diff --git a/manifest.json b/manifest.json
index a2e7871..aafd69b 100644
--- a/manifest.json
+++ b/manifest.json
@@ -3,7 +3,7 @@
   "name": "browser.cpp",
   "short_name": "browser.cpp",
   "description": "In-browser C++20 IDE powered by Monaco Editor and WASM Clang",
-  "version": "0.4.1",
+  "version": "0.4.2",
   "minimum_chrome_version": "105",
   "icons": {
     "16": "icons/icon16.png",
diff --git a/package-lock.json b/package-lock.json
index d0d023a..60cd86a 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -1,12 +1,12 @@
 {
   "name": "browser.cpp",
-  "version": "0.4.1",
+  "version": "0.4.2",
   "lockfileVersion": 3,
   "requires": true,
   "packages": {
     "": {
       "name": "browser.cpp",
-      "version": "0.4.1",
+      "version": "0.4.2",
       "dependencies": {
         "@xterm/addon-fit": "^0.11.0",
         "@xterm/addon-web-links": "^0.12.0",
diff --git a/package.json b/package.json
index a26b505..37ae02a 100644
--- a/package.json
+++ b/package.json
@@ -1,6 +1,6 @@
 {
   "name": "browser.cpp",
-  "version": "0.4.1",
+  "version": "0.4.2",
   "description": "In-browser C++20 IDE with WASM Clang toolchain",
   "private": true,
   "scripts": {
diff --git a/scripts/e2e-workspace-file-tracking.test.mjs b/scripts/e2e-workspace-file-tracking.test.mjs
index d462c74..fc033d2 100644
--- a/scripts/e2e-workspace-file-tracking.test.mjs
+++ b/scripts/e2e-workspace-file-tracking.test.mjs
@@ -622,6 +622,7 @@ class FakeElement {
     this.children = [];
     this.listeners = new Map();
     this.dataset = {};
+    this.attributes = new Map();
     this.style = {};
     this._className = '';
     this.classList = {
@@ -693,8 +694,9 @@ class FakeElement {
   setAttribute(name, value) {
     if (name === 'id') { this.id = value; return; }
     if (name.startsWith('data-')) this.dataset[name.slice(5)] = value;
+    this.attributes.set(name, String(value));
   }
-  getAttribute() { return null; }
+  getAttribute(name) { return this.attributes.get(name) ?? null; }
 
   querySelectorAll(selector) {
     if (selector !== 'li') return [];
@@ -844,6 +846,12 @@ function renderedTreePaths(document) {
     .filter(Boolean) ?? [];
 }
 
+function renderedTreeItem(document, path) {
+  return document.getElementById('file-tree')
+    ?.querySelectorAll('li')
+    .find((item) => item.dataset.path === path) ?? null;
+}
+
 function shortcutEvent(key, { metaKey = false, ctrlKey = false, shiftKey = false } = {}) {
   let prevented = false;
   return {
@@ -926,6 +934,85 @@ test('e2e: submitting a nested path creates parent directories and opens the fil
   assert.deepEqual(ctx.fsCalls.create.map((c) => c.path), ['src/lib/util.hpp']);
   assert.ok(ctx.toolbar.getOpenTabPaths().includes('src/lib/util.hpp'));
   assert.ok(ctx.terminalCalls.refresh.length >= 1, 'terminal workspace refreshed');
+  assert.deepEqual(renderedTreePaths(ctx.document), ['src', 'src/lib', 'src/lib/util.hpp']);
+  assert.equal(renderedTreeItem(ctx.document, 'src').getAttribute('aria-expanded'), 'true');
+  assert.equal(renderedTreeItem(ctx.document, 'src/lib').getAttribute('aria-expanded'), 'true');
+});
+
+test('e2e: restored nested directories start collapsed until the user expands each level', async () => {
+  const ctx = await setupToolbar();
+  await ctx.toolbar.restoreWorkspace({
+    name: 'p',
+    entries: [
+      { path: 'src', kind: 'directory' },
+      { path: 'src/lib', kind: 'directory' },
+      { path: 'src/lib/util.hpp', kind: 'file' },
+    ],
+  }, [], null);
+
+  assert.deepEqual(renderedTreePaths(ctx.document), ['src']);
+  assert.equal(renderedTreeItem(ctx.document, 'src').getAttribute('aria-expanded'), 'false');
+
+  renderedTreeItem(ctx.document, 'src').click();
+  assert.deepEqual(renderedTreePaths(ctx.document), ['src', 'src/lib']);
+  assert.equal(renderedTreeItem(ctx.document, 'src/lib').getAttribute('aria-expanded'), 'false');
+
+  renderedTreeItem(ctx.document, 'src/lib').click();
+  assert.deepEqual(renderedTreePaths(ctx.document), ['src', 'src/lib', 'src/lib/util.hpp']);
+});
+
+test('e2e: refresh keeps expanded directories but prunes directories that no longer exist', async () => {
+  const ctx = await setupToolbar();
+  const initial = {
+    name: 'p',
+    entries: [
+      { path: 'src', kind: 'directory' },
+      { path: 'src/lib', kind: 'directory' },
+      { path: 'src/lib/util.hpp', kind: 'file' },
+    ],
+  };
+  await ctx.toolbar.restoreWorkspace(initial, [], null);
+
+  renderedTreeItem(ctx.document, 'src').click();
+  ctx.toolbar.applyWorkspaceSnapshot({
+    name: 'p',
+    entries: [...initial.entries, { path: 'src/lib/deep.hpp', kind: 'file' }],
+  });
+
+  assert.deepEqual(renderedTreePaths(ctx.document), ['src', 'src/lib']);
+  assert.equal(renderedTreeItem(ctx.document, 'src').getAttribute('aria-expanded'), 'true');
+  assert.equal(renderedTreeItem(ctx.document, 'src/lib').getAttribute('aria-expanded'), 'false');
+
+  ctx.toolbar.applyWorkspaceSnapshot({ name: 'p', entries: [] });
+  ctx.toolbar.applyWorkspaceSnapshot(initial);
+  assert.equal(renderedTreeItem(ctx.document, 'src').getAttribute('aria-expanded'), 'false');
+});
+
+test('e2e: external disk refresh does not expand newly added nested directories', async () => {
+  const ctx = await setupToolbar({
+    refreshWorkspaceResult: {
+      snapshot: {
+        name: 'p',
+        entries: [
+          { path: 'generated', kind: 'directory' },
+          { path: 'generated/output.txt', kind: 'file' },
+        ],
+      },
+      added: [
+        { path: 'generated', kind: 'directory' },
+        { path: 'generated/output.txt', kind: 'file' },
+      ],
+      removed: [],
+      changed: [],
+    },
+  });
+  await ctx.toolbar.restoreWorkspace({ name: 'p', entries: [] }, [], null);
+
+  ctx.document.dispatch('visibilitychange');
+  await tick();
+
+  assert.deepEqual(renderedTreePaths(ctx.document), ['generated']);
+  assert.equal(renderedTreeItem(ctx.document, 'generated').getAttribute('aria-expanded'), 'false');
 });
 
 test('e2e: Escape cancels inline creation and removes the row cleanly', async () => {
@@ -1224,7 +1311,8 @@ test('e2e: runtime-created files appear in the refreshed workspace snapshot', as
   const latestWorkspace = ctx.terminalCalls.refresh.at(-1);
   assert.ok(latestWorkspace.entries.some((entry) => entry.path === 'generated' && entry.kind === 'directory'));
   assert.ok(latestWorkspace.entries.some((entry) => entry.path === createdPath && entry.kind === 'file'));
-  assert.deepEqual(renderedTreePaths(ctx.document), ['generated', createdPath]);
+  assert.deepEqual(renderedTreePaths(ctx.document), ['generated']);
+  assert.equal(renderedTreeItem(ctx.document, 'generated').getAttribute('aria-expanded'), 'false');
 });
 
 test('e2e: runtime file writes warn when no writable folder workspace is open', async () => {
diff --git a/src/ui/toolbar.js b/src/ui/toolbar.js
index c03765c..83aedc2 100644
--- a/src/ui/toolbar.js
+++ b/src/ui/toolbar.js
@@ -307,7 +307,7 @@ async function handleWorkerMessage(data) {
           }
         }
         if (snapshot) {
-          applyWorkspaceSnapshot(snapshot, changedPaths);
+          applyWorkspaceSnapshot(snapshot);
           await reloadOverwrittenTabs(changedPaths);
         }
       }
@@ -445,7 +445,8 @@ async function submitInlineFileCreation(rawName, errorEl, onReject) {
   }
 
   endInlineFileCreation();
-  applyWorkspaceSnapshot(result.snapshot, [result.path]);
+  applyWorkspaceSnapshot(result.snapshot);
+  revealWorkspacePath(result.path);
   openTabForFile(result.path, '');
   markDirty(false);
   highlightWorkspaceFile(result.path);
@@ -467,26 +468,27 @@ function inlineCreateErrorMessage(error) {
 
 /**
  * Adopt a refreshed workspace snapshot after an incremental mutation: update the
- * in-memory workspace, refresh the terminal index (preserving cwd), expand the
- * ancestor directories of any newly created paths so they are visible, and
- * re-render the Explorer.
+ * in-memory workspace, refresh the terminal index (preserving cwd), preserve
+ * the user's directory expansion choices, and re-render the Explorer.
  *
  * @param {object} snapshot – workspace snapshot from filesystem.js
- * @param {string[]} [revealPaths] – paths whose ancestor dirs should be expanded
  */
-export function applyWorkspaceSnapshot(snapshot, revealPaths = []) {
+export function applyWorkspaceSnapshot(snapshot) {
   if (!snapshot) return;
   _workspace = snapshot;
   _terminalAPI.refreshWorkspace?.(snapshot);
   pruneExpandedWorkspaceDirectories(snapshot);
-  for (const path of revealPaths) {
-    for (const dir of directoriesForPath(path)) {
-      _expandedWorkspaceDirectories.add(dir);
-    }
-  }
   renderWorkspaceSidebar(snapshot);
 }
 
+/** Reveal a path created through the Explorer's explicit New File action. */
+function revealWorkspacePath(path) {
+  for (const dir of directoriesForPath(path)) {
+    _expandedWorkspaceDirectories.add(dir);
+  }
+  renderWorkspaceSidebar(_workspace);
+}
+
 function pruneExpandedWorkspaceDirectories(snapshot) {
   const existingDirs = new Set(
     (snapshot.entries || [])
@@ -511,8 +513,7 @@ async function syncWorkspaceFromDisk(reason) {
     if (!result?.snapshot) return null;
     if (!hasWorkspaceDiff(result)) return result;
 
-    const revealPaths = (result.added || []).map((entry) => normalizeOverlayPath(entry.path));
-    applyWorkspaceSnapshot(result.snapshot, revealPaths);
+    applyWorkspaceSnapshot(result.snapshot);
 
     const changedPaths = (result.changed || []).map((entry) => normalizeOverlayPath(entry.path));
     if (changedPaths.length) {
@@ -548,7 +549,7 @@ function hasWorkspaceDiff(result) {
 async function persistWorkspaceFile(path, bytes) {
   try {
     const snapshot = await _fsAPI.writeWorkspaceFile(path, bytes);
-    if (snapshot) applyWorkspaceSnapshot(snapshot, [normalizeOverlayPath(path)]);
+    if (snapshot) applyWorkspaceSnapshot(snapshot);
     await syncWorkspaceFromDisk('compile-result');
   } catch (err) {
     console.warn('[browser.cpp] Failed to persist workspace file:', path, err);