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When I click on a folder and choose File->New Folder the folder is created in the root directory of my current view instead of the currently selected (highlighted) folder.

How do I make it so when I create a new folder it will create the folder inside of the current highlighted directory?

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You can't. Finder creates new folders in the folder currently being displayed, not the folder you've highlighted. First you have to display the folder you want the new one in - double click it, then create the new one.

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oh, i thought you could because someone told me theirs creates the folder in the highlighted folder. – Bot Nov 4 '10 at 17:41

Open the folder you want to create the new folder in first (double-click). Then choose File->New Folder or Shift-Cmd-N.

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