diff --git a/pkg/katautils/create.go b/pkg/katautils/create.go
index 630b32c991..de41c7ff49 100644
--- a/pkg/katautils/create.go
+++ b/pkg/katautils/create.go
@@ -162,7 +162,10 @@ func HandleFactory(ctx context.Context, vci vc.VC, runtimeConfig *oci.RuntimeCon
 func SetEphemeralStorageType(ociSpec oci.CompatOCISpec) oci.CompatOCISpec {
 	for idx, mnt := range ociSpec.Mounts {
 		if vc.IsEphemeralStorage(mnt.Source) {
-			ociSpec.Mounts[idx].Type = "ephemeral"
+			ociSpec.Mounts[idx].Type = vc.KataEphemeralDevType
+		}
+		if vc.Isk8sHostEmptyDir(mnt.Source) {
+			ociSpec.Mounts[idx].Type = vc.KataLocalDevType
 		}
 	}
 	return ociSpec
diff --git a/virtcontainers/kata_agent.go b/virtcontainers/kata_agent.go
index 84352d84b7..d9b5411fb3 100644
--- a/virtcontainers/kata_agent.go
+++ b/virtcontainers/kata_agent.go
@@ -43,6 +43,15 @@ import (
 	grpcStatus "google.golang.org/grpc/status"
 )
 
+const (
+	// KataEphemeralDevType creates a tmpfs backed volume for sharing files between containers.
+	KataEphemeralDevType = "ephemeral"
+
+	// KataLocalDevType creates a local directory inside the VM for sharing files between
+	// containers.
+	KataLocalDevType = "local"
+)
+
 var (
 	checkRequestTimeout   = 30 * time.Second
 	defaultKataSocketName = "kata.sock"
@@ -67,8 +76,7 @@ var (
 	kataNvdimmDevType    = "nvdimm"
 	sharedDir9pOptions   = []string{"trans=virtio,version=9p2000.L,cache=mmap", "nodev"}
 	shmDir               = "shm"
-	kataEphemeralDevType = "ephemeral"
-	ephemeralPath        = filepath.Join(kataGuestSandboxDir, kataEphemeralDevType)
+	ephemeralPath        = filepath.Join(kataGuestSandboxDir, KataEphemeralDevType)
 	grpcMaxDataSize      = int64(1024 * 1024)
 )
 
@@ -672,7 +680,7 @@ func (k *kataAgent) startSandbox(sandbox *Sandbox) error {
 		shmSizeOption := fmt.Sprintf("size=%d", sandbox.shmSize)
 
 		shmStorage := &grpc.Storage{
-			Driver:     kataEphemeralDevType,
+			Driver:     KataEphemeralDevType,
 			MountPoint: path,
 			Source:     "shm",
 			Fstype:     "tmpfs",
@@ -1038,6 +1046,9 @@ func (k *kataAgent) createContainer(sandbox *Sandbox, c *Container) (p *Process,
 	epheStorages := k.handleEphemeralStorage(ociSpec.Mounts)
 	ctrStorages = append(ctrStorages, epheStorages...)
 
+	localStorages := k.handleLocalStorage(ociSpec.Mounts, sandbox.id)
+	ctrStorages = append(ctrStorages, localStorages...)
+
 	// We replace all OCI mount sources that match our container mount
 	// with the right source path (The guest one).
 	if err = k.replaceOCIMountSource(ociSpec, newMounts); err != nil {
@@ -1116,14 +1127,14 @@ func (k *kataAgent) createContainer(sandbox *Sandbox, c *Container) (p *Process,
 func (k *kataAgent) handleEphemeralStorage(mounts []specs.Mount) []*grpc.Storage {
 	var epheStorages []*grpc.Storage
 	for idx, mnt := range mounts {
-		if mnt.Type == kataEphemeralDevType {
+		if mnt.Type == KataEphemeralDevType {
 			// Set the mount source path to a path that resides inside the VM
 			mounts[idx].Source = filepath.Join(ephemeralPath, filepath.Base(mnt.Source))
 
 			// Create a storage struct so that kata agent is able to create
 			// tmpfs backed volume inside the VM
 			epheStorage := &grpc.Storage{
-				Driver:     kataEphemeralDevType,
+				Driver:     KataEphemeralDevType,
 				Source:     "tmpfs",
 				Fstype:     "tmpfs",
 				MountPoint: mounts[idx].Source,
@@ -1134,6 +1145,33 @@ func (k *kataAgent) handleEphemeralStorage(mounts []specs.Mount) []*grpc.Storage
 	return epheStorages
 }
 
+// handleLocalStorage handles local storage within the VM
+// by creating a directory in the VM from the source of the mount point.
+func (k *kataAgent) handleLocalStorage(mounts []specs.Mount, sandboxID string) []*grpc.Storage {
+	var localStorages []*grpc.Storage
+	for idx, mnt := range mounts {
+		if mnt.Type == KataLocalDevType {
+			// Set the mount source path to a the desired directory point in the VM.
+			// In this case it is located in the sandbox directory.
+			// We rely on the fact that the first container in the VM has the same ID as the sandbox ID.
+			// In Kubernetes, this is usually the pause container and we depend on it existing for
+			// local directories to work.
+			mounts[idx].Source = filepath.Join(kataGuestSharedDir, sandboxID, KataLocalDevType, filepath.Base(mnt.Source))
+
+			// Create a storage struct so that the kata agent is able to create the
+			// directory inside the VM.
+			localStorage := &grpc.Storage{
+				Driver:     KataLocalDevType,
+				Source:     KataLocalDevType,
+				Fstype:     KataLocalDevType,
+				MountPoint: mounts[idx].Source,
+			}
+			localStorages = append(localStorages, localStorage)
+		}
+	}
+	return localStorages
+}
+
 // handleBlockVolumes handles volumes that are block devices files
 // by passing the block devices as Storage to the agent.
 func (k *kataAgent) handleBlockVolumes(c *Container) []*grpc.Storage {
diff --git a/virtcontainers/kata_agent_test.go b/virtcontainers/kata_agent_test.go
index bdc869a0e3..ef3a1ad4e2 100644
--- a/virtcontainers/kata_agent_test.go
+++ b/virtcontainers/kata_agent_test.go
@@ -365,7 +365,7 @@ func TestHandleEphemeralStorage(t *testing.T) {
 	mountSource := "/tmp/mountPoint"
 
 	mount := specs.Mount{
-		Type:   kataEphemeralDevType,
+		Type:   KataEphemeralDevType,
 		Source: mountSource,
 	}
 
diff --git a/virtcontainers/mount_test.go b/virtcontainers/mount_test.go
index 7d0b3c4768..2edc87e4a7 100644
--- a/virtcontainers/mount_test.go
+++ b/virtcontainers/mount_test.go
@@ -311,7 +311,7 @@ func TestIsEphemeralStorage(t *testing.T) {
 	}
 	defer os.RemoveAll(dir)
 
-	sampleEphePath := filepath.Join(dir, k8sEmptyDir, "tmp-volume")
+	sampleEphePath := filepath.Join(dir, K8sEmptyDir, "tmp-volume")
 	err = os.MkdirAll(sampleEphePath, testDirMode)
 	assert.Nil(t, err)