diff --git a/src/common/args.cpp b/src/common/args.cpp
index 833a0b28bd2..b94bccba4eb 100644
--- a/src/common/args.cpp
+++ b/src/common/args.cpp
@@ -5,6 +5,7 @@
 
 #include <common/args.h>
 
+#include <hash.h>
 #include <chainparamsbase.h>
 #include <common/settings.h>
 #include <logging.h>
@@ -279,6 +280,18 @@ fs::path ArgsManager::GetPathArg(std::string arg, const fs::path& default_value)
     return result.has_filename() ? result : result.parent_path();
 }
 
+fs::path ArgsManager::GetSignetDataDir() const
+{
+    const std::string base_data_dir = BaseParams().DataDir();
+    const std::string signet_challenge_str = GetArg("-signetchallenge", "");
+    if (!signet_challenge_str.empty()) {
+        std::vector<uint8_t> signet_challenge = ParseHex(signet_challenge_str);
+        const auto data_dir_suffix = HexStr(Hash160(signet_challenge)).substr(0, 8);
+        return fs::PathFromString(base_data_dir + "_" + data_dir_suffix);
+    }
+    return fs::PathFromString(base_data_dir);
+}
+
 fs::path ArgsManager::GetBlocksDirPath() const
 {
     LOCK(cs_args);
@@ -298,7 +311,12 @@ fs::path ArgsManager::GetBlocksDirPath() const
         path = GetDataDirBase();
     }
 
-    path /= fs::PathFromString(BaseParams().DataDir());
+    if (GetChainType() == ChainType::SIGNET) {
+        path /= GetSignetDataDir();
+    } else {
+        path /= fs::PathFromString(BaseParams().DataDir());
+    }
+
     path /= "blocks";
     fs::create_directories(path);
     return path;
@@ -324,7 +342,11 @@ fs::path ArgsManager::GetDataDir(bool net_specific) const
     }
 
     if (net_specific && !BaseParams().DataDir().empty()) {
-        path /= fs::PathFromString(BaseParams().DataDir());
+        if (GetChainType() == ChainType::SIGNET) {
+            path /= GetSignetDataDir();
+        } else {
+            path /= fs::PathFromString(BaseParams().DataDir());
+        }
     }
 
     return path;
diff --git a/src/common/args.h b/src/common/args.h
index 8d9daf5f65d..11d0dd545c2 100644
--- a/src/common/args.h
+++ b/src/common/args.h
@@ -212,6 +212,14 @@ protected:
      */
     std::optional<const Command> GetCommand() const;
 
+    /**
+     * Get signet data directory path.
+     * If a signet-challange argument is provided, it is used in constructing the directory path.
+     *
+     * @return The path to the signet data directory.
+    */
+    fs::path GetSignetDataDir() const;
+
     /**
      * Get blocks directory path
      *
diff --git a/test/functional/feature_signet.py b/test/functional/feature_signet.py
index 63091b3ee87..4503509c356 100755
--- a/test/functional/feature_signet.py
+++ b/test/functional/feature_signet.py
@@ -5,6 +5,7 @@
 """Test basic signet functionality"""
 
 from decimal import Decimal
+from os import path
 
 from test_framework.test_framework import BitcoinTestFramework
 from test_framework.util import assert_equal
@@ -99,6 +100,12 @@ class SignetBasicTest(BitcoinTestFramework):
 
         assert_equal(self.nodes[4].submitblock(signet_blocks[0]), 'bad-signet-blksig')
 
+        self.log.info("Test that the signet data directory with -signetchallenge=51 is 'signet_da1745e9'")
+        assert_equal(path.basename(self.nodes[0].chain_path), "signet_da1745e9")
+
+        self.log.info("Test that the main signet data directory is 'signet'")
+        assert_equal(path.basename(self.nodes[3].chain_path), "signet")
+
         self.log.info("test that signet logs the network magic on node start")
         with self.nodes[0].assert_debug_log(["Signet derived magic (message start)"]):
             self.restart_node(0)
diff --git a/test/functional/interface_bitcoin_cli.py b/test/functional/interface_bitcoin_cli.py
index 2618c12e9f5..8f845b5519d 100755
--- a/test/functional/interface_bitcoin_cli.py
+++ b/test/functional/interface_bitcoin_cli.py
@@ -101,7 +101,7 @@ class TestBitcoinCli(BitcoinTestFramework):
         assert_equal(self.nodes[0].cli("-named", "echo", "arg0=0", "arg1=1", "arg2=2", "arg1=3").send_cli(), ['0', '3', '2'])
         assert_raises_rpc_error(-8, "Parameter args specified multiple times", self.nodes[0].cli("-named", "echo", "args=[0,1,2,3]", "4", "5", "6", ).send_cli)
 
-        user, password = get_auth_cookie(self.nodes[0].datadir_path, self.chain)
+        user, password = get_auth_cookie(self.nodes[0].datadir_path, self.nodes[0].get_chain())
 
         self.log.info("Test -stdinrpcpass option")
         assert_equal(BLOCKS, self.nodes[0].cli(f'-rpcuser={user}', '-stdinrpcpass', input=password).getblockcount())
diff --git a/test/functional/rpc_bind.py b/test/functional/rpc_bind.py
index 69afd45b9af..4673e0038da 100755
--- a/test/functional/rpc_bind.py
+++ b/test/functional/rpc_bind.py
@@ -71,7 +71,7 @@ class RPCBindTest(BitcoinTestFramework):
         self.nodes[0].rpchost = None
         self.start_nodes([node_args])
         # connect to node through non-loopback interface
-        node = get_rpc_proxy(rpc_url(self.nodes[0].datadir_path, 0, self.chain, "%s:%d" % (rpchost, rpcport)), 0, coveragedir=self.options.coveragedir)
+        node = get_rpc_proxy(rpc_url(self.nodes[0].datadir_path, 0, self.nodes[0].get_chain(), "%s:%d" % (rpchost, rpcport)), 0, coveragedir=self.options.coveragedir)
         node.getnetworkinfo()
         self.stop_nodes()
 
diff --git a/test/functional/test_framework/test_framework.py b/test/functional/test_framework/test_framework.py
index d5b338f2ba2..26c45b9c350 100755
--- a/test/functional/test_framework/test_framework.py
+++ b/test/functional/test_framework/test_framework.py
@@ -35,6 +35,7 @@ from .util import (
     p2p_port,
     wait_until_helper_internal,
 )
+from .script import hash160
 
 
 class TestStatus(Enum):
@@ -557,11 +558,21 @@ class BitcoinTestFramework(metaclass=BitcoinTestMetaClass):
                 descriptors=self.options.descriptors,
                 v2transport=self.options.v2transport,
             )
+            if self.chain == "signet":
+                test_node_i.signet_chain = self.get_signet_chain(args)
             self.nodes.append(test_node_i)
             if not test_node_i.version_is_at_least(170000):
                 # adjust conf for pre 17
                 test_node_i.replace_in_config([('[regtest]', '')])
 
+    def get_signet_chain(self, args):
+        for arg in args:
+            if arg.startswith('-signetchallenge'):
+                signetchallenge = arg.split('=')[1]
+                data_dir_suffix = hash160(bytes.fromhex(signetchallenge)).hex()[0:8]
+                return f"signet_{data_dir_suffix}"
+        return 'signet'
+
     def start_node(self, i, *args, **kwargs):
         """Start a bitcoind"""
 
diff --git a/test/functional/test_framework/test_node.py b/test/functional/test_framework/test_node.py
index f7d6ba78d23..8928b30d6be 100755
--- a/test/functional/test_framework/test_node.py
+++ b/test/functional/test_framework/test_node.py
@@ -90,6 +90,7 @@ class TestNode():
         self.stdout_dir = self.datadir_path / "stdout"
         self.stderr_dir = self.datadir_path / "stderr"
         self.chain = chain
+        self.signet_chain = ""
         self.rpchost = rpchost
         self.rpc_timeout = timewait
         self.binary = bitcoind
@@ -184,6 +185,9 @@ class TestNode():
             AddressKeyPair('mzRe8QZMfGi58KyWCse2exxEFry2sfF2Y7', 'cPiRWE8KMjTRxH1MWkPerhfoHFn5iHPWVK5aPqjW8NxmdwenFinJ'),
     ]
 
+    def get_chain(self):
+        return self.signet_chain if self.chain == 'signet' else self.chain
+
     def get_deterministic_priv_key(self):
         """Return a deterministic priv key in base58, that only depends on the node's index"""
         assert len(self.PRIV_KEYS) == MAX_NODES
@@ -276,7 +280,7 @@ class TestNode():
                     f'bitcoind exited with status {self.process.returncode} during initialization. {str_error}'))
             try:
                 rpc = get_rpc_proxy(
-                    rpc_url(self.datadir_path, self.index, self.chain, self.rpchost),
+                    rpc_url(self.datadir_path, self.index, self.get_chain(), self.rpchost),
                     self.index,
                     timeout=self.rpc_timeout // 2,  # Shorter timeout to allow for one retry in case of ETIMEDOUT
                     coveragedir=self.coverage_dir,
@@ -340,7 +344,7 @@ class TestNode():
         poll_per_s = 4
         for _ in range(poll_per_s * self.rpc_timeout):
             try:
-                get_auth_cookie(self.datadir_path, self.chain)
+                get_auth_cookie(self.datadir_path, self.get_chain())
                 self.log.debug("Cookie credentials successfully retrieved")
                 return
             except ValueError:  # cookie file not found and no rpcuser or rpcpassword; bitcoind is still starting
@@ -460,7 +464,7 @@ class TestNode():
 
     @property
     def chain_path(self) -> Path:
-        return self.datadir_path / self.chain
+        return self.datadir_path / self.get_chain()
 
     @property
     def debug_log_path(self) -> Path:
diff --git a/test/functional/tool_signet_miner.py b/test/functional/tool_signet_miner.py
index 00841585548..bf1cbcc710c 100755
--- a/test/functional/tool_signet_miner.py
+++ b/test/functional/tool_signet_miner.py
@@ -33,8 +33,8 @@ class SignetMinerTest(BitcoinTestFramework):
         privkey = ECKey()
         privkey.set(CHALLENGE_PRIVATE_KEY, True)
         pubkey = privkey.get_pubkey().get_bytes()
-        challenge = key_to_p2wpkh_script(pubkey)
-        self.extra_args = [[f'-signetchallenge={challenge.hex()}']]
+        self.challenge = key_to_p2wpkh_script(pubkey)
+        self.extra_args = [[f'-signetchallenge={self.challenge.hex()}']]
 
     def skip_test_if_missing_module(self):
         self.skip_if_no_cli()
@@ -49,10 +49,11 @@ class SignetMinerTest(BitcoinTestFramework):
         # generate block with signet miner tool
         base_dir = self.config["environment"]["SRCDIR"]
         signet_miner_path = os.path.join(base_dir, "contrib", "signet", "miner")
+        # breakpoint()
         subprocess.run([
                 sys.executable,
                 signet_miner_path,
-                f'--cli={node.cli.binary} -datadir={node.cli.datadir}',
+                f'--cli={node.cli.binary} -datadir={node.cli.datadir} -signetchallenge={self.challenge.hex()}',
                 'generate',
                 f'--address={node.getnewaddress()}',
                 f'--grind-cmd={self.options.bitcoinutil} grind',