diff --git a/code/core/src/telemetry/sanitize.test.ts b/code/core/src/telemetry/sanitize.test.ts
index 1f085782a328..7c4672e9b353 100644
--- a/code/core/src/telemetry/sanitize.test.ts
+++ b/code/core/src/telemetry/sanitize.test.ts
@@ -1,7 +1,13 @@
-import { describe, expect, it, vi } from 'vitest';
+import os from 'node:os';
+
+import { afterEach, describe, expect, it, vi } from 'vitest';
 
 import { cleanPaths, sanitizeError } from './sanitize';
 
+afterEach(() => {
+  vi.restoreAllMocks();
+});
+
 describe(`Errors Helpers`, () => {
   describe(`sanitizeError`, () => {
     it(`Sanitizes ansi codes in error`, () => {
@@ -120,5 +126,117 @@ describe(`Errors Helpers`, () => {
         mockCwd.mockRestore();
       }
     );
+
+    describe(`package manager caches and home paths`, () => {
+      it(`should sanitize pnpm store under a different cwd`, () => {
+        const input = `/home/sandbox/project/node_modules/.pnpm/@storybook+addon-docs@10.0.2_@types+react@19.2.2_esbuild@0.25.10_rollup@4.31.0_storyboo_7cb8a1f4d4ca81d0abdb0f0cfacb0423/node_modules/@storybook/addon-docs`;
+        const separator = `/`;
+        const homedir = `/home/sandbox`;
+        const cwd = `/var/build`;
+        const retainedSegment = `@storybook/addon-docs`;
+        const forbidden = `sandbox`;
+
+        vi.spyOn(process, `cwd`).mockImplementation(() => cwd);
+        vi.spyOn(os, `homedir`).mockImplementation(() => homedir);
+
+        const sanitized = cleanPaths(input, separator);
+        expect(sanitized).toMatchInlineSnapshot(
+          `"$SNIP/project/node_modules/.pnpm/@storybook+addon-docs@10.0.2_@types+react@19.2.2_esbuild@0.25.10_rollup@4.31.0_storyboo_7cb8a1f4d4ca81d0abdb0f0cfacb0423/node_modules/@storybook/addon-docs"`
+        );
+
+        expect(sanitized).toContain(`$SNIP`);
+        expect(sanitized).toContain(retainedSegment);
+        expect(sanitized.toLowerCase()).not.toContain(forbidden.toLowerCase());
+        expect(sanitized.toLowerCase()).not.toContain(homedir.toLowerCase());
+      });
+
+      it(`should sanitize yarn berry cache in home`, () => {
+        const input = `/home/foo/.yarn/berry/cache/@storybook-addon-interactions-npm-7.6.1-9e0ac1ff40-10.zip/node_modules/@storybook/addon-interactions`;
+        const separator = `/`;
+        const homedir = `/home/foo`;
+        const cwd = `/workspace`;
+        const retainedSegment = `@storybook/addon-interactions`;
+        const forbidden = `foo`;
+
+        vi.spyOn(process, `cwd`).mockImplementation(() => cwd);
+        vi.spyOn(os, `homedir`).mockImplementation(() => homedir);
+
+        const sanitized = cleanPaths(input, separator);
+
+        expect(sanitized).toMatchInlineSnapshot(
+          `"$SNIP/.yarn/berry/cache/@storybook-addon-interactions-npm-7.6.1-9e0ac1ff40-10.zip/node_modules/@storybook/addon-interactions"`
+        );
+        expect(sanitized).toContain(`$SNIP`);
+        expect(sanitized).toContain(retainedSegment);
+        expect(sanitized.toLowerCase()).not.toContain(forbidden.toLowerCase());
+        expect(sanitized.toLowerCase()).not.toContain(homedir.toLowerCase());
+      });
+
+      it(`should sanitize node_modules path outside current cwd`, () => {
+        const input = `/Users/foo/project/node_modules/@storybook/addon-links/dist/cjs/index.js`;
+        const separator = `/`;
+        const homedir = `/Users/foo`;
+        const cwd = `/tmp/storybook`;
+        const retainedSegment = `@storybook/addon-links`;
+        const forbidden = `foo`;
+
+        vi.spyOn(process, `cwd`).mockImplementation(() => cwd);
+        vi.spyOn(os, `homedir`).mockImplementation(() => homedir);
+
+        const sanitized = cleanPaths(input, separator);
+
+        expect(sanitized).toMatchInlineSnapshot(
+          `"$SNIP/project/node_modules/@storybook/addon-links/dist/cjs/index.js"`
+        );
+        expect(sanitized).toContain(`$SNIP`);
+        expect(sanitized).toContain(retainedSegment);
+        expect(sanitized.toLowerCase()).not.toContain(forbidden.toLowerCase());
+        expect(sanitized.toLowerCase()).not.toContain(homedir.toLowerCase());
+      });
+
+      it(`should sanitize windows yarn berry cache with backslashes`, () => {
+        const input = `C:\\Users\\Foo\\AppData\\Local\\Yarn\\Berry\\cache\\@storybook-addon-measure-npm-7.6.21-61d2a610cb-10.zip\\node_modules\\@storybook\\addon-measure`;
+        const separator = `\\`;
+        const homedir = `C:\\Users\\Foo`;
+        const cwd = `C:\\build`;
+        const retainedSegment = `@storybook\\addon-measure`;
+        const forbidden = `Foo`;
+
+        vi.spyOn(process, `cwd`).mockImplementation(() => cwd);
+        vi.spyOn(os, `homedir`).mockImplementation(() => homedir);
+
+        const sanitized = cleanPaths(input, separator);
+
+        expect(sanitized).toMatchInlineSnapshot(
+          `"$SNIP\\AppData\\Local\\Yarn\\Berry\\cache\\@storybook-addon-measure-npm-7.6.21-61d2a610cb-10.zip\\node_modules\\@storybook\\addon-measure"`
+        );
+        expect(sanitized).toContain(`$SNIP`);
+        expect(sanitized).toContain(retainedSegment);
+        expect(sanitized.toLowerCase()).not.toContain(forbidden.toLowerCase());
+        expect(sanitized.toLowerCase()).not.toContain(homedir.toLowerCase());
+      });
+
+      it(`should sanitize windows path using forward slashes`, () => {
+        const input = `/C:/Users/Foo/OneDrive%20-%20DFe%20Project/Desktop/library/node_modules/@storybook/addon-coverage`;
+        const separator = `/`;
+        const homedir = `C:/Users/Foo`;
+        const cwd = `C:/build`;
+        const retainedSegment = `@storybook/addon-coverage`;
+        const forbidden = `Foo`;
+
+        vi.spyOn(process, `cwd`).mockImplementation(() => cwd);
+        vi.spyOn(os, `homedir`).mockImplementation(() => homedir);
+
+        const sanitized = cleanPaths(input, separator);
+
+        expect(sanitized).toMatchInlineSnapshot(
+          `"/$SNIP/OneDrive%20-%20DFe%20Project/Desktop/library/node_modules/@storybook/addon-coverage"`
+        );
+        expect(sanitized).toContain(`$SNIP`);
+        expect(sanitized).toContain(retainedSegment);
+        expect(sanitized.toLowerCase()).not.toContain(forbidden.toLowerCase());
+        expect(sanitized.toLowerCase()).not.toContain(homedir.toLowerCase());
+      });
+    });
   });
 });
diff --git a/code/core/src/telemetry/sanitize.ts b/code/core/src/telemetry/sanitize.ts
index ce35911f28a8..ab79da3f9b8f 100644
--- a/code/core/src/telemetry/sanitize.ts
+++ b/code/core/src/telemetry/sanitize.ts
@@ -1,3 +1,4 @@
+import os from 'node:os';
 import path from 'node:path';
 
 export interface IErrorWithStdErrAndStdOut {
@@ -15,24 +16,47 @@ export function removeAnsiEscapeCodes(input = ''): string {
   return input.replace(/\u001B\[[0-9;]*m/g, '');
 }
 
+/**
+ * Removes all user-specific file system paths from the input string, replacing them with "$SNIP".
+ * This helps sanitize sensitive user information from output (such as error messages or logs). e.g.
+ * `/Users/username/storybook-app/src/pages/index.js` -> `$SNIP/src/pages/index.js`
+ */
 export function cleanPaths(str: string, separator: string = path.sep): string {
   if (!str) {
     return str;
   }
 
-  const stack = process.cwd().split(separator);
+  // Generate target strings to sanitize using both cwd and home dir
+  const separators = Array.from(new Set([separator, `/`, `\\`]));
+  const basePaths = [process.cwd(), os.homedir()].filter(Boolean);
+  const targets = basePaths.flatMap((basePath) =>
+    separators.map((sep) => ({
+      separator: sep,
+      normalizedPath: basePath.split(/[\\/]/).join(sep),
+    }))
+  );
 
-  while (stack.length > 1) {
-    const currentPath = stack.join(separator);
-    const currentRegex = new RegExp(regexpEscape(currentPath), `gi`);
-    str = str.replace(currentRegex, `$SNIP`);
+  // For each target paths, generalize up its parent directories
+  // and sanitize all such occurrences from the string.
+  targets.forEach(({ separator: sep, normalizedPath }) => {
+    // Split normalized path into its segments and iterate up the hierarchy.
+    const stack = normalizedPath.split(sep);
+    while (stack.length > 1) {
+      const currentPath = stack.join(sep);
 
-    const currentPath2 = stack.join(separator + separator);
-    const currentRegex2 = new RegExp(regexpEscape(currentPath2), `gi`);
-    str = str.replace(currentRegex2, `$SNIP`);
+      // Replace all case-insensitive occurrences of this path with "$SNIP".
+      const currentRegex = new RegExp(regexpEscape(currentPath), `gi`);
+      str = str.replace(currentRegex, `$SNIP`);
+
+      // Also handle the Windows case of doubled separators (e.g., "//", "\\"),
+      const doubledSeparatorPath = stack.join(sep + sep);
+      const doubledSeparatorRegex = new RegExp(regexpEscape(doubledSeparatorPath), `gi`);
+      str = str.replace(doubledSeparatorRegex, `$SNIP`);
+
+      stack.pop();
+    }
+  });
 
-    stack.pop();
-  }
   return str;
 }
 
@@ -51,7 +75,8 @@ export function sanitizeError(error: Error, pathSeparator: string = path.sep) {
     const errorString = cleanPaths(JSON.stringify(error), pathSeparator);
 
     return JSON.parse(errorString);
-  } catch (err: any) {
-    return `Sanitization error: ${err?.message}`;
+  } catch (err: unknown) {
+    const message = err instanceof Error ? err.message : String(err);
+    return `Sanitization error: ${message}`;
   }
 }
diff --git a/code/core/src/telemetry/storybook-metadata.test.ts b/code/core/src/telemetry/storybook-metadata.test.ts
index e5aaf044a3f2..d5955c263611 100644
--- a/code/core/src/telemetry/storybook-metadata.test.ts
+++ b/code/core/src/telemetry/storybook-metadata.test.ts
@@ -150,8 +150,8 @@ describe('storybook-metadata', () => {
         '@storybook/addon-knobs',
         '@storybook/addon-ends-with-js',
         '@storybook/addon-postcss',
-        '../local-addon',
-        '../../',
+        'CUSTOM:local-addon',
+        'CUSTOM:..',
       ]);
     });
 
@@ -162,7 +162,7 @@ describe('storybook-metadata', () => {
       cwdSpy = vi.spyOn(process, `cwd`).mockReturnValueOnce(cwdMockPath);
 
       expect(sanitizeAddonName(`${cwdMockPath}\\local-addon\\themes.js`)).toEqual(
-        '$SNIP\\local-addon\\themes'
+        'CUSTOM:local-addon'
       );
     });
 
@@ -173,9 +173,81 @@ describe('storybook-metadata', () => {
       cwdSpy = vi.spyOn(process, `cwd`).mockReturnValue(cwdMockPath);
 
       expect(sanitizeAddonName(`${cwdMockPath}/local-addon/themes.js`)).toEqual(
-        '$SNIP/local-addon/themes'
+        'CUSTOM:local-addon'
       );
     });
+
+    describe('normalizes path-like addon definitions', () => {
+      it('node_modules and package-manager cache or pnp like paths', () => {
+        const snippedAddonNames = [
+          '$SNIP/node_modules/@storybook/addon-docs',
+          '$SNIP\\node_modules\\@storybook\\addon-docs',
+          '$SNIP/node_modules/.pnpm/@storybook+addon-a11y@10.0.8_storybook@10.0.8_@testing-library+dom@10.4.0_prettier@3.7._4a81ac32f3a0cc0e4b95fdb0fa907a4f/node_modules/@storybook/addon-a11y',
+          '$SNIP\\node_modules\\.pnpm\\@storybook+addon-onboarding_2f3ab626f8b157d8b10cc93b0c4f7171\\node_modules\\@storybook\\addon-onboarding',
+          '$SNIP/common/temp/node_modules/.pnpm/@storybook+addon-essentials@8.5.8_storybook@8.5.8/node_modules/@storybook/addon-essentials',
+          '$SNIP/.yarn/__virtual__/@storybook-addon-jest-virtual-ceb31c55cc/0/cache/@storybook-addon-jest-npm-9.1.12-adf55af7e8-904699d820.zip/node_modules/@storybook/addon-jest',
+          '$SNIP\\.yarn\\__virtual__\\@storybook-addon-actions-virtual-ecf55a46d7\\4\\Users\\Foo\\AppData\\Local\\Yarn\\Berry\\cache\\@storybook-addon-actions-npm-8.6.7-0b3fcdd2b2-10.zip\\node_modules\\@storybook\\addon-actions',
+          '$SNIP/.yarn/cache/@storybook-addon-webpack5-compiler-babel-npm-4.0.0-7fea55bdc6-abe15a1cd3.zip/node_modules/@storybook/addon-webpack5-compiler-babel',
+        ].map(sanitizeAddonName);
+
+        expect(snippedAddonNames).toEqual([
+          '@storybook/addon-docs',
+          '@storybook/addon-docs',
+          '@storybook/addon-a11y',
+          '@storybook/addon-onboarding',
+          '@storybook/addon-essentials',
+          '@storybook/addon-jest',
+          '@storybook/addon-actions',
+          '@storybook/addon-webpack5-compiler-babel',
+        ]);
+
+        const filePathAddonNames = [
+          '/tmp/yarn_node_modules/7/1fb08592505aa9425e2d6d3ffdc05d84087e575a/yarn_install_node_modules/js/packages/config-storybook/node_modules/@storybook/addon-links/dist/cjs/index.js',
+          '/node_modules/@chromatic-com/storybook',
+          '../../../@storybook/addon-links',
+          '/C:/Users/foo/OneDrive%20-%20BAR%20BAZ/Desktop/project/node_modules/@storybook/addon-coverage',
+          'C:\\Users\\Foo\\AppData\\Local\\Yarn\\Berry\\cache\\@storybook-addon-measure-npm-7.6.21-61d2a610cb-10.zip\\node_modules\\@storybook\\addon-measure',
+          '/home/foo/project/node_modules/.pnpm/@storybook+addon-docs@10.0.2_@types+react@19.2.2_esbuild@0.25.10_rollup@4.31.0_storyboo_7cb8a1f4d4ca81d0abdb0f0cfacb0423/node_modules/@storybook/addon-docs',
+          '/home/foo/.yarn/berry/cache/@storybook-addon-interactions-npm-7.6.1-9e0ac1ff40-10.zip/node_modules/@storybook/addon-interactions',
+          '/Users/foo/project/node_modules/@storybook/addon-links/dist/cjs/index.js',
+        ].map(sanitizeAddonName);
+
+        expect(filePathAddonNames).toEqual([
+          '@storybook/addon-links',
+          '@chromatic-com/storybook',
+          '@storybook/addon-links',
+          '@storybook/addon-coverage',
+          '@storybook/addon-measure',
+          '@storybook/addon-docs',
+          '@storybook/addon-interactions',
+          '@storybook/addon-links',
+        ]);
+      });
+
+      it('custom, local, or non-node_modules paths', () => {
+        const addonNames = [
+          'file://$SNIP/.storybook/redesign-addon',
+          '$SNIP/addons/airtracker',
+          '$SNIP/preset/index',
+          '$SNIP/src',
+          '../../../tools/storybook/src/plugins/storybook-translations',
+          './html-addon',
+          '..',
+          'file:///D:/foo/templates/.storybook/addons/some-addon',
+        ].map(sanitizeAddonName);
+
+        expect(addonNames).toEqual([
+          'CUSTOM:redesign-addon',
+          'CUSTOM:airtracker',
+          'CUSTOM:preset',
+          'CUSTOM:src',
+          'CUSTOM:storybook-translations',
+          'CUSTOM:html-addon',
+          'CUSTOM:..',
+          'CUSTOM:some-addon',
+        ]);
+      });
+    });
   });
 
   describe('computeStorybookMetadata', () => {
diff --git a/code/core/src/telemetry/storybook-metadata.ts b/code/core/src/telemetry/storybook-metadata.ts
index 3d3d9c968dc6..689e0ca31fd8 100644
--- a/code/core/src/telemetry/storybook-metadata.ts
+++ b/code/core/src/telemetry/storybook-metadata.ts
@@ -44,12 +44,56 @@ export const metaFrameworks = {
 } as Record<string, string>;
 
 export const sanitizeAddonName = (name: string) => {
-  return cleanPaths(name)
+  const normalized = name.replace(/\\/g, '/');
+
+  let candidate: string = normalized;
+
+  if (normalized.includes('/node_modules/')) {
+    // common case for package manager cache/pnp mode so we take the segment after node_modules
+    candidate = normalized.split('/node_modules/').pop() ?? normalized;
+  }
+
+  const cleaned = cleanPaths(candidate)
+    .replace(/^file:\/\//i, '')
+    .replace(/\/+$/, '')
     .replace(/\/dist\/.*/, '')
     .replace(/\.[mc]?[tj]?s[x]?$/, '')
-    .replace(/\/register$/, '')
-    .replace(/\/manager$/, '')
-    .replace(/\/preset$/, '');
+    .replace(/\/(register|manager|preset|index)$/, '')
+    .replace(/\$SNIP?/g, '');
+
+  let prefix = '';
+  if (
+    cleaned.startsWith('file') ||
+    cleaned.startsWith('.') ||
+    cleaned.startsWith('/') ||
+    cleaned.includes(':')
+  ) {
+    prefix = 'CUSTOM:';
+  }
+
+  const scopedMatches = cleaned.match(/@[^/]+\/[^/]+/g);
+  if (scopedMatches?.length) {
+    return scopedMatches.at(-1) as string;
+  }
+
+  const parts = cleaned.split('/').filter(Boolean);
+  const addonLike = [...parts]
+    .reverse()
+    .find((part) => part.includes('addon-') || part.includes('-addon'));
+
+  if (addonLike) {
+    return `${prefix}${addonLike}`;
+  }
+
+  if (parts.length >= 2 && parts[parts.length - 2].startsWith('@')) {
+    return `${prefix}${parts[parts.length - 2]}/${parts[parts.length - 1]}`;
+  }
+
+  if (parts.length) {
+    return `${prefix}${parts[parts.length - 1]}`;
+  }
+
+  return `${prefix}${candidate}`;
 };
 
 // Analyze a combination of information from main.js and package.json