diff --git a/pkg/gui/filetree/file_tree_view_model.go b/pkg/gui/filetree/file_tree_view_model.go
index 5ca010b8a..f6465e64b 100644
--- a/pkg/gui/filetree/file_tree_view_model.go
+++ b/pkg/gui/filetree/file_tree_view_model.go
@@ -131,6 +131,13 @@ func (self *FileTreeViewModel) SetTree() {
 // nodes until we find one that exists in the new set of nodes, then move the cursor
 // to that.
 // prevNodes starts from our previously selected node because we don't need to consider anything above that
+//
+// A compressed directory node stands for every directory that was squished
+// into it, so it matches any new node that stands for at least one of the same
+// directories. When a compressed directory splits into several nodes because
+// a file appeared in another of its subdirectories, the topmost of these nodes
+// comes first in currNodes and takes over the selection; this keeps the cursor
+// on the same line.
 func (self *FileTreeViewModel) findNewSelectedIdx(prevNodes []*FileNode, currNodes []*FileNode) int {
 	// Paths are compared as the user sees them, without the "./" prefix of the
 	// root item, so that they line up with the names of a rename.
@@ -141,7 +148,7 @@ func (self *FileTreeViewModel) findNewSelectedIdx(prevNodes []*FileNode, currNod
 		if node.File != nil && node.File.IsRename() {
 			return node.File.Names()
 		}
-		return []string{node.GetPath()}
+		return node.GetPaths()
 	}
 
 	for _, prevNode := range prevNodes {
diff --git a/pkg/gui/filetree/file_tree_view_model_test.go b/pkg/gui/filetree/file_tree_view_model_test.go
index 42844b482..088b2b859 100644
--- a/pkg/gui/filetree/file_tree_view_model_test.go
+++ b/pkg/gui/filetree/file_tree_view_model_test.go
@@ -6,6 +6,7 @@ import (
 	"github.com/jesseduffield/lazygit/pkg/commands/models"
 	"github.com/jesseduffield/lazygit/pkg/common"
 	"github.com/jesseduffield/lazygit/pkg/config"
+	"github.com/samber/lo"
 	"github.com/stretchr/testify/assert"
 )
 
@@ -126,3 +127,79 @@ func TestSetTreeFollowsRenameIntoCollapsedDir(t *testing.T) {
 		})
 	}
 }
+
+func TestSetTreeKeepsSelectionAcrossCompressionChanges(t *testing.T) {
+	scenarios := []struct {
+		name         string
+		filesBefore  []string
+		selectedPath string
+		filesAfter   []string
+		expectedPath string
+	}{
+		{
+			name:         "compressed root directory splits",
+			filesBefore:  []string{"pkg/gui/controllers/helpers/refresh_helper.go"},
+			selectedPath: "pkg/gui/controllers/helpers",
+			filesAfter: []string{
+				"pkg/gui/context/base_context.go",
+				"pkg/gui/controllers/helpers/refresh_helper.go",
+			},
+			expectedPath: "pkg/gui",
+		},
+		{
+			name:         "compressed subdirectory splits",
+			filesBefore:  []string{"a/b/c/file1", "file2"},
+			selectedPath: "a/b/c",
+			filesAfter:   []string{"a/b/c/file1", "a/b/d/file3", "file2"},
+			expectedPath: "a/b",
+		},
+		{
+			name:         "file inside a compressed directory that splits",
+			filesBefore:  []string{"pkg/gui/controllers/helpers/refresh_helper.go"},
+			selectedPath: "pkg/gui/controllers/helpers/refresh_helper.go",
+			filesAfter: []string{
+				"pkg/gui/context/base_context.go",
+				"pkg/gui/controllers/helpers/refresh_helper.go",
+			},
+			expectedPath: "pkg/gui/controllers/helpers/refresh_helper.go",
+		},
+		{
+			name: "directories merge into one compressed node",
+			filesBefore: []string{
+				"pkg/gui/context/base_context.go",
+				"pkg/gui/controllers/helpers/refresh_helper.go",
+			},
+			selectedPath: "pkg/gui",
+			filesAfter:   []string{"pkg/gui/controllers/helpers/refresh_helper.go"},
+			expectedPath: "pkg/gui/controllers/helpers",
+		},
+	}
+
+	toFiles := func(paths []string) []*models.File {
+		return lo.Map(paths, func(path string, _ int) *models.File {
+			return &models.File{Path: path}
+		})
+	}
+
+	for _, s := range scenarios {
+		t.Run(s.name, func(t *testing.T) {
+			files := toFiles(s.filesBefore)
+			cmn := common.NewDummyCommon()
+			viewModel := NewFileTreeViewModel(
+				func() []*models.File { return files },
+				cmn,
+				true,
+			)
+			viewModel.SetTree()
+			showRootItem := cmn.UserConfig().Gui.ShowRootItemInFileTree
+			idx, found := viewModel.GetIndexForPath(InternalTreePathForFilePath(s.selectedPath, showRootItem))
+			assert.True(t, found)
+			viewModel.SetSelection(idx)
+
+			files = toFiles(s.filesAfter)
+			viewModel.SetTree()
+
+			assert.Equal(t, s.expectedPath, viewModel.GetSelectedPath())
+		})
+	}
+}
diff --git a/pkg/gui/filetree/node.go b/pkg/gui/filetree/node.go
index 143cdeeff..fc409d501 100644
--- a/pkg/gui/filetree/node.go
+++ b/pkg/gui/filetree/node.go
@@ -63,6 +63,20 @@ func (self *Node[T]) GetInternalPath() string {
 	return self.path
 }
 
+// This returns the logical paths of all the directories that this node stands
+// for, from the user's point of view like GetPath. For most nodes that's just
+// its own path. A compressed node (see CompressionLevel) also stands for the
+// directories that were squished into it, so for "a/b/c" with a
+// CompressionLevel of 2 this returns "a/b/c", "a/b" and "a".
+func (self *Node[T]) GetPaths() []string {
+	splitPath := split(self.path)
+	paths := make([]string, 0, self.CompressionLevel+1)
+	for i := 0; i <= self.CompressionLevel; i++ {
+		paths = append(paths, strings.TrimPrefix(join(splitPath[:len(splitPath)-i]), "./"))
+	}
+	return paths
+}
+
 func (self *Node[T]) Sort(cmp func(a, b *Node[T]) int) {
 	self.SortChildren(cmp)