConfigPath, xoConfig, 'utf8');
+
+	// Run XO on the entire directory structure
+	await t.notThrowsAsync($`node ./dist/cli --cwd ${t.context.cwd}`);
+
+	// Verify the cache file was created
+	t.true(await pathExists(tsconfigCachePath), 'tsconfig.xo.json should be created for files not covered by existing tsconfigs');
+
+	// Check the content of the cached tsconfig
+	const cachedTsConfig = JSON.parse(await fs.readFile(tsconfigCachePath, 'utf8')) as TsConfigJson;
+
+	// Verify only the root.ts file is in the cached tsconfig (not the nested files)
+	t.deepEqual(cachedTsConfig.files, [rootTsFilePath], 'tsconfig.xo.json should only contain the root.ts file not covered by existing tsconfig');
+
+	// Verify the nested files aren't included (they should be covered by the nested tsconfig)
+	t.false(
+		cachedTsConfig.files?.includes(nestedFilePath),
+		'tsconfig.xo.json should not include files already covered by nested tsconfig',
+	);
+	t.false(
+		cachedTsConfig.files?.includes(nestedFile2Path),
+		'tsconfig.xo.json should not include files already covered by nested tsconfig',
+	);
+});