LLM agents solve repository-level coding tasks through multi-turn tool use, but utilize half their budget on locating faults before editing. Dedicated localization frameworks have emerged, yet are still evaluated as file retrieval rather than actionable diagnosis, producing locations without the diagnostic context a repair agent needs. We introduce SHERLOC (Structured Hypothesis-driven Exploration and Reasoning for Localization), a training-free framework pairing a reasoning LLM with compact repository tools and self-recovery, without fine-tuning or multi-agent orchestration. SHERLOC reaches state-of-the-art localization across model scales: 84.33% accuracy@1 on SWE-Bench Lite and 81.27% recall@1 on SWE-Bench Verified; at ~30B parameters, it matches or outperforms other agentic methods. Injecting our locations and diagnostic findings into repair agents yields an average +5.95 pp resolve-rate gain from the best SHERLOC result per setting on SWE-Bench Verified. SHERLOC cuts localization and total tokens by 36.7% and 23.1% on average.

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