diff --git a/src/components/doclist/DocumentList.tsx b/src/components/doclist/DocumentList.tsx
index 4928084..5d9118a 100644
--- a/src/components/doclist/DocumentList.tsx
+++ b/src/components/doclist/DocumentList.tsx
@@ -140,6 +140,7 @@ function DocumentListInner({ brand, appActions }: DocumentListInnerProps) {
   >(null);
   const [newFolderName, setNewFolderName] = useState('');
   const [manualFolderPrompt, setManualFolderPrompt] = useState(false);
+  const [clearFoldersPrompt, setClearFoldersPrompt] = useState(false);
 
   const isNarrow = useIsNarrow();
   const selection = useDocumentSelection();
@@ -432,6 +433,13 @@ function DocumentListInner({ brand, appActions }: DocumentListInnerProps) {
     if (sidebarFilter === `folder:${folderId}`) setSidebarFilter('all');
   }, [sidebarFilter]);
 
+  const handleClearFolders = useCallback(() => {
+    setFolders([]);
+    if (sidebarFilter.startsWith('folder:')) setSidebarFilter('all');
+    setClearFoldersPrompt(false);
+    selection.clear();
+  }, [selection, sidebarFilter]);
+
   // Status bar summary.
   const summary = useMemo(() => {
     const parts: string[] = [];
@@ -490,6 +498,7 @@ function DocumentListInner({ brand, appActions }: DocumentListInnerProps) {
             setNewFolderName('');
             setManualFolderPrompt(true);
           }}
+          onClearFolders={() => setClearFoldersPrompt(true)}
           onDropOnFolder={handleDropOnFolder}
           width={sidebarWidth}
           onWidthChange={setSidebarWidth}
@@ -619,6 +628,16 @@ function DocumentListInner({ brand, appActions }: DocumentListInnerProps) {
         confirmText="Delete"
         isDangerous
       />
+
+      <ConfirmDialog
+        isOpen={clearFoldersPrompt}
+        onClose={() => setClearFoldersPrompt(false)}
+        onConfirm={handleClearFolders}
+        title="Remove All Folders"
+        message="Remove all folders? This will not delete documents."
+        confirmText="Remove Folders"
+        isDangerous
+      />
     </FinderWindow>
   );
 }
diff --git a/src/components/doclist/window/FinderSidebar.tsx b/src/components/doclist/window/FinderSidebar.tsx
index e973151..358eded 100644
--- a/src/components/doclist/window/FinderSidebar.tsx
+++ b/src/components/doclist/window/FinderSidebar.tsx
@@ -1,9 +1,10 @@
 'use client';
 
-import { useRef, type CSSProperties, type ReactNode } from 'react';
+import { Menu, MenuButton, MenuItem, MenuItems, Transition } from '@headlessui/react';
+import { Fragment, useRef, type CSSProperties, type ReactNode } from 'react';
 import { useDrop } from 'react-dnd';
 import type { Folder, SidebarFilter } from '@/types/documents';
-import { PDFIcon, EPUBIcon, FileIcon } from '@/components/icons/Icons';
+import { PDFIcon, EPUBIcon, FileIcon, DotsHorizontalIcon } from '@/components/icons/Icons';
 import { FolderIcon, HomeIcon, ClockIcon, FolderPlusIcon } from './finderIcons';
 import { DND_DOCUMENT, type DocumentDragItem } from '../dnd/dndTypes';
 
@@ -14,6 +15,7 @@ interface FinderSidebarProps {
   counts: { all: number; pdf: number; epub: number; html: number };
   onDeleteFolder: (folderId: string) => void;
   onNewFolder: () => void;
+  onClearFolders: () => void;
   /** When dragging onto a folder row, move dropped docs into that folder. */
   onDropOnFolder: (folderId: string, item: DocumentDragItem) => void;
   /** Width controls (desktop only). */
@@ -144,16 +146,25 @@ function FolderRow({
   );
 }
 
-function SectionLabel({ children, isFirst }: { children: ReactNode; isFirst?: boolean }) {
+function SectionHeader({
+  children,
+  isFirst,
+  rightSlot,
+}: {
+  children: ReactNode;
+  isFirst?: boolean;
+  rightSlot?: ReactNode;
+}) {
   return (
-    <p
+    <div
       className={
-        'px-2 pb-1 text-[10px] uppercase tracking-[0.08em] text-muted font-semibold ' +
+        'px-2 pb-1 text-[10px] uppercase tracking-[0.08em] text-muted font-semibold leading-none flex items-center justify-between ' +
         (isFirst ? 'pt-1.5' : 'pt-3')
       }
     >
-      {children}
-    </p>
+      <span>{children}</span>
+      {rightSlot && <span className="inline-flex items-center leading-none shrink-0">{rightSlot}</span>}
+    </div>
   );
 }
 
@@ -164,6 +175,7 @@ export function FinderSidebar({
   counts,
   onDeleteFolder,
   onNewFolder,
+  onClearFolders,
   onDropOnFolder,
   width,
   onWidthChange,
@@ -197,7 +209,7 @@ export function FinderSidebar({
             {topSlot}
           </div>
         )}
-        <SectionLabel isFirst={!!topSlot}>Library</SectionLabel>
+        <SectionHeader isFirst={!!topSlot}>Library</SectionHeader>
         <SidebarRow
           active={filter === 'all'}
           onClick={() => onFilterChange('all')}
@@ -212,7 +224,7 @@ export function FinderSidebar({
           label="Recently Opened"
         />
 
-        <SectionLabel>Kinds</SectionLabel>
+        <SectionHeader>Kinds</SectionHeader>
         <SidebarRow
           active={filter === 'pdf'}
           onClick={() => onFilterChange('pdf')}
@@ -235,20 +247,63 @@ export function FinderSidebar({
           count={counts.html}
         />
 
-        <div className="px-2 pt-3 pb-1 flex items-center justify-between">
-          <p className="text-[10px] uppercase tracking-[0.08em] text-muted font-semibold">
-            Folders
-          </p>
-          <button
-            type="button"
-            onClick={onNewFolder}
-            className="inline-flex items-center justify-center h-6 w-6 rounded-md border border-offbase bg-base text-foreground hover:text-accent hover:border-accent hover:bg-offbase transition-all duration-200 ease-out hover:scale-[1.01]"
-            title="New folder"
-            aria-label="New folder"
-          >
-            <FolderPlusIcon className="w-4 h-4" />
-          </button>
-        </div>
+        <SectionHeader
+          rightSlot={(
+            <Menu as="div" className="relative inline-flex items-center leading-none text-left shrink-0 normal-case tracking-normal font-normal">
+              <MenuButton
+                className="inline-flex items-center justify-center h-3.5 w-5 rounded-sm text-muted hover:text-accent transition-colors duration-200 ease-out focus:outline-none"
+                title="Folder actions"
+                aria-label="Folder actions"
+              >
+                <DotsHorizontalIcon className="w-4 h-2.5" />
+              </MenuButton>
+              <Transition
+                as={Fragment}
+                enter="transition ease-out duration-100"
+                enterFrom="transform opacity-0 scale-95"
+                enterTo="transform opacity-100 scale-100"
+                leave="transition ease-in duration-75"
+                leaveFrom="transform opacity-100 scale-100"
+                leaveTo="transform opacity-0 scale-95"
+              >
+                <MenuItems
+                  anchor="bottom start"
+                  className="z-50 mt-2 min-w-[180px] rounded-md bg-base shadow-lg ring-1 ring-black/5 focus:outline-none p-1 normal-case tracking-normal font-normal"
+                >
+                  <MenuItem>
+                    {({ active }) => (
+                      <button
+                        type="button"
+                        onClick={onNewFolder}
+                        className={`${active ? 'bg-offbase text-accent' : 'text-foreground'} group flex w-full items-center gap-2 rounded-md px-2 py-2 text-xs`}
+                      >
+                        <FolderPlusIcon className="h-4 w-4" />
+                        New Folder
+                      </button>
+                    )}
+                  </MenuItem>
+                  <MenuItem disabled={folders.length === 0}>
+                    {({ active, disabled }) => (
+                      <button
+                        type="button"
+                        onClick={onClearFolders}
+                        disabled={disabled}
+                        className={`${disabled ? 'text-muted/60 cursor-not-allowed' : active ? 'bg-offbase text-accent' : 'text-foreground'} group flex w-full items-center gap-2 rounded-md px-2 py-2 text-xs`}
+                      >
+                        <svg className="h-4 w-4" fill="none" stroke="currentColor" viewBox="0 0 24 24">
+                          <path strokeLinecap="round" strokeLinejoin="round" strokeWidth="2" d="M6 18L18 6M6 6l12 12" />
+                        </svg>
+                        Remove All Folders
+                      </button>
+                    )}
+                  </MenuItem>
+                </MenuItems>
+              </Transition>
+            </Menu>
+          )}
+        >
+          Folders
+        </SectionHeader>
         {folders.length === 0 ? (
           <p className="px-2 py-1 text-[11px] text-muted">No folders yet</p>
         ) : (
diff --git a/src/components/icons/Icons.tsx b/src/components/icons/Icons.tsx
index 9e0d10b..74c6e8f 100644
--- a/src/components/icons/Icons.tsx
+++ b/src/components/icons/Icons.tsx
@@ -393,6 +393,24 @@ export function DotsVerticalIcon(props: React.SVGProps<SVGSVGElement>) {
   );
 }
 
+export function DotsHorizontalIcon(props: React.SVGProps<SVGSVGElement>) {
+  return (
+    <svg
+      xmlns="http://www.w3.org/2000/svg"
+      viewBox="0 0 24 12"
+      fill="currentColor"
+      className={props.className}
+      width={props.width || "1.5em"}
+      height={props.height || "0.75em"}
+      {...props}
+    >
+      <circle cx="4" cy="6" r="1.5" />
+      <circle cx="12" cy="6" r="1.5" />
+      <circle cx="20" cy="6" r="1.5" />
+    </svg>
+  );
+}
+
 export function ChevronLeftIcon(props: React.SVGProps<SVGSVGElement>) {
   return (
     <svg
diff --git a/tests/folders.spec.ts b/tests/folders.spec.ts
index 3f9e0fb..7e36725 100644
--- a/tests/folders.spec.ts
+++ b/tests/folders.spec.ts
@@ -1,5 +1,13 @@
 import { test, expect, type Page } from '@playwright/test';
-import { setupTest, uploadFiles, ensureDocumentsListed, waitForDocumentListHintPersist, dispatchHtml5DragAndDrop } from './helpers';
+import {
+  setupTest,
+  uploadFiles,
+  ensureDocumentsListed,
+  waitForDocumentListHintPersist,
+  dispatchHtml5DragAndDrop,
+  expectDocumentListed,
+  expectNoDocumentLink,
+} from './helpers';
 
 test.describe('Document folders and hint persistence', () => {
   test.beforeEach(async ({ page }, testInfo) => {
@@ -13,10 +21,16 @@ test.describe('Document folders and hint persistence', () => {
     return link.locator('xpath=ancestor::*[@draggable="true"][1]');
   };
 
+  const folderRow = (page: Page, folderName: string) =>
+    page.getByRole('button', { name: new RegExp(`^${folderName}\\b`, 'i') }).first();
+
+  const allDocumentsRow = (page: Page) =>
+    page.getByRole('button', { name: /^All Documents\b/i }).first();
+
   test('Folder creation via drag-and-drop with persistence', async ({ page }) => {
-    // Upload three docs
-    await uploadFiles(page, 'sample.pdf', 'sample.epub', 'sample.txt');
-    await ensureDocumentsListed(page, ['sample.pdf', 'sample.epub', 'sample.txt']);
+    // Upload four docs (one stays outside folder to verify filtering)
+    await uploadFiles(page, 'sample.pdf', 'sample.epub', 'sample.txt', 'sample.md');
+    await ensureDocumentsListed(page, ['sample.pdf', 'sample.epub', 'sample.txt', 'sample.md']);
 
     // Drag PDF onto EPUB to create a folder
     const pdfRow = rowFor(page, 'sample.pdf');
@@ -30,51 +44,31 @@ test.describe('Document folders and hint persistence', () => {
     await nameInput.press('Enter');
     await expect(page.getByRole('dialog', { name: 'Create New Folder' })).toHaveCount(0);
 
-    // Folder shows with both docs
-    const folderHeading = page.getByRole('heading', { name: 'My Folder' });
-    await expect(folderHeading).toBeVisible();
+    // Sidebar folder row exists and folder becomes selected (content filtered to folder docs)
+    const myFolderRow = folderRow(page, 'My Folder');
+    await expect(myFolderRow).toBeVisible();
+    await expectDocumentListed(page, 'sample.pdf');
+    await expectDocumentListed(page, 'sample.epub');
+    await expectNoDocumentLink(page, 'sample.txt');
+    await expectNoDocumentLink(page, 'sample.md');
 
-    // Scope checks inside the folder container
-    const folderContainer = folderHeading.locator('xpath=ancestor::*[contains(concat(" ", normalize-space(@class), " "), " rounded-md ") and contains(concat(" ", normalize-space(@class), " "), " border ")][1]');
-    await expect(folderContainer.getByRole('link', { name: /sample\.pdf/i })).toBeVisible();
-    await expect(folderContainer.getByRole('link', { name: /sample\.epub/i })).toBeVisible();
-
-    // Drag third doc (TXT) into folder
+    // Switch to all documents and drag TXT into sidebar folder row
+    await allDocumentsRow(page).click();
     const txtRow = rowFor(page, 'sample.txt');
-    await dispatchHtml5DragAndDrop(page, txtRow, folderContainer);
-    await expect(folderContainer.getByRole('link', { name: /sample\.txt/i })).toBeVisible();
+    await dispatchHtml5DragAndDrop(page, txtRow, myFolderRow);
+    await expectDocumentListed(page, 'sample.txt');
+    await expectNoDocumentLink(page, 'sample.md');
 
-    // Collapse folder and verify items are hidden
-    const collapseBtn = folderContainer.getByRole('button', { name: 'Collapse folder' });
-    await collapseBtn.scrollIntoViewIfNeeded();
-    await expect(collapseBtn).toBeVisible();
-    await collapseBtn.click();
-    await expect(folderContainer.getByRole('button', { name: 'Expand folder' })).toBeVisible();
-    await expect(folderContainer.getByRole('link', { name: /sample\.pdf/i })).toHaveCount(0);
-    await expect(folderContainer.getByRole('link', { name: /sample\.epub/i })).toHaveCount(0);
-    await expect(folderContainer.getByRole('link', { name: /sample\.txt/i })).toHaveCount(0);
-
-    // Reload and verify persisted folder with collapsed state and documents
+    // Reload and verify persisted folder + membership
     await page.reload();
     await page.waitForLoadState('networkidle');
-    const folderHeadingAfter = page.getByRole('heading', { name: 'My Folder' });
-    await expect(folderHeadingAfter).toBeVisible();
-    const folderContainerAfter = folderHeadingAfter.locator('xpath=ancestor::*[contains(concat(" ", normalize-space(@class), " "), " rounded-md ") and contains(concat(" ", normalize-space(@class), " "), " border ")][1]');
-
-    // Still collapsed after reload
-    await expect(folderContainerAfter.getByRole('button', { name: 'Expand folder' })).toBeVisible();
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.pdf/i })).toHaveCount(0);
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.epub/i })).toHaveCount(0);
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.txt/i })).toHaveCount(0);
-
-    // Expand and verify all three documents visible
-    const expandBtn = folderContainerAfter.getByRole('button', { name: 'Expand folder' });
-    await expandBtn.scrollIntoViewIfNeeded();
-    await expect(expandBtn).toBeVisible();
-    await expandBtn.click();
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.pdf/i })).toBeVisible();
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.epub/i })).toBeVisible();
-    await expect(folderContainerAfter.getByRole('link', { name: /sample\.txt/i })).toBeVisible();
+    const myFolderRowAfter = folderRow(page, 'My Folder');
+    await expect(myFolderRowAfter).toBeVisible();
+    await myFolderRowAfter.click();
+    await expectDocumentListed(page, 'sample.pdf');
+    await expectDocumentListed(page, 'sample.epub');
+    await expectDocumentListed(page, 'sample.txt');
+    await expectNoDocumentLink(page, 'sample.md');
   });
 
   test('Dismiss “Drag files to make folders” hint persists after reload', async ({ page }) => {
@@ -82,7 +76,7 @@ test.describe('Document folders and hint persistence', () => {
     await uploadFiles(page, 'sample.pdf', 'sample.epub');
     await ensureDocumentsListed(page, ['sample.pdf', 'sample.epub']);
 
-    const hint = page.getByText('Drag files on top of each other to make folders');
+    const hint = page.getByText('Drag files onto each other to make folders. Drop into the sidebar to move.');
     await expect(hint).toBeVisible();
     await page.getByRole('button', { name: 'Dismiss hint' }).click();
 
@@ -95,6 +89,6 @@ test.describe('Document folders and hint persistence', () => {
     // Reload and ensure it remains dismissed
     await page.reload();
     await page.waitForLoadState('networkidle');
-    await expect(page.getByText('Drag files on top of each other to make folders')).toHaveCount(0);
+    await expect(page.getByText('Drag files onto each other to make folders. Drop into the sidebar to move.')).toHaveCount(0);
   });
 });