diff --git a/.changeset/dirpicker-select-created-folder.md b/.changeset/dirpicker-select-created-folder.md
new file mode 100644
index 0000000000..1fb6ee7d23
--- /dev/null
+++ b/.changeset/dirpicker-select-created-folder.md
@@ -0,0 +1,7 @@
+---
+"@runfusion/fusion": patch
+---
+
+summary: Creating a new folder in project setup now selects it fully — the browser panel follows the created folder so Select confirms it.
+category: fix
+dev: "DirectoryPicker: with selectCreatedDirectory, handleCreateFolder now navigates the browse panel into the created directory instead of refreshing the parent; the footer Select button commits browser.currentPath, so staying on the parent let the next click overwrite the auto-selected new folder."
diff --git a/packages/dashboard/app/components/DirectoryPicker.tsx b/packages/dashboard/app/components/DirectoryPicker.tsx
index 893664f50d..429bbc4138 100644
--- a/packages/dashboard/app/components/DirectoryPicker.tsx
+++ b/packages/dashboard/app/components/DirectoryPicker.tsx
@@ -147,12 +147,18 @@ export function DirectoryPicker({ value, onChange, placeholder, onInputKeyDown,
       FNXC:DirectoryPicker 2026-07-03-00:00:
       Project setup must select the directory returned by createDirectory immediately after folder creation so first-time users do not accidentally register the parent directory.
       Keep this opt-in because DirectoryPicker is shared by non-project surfaces such as plugin installation.
+
+      FNXC:DirectoryPicker 2026-07-18-02:50:
+      Setting the input value alone was not enough: the browse panel stayed on the PARENT directory, and its footer Select button commits browser.currentPath — so the natural next click overwrote the just-created folder with its parent (field report: "creating a new folder doesn't select it").
+      When selectCreatedDirectory is on, navigate the panel INTO the created folder so the input, the panel, and the Select button all agree on the new directory.
       */
       if (selectCreatedDirectory) {
         onChange(result.path);
+        await fetchEntries(result.path, browser.showHidden);
+      } else {
+        // Refresh entries to show the new folder
+        await fetchEntries(browser.currentPath, browser.showHidden);
       }
-      // Refresh entries to show the new folder
-      await fetchEntries(browser.currentPath, browser.showHidden);
     } catch (err) {
       setBrowser((prev) => ({
         ...prev,
diff --git a/packages/dashboard/app/components/__tests__/DirectoryPicker.test.tsx b/packages/dashboard/app/components/__tests__/DirectoryPicker.test.tsx
index fec6bce643..900f9288e8 100644
--- a/packages/dashboard/app/components/__tests__/DirectoryPicker.test.tsx
+++ b/packages/dashboard/app/components/__tests__/DirectoryPicker.test.tsx
@@ -348,8 +348,19 @@ describe("DirectoryPicker", () => {
       expect(onChange).toHaveBeenCalledWith("/normalized/home/user/Fresh Project");
     });
     expect(mockCreateDirectory).toHaveBeenCalledWith("/home/user/fresh-project");
+    /*
+    FNXC:DirectoryPicker 2026-07-18-02:50:
+    The panel must navigate INTO the created folder (not refresh the parent):
+    the footer Select button commits browser.currentPath, so staying on the
+    parent let the next click overwrite the auto-selected new folder.
+    */
     await waitFor(() => {
-      expect(mockBrowseDirectory).toHaveBeenLastCalledWith("/home/user", false, undefined, undefined);
+      expect(mockBrowseDirectory).toHaveBeenLastCalledWith(
+        "/normalized/home/user/Fresh Project",
+        false,
+        undefined,
+        undefined,
+      );
     });
   });