diff --git a/client/constants.js b/client/constants.js
index 2c4ab775..459fe4f5 100644
--- a/client/constants.js
+++ b/client/constants.js
@@ -65,5 +65,10 @@ export const SET_LINT_WARNING = 'SET_LINT_WARNING';
 export const SET_PREFERENCES = 'SET_PREFERENCES';
 export const SET_TEXT_OUTPUT = 'SET_TEXT_OUTPUT';
 
+export const OPEN_PROJECT_OPTIONS = 'OPEN_PROJECT_OPTIONS';
+export const CLOSE_PROJECT_OPTIONS = 'CLOSE_PROJECT_OPTIONS';
+export const SHOW_NEW_FOLDER_MODAL = 'SHOW_NEW_FOLDER_MODAL';
+export const CLOSE_NEW_FOLDER_MODAL = 'CLOSE_NEW_FOLDER_MODAL';
+
 // eventually, handle errors more specifically and better
 export const ERROR = 'ERROR';
diff --git a/client/modules/IDE/actions/files.js b/client/modules/IDE/actions/files.js
index aeba6588..5d839465 100644
--- a/client/modules/IDE/actions/files.js
+++ b/client/modules/IDE/actions/files.js
@@ -118,6 +118,51 @@ export function createFile(formProps) {
   };
 }
 
+export function createFolder(formProps) {
+  return (dispatch, getState) => {
+    const state = getState();
+    const rootFile = state.files.filter(file => file.name === 'root')[0];
+    if (state.project.id) {
+      const postParams = {
+        name: createUniqueName(formProps.name, state.files),
+        content: '',
+        parentId: rootFile.id,
+        fileType: 'folder'
+      };
+      axios.post(`${ROOT_URL}/projects/${state.project.id}/files`, postParams, { withCredentials: true })
+        .then(response => {
+          dispatch({
+            type: ActionTypes.CREATE_FILE,
+            ...response.data,
+            parentId: rootFile.id
+          });
+          dispatch({
+            type: ActionTypes.CLOSE_NEW_FOLDER_MODAL
+          });
+        })
+        .catch(response => dispatch({
+          type: ActionTypes.ERROR,
+          error: response.data
+        }));
+    } else {
+      const id = objectID().toHexString();
+      dispatch({
+        type: ActionTypes.CREATE_FILE,
+        name: createUniqueName(formProps.name, state.files),
+        id,
+        _id: id,
+        content: '',
+        // TODO pass parent id from File Tree
+        parentId: rootFile.id,
+        fileType: 'folder'
+      });
+      dispatch({
+        type: ActionTypes.CLOSE_NEW_FOLDER_MODAL
+      });
+    }
+  };
+}
+
 export function showFileOptions(fileId) {
   return {
     type: ActionTypes.SHOW_FILE_OPTIONS,
diff --git a/client/modules/IDE/actions/ide.js b/client/modules/IDE/actions/ide.js
index da636d05..1cc1fe1c 100644
--- a/client/modules/IDE/actions/ide.js
+++ b/client/modules/IDE/actions/ide.js
@@ -102,3 +102,27 @@ export function closePreferences() {
     type: ActionTypes.CLOSE_PREFERENCES
   };
 }
+
+export function openProjectOptions() {
+  return {
+    type: ActionTypes.OPEN_PROJECT_OPTIONS
+  };
+}
+
+export function closeProjectOptions() {
+  return {
+    type: ActionTypes.CLOSE_PROJECT_OPTIONS
+  };
+}
+
+export function newFolder() {
+  return {
+    type: ActionTypes.SHOW_NEW_FOLDER_MODAL
+  };
+}
+
+export function closeNewFolderModal() {
+  return {
+    type: ActionTypes.CLOSE_NEW_FOLDER_MODAL
+  };
+}
diff --git a/client/modules/IDE/components/FileNode.js b/client/modules/IDE/components/FileNode.js
index ebd3abf1..46f3f488 100644
--- a/client/modules/IDE/components/FileNode.js
+++ b/client/modules/IDE/components/FileNode.js
@@ -65,14 +65,14 @@ export class FileNode extends React.Component {
       <div
         className={itemClass}
         onClick={this.handleFileClick}
-        onBlur={() => setTimeout(() => this.props.hideFileOptions(this.props.id), 100)}
+        onBlur={() => setTimeout(() => this.props.hideFileOptions(this.props.id), 200)}
       >
         {(() => { // eslint-disable-line
           if (this.props.name !== 'root') {
             return (
               <div className="file-item__content">
                 {(() => { // eslint-disable-line
-                  if (this.props.type === 'file') {
+                  if (this.props.fileType === 'file') {
                     return (
                       <span className="sidebar__file-item-icon">
                         <InlineSVG src={fileUrl} />
@@ -151,7 +151,7 @@ FileNode.propTypes = {
   parentId: PropTypes.string,
   children: PropTypes.array,
   name: PropTypes.string.isRequired,
-  type: PropTypes.string.isRequired,
+  fileType: PropTypes.string.isRequired,
   isSelected: PropTypes.bool,
   isOptionsOpen: PropTypes.bool,
   isEditingName: PropTypes.bool,
diff --git a/client/modules/IDE/components/NewFileForm.js b/client/modules/IDE/components/NewFileForm.js
index 782c13a4..8935ee44 100644
--- a/client/modules/IDE/components/NewFileForm.js
+++ b/client/modules/IDE/components/NewFileForm.js
@@ -1,20 +1,32 @@
 import React, { PropTypes } from 'react';
 
-function NewFileForm(props) {
-  const { fields: { name }, handleSubmit } = props;
-  return (
-    <form className="new-file-form" onSubmit={handleSubmit(props.createFile.bind(this))}>
-      <label className="new-file-form__name-label" htmlFor="name">Name:</label>
-      <input
-        className="new-file-form__name-input"
-        id="name"
-        type="text"
-        placeholder="Name"
-        {...name}
-      />
-      <input type="submit" value="Add File" aria-label="add file" />
-    </form>
-  );
+class NewFileForm extends React.Component {
+  constructor(props) {
+    super(props);
+    this.createFile = this.props.createFile.bind(this);
+  }
+
+  componentDidMount() {
+    this.refs.fileName.focus();
+  }
+
+  render() {
+    const { fields: { name }, handleSubmit } = this.props;
+    return (
+      <form className="new-file-form" onSubmit={handleSubmit(this.createFile)}>
+        <label className="new-file-form__name-label" htmlFor="name">Name:</label>
+        <input
+          className="new-file-form__name-input"
+          id="name"
+          type="text"
+          placeholder="Name"
+          ref="fileName"
+          {...name}
+        />
+        <input type="submit" value="Add File" aria-label="add file" />
+      </form>
+    );
+  }
 }
 
 NewFileForm.propTypes = {
diff --git a/client/modules/IDE/components/NewFileModal.js b/client/modules/IDE/components/NewFileModal.js
index b070ab9f..0c32293a 100644
--- a/client/modules/IDE/components/NewFileModal.js
+++ b/client/modules/IDE/components/NewFileModal.js
@@ -12,40 +12,35 @@ import FileUploader from './FileUploader';
 // At some point this will probably be generalized to a generic modal
 // in which you can insert different content
 // but for now, let's just make this work
-class NewFileModal extends React.Component {
-  componentDidMount() {
-    document.getElementById('name').focus();
-  }
-  render() {
-    const modalClass = classNames({
-      modal: true,
-      'modal--reduced': !this.props.canUploadMedia
-    });
-    return (
-      <section className={modalClass}>
-        <div className="modal-content">
-          <div className="modal__header">
-            <h2 className="modal__title">Add File</h2>
-            <button className="modal__exit-button" onClick={this.props.closeModal}>
-              <InlineSVG src={exitUrl} alt="Close New File Modal" />
-            </button>
-          </div>
-          <NewFileForm {...this.props} />
-          {(() => {
-            if (this.props.canUploadMedia) {
-              return (
-                <div>
-                  <p className="modal__divider">OR</p>
-                  <FileUploader />
-                </div>
-              );
-            }
-            return '';
-          })()}
+function NewFileModal(props) {
+  const modalClass = classNames({
+    modal: true,
+    'modal--reduced': !props.canUploadMedia
+  });
+  return (
+    <section className={modalClass}>
+      <div className="modal-content">
+        <div className="modal__header">
+          <h2 className="modal__title">Add File</h2>
+          <button className="modal__exit-button" onClick={props.closeModal}>
+            <InlineSVG src={exitUrl} alt="Close New File Modal" />
+          </button>
         </div>
-      </section>
-    );
-  }
+        <NewFileForm {...props} />
+        {(() => {
+          if (props.canUploadMedia) {
+            return (
+              <div>
+                <p className="modal__divider">OR</p>
+                <FileUploader />
+              </div>
+            );
+          }
+          return '';
+        })()}
+      </div>
+    </section>
+  );
 }
 
 NewFileModal.propTypes = {
@@ -53,10 +48,8 @@ NewFileModal.propTypes = {
   canUploadMedia: PropTypes.bool.isRequired
 };
 
-function mapStateToProps(state) {
-  return {
-    file: state.files
-  };
+function mapStateToProps() {
+  return {};
 }
 
 function mapDispatchToProps(dispatch) {
diff --git a/client/modules/IDE/components/NewFolderForm.js b/client/modules/IDE/components/NewFolderForm.js
new file mode 100644
index 00000000..92007393
--- /dev/null
+++ b/client/modules/IDE/components/NewFolderForm.js
@@ -0,0 +1,36 @@
+import React, { PropTypes } from 'react';
+
+class NewFolderForm extends React.Component {
+  constructor(props) {
+    super(props);
+    this.createFolder = this.props.createFolder.bind(this);
+  }
+
+  render() {
+    const { fields: { name }, handleSubmit } = this.props;
+    return (
+      <form className="new-folder-form" onSubmit={handleSubmit(this.createFolder)}>
+        <label className="new-folder-form__name-label" htmlFor="name">Name:</label>
+        <input
+          className="new-folder-form__name-input"
+          id="name"
+          type="text"
+          placeholder="Name"
+          ref="fileName"
+          {...name}
+        />
+        <input type="submit" value="Add Folder" aria-label="add folder" />
+      </form>
+    );
+  }
+}
+
+NewFolderForm.propTypes = {
+  fields: PropTypes.shape({
+    name: PropTypes.string.isRequired
+  }).isRequired,
+  handleSubmit: PropTypes.func.isRequired,
+  createFolder: PropTypes.func.isRequired
+};
+
+export default NewFolderForm;
diff --git a/client/modules/IDE/components/NewFolderModal.js b/client/modules/IDE/components/NewFolderModal.js
new file mode 100644
index 00000000..776434a7
--- /dev/null
+++ b/client/modules/IDE/components/NewFolderModal.js
@@ -0,0 +1,31 @@
+import React, { PropTypes } from 'react';
+import { reduxForm } from 'redux-form';
+import InlineSVG from 'react-inlinesvg';
+const exitUrl = require('../../../images/exit.svg');
+import NewFolderForm from './NewFolderForm';
+
+function NewFolderModal(props) {
+  return (
+    <section className="modal">
+      <div className="modal-content-folder">
+        <div className="modal__header">
+          <h2 className="modal__title">Add Folder</h2>
+          <button className="modal__exit-button" onClick={props.closeModal}>
+            <InlineSVG src={exitUrl} alt="Close New Folder Modal" />
+          </button>
+        </div>
+        <NewFolderForm {...props} />
+      </div>
+    </section>
+  );
+}
+
+NewFolderModal.propTypes = {
+  closeModal: PropTypes.func.isRequired
+};
+
+export default reduxForm({
+  form: 'new-folder',
+  fields: ['name']
+})(NewFolderModal);
+
diff --git a/client/modules/IDE/components/Sidebar.js b/client/modules/IDE/components/Sidebar.js
index 64a2af52..fdd1fbb9 100644
--- a/client/modules/IDE/components/Sidebar.js
+++ b/client/modules/IDE/components/Sidebar.js
@@ -21,7 +21,8 @@ class Sidebar extends React.Component {
   render() {
     const sidebarClass = classNames({
       sidebar: true,
-      'sidebar--contracted': !this.props.isExpanded
+      'sidebar--contracted': !this.props.isExpanded,
+      'sidebar--project-options': this.props.projectOptionsVisible
     });
 
     return (
@@ -35,12 +36,25 @@ class Sidebar extends React.Component {
           </h3>
           <div className="sidebar__icons">
             <button
-              aria-label="add file"
+              aria-label="add file or folder"
               className="sidebar__add"
-              onClick={this.props.newFile}
+              onClick={this.props.openProjectOptions}
+              onBlur={() => setTimeout(this.props.closeProjectOptions, 200)}
             >
               <InlineSVG src={downArrowUrl} />
             </button>
+            <ul className="sidebar__project-options">
+              <li>
+                <a onClick={this.props.newFolder} >
+                  Add Folder
+                </a>
+              </li>
+              <li>
+                <a onClick={this.props.newFile} >
+                  Add File
+                </a>
+              </li>
+            </ul>
             <button
               aria-label="collapse file navigation"
               className="sidebar__contract"
@@ -84,6 +98,7 @@ Sidebar.propTypes = {
   files: PropTypes.array.isRequired,
   setSelectedFile: PropTypes.func.isRequired,
   isExpanded: PropTypes.bool.isRequired,
+  projectOptionsVisible: PropTypes.bool.isRequired,
   newFile: PropTypes.func.isRequired,
   collapseSidebar: PropTypes.func.isRequired,
   expandSidebar: PropTypes.func.isRequired,
@@ -92,7 +107,10 @@ Sidebar.propTypes = {
   deleteFile: PropTypes.func.isRequired,
   showEditFileName: PropTypes.func.isRequired,
   hideEditFileName: PropTypes.func.isRequired,
-  updateFileName: PropTypes.func.isRequired
+  updateFileName: PropTypes.func.isRequired,
+  openProjectOptions: PropTypes.func.isRequired,
+  closeProjectOptions: PropTypes.func.isRequired,
+  newFolder: PropTypes.func.isRequired
 };
 
 export default Sidebar;
diff --git a/client/modules/IDE/pages/IDEView.js b/client/modules/IDE/pages/IDEView.js
index 144cd9e5..2a0bceef 100644
--- a/client/modules/IDE/pages/IDEView.js
+++ b/client/modules/IDE/pages/IDEView.js
@@ -6,6 +6,7 @@ import Toolbar from '../components/Toolbar';
 import TextOutput from '../components/TextOutput';
 import Preferences from '../components/Preferences';
 import NewFileModal from '../components/NewFileModal';
+import NewFolderModal from '../components/NewFolderModal';
 import Nav from '../../../components/Nav';
 import Console from '../components/Console';
 import { bindActionCreators } from 'redux';
@@ -177,6 +178,10 @@ class IDEView extends React.Component {
               showEditFileName={this.props.showEditFileName}
               hideEditFileName={this.props.hideEditFileName}
               updateFileName={this.props.updateFileName}
+              projectOptionsVisible={this.props.ide.projectOptionsVisible}
+              openProjectOptions={this.props.openProjectOptions}
+              closeProjectOptions={this.props.closeProjectOptions}
+              newFolder={this.props.newFolder}
             />
             <SplitPane
               split="vertical"
@@ -258,6 +263,17 @@ class IDEView extends React.Component {
           }
           return '';
         })()}
+        {(() => {
+          if (this.props.ide.newFolderModalVisible) {
+            return (
+              <NewFolderModal
+                closeModal={this.props.closeNewFolderModal}
+                createFolder={this.props.createFolder}
+              />
+            );
+          }
+          return '';
+        })()}
         {(() => { // eslint-disable-line
           if (this.props.location.pathname.match(/sketches$/)) {
             return (
@@ -304,7 +320,9 @@ IDEView.propTypes = {
     modalIsVisible: PropTypes.bool.isRequired,
     sidebarIsExpanded: PropTypes.bool.isRequired,
     consoleIsExpanded: PropTypes.bool.isRequired,
-    preferencesIsVisible: PropTypes.bool.isRequired
+    preferencesIsVisible: PropTypes.bool.isRequired,
+    projectOptionsVisible: PropTypes.bool.isRequired,
+    newFolderModalVisible: PropTypes.bool.isRequired
   }).isRequired,
   startSketch: PropTypes.func.isRequired,
   stopSketch: PropTypes.func.isRequired,
@@ -370,7 +388,12 @@ IDEView.propTypes = {
   updateFileName: PropTypes.func.isRequired,
   showEditProjectName: PropTypes.func.isRequired,
   hideEditProjectName: PropTypes.func.isRequired,
-  logoutUser: PropTypes.func.isRequired
+  logoutUser: PropTypes.func.isRequired,
+  openProjectOptions: PropTypes.func.isRequired,
+  closeProjectOptions: PropTypes.func.isRequired,
+  newFolder: PropTypes.func.isRequired,
+  closeNewFolderModal: PropTypes.func.isRequired,
+  createFolder: PropTypes.func.isRequired
 };
 
 function mapStateToProps(state) {
diff --git a/client/modules/IDE/reducers/files.js b/client/modules/IDE/reducers/files.js
index f9445345..1bc4a369 100644
--- a/client/modules/IDE/reducers/files.js
+++ b/client/modules/IDE/reducers/files.js
@@ -43,7 +43,7 @@ function initialState() {
       id: r,
       _id: r,
       children: [a, b, c],
-      type: 'folder'
+      fileType: 'folder'
     },
     {
       name: 'sketch.js',
@@ -51,21 +51,21 @@ function initialState() {
       id: a,
       _id: a,
       isSelected: true,
-      type: 'file'
+      fileType: 'file'
     },
     {
       name: 'index.html',
       content: defaultHTML,
       id: b,
       _id: b,
-      type: 'file'
+      fileType: 'file'
     },
     {
       name: 'style.css',
       content: defaultCSS,
       id: c,
       _id: c,
-      type: 'file'
+      fileType: 'file'
     }];
 }
 
@@ -105,7 +105,13 @@ const files = (state, action) => {
           }
           return file;
         });
-        return [...newState, { name: action.name, id: action.id, _id: action._id, content: action.content, url: action.url, type: 'file' }];
+        return [...newState,
+          { name: action.name,
+            id: action.id,
+            _id: action._id,
+            content: action.content,
+            url: action.url,
+            fileType: action.fileType || 'file' }];
       }
     case ActionTypes.SHOW_FILE_OPTIONS:
       return state.map(file => {
diff --git a/client/modules/IDE/reducers/ide.js b/client/modules/IDE/reducers/ide.js
index aca1c984..786477dd 100644
--- a/client/modules/IDE/reducers/ide.js
+++ b/client/modules/IDE/reducers/ide.js
@@ -10,7 +10,9 @@ const initialState = {
   modalIsVisible: false,
   sidebarIsExpanded: true,
   consoleIsExpanded: false,
-  preferencesIsVisible: false
+  preferencesIsVisible: false,
+  projectOptionsVisible: false,
+  newFolderModalVisible: false
 };
 
 const ide = (state = initialState, action) => {
@@ -45,6 +47,14 @@ const ide = (state = initialState, action) => {
       return Object.assign({}, state, { preferencesIsVisible: false });
     case ActionTypes.RESET_PROJECT:
       return initialState;
+    case ActionTypes.OPEN_PROJECT_OPTIONS:
+      return Object.assign({}, state, { projectOptionsVisible: true });
+    case ActionTypes.CLOSE_PROJECT_OPTIONS:
+      return Object.assign({}, state, { projectOptionsVisible: false });
+    case ActionTypes.SHOW_NEW_FOLDER_MODAL:
+      return Object.assign({}, state, { newFolderModalVisible: true });
+    case ActionTypes.CLOSE_NEW_FOLDER_MODAL:
+      return Object.assign({}, state, { newFolderModalVisible: false });
     default:
       return state;
   }
diff --git a/client/styles/components/_modal.scss b/client/styles/components/_modal.scss
index 73faa001..ea85740a 100644
--- a/client/styles/components/_modal.scss
+++ b/client/styles/components/_modal.scss
@@ -15,6 +15,11 @@
   }
 }
 
+.modal-content-folder {
+  @extend .modal-content;
+  height: #{150 / $base-font-size}rem;
+}
+
 .modal__exit-button {
   @extend %icon;
 }
@@ -25,11 +30,11 @@
   margin-bottom: #{20 / $base-font-size}rem;
 }
 
-.new-file-form__name-label {
-  display: none;
+.new-file-form__name-label, .new-folder-form__name-label {
+  @extend %hidden-element;
 }
 
-.new-file-form__name-input {
+.new-file-form__name-input, .new-folder-form__name-input {
   margin-right: #{10 / $base-font-size}rem;
 }
 
diff --git a/client/styles/components/_sidebar.scss b/client/styles/components/_sidebar.scss
index a7dc7d82..5c2b47ed 100644
--- a/client/styles/components/_sidebar.scss
+++ b/client/styles/components/_sidebar.scss
@@ -126,6 +126,7 @@
 .sidebar__icons {
   display: flex;
   align-items: center;
+  position: relative;
 }
 
 .sidebar__folder-icon {
@@ -138,3 +139,15 @@
 .sidebar__file-item-icon {
   margin-right: #{5 / $base-font-size}rem;
 }
+
+.sidebar__project-options {
+  @extend %modal;
+  display: none;
+  position: absolute;
+  .sidebar--project-options & {
+    display: block;
+  }
+  top: 100%;
+  padding: #{8 / $base-font-size}rem;
+  width: #{110 / $base-font-size}rem;
+}