diff --git a/webview-ui/src/components/chat/ChatTextArea.tsx b/webview-ui/src/components/chat/ChatTextArea.tsx
index fb105056b5..1076c59a8d 100644
--- a/webview-ui/src/components/chat/ChatTextArea.tsx
+++ b/webview-ui/src/components/chat/ChatTextArea.tsx
@@ -339,6 +339,48 @@ export const ChatTextArea = forwardRef<HTMLTextAreaElement, ChatTextAreaProps>(
 					}
 				}
 
+				// Special handling for folder selection - keep menu open and update input
+				if (type === ContextMenuOptionType.Folder && value) {
+					// Update the input to show the folder path with trailing slash
+					const beforeCursor = textAreaRef.current?.value.slice(0, cursorPosition) || ""
+					const _afterCursor = textAreaRef.current?.value.slice(cursorPosition) || ""
+
+					// Find the position of the last '@' symbol before the cursor
+					const lastAtIndex = beforeCursor.lastIndexOf("@")
+
+					if (lastAtIndex !== -1) {
+						// Replace everything after @ with the folder path
+						const beforeMention = textAreaRef.current?.value.slice(0, lastAtIndex) || ""
+						// Add folder path with trailing slash to allow continued typing
+						const folderPath = value.endsWith("/") ? value : value + "/"
+						const newValue = beforeMention + "@" + folderPath
+
+						setInputValue(newValue)
+						const newCursorPosition = newValue.length
+						setCursorPosition(newCursorPosition)
+						setIntendedCursorPosition(newCursorPosition)
+
+						// Update search query to the folder path to show its contents
+						setSearchQuery(folderPath)
+						setSelectedType(ContextMenuOptionType.Folder)
+
+						// Request folder contents from the extension
+						vscode.postMessage({
+							type: "searchFiles",
+							query: folderPath,
+							requestId: Math.random().toString(36).substring(2, 9),
+						})
+
+						// Focus the textarea but keep menu open
+						setTimeout(() => {
+							if (textAreaRef.current) {
+								textAreaRef.current.focus()
+							}
+						}, 0)
+						return
+					}
+				}
+
 				setShowContextMenu(false)
 				setSelectedType(null)
 
@@ -347,7 +389,7 @@ export const ChatTextArea = forwardRef<HTMLTextAreaElement, ChatTextAreaProps>(
 
 					if (type === ContextMenuOptionType.URL) {
 						insertValue = value || ""
-					} else if (type === ContextMenuOptionType.File || type === ContextMenuOptionType.Folder) {
+					} else if (type === ContextMenuOptionType.File) {
 						insertValue = value || ""
 					} else if (type === ContextMenuOptionType.Problems) {
 						insertValue = "problems"
diff --git a/webview-ui/src/utils/context-mentions.ts b/webview-ui/src/utils/context-mentions.ts
index d7aeb0fdd5..eaa425e51a 100644
--- a/webview-ui/src/utils/context-mentions.ts
+++ b/webview-ui/src/utils/context-mentions.ts
@@ -259,28 +259,35 @@ export function getContextMenuOptions(
 		]
 	}
 
+	// Special handling for folder paths - if query ends with /, we're looking inside a folder
+	const isLookingInsideFolder = query.endsWith("/")
+	// const _folderPath = isLookingInsideFolder ? query.slice(0, -1) : ""
+
 	const lowerQuery = query.toLowerCase()
 	const suggestions: ContextMenuQueryItem[] = []
 
-	// Check for top-level option matches
-	if ("git".startsWith(lowerQuery)) {
-		suggestions.push({
-			type: ContextMenuOptionType.Git,
-			label: "Git Commits",
-			description: "Search repository history",
-			icon: "$(git-commit)",
-		})
-	} else if ("git-changes".startsWith(lowerQuery)) {
-		suggestions.push(workingChanges)
-	}
-	if ("problems".startsWith(lowerQuery)) {
-		suggestions.push({ type: ContextMenuOptionType.Problems })
-	}
-	if ("terminal".startsWith(lowerQuery)) {
-		suggestions.push({ type: ContextMenuOptionType.Terminal })
-	}
-	if (query.startsWith("http")) {
-		suggestions.push({ type: ContextMenuOptionType.URL, value: query })
+	// Only show top-level options if we're not looking inside a folder
+	if (!isLookingInsideFolder) {
+		// Check for top-level option matches
+		if ("git".startsWith(lowerQuery)) {
+			suggestions.push({
+				type: ContextMenuOptionType.Git,
+				label: "Git Commits",
+				description: "Search repository history",
+				icon: "$(git-commit)",
+			})
+		} else if ("git-changes".startsWith(lowerQuery)) {
+			suggestions.push(workingChanges)
+		}
+		if ("problems".startsWith(lowerQuery)) {
+			suggestions.push({ type: ContextMenuOptionType.Problems })
+		}
+		if ("terminal".startsWith(lowerQuery)) {
+			suggestions.push({ type: ContextMenuOptionType.Terminal })
+		}
+		if (query.startsWith("http")) {
+			suggestions.push({ type: ContextMenuOptionType.URL, value: query })
+		}
 	}
 
 	// Add exact SHA matches to suggestions