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A restricted shell is one that disallows certain actions, such as changing directory, setting PATH, or running commands whose names contain a / character.
The original V7 Bourne shell had an undocumented restricted mode. Later versions of the Bourne shell clarified the code and documented the facility. Today, both Bash and the Korn shell supply a restricted mode, but with differing sets of items that get restricted. (See the respective manual pages for the details.)