diff --git a/crates/project_panel/src/project_panel.rs b/crates/project_panel/src/project_panel.rs
index 53b274ee6fa96428ee4c8373b944497d7a2107c1..39130513ee37a5a7340b25a3128d1daaf8caa441 100644
--- a/crates/project_panel/src/project_panel.rs
+++ b/crates/project_panel/src/project_panel.rs
@@ -2434,71 +2434,62 @@ impl ProjectPanel {
                         if let (Some(editor), true) = (Some(&self.filename_editor), show_editor) {
                             h_flex().h_6().w_full().child(editor.clone())
                         } else {
-                            h_flex().h_6().map(|this| {
+                            h_flex().h_6().map(|mut this| {
                                 if let Some(folded_ancestors) =
                                     is_active.then(|| self.ancestors.get(&entry_id)).flatten()
                                 {
-                                    let Some(part_to_highlight) = Path::new(&file_name)
-                                        .ancestors()
-                                        .nth(folded_ancestors.current_ancestor_depth)
-                                    else {
-                                        return this;
-                                    };
-
-                                    let suffix = Path::new(&file_name)
-                                        .strip_prefix(part_to_highlight)
-                                        .ok()
-                                        .filter(|suffix| !suffix.as_os_str().is_empty());
-                                    let prefix = part_to_highlight
-                                        .parent()
-                                        .filter(|prefix| !prefix.as_os_str().is_empty());
-                                    let Some(part_to_highlight) = part_to_highlight
-                                        .file_name()
-                                        .and_then(|name| name.to_str().map(String::from))
-                                    else {
-                                        return this;
-                                    };
+                                    let components = Path::new(&file_name)
+                                        .components()
+                                        .map(|comp| {
+                                            let comp_str =
+                                                comp.as_os_str().to_string_lossy().into_owned();
+                                            comp_str
+                                        })
+                                        .collect::<Vec<_>>();
+                                    let components_len = components.len();
+                                    let active_index = components_len
+                                        - 1
+                                        - folded_ancestors.current_ancestor_depth;
+                                    const DELIMITER: SharedString =
+                                        SharedString::new_static(std::path::MAIN_SEPARATOR_STR);
+                                    for (index, component) in components.into_iter().enumerate() {
+                                        if index != 0 {
+                                            this = this.child(
+                                                Label::new(DELIMITER.clone())
+                                                    .single_line()
+                                                    .color(filename_text_color),
+                                            );
+                                        }
+                                        let id = SharedString::from(format!(
+                                            "project_panel_path_component_{}_{index}",
+                                            entry_id.to_usize()
+                                        ));
+                                        let label = div()
+                                            .id(id)
+                                            .on_click(cx.listener(move |this, _, cx| {
+                                                if index != active_index {
+                                                    if let Some(folds) =
+                                                        this.ancestors.get_mut(&entry_id)
+                                                    {
+                                                        folds.current_ancestor_depth =
+                                                            components_len - 1 - index;
+                                                        cx.notify();
+                                                    }
+                                                }
+                                            }))
+                                            .child(
+                                                Label::new(component)
+                                                    .single_line()
+                                                    .color(filename_text_color)
+                                                    .when(index == active_index, |this| {
+                                                        this.underline(true)
+                                                    }),
+                                            );
+
+                                        this = this.child(label);
+                                    }
 
-                                    this.children(prefix.and_then(|prefix| {
-                                        Some(
-                                            h_flex()
-                                                .child(
-                                                    Label::new(prefix.to_str().map(String::from)?)
-                                                        .single_line()
-                                                        .color(filename_text_color),
-                                                )
-                                                .child(
-                                                    Label::new(std::path::MAIN_SEPARATOR_STR)
-                                                        .single_line()
-                                                        .color(filename_text_color),
-                                                ),
-                                        )
-                                    }))
-                                    .child(
-                                        Label::new(part_to_highlight)
-                                            .single_line()
-                                            .color(filename_text_color)
-                                            .underline(true),
-                                    )
-                                    .children(
-                                        suffix.and_then(|suffix| {
-                                            Some(
-                                                h_flex()
-                                                    .child(
-                                                        Label::new(std::path::MAIN_SEPARATOR_STR)
-                                                            .single_line()
-                                                            .color(filename_text_color),
-                                                    )
-                                                    .child(
-                                                        Label::new(
-                                                            suffix.to_str().map(String::from)?,
-                                                        )
-                                                        .single_line()
-                                                        .color(filename_text_color),
-                                                    ),
-                                            )
-                                        }),
-                                    )
+                                    this
                                 } else {
                                     this.child(
                                         Label::new(file_name)