diff --git a/.github/workflows/test.yml b/.github/workflows/test.yml
index 54b97f3..10f0a0f 100644
--- a/.github/workflows/test.yml
+++ b/.github/workflows/test.yml
@@ -155,5 +155,10 @@ jobs:
           if [ "$UV_PYTHON" != "${{ matrix.python-version }}" ]; then
             exit 1
           fi
-      - run: uv sync
-        working-directory: __tests__/fixtures/uv-project
+      - name: Verify packages can be installed
+        run: uv pip install --python=${{ matrix.python-version }} pip
+      - name: Verify python version is correct
+        run: |
+          if [ "$(python --version)" != "${{ matrix.python-version }}" ]; then
+            exit 1
+          fi
diff --git a/README.md b/README.md
index e108a89..8c44d21 100644
--- a/README.md
+++ b/README.md
@@ -73,14 +73,16 @@ to install the latest version that satisfies the range.
 ### Python version
 
 You can use the input `python-version` to set the environment variable `UV_PYTHON` for the rest
-of your workflow.
+of your workflow and automatically create a new virtual environment with the specified python version.
+
 This will override any python version specifications in `pyproject.toml` and `.python-version`
 
 ```yaml
-- name: Install the latest version of uv and set the python version to 3.12
+- name: Install the latest version of uv and set the python version to ${{ matrix.python-version }}
   uses: astral-sh/setup-uv@v4
   with:
-    python-version: "3.12"
+    python-version: ${{ matrix.python-version }}
+- run: uv pip install --python=${{ matrix.python-version }} pip
 ```
 
 You can combine this with a matrix to test multiple python versions:
diff --git a/action.yml b/action.yml
index a545c19..3667d0b 100644
--- a/action.yml
+++ b/action.yml
@@ -46,6 +46,9 @@ inputs:
   tool-bin-dir:
     description: "Custom path to set UV_TOOL_BIN_DIR to."
     required: false
+  python-install-dir:
+    description: "Custom path where uv will install python interpreters."
+    required: false
 outputs:
   uv-version:
     description: "The installed uv version. Useful when using latest."
diff --git a/dist/save-cache/index.js b/dist/save-cache/index.js
index aba2bdd..64800ef 100644
--- a/dist/save-cache/index.js
+++ b/dist/save-cache/index.js
@@ -91829,7 +91829,7 @@ var __importDefault = (this && this.__importDefault) || function (mod) {
     return (mod && mod.__esModule) ? mod : { "default": mod };
 };
 Object.defineProperty(exports, "__esModule", ({ value: true }));
-exports.githubToken = exports.toolDir = exports.toolBinDir = exports.ignoreNothingToCache = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.enableCache = exports.checkSum = exports.pythonVersion = exports.version = void 0;
+exports.githubToken = exports.pythonInstallDir = exports.toolDir = exports.toolBinDir = exports.ignoreNothingToCache = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.enableCache = exports.checkSum = exports.pythonVersion = exports.version = void 0;
 const core = __importStar(__nccwpck_require__(7484));
 const node_path_1 = __importDefault(__nccwpck_require__(6760));
 exports.version = core.getInput("version");
@@ -91843,6 +91843,7 @@ exports.pruneCache = core.getInput("prune-cache") === "true";
 exports.ignoreNothingToCache = core.getInput("ignore-nothing-to-cache") === "true";
 exports.toolBinDir = getToolBinDir();
 exports.toolDir = getToolDir();
+exports.pythonInstallDir = getPythonInstallDir();
 exports.githubToken = core.getInput("github-token");
 function getEnableCache() {
     const enableCacheInput = core.getInput("enable-cache");
@@ -91877,6 +91878,19 @@ function getToolDir() {
     }
     return undefined;
 }
+function getPythonInstallDir() {
+    const pythonInstallDirInput = core.getInput("python-install-dir");
+    if (pythonInstallDirInput !== "") {
+        return expandTilde(pythonInstallDirInput);
+    }
+    if (process.platform === "win32") {
+        if (process.env.RUNNER_TEMP !== undefined) {
+            return `${process.env.RUNNER_TEMP}${node_path_1.default.sep}uv-python-install-dir`;
+        }
+        throw Error("Could not determine UV_PYTHON_INSTALL_DIR. Please make sure RUNNER_TEMP is set or provide the python-install-dir input");
+    }
+    return undefined;
+}
 function getCacheLocalPath() {
     const cacheLocalPathInput = core.getInput("cache-local-path");
     if (cacheLocalPathInput !== "") {
diff --git a/dist/setup/index.js b/dist/setup/index.js
index 96300d5..836d944 100644
--- a/dist/setup/index.js
+++ b/dist/setup/index.js
@@ -99204,6 +99204,7 @@ const download_version_1 = __nccwpck_require__(8255);
 const restore_cache_1 = __nccwpck_require__(7772);
 const platforms_1 = __nccwpck_require__(8361);
 const inputs_1 = __nccwpck_require__(9612);
+const exec = __importStar(__nccwpck_require__(5236));
 function run() {
     return __awaiter(this, void 0, void 0, function* () {
         const platform = (0, platforms_1.getPlatform)();
@@ -99219,7 +99220,8 @@ function run() {
             addUvToPath(setupResult.uvDir);
             addToolBinToPath();
             setToolDir();
-            setupPython();
+            addUvPythonInstallDirToPath();
+            yield setupPython();
             addMatchers();
             setCacheDir(inputs_1.cacheLocalPath);
             core.setOutput("uv-version", setupResult.version);
@@ -99256,6 +99258,14 @@ function addUvToPath(cachedPath) {
     core.addPath(cachedPath);
     core.info(`Added ${cachedPath} to the path`);
 }
+function addUvPythonInstallDirToPath() {
+    if (inputs_1.pythonInstallDir !== undefined) {
+        core.exportVariable("UV_PYTHON_INSTALL_DIR", inputs_1.toolBinDir);
+        core.info(`Set UV_PYTHON_INSTALL_DIR to ${inputs_1.toolBinDir}`);
+        core.addPath(inputs_1.pythonInstallDir);
+        core.info(`Added ${inputs_1.pythonInstallDir} to the path`);
+    }
+}
 function addToolBinToPath() {
     if (inputs_1.toolBinDir !== undefined) {
         core.exportVariable("UV_TOOL_BIN_DIR", inputs_1.toolBinDir);
@@ -99285,10 +99295,18 @@ function setToolDir() {
     }
 }
 function setupPython() {
-    if (inputs_1.pythonVersion !== "") {
-        core.exportVariable("UV_PYTHON", inputs_1.pythonVersion);
-        core.info(`Set UV_PYTHON to ${inputs_1.pythonVersion}`);
-    }
+    return __awaiter(this, void 0, void 0, function* () {
+        if (inputs_1.pythonVersion !== "") {
+            core.exportVariable("UV_PYTHON", inputs_1.pythonVersion);
+            core.info(`Set UV_PYTHON to ${inputs_1.pythonVersion}`);
+            const options = {
+                silent: !core.isDebug(),
+            };
+            const execArgs = ["venv", "--python", inputs_1.pythonVersion];
+            core.info("Activating python venv...");
+            yield exec.exec("uv", execArgs, options);
+        }
+    });
 }
 function setCacheDir(cacheLocalPath) {
     core.exportVariable("UV_CACHE_DIR", cacheLocalPath);
@@ -99360,7 +99378,7 @@ var __importDefault = (this && this.__importDefault) || function (mod) {
     return (mod && mod.__esModule) ? mod : { "default": mod };
 };
 Object.defineProperty(exports, "__esModule", ({ value: true }));
-exports.githubToken = exports.toolDir = exports.toolBinDir = exports.ignoreNothingToCache = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.enableCache = exports.checkSum = exports.pythonVersion = exports.version = void 0;
+exports.githubToken = exports.pythonInstallDir = exports.toolDir = exports.toolBinDir = exports.ignoreNothingToCache = exports.pruneCache = exports.cacheDependencyGlob = exports.cacheLocalPath = exports.cacheSuffix = exports.enableCache = exports.checkSum = exports.pythonVersion = exports.version = void 0;
 const core = __importStar(__nccwpck_require__(7484));
 const node_path_1 = __importDefault(__nccwpck_require__(6760));
 exports.version = core.getInput("version");
@@ -99374,6 +99392,7 @@ exports.pruneCache = core.getInput("prune-cache") === "true";
 exports.ignoreNothingToCache = core.getInput("ignore-nothing-to-cache") === "true";
 exports.toolBinDir = getToolBinDir();
 exports.toolDir = getToolDir();
+exports.pythonInstallDir = getPythonInstallDir();
 exports.githubToken = core.getInput("github-token");
 function getEnableCache() {
     const enableCacheInput = core.getInput("enable-cache");
@@ -99408,6 +99427,19 @@ function getToolDir() {
     }
     return undefined;
 }
+function getPythonInstallDir() {
+    const pythonInstallDirInput = core.getInput("python-install-dir");
+    if (pythonInstallDirInput !== "") {
+        return expandTilde(pythonInstallDirInput);
+    }
+    if (process.platform === "win32") {
+        if (process.env.RUNNER_TEMP !== undefined) {
+            return `${process.env.RUNNER_TEMP}${node_path_1.default.sep}uv-python-install-dir`;
+        }
+        throw Error("Could not determine UV_PYTHON_INSTALL_DIR. Please make sure RUNNER_TEMP is set or provide the python-install-dir input");
+    }
+    return undefined;
+}
 function getCacheLocalPath() {
     const cacheLocalPathInput = core.getInput("cache-local-path");
     if (cacheLocalPathInput !== "") {
diff --git a/src/setup-uv.ts b/src/setup-uv.ts
index f95babc..e239b65 100644
--- a/src/setup-uv.ts
+++ b/src/setup-uv.ts
@@ -18,11 +18,13 @@ import {
   checkSum,
   enableCache,
   githubToken,
+  pythonInstallDir,
   pythonVersion,
   toolBinDir,
   toolDir,
   version,
 } from "./utils/inputs";
+import * as exec from "@actions/exec";
 
 async function run(): Promise<void> {
   const platform = getPlatform();
@@ -46,7 +48,8 @@ async function run(): Promise<void> {
     addUvToPath(setupResult.uvDir);
     addToolBinToPath();
     setToolDir();
-    setupPython();
+    addUvPythonInstallDirToPath();
+    await setupPython();
     addMatchers();
     setCacheDir(cacheLocalPath);
 
@@ -98,6 +101,15 @@ function addUvToPath(cachedPath: string): void {
   core.info(`Added ${cachedPath} to the path`);
 }
 
+function addUvPythonInstallDirToPath(): void {
+  if (pythonInstallDir !== undefined) {
+    core.exportVariable("UV_PYTHON_INSTALL_DIR", toolBinDir);
+    core.info(`Set UV_PYTHON_INSTALL_DIR to ${toolBinDir}`);
+    core.addPath(pythonInstallDir);
+    core.info(`Added ${pythonInstallDir} to the path`);
+  }
+}
+
 function addToolBinToPath(): void {
   if (toolBinDir !== undefined) {
     core.exportVariable("UV_TOOL_BIN_DIR", toolBinDir);
@@ -125,10 +137,17 @@ function setToolDir(): void {
   }
 }
 
-function setupPython(): void {
+async function setupPython(): Promise<void> {
   if (pythonVersion !== "") {
     core.exportVariable("UV_PYTHON", pythonVersion);
     core.info(`Set UV_PYTHON to ${pythonVersion}`);
+    const options: exec.ExecOptions = {
+      silent: !core.isDebug(),
+    };
+    const execArgs = ["venv", "--python", pythonVersion];
+
+    core.info("Activating python venv...");
+    await exec.exec("uv", execArgs, options);
   }
 }
 
diff --git a/src/utils/inputs.ts b/src/utils/inputs.ts
index 470a9d9..146bca2 100644
--- a/src/utils/inputs.ts
+++ b/src/utils/inputs.ts
@@ -13,6 +13,7 @@ export const ignoreNothingToCache =
   core.getInput("ignore-nothing-to-cache") === "true";
 export const toolBinDir = getToolBinDir();
 export const toolDir = getToolDir();
+export const pythonInstallDir = getPythonInstallDir();
 export const githubToken = core.getInput("github-token");
 
 function getEnableCache(): boolean {
@@ -55,6 +56,22 @@ function getToolDir(): string | undefined {
   return undefined;
 }
 
+function getPythonInstallDir(): string | undefined {
+  const pythonInstallDirInput = core.getInput("python-install-dir");
+  if (pythonInstallDirInput !== "") {
+    return expandTilde(pythonInstallDirInput);
+  }
+  if (process.platform === "win32") {
+    if (process.env.RUNNER_TEMP !== undefined) {
+      return `${process.env.RUNNER_TEMP}${path.sep}uv-python-install-dir`;
+    }
+    throw Error(
+      "Could not determine UV_PYTHON_INSTALL_DIR. Please make sure RUNNER_TEMP is set or provide the python-install-dir input",
+    );
+  }
+  return undefined;
+}
+
 function getCacheLocalPath(): string {
   const cacheLocalPathInput = core.getInput("cache-local-path");
   if (cacheLocalPathInput !== "") {