diff --git a/openhands/server/conversation_manager/docker_nested_conversation_manager.py b/openhands/server/conversation_manager/docker_nested_conversation_manager.py
index aeb9d22c70..25dfba44f5 100644
--- a/openhands/server/conversation_manager/docker_nested_conversation_manager.py
+++ b/openhands/server/conversation_manager/docker_nested_conversation_manager.py
@@ -497,12 +497,10 @@ class DockerNestedConversationManager(ConversationManager):
         env_vars['SESSION_API_KEY'] = self._get_session_api_key_for_conversation(sid)
         # We need to be able to specify the nested conversation id within the nested runtime
         env_vars['ALLOW_SET_CONVERSATION_ID'] = '1'
-        env_vars['WORKSPACE_BASE'] = '/workspace'
         env_vars['SANDBOX_CLOSE_DELAY'] = '0'
         env_vars['SKIP_DEPENDENCY_CHECK'] = '1'
+        env_vars['INITIAL_NUM_WARM_SERVERS'] = '1'
 
-        # Set up mounted volume for conversation directory within workspace
-        # TODO: Check if we are using the standard event store and file store
         volumes: list[str | None]
         if not config.sandbox.volumes:
             volumes = []
@@ -510,9 +508,17 @@ class DockerNestedConversationManager(ConversationManager):
             volumes = [v.strip() for v in config.sandbox.volumes.split(',')]
         conversation_dir = get_conversation_dir(sid, user_id)
 
-        volumes.append(
-            f'{config.file_store_path}/{conversation_dir}:/root/.openhands/file_store/{conversation_dir}:rw'
-        )
+        # Set up mounted volume for conversation directory within workspace
+        if config.file_store == 'local':
+            # Resolve ~ from path as the docker container does not work otherwise
+            file_store_path = os.path.realpath(
+                os.path.expanduser(config.file_store_path)
+            )
+
+            volumes.append(
+                f'{file_store_path}/{conversation_dir}:/root/.openhands/{conversation_dir}:rw'
+            )
+
         config.sandbox.volumes = ','.join([v for v in volumes if v is not None])
         if not config.sandbox.runtime_container_image:
             config.sandbox.runtime_container_image = self._runtime_container_image