diff --git a/apps/files/src/services/DropService.spec.ts b/apps/files/src/services/DropService.spec.ts
new file mode 100644
index 0000000000000..3bf1d30003157
--- /dev/null
+++ b/apps/files/src/services/DropService.spec.ts
@@ -0,0 +1,85 @@
+/*!
+ * SPDX-FileCopyrightText: 2026 Nextcloud GmbH and Nextcloud contributors
+ * SPDX-License-Identifier: AGPL-3.0-or-later
+ */
+
+import type { IFolder } from '@nextcloud/files'
+
+import { beforeEach, describe, expect, it, vi } from 'vitest'
+import { onDropExternalFiles } from './DropService.ts'
+import { createDirectoryIfNotExists, Directory } from './DropServiceUtils.ts'
+
+const { getUploaderMock, hasConflictMock } = vi.hoisted(() => {
+	return {
+		getUploaderMock: vi.fn(),
+		hasConflictMock: vi.fn(),
+	}
+})
+
+vi.mock('@nextcloud/dialogs', () => ({
+	showError: vi.fn(),
+	showInfo: vi.fn(),
+	showSuccess: vi.fn(),
+	showWarning: vi.fn(),
+}))
+
+vi.mock('@nextcloud/upload', () => ({
+	getUploader: getUploaderMock,
+	hasConflict: hasConflictMock,
+}))
+
+vi.mock('../logger.ts', () => ({
+	default: {
+		debug: vi.fn(),
+		info: vi.fn(),
+		warn: vi.fn(),
+		error: vi.fn(),
+	},
+}))
+
+vi.mock('./DropServiceUtils.ts', async () => {
+	const actual = await vi.importActual<typeof import('./DropServiceUtils.ts')>('./DropServiceUtils.ts')
+	return {
+		...actual,
+		createDirectoryIfNotExists: vi.fn(),
+		resolveConflict: vi.fn(async (files) => files),
+	}
+})
+
+describe('DropService onDropExternalFiles', () => {
+	const uploaderMock = {
+		pause: vi.fn(),
+		start: vi.fn(),
+		upload: vi.fn(async () => ({})),
+	}
+
+	beforeEach(() => {
+		vi.clearAllMocks()
+		getUploaderMock.mockReturnValue(uploaderMock)
+		hasConflictMock.mockResolvedValue(false)
+	})
+
+	it('creates dropped directories under the destination path', async () => {
+		const root = new Directory('root') as Directory & { name: 'root' }
+		root.contents = [
+			new Directory('py-vetlog-buddy-main', [
+				new Directory('.venv', [
+					new Directory('lib', [
+						new File(['content'], 'hello.txt', { type: 'text/plain' }),
+					]),
+				]),
+			]),
+		]
+
+		const destination = {
+			path: '/archive',
+			source: '/remote.php/dav/files/devadmin/archive',
+		} as unknown as IFolder
+
+		await onDropExternalFiles(root, destination, [])
+
+		expect(createDirectoryIfNotExists).toHaveBeenCalledWith('/archive/py-vetlog-buddy-main')
+		expect(createDirectoryIfNotExists).toHaveBeenCalledWith('/archive/py-vetlog-buddy-main/.venv')
+		expect(createDirectoryIfNotExists).toHaveBeenCalledWith('/archive/py-vetlog-buddy-main/.venv/lib')
+	})
+})
diff --git a/apps/files/src/services/DropService.ts b/apps/files/src/services/DropService.ts
index 096ae48ca1fbd..7d2aa1c03a985 100644
--- a/apps/files/src/services/DropService.ts
+++ b/apps/files/src/services/DropService.ts
@@ -124,7 +124,7 @@ export async function onDropExternalFiles(root: RootDirectory, destination: IFol
 			if (file instanceof Directory) {
 				try {
 					logger.debug('Processing directory', { relativePath })
-					await createDirectoryIfNotExists(relativePath)
+					await createDirectoryIfNotExists(join(destination.path, relativePath))
 					await uploadDirectoryContents(file, relativePath)
 				} catch (error) {
 					showError(t('files', 'Unable to create the directory {directory}', { directory: file.name }))