diff --git a/rpcs3/Emu/Cell/PPUThread.cpp b/rpcs3/Emu/Cell/PPUThread.cpp
index ff507f6c48..cdd2933d98 100644
--- a/rpcs3/Emu/Cell/PPUThread.cpp
+++ b/rpcs3/Emu/Cell/PPUThread.cpp
@@ -3756,11 +3756,13 @@ extern void ppu_finalize(const ppu_module& info, bool force_mem_release)
 	// Get cache path for this executable
 	std::string cache_path = fs::get_cache_dir() + "cache/";
 
-	if (Emu.IsVsh())
+	const bool in_dev_flash = info.path.starts_with(dev_flash);
+
+	if (in_dev_flash && !info.path.starts_with(dev_flash + "sys/external/"))
 	{
 		cache_path += "vsh/";
 	}
-	else if (!info.path.starts_with(dev_flash) && !Emu.GetTitleID().empty() && Emu.GetCat() != "1P")
+	else if (!in_dev_flash && !Emu.GetTitleID().empty() && Emu.GetCat() != "1P")
 	{
 		cache_path += Emu.GetTitleID();
 		cache_path += '/';
@@ -4264,7 +4266,7 @@ extern void ppu_precompile(std::vector<std::string>& dir_queue, std::vector<ppu_
 					obj.clear(), src.close(); // Clear decrypted file and elf object memory
 
 					_main.name = ' '; // Make ppu_finalize work
-					Emu.ConfigurePPUCache(!Emu.IsPathInsideDir(_main.path, g_cfg_vfs.get_dev_flash()));
+					Emu.ConfigurePPUCache();
 					ppu_initialize(_main, false, file_size);
 					spu_cache::initialize(false);
 					ppu_finalize(_main, true);
@@ -4528,12 +4530,14 @@ bool ppu_initialize(const ppu_module& info, bool check_only, u64 file_size)
 
 		const std::string dev_flash = vfs::get("/dev_flash/");
 
-		if (Emu.IsVsh())
+		const bool in_dev_flash = info.path.starts_with(dev_flash);
+
+		if (in_dev_flash && !info.path.starts_with(dev_flash + "sys/external/"))
 		{
 			// Add prefix for vsh
 			cache_path += "vsh/";
 		}
-		else if (!info.path.starts_with(dev_flash) && !Emu.GetTitleID().empty() && Emu.GetCat() != "1P")
+		else if (!in_dev_flash && !Emu.GetTitleID().empty() && Emu.GetCat() != "1P")
 		{
 			// Add prefix for anything except dev_flash files, standalone elfs or PS1 classics
 			cache_path += Emu.GetTitleID();
diff --git a/rpcs3/Emu/System.cpp b/rpcs3/Emu/System.cpp
index ac8bc680c9..c4991f97d9 100644
--- a/rpcs3/Emu/System.cpp
+++ b/rpcs3/Emu/System.cpp
@@ -3695,23 +3695,23 @@ s32 error_code::error_report(s32 result, const logs::message* channel, const cha
 	return result;
 }
 
-void Emulator::ConfigurePPUCache(bool with_title_id) const
+void Emulator::ConfigurePPUCache() const
 {
 	auto& _main = g_fxo->get<main_ppu_module>();
 
 	_main.cache = rpcs3::utils::get_cache_dir();
 
-	if (with_title_id)
+	const std::string dev_flash = vfs::get("/dev_flash/");
+	const bool in_dev_flash = _main.path.starts_with(dev_flash);
+
+	if (in_dev_flash && !_main.path.starts_with(dev_flash + "sys/external/"))
 	{
-		if (IsVsh())
-		{
-			_main.cache += "vsh/";
-		}
-		else if (!m_title_id.empty() && m_cat != "1P")
-		{
-			_main.cache += GetTitleID();
-			_main.cache += '/';
-		}
+		_main.cache += "vsh/";
+	}
+	else if (!in_dev_flash && !m_title_id.empty() && m_cat != "1P")
+	{
+		_main.cache += GetTitleID();
+		_main.cache += '/';
 	}
 
 	fmt::append(_main.cache, "ppu-%s-%s/", fmt::base57(_main.sha1), _main.path.substr(_main.path.find_last_of('/') + 1));
diff --git a/rpcs3/Emu/System.h b/rpcs3/Emu/System.h
index adbc97e358..d6f8e59b8f 100644
--- a/rpcs3/Emu/System.h
+++ b/rpcs3/Emu/System.h
@@ -377,7 +377,7 @@ public:
 
 	std::string GetFormattedTitle(double fps) const;
 
-	void ConfigurePPUCache(bool with_title_id = true) const;
+	void ConfigurePPUCache() const;
 
 	std::set<std::string> GetGameDirs() const;
 	u32 AddGamesFromDir(const std::string& path);