Switched to using a FallbackPackagePathResolver to find the tool dll, because now with Fallback folders, we can have the tool dll in the fallback folder but its assets file in the user nuget cache. This happens because Nuget never writes to the fallback folder, including the tool's assets file that it generates during restore.

test/Microsoft.DotNet.Cli.Utils.Tests/GivenAProjectToolsCommandResolver.cs

@@ -335,6 +335,59 @@ namespace Microsoft.DotNet.Tests
             result.Args.Should().NotContain("--fx-version");
         }
 
+        [Fact]
+        public void ItFindsToolsLocatedInTheNuGetFallbackFolder()
+        {
+            var projectToolsCommandResolver = SetupProjectToolsCommandResolver();
+
+            var testInstance = TestAssets.Get("AppWithFallbackFolderToolDependency")
+                .CreateInstance()
+                .WithSourceFiles();
+            var testProjectDirectory = testInstance.Root.FullName;
+            var fallbackFolder = Path.Combine(testProjectDirectory, "fallbackFolder");
+
+            PopulateFallbackFolder(testProjectDirectory, fallbackFolder);
+
+            var nugetConfig = testInstance.Root.GetFile("NuGet.Config").FullName;
+            File.WriteAllText(
+                nugetConfig,
+                $@"<?xml version=""1.0"" encoding=""utf-8""?>
+                <configuration>
+                  <fallbackPackageFolders>
+                        <add key=""MachineWide"" value=""{fallbackFolder}""/>
+                    </fallbackPackageFolders>
+                </configuration>
+                ");
+
+            new RestoreCommand()
+                .WithWorkingDirectory(testProjectDirectory)
+                .Execute($"--configfile {nugetConfig}")
+                .Should()
+                .Pass();
+
+            var commandResolverArguments = new CommandResolverArguments()
+            {
+                CommandName = "dotnet-fallbackfoldertool",
+                CommandArguments = null,
+                ProjectDirectory = testProjectDirectory
+            };
+
+            var result = projectToolsCommandResolver.Resolve(commandResolverArguments);
+
+            result.Should().NotBeNull();
+        }
+
+        private void PopulateFallbackFolder(string testProjectDirectory, string fallbackFolder)
+        {
+            new RestoreCommand()
+                .WithWorkingDirectory(testProjectDirectory)
+                .Execute($"--packages {fallbackFolder}")
+                .Should()
+                .Pass();
+
+            Directory.Delete(Path.Combine(fallbackFolder, ".tools"), true);
+        }
+
         private ProjectToolsCommandResolver SetupProjectToolsCommandResolver()
         {
             Environment.SetEnvironmentVariable(