diff --git a/src/services/code-index/processors/__tests__/file-watcher.spec.ts b/src/services/code-index/processors/__tests__/file-watcher.spec.ts
index 2a3b7e11677..41e050da1ef 100644
--- a/src/services/code-index/processors/__tests__/file-watcher.spec.ts
+++ b/src/services/code-index/processors/__tests__/file-watcher.spec.ts
@@ -275,6 +275,46 @@ describe("FileWatcher", () => {
 			expect(processedFiles).not.toContain(".hidden/src/components/Button.tsx")
 			expect(processedFiles).not.toContain("src/components/.hidden/Button.tsx")
 		})
+
+		it("should process files when workspace is under hidden parent directory", async () => {
+			// Mock parseFile to return blocks for this test
+			const { codeParser } = await import("../parser")
+			vi.mocked(codeParser.parseFile).mockResolvedValue([
+				{
+					file_path: "/Users/test/.config/project/src/file.ts",
+					content: "test content",
+					start_line: 1,
+					end_line: 5,
+					identifier: "test",
+					type: "function",
+					fileHash: "hash",
+					segmentHash: "segment-hash",
+				} as any,
+			])
+
+			// Create a new watcher instance with workspace under hidden parent
+			const watcherUnderHidden = new FileWatcher(
+				"/Users/test/.config/project",
+				mockContext,
+				mockCacheManager,
+				mockEmbedder,
+				mockVectorStore,
+			)
+
+			await watcherUnderHidden.initialize()
+
+			// Capture the event handler for the new watcher instance
+			const createHandler = mockWatcher.onDidCreate.mock.calls[mockWatcher.onDidCreate.mock.calls.length - 1][0]
+
+			// Simulate file creation using the captured handler
+			await createHandler({ fsPath: "/Users/test/.config/project/src/file.ts" })
+
+			// Wait for batch processing
+			await new Promise((resolve) => setTimeout(resolve, 600))
+
+			// File should be processed, not filtered out
+			expect(mockVectorStore.upsertPoints).toHaveBeenCalled()
+		})
 	})
 
 	describe("dispose", () => {
diff --git a/src/services/code-index/processors/__tests__/scanner.spec.ts b/src/services/code-index/processors/__tests__/scanner.spec.ts
index 4d4150b4439..bd60273edd2 100644
--- a/src/services/code-index/processors/__tests__/scanner.spec.ts
+++ b/src/services/code-index/processors/__tests__/scanner.spec.ts
@@ -259,6 +259,32 @@ describe("DirectoryScanner", () => {
 			expect(mockCodeParser.parseFile).toHaveBeenCalledTimes(2)
 		})
 
+		it("should process files when workspace is under hidden parent directory", async () => {
+			const { listFiles } = await import("../../../glob/list-files")
+			// Simulate workspace at /Users/test/.root-project
+			vi.mocked(listFiles).mockResolvedValue([["src/file1.js"], false])
+
+			const mockBlocks: any[] = [
+				{
+					file_path: "src/file1.js",
+					content: "test content",
+					start_line: 1,
+					end_line: 5,
+					identifier: "test",
+					type: "function",
+					fileHash: "hash",
+					segmentHash: "segment-hash",
+				},
+			]
+			;(mockCodeParser.parseFile as any).mockResolvedValue(mockBlocks)
+
+			const result = await scanner.scanDirectory("/Users/test/.root-project")
+
+			// File should be processed, not filtered out
+			expect(result.stats.processed).toBe(1)
+			expect(mockCodeParser.parseFile).toHaveBeenCalledWith("src/file1.js", expect.any(Object))
+		})
+
 		it("should process markdown files alongside code files", async () => {
 			// Create scanner without embedder to test the non-embedding path
 			const scannerNoEmbeddings = new DirectoryScanner(
diff --git a/src/services/code-index/processors/file-watcher.ts b/src/services/code-index/processors/file-watcher.ts
index 1e5ebcbcebc..cf2c5f6df2a 100644
--- a/src/services/code-index/processors/file-watcher.ts
+++ b/src/services/code-index/processors/file-watcher.ts
@@ -508,8 +508,12 @@ export class FileWatcher implements IFileWatcher {
 	 */
 	async processFile(filePath: string): Promise<FileProcessingResult> {
 		try {
+			// Calculate relative path for ignore checks
+			const relativeFilePath = generateRelativeFilePath(filePath, this.workspacePath)
+
 			// Check if file is in an ignored directory
-			if (isPathInIgnoredDirectory(filePath)) {
+			// Use relative path to avoid filtering out workspaces under hidden parent directories
+			if (isPathInIgnoredDirectory(relativeFilePath)) {
 				return {
 					path: filePath,
 					status: "skipped" as const,
@@ -518,7 +522,6 @@ export class FileWatcher implements IFileWatcher {
 			}
 
 			// Check if file should be ignored
-			const relativeFilePath = generateRelativeFilePath(filePath, this.workspacePath)
 			if (
 				!this.ignoreController.validateAccess(filePath) ||
 				(this.ignoreInstance && this.ignoreInstance.ignores(relativeFilePath))
diff --git a/src/services/code-index/processors/scanner.ts b/src/services/code-index/processors/scanner.ts
index 92a7d77c272..97deb8362d3 100644
--- a/src/services/code-index/processors/scanner.ts
+++ b/src/services/code-index/processors/scanner.ts
@@ -96,7 +96,8 @@ export class DirectoryScanner implements IDirectoryScanner {
 			const relativeFilePath = generateRelativeFilePath(filePath, scanWorkspace)
 
 			// Check if file is in an ignored directory using the shared helper
-			if (isPathInIgnoredDirectory(filePath)) {
+			// Use relative path to avoid filtering out workspaces under hidden parent directories
+			if (isPathInIgnoredDirectory(relativeFilePath)) {
 				return false
 			}