diff --git a/src/SharpIDE.Application/Features/FileWatching/IdeFileExternalChangeHandler.cs b/src/SharpIDE.Application/Features/FileWatching/IdeFileExternalChangeHandler.cs
index 312ff5c..96d00f1 100644
--- a/src/SharpIDE.Application/Features/FileWatching/IdeFileExternalChangeHandler.cs
+++ b/src/SharpIDE.Application/Features/FileWatching/IdeFileExternalChangeHandler.cs
@@ -24,7 +24,7 @@ public class IdeFileExternalChangeHandler
 		var sharpIdeFolder = SolutionModel.AllFolders.SingleOrDefault(f => f.Path == folderPath);
 		if (sharpIdeFolder is not null)
 		{
-			Console.WriteLine($"Error - Folder {folderPath} already exists");
+			//Console.WriteLine($"Error - Folder {folderPath} already exists");
 			return;
 		}
 		var containingFolderPath = Path.GetDirectoryName(folderPath)!;
@@ -34,7 +34,8 @@ public class IdeFileExternalChangeHandler
 			Console.WriteLine($"Error - Containing Folder of {folderPath} does not exist");
 			return;
 		}
-		await _sharpIdeSolutionModificationService.CreateDirectory(containingFolder, folderPath);
+		var folderName = Path.GetFileName(folderPath);
+		await _sharpIdeSolutionModificationService.AddDirectory(containingFolder, folderName);
 	}
 
 	private async Task OnFileCreated(string filePath)
diff --git a/src/SharpIDE.Application/Features/FileWatching/IdeFileOperationsService.cs b/src/SharpIDE.Application/Features/FileWatching/IdeFileOperationsService.cs
index f51a768..e5309c7 100644
--- a/src/SharpIDE.Application/Features/FileWatching/IdeFileOperationsService.cs
+++ b/src/SharpIDE.Application/Features/FileWatching/IdeFileOperationsService.cs
@@ -6,9 +6,10 @@ public class IdeFileOperationsService(SharpIdeSolutionModificationService sharpI
 {
 	private readonly SharpIdeSolutionModificationService _sharpIdeSolutionModificationService = sharpIdeSolutionModificationService;
 
-	public async Task CreateDirectory(SharpIdeFolder parentFolder, string directoryPath)
+	public async Task CreateDirectory(SharpIdeFolder parentFolder, string newDirectoryName)
 	{
-		var newFolder = await _sharpIdeSolutionModificationService.CreateDirectory(parentFolder, directoryPath);
-		Directory.CreateDirectory(directoryPath);
+		var newDirectoryPath = Path.Combine(parentFolder.Path, newDirectoryName);
+		Directory.CreateDirectory(newDirectoryPath);
+		var newFolder = await _sharpIdeSolutionModificationService.AddDirectory(parentFolder, newDirectoryName);
 	}
 }
diff --git a/src/SharpIDE.Application/Features/FileWatching/SharpIdeSolutionModificationService.cs b/src/SharpIDE.Application/Features/FileWatching/SharpIdeSolutionModificationService.cs
index 9989ea4..9888843 100644
--- a/src/SharpIDE.Application/Features/FileWatching/SharpIdeSolutionModificationService.cs
+++ b/src/SharpIDE.Application/Features/FileWatching/SharpIdeSolutionModificationService.cs
@@ -7,10 +7,12 @@ public class SharpIdeSolutionModificationService
 {
 	public SharpIdeSolutionModel SolutionModel { get; set; } = null!;
 
-	public async Task<SharpIdeFolder> CreateDirectory(SharpIdeFolder parentFolder, string directoryPath)
+	/// The directory must already exist on disk
+	public async Task<SharpIdeFolder> AddDirectory(SharpIdeFolder parentFolder, string directoryName)
 	{
 		// Passing [] to allFiles and allFolders, as we assume that a brand new folder has no subfolders or files yet
-		var sharpIdeFolder = new SharpIdeFolder(new DirectoryInfo(directoryPath), parentFolder, [], []);
+		var addedDirectoryPath = Path.Combine(parentFolder.Path, directoryName);
+		var sharpIdeFolder = new SharpIdeFolder(new DirectoryInfo(addedDirectoryPath), parentFolder, [], []);
 		parentFolder.Folders.Add(sharpIdeFolder);
 		SolutionModel.AllFolders.Add(sharpIdeFolder);
 		return sharpIdeFolder;
diff --git a/src/SharpIDE.Godot/Features/SolutionExplorer/ContextMenus/Dialogs/NewDirectoryDialog.cs b/src/SharpIDE.Godot/Features/SolutionExplorer/ContextMenus/Dialogs/NewDirectoryDialog.cs
index c6e67f0..2ac93e3 100644
--- a/src/SharpIDE.Godot/Features/SolutionExplorer/ContextMenus/Dialogs/NewDirectoryDialog.cs
+++ b/src/SharpIDE.Godot/Features/SolutionExplorer/ContextMenus/Dialogs/NewDirectoryDialog.cs
@@ -1,4 +1,5 @@
 using Godot;
+using SharpIDE.Application.Features.FileWatching;
 using SharpIDE.Application.Features.SolutionDiscovery;
 
 namespace SharpIDE.Godot.Features.SolutionExplorer.ContextMenus.Dialogs;
@@ -9,6 +10,8 @@ public partial class NewDirectoryDialog : ConfirmationDialog
     
     public SharpIdeFolder ParentFolder { get; set; } = null!;
 
+    [Inject] private readonly IdeFileOperationsService _ideFileOperationsService = null!;
+
     public override void _Ready()
     {
         _nameLineEdit = GetNode<LineEdit>("%DirectoryNameLineEdit");
@@ -20,5 +23,15 @@ public partial class NewDirectoryDialog : ConfirmationDialog
     private void OnConfirmed()
     {
         var directoryName = _nameLineEdit.Text.Trim();
+        if (string.IsNullOrEmpty(directoryName))
+        {
+            GD.PrintErr("Directory name cannot be empty.");
+            return;
+        }
+
+        _ = Task.GodotRun(async () =>
+        {
+           await _ideFileOperationsService.CreateDirectory(ParentFolder, directoryName);
+        });
     }
 }
\ No newline at end of file
diff --git a/src/SharpIDE.Godot/IdeRoot.cs b/src/SharpIDE.Godot/IdeRoot.cs
index fce0a74..87fb314 100644
--- a/src/SharpIDE.Godot/IdeRoot.cs
+++ b/src/SharpIDE.Godot/IdeRoot.cs
@@ -44,6 +44,7 @@ public partial class IdeRoot : Control
 	[Inject] private readonly BuildService _buildService = null!;
     [Inject] private readonly IdeOpenTabsFileManager _openTabsFileManager = null!;
     [Inject] private readonly RoslynAnalysis _roslynAnalysis = null!;
+    [Inject] private readonly SharpIdeSolutionModificationService _sharpIdeSolutionModificationService = null!;
 
 	public override void _EnterTree()
 	{
@@ -141,6 +142,7 @@ public partial class IdeRoot : Control
 			_searchAllFilesWindow.Solution = solutionModel;
 			_fileExternalChangeHandler.SolutionModel = solutionModel;
 			_fileChangedService.SolutionModel = solutionModel;
+			_sharpIdeSolutionModificationService.SolutionModel = solutionModel;
 			Callable.From(_solutionExplorerPanel.BindToSolution).CallDeferred();
 			_roslynAnalysis.StartSolutionAnalysis(solutionModel);
 			_fileWatcher.StartWatching(solutionModel);