diff --git a/pkg/extension/extensiontests/spec.go b/pkg/extension/extensiontests/spec.go
index 1b36354..4e77842 100644
--- a/pkg/extension/extensiontests/spec.go
+++ b/pkg/extension/extensiontests/spec.go
@@ -107,18 +107,32 @@ func (specs ExtensionTestSpecs) MustSelectAll(selectFns []SelectFunction) (Exten
 	return filtered, nil
 }
 
-// ModuleTestsOnly ensures that ginkgo tests from vendored sources aren't selected,
-// except for the Origin extended util packages, that may contain Ginkgo nodes but
-// should not cause a test exclusion.
+// ModuleTestsOnly ensures that ginkgo tests from vendored sources aren't selected. Unfortunately, making
+// use of kubernetes test helpers results in the entire Ginkgo suite being initialized (ginkgo loves global state),
+// so we need to be careful about which tests we select.
+//
+// A test is excluded if ALL of its code locations with full paths are external (vendored or from external test
+// suites). If at least one code location with a full path is from the local module, the test is included, because
+// local tests may legitimately call helper functions from vendored test frameworks.
 func ModuleTestsOnly() SelectFunction {
 	return func(spec *ExtensionTestSpec) bool {
+		hasLocalCode := false
+
 		for _, cl := range spec.CodeLocations {
-			if strings.Contains(cl, "/vendor/") && !strings.Contains(cl, "github.com/openshift/origin/test/extended/util") {
-				return false
+			// Short-form code locations (e.g., "set up framework | framework.go:200") are ignored in this determination.
+			if !strings.Contains(cl, "/") {
+				continue
+			}
+
+			// If this code location is not external (vendored or k8s test), it's local code
+			if !(strings.Contains(cl, "/vendor/") || strings.HasPrefix(cl, "k8s.io/kubernetes")) {
+				hasLocalCode = true
+				break
 			}
 		}
 
-		return true
+		// Include the test only if it has at least one local code location
+		return hasLocalCode
 	}
 }
 
diff --git a/pkg/extension/extensiontests/spec_test.go b/pkg/extension/extensiontests/spec_test.go
index 27ec8fe..a0171d1 100644
--- a/pkg/extension/extensiontests/spec_test.go
+++ b/pkg/extension/extensiontests/spec_test.go
@@ -1207,6 +1207,67 @@ func TestExtensionTestSpecs_Run_LifecycleFailures(t *testing.T) {
 	}
 }
 
+func TestModuleTestsOnly(t *testing.T) {
+	testCases := []struct {
+		name string
+		spec *ExtensionTestSpec
+		want bool
+	}{
+		{
+			name: "excluded - all k8s.io/kubernetes/test code locations",
+			spec: &ExtensionTestSpec{
+				Name: "[sig-cli] Kubectl rollout undo undo should rollback and update deployment env",
+				CodeLocations: []string{
+					"k8s.io/kubernetes@v1.33.3/test/e2e/kubectl/rollout.go:40",
+					"set up framework | framework.go:200",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/framework/node/init/init.go:33",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/framework/debug/init/init.go:60",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/framework/metrics/init/init.go:33",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/kubectl/rollout.go:48",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/kubectl/rollout.go:54",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/kubectl/rollout.go:55",
+					"k8s.io/kubernetes@v1.33.3/test/e2e/kubectl/rollout.go:58",
+				},
+			},
+			want: false,
+		},
+		{
+			name: "included - has local code locations, in module format",
+			spec: &ExtensionTestSpec{
+				Name: "[sig-cluster-lifecycle][OCPFeatureGate:VSphereHostVMGroupZonal][platform:vsphere] A Machine in a managed cluster should be placed in the correct vm-host group",
+				CodeLocations: []string{
+					"github.com/openshift/machine-api-operator@v0.0.0/test/e2e/vsphere/hostzonal.go:32",
+					"github.com/openshift/machine-api-operator@v0.0.0/test/e2e/vsphere/hostzonal.go:46",
+					"github.com/openshift/machine-api-operator@v0.0.0/test/e2e/vsphere/hostzonal.go:72",
+				},
+			},
+			want: true,
+		},
+		{
+			name: "included - has local relative path code locations",
+			spec: &ExtensionTestSpec{
+				Name: "[sig-cluster-lifecycle][OCPFeatureGate:VSphereMultiNetworks][platform:vsphere] Managed cluster should new machines should pass multi network tests",
+				CodeLocations: []string{
+					"test/e2e/vsphere/multi-nic.go:152",
+					"test/e2e/vsphere/multi-nic.go:171",
+					"test/e2e/vsphere/multi-nic.go:238",
+				},
+			},
+			want: true,
+		},
+	}
+
+	selectFn := ModuleTestsOnly()
+	for _, tc := range testCases {
+		t.Run(tc.name, func(t *testing.T) {
+			result := selectFn(tc.spec)
+			if result != tc.want {
+				t.Errorf("ModuleTestsOnly() returned %v, want %v", result, tc.want)
+			}
+		})
+	}
+}
+
 // equateErrorMessage reports errors to be equal if both are nil
 // or both have the same message.
 var equateErrorMessage = cmp.FilterValues(func(x, y interface{}) bool {