diff --git a/components/arc/ime/arc_ime_service.cc b/components/arc/ime/arc_ime_service.cc
index b8cd974a9ab773..d96fa332ab59e8 100644
--- a/components/arc/ime/arc_ime_service.cc
+++ b/components/arc/ime/arc_ime_service.cc
@@ -8,6 +8,7 @@
 #include "components/arc/ime/arc_ime_bridge_impl.h"
 #include "components/exo/shell_surface.h"
 #include "components/exo/surface.h"
+#include "ui/aura/client/aura_constants.h"
 #include "ui/aura/client/focus_client.h"
 #include "ui/aura/env.h"
 #include "ui/aura/window.h"
@@ -20,6 +21,15 @@ namespace arc {
 
 namespace {
 
+// The height in DIP of the window titlebar, rendered in client-side (i.e.,
+// inside ARC), but outside where ARC apps and IME recognize. Rather than
+// to complicate things by wiring the value progaramatically via yet another
+// IPC, we just embed the constant here for simplicity.
+//
+// TODO(kinaba, skuhne): Future version of ARC window management should make
+// this host-side offsetting unnecessary. Get rid of this when it's ready.
+constexpr int kWindowTitleHeight = 32;
+
 bool IsArcWindow(const aura::Window* window) {
   return exo::Surface::AsSurface(window);
 }
@@ -206,7 +216,29 @@ ui::TextInputType ArcImeService::GetTextInputType() const {
 }
 
 gfx::Rect ArcImeService::GetCaretBounds() const {
-  return cursor_rect_;
+  if (!focused_arc_window_.has_windows())
+    return gfx::Rect();
+  aura::Window* window = focused_arc_window_.windows().front();
+
+  // |cursor_rect_| holds the rectangle reported from ARC apps, in the "screen
+  // coordinates" in ARC, counted by physical pixels.
+  // Chrome OS input methods expect the coordinates in Chrome OS screen, within
+  // device independent pixels. Three factors are involved for the conversion.
+
+  // Divide by the scale factor. To convert from physical pixels to DIP.
+  gfx::Rect converted = gfx::ScaleToEnclosingRect(
+      cursor_rect_, 1 / window->layer()->device_scale_factor());
+
+  // Add the offset of the window showing the ARC app.
+  converted.Offset(window->GetBoundsInScreen().OffsetFromOrigin());
+
+  // Add the titlebar height (drawn inside ARC.)
+  // TODO(kinaba, skuhne): This should be absorbed inside ARC in the future.
+  if (window->GetProperty(aura::client::kShowStateKey) !=
+      ui::SHOW_STATE_FULLSCREEN) {
+    converted.Offset(0, kWindowTitleHeight);
+  }
+  return converted;
 }
 
 ui::TextInputMode ArcImeService::GetTextInputMode() const {