diff --git a/ui/goose2/src-tauri/src/commands/mod.rs b/ui/goose2/src-tauri/src/commands/mod.rs
index 7de2490a..fec8ccac 100644
--- a/ui/goose2/src-tauri/src/commands/mod.rs
+++ b/ui/goose2/src-tauri/src/commands/mod.rs
@@ -6,5 +6,6 @@ pub mod git;
 pub mod git_changes;
 pub mod model_setup;
 pub mod path_resolver;
+pub mod project_icons;
 pub mod projects;
 pub mod system;
diff --git a/ui/goose2/src-tauri/src/commands/project_icons.rs b/ui/goose2/src-tauri/src/commands/project_icons.rs
new file mode 100644
index 00000000..803cce98
--- /dev/null
+++ b/ui/goose2/src-tauri/src/commands/project_icons.rs
@@ -0,0 +1,332 @@
+use base64::{engine::general_purpose, Engine as _};
+use std::collections::HashSet;
+use std::fs;
+use std::path::{Path, PathBuf};
+
+const MAX_ICON_CANDIDATES: usize = 18;
+const MAX_PROJECT_ICON_BYTES: u64 = 512 * 1024;
+
+#[derive(serde::Serialize, Clone)]
+#[serde(rename_all = "camelCase")]
+pub struct ProjectIconCandidate {
+    pub id: String,
+    pub label: String,
+    pub icon: String,
+    pub source_dir: String,
+}
+
+#[derive(serde::Serialize, Clone)]
+#[serde(rename_all = "camelCase")]
+pub struct ProjectIconData {
+    pub icon: String,
+}
+
+struct ScoredProjectIconPath {
+    score: i32,
+    path: PathBuf,
+    path_string: String,
+    label: String,
+    source_dir: String,
+    group_key: String,
+}
+
+fn is_project_icon_extension(path: &Path) -> bool {
+    matches!(
+        path.extension()
+            .and_then(|ext| ext.to_str())
+            .map(|ext| ext.to_ascii_lowercase())
+            .as_deref(),
+        Some("svg" | "png" | "ico" | "jpg" | "jpeg" | "webp")
+    )
+}
+
+fn is_ignored_icon_search_dir(root: &Path, path: &Path) -> bool {
+    let relative_parent = path
+        .strip_prefix(root)
+        .unwrap_or(path)
+        .parent()
+        .unwrap_or_else(|| Path::new(""));
+
+    relative_parent.components().any(|component| {
+        let name = component.as_os_str().to_string_lossy().to_ascii_lowercase();
+        matches!(
+            name.as_str(),
+            "node_modules" | "target" | "dist" | "build" | ".git" | ".next" | ".turbo"
+        )
+    })
+}
+
+fn is_generated_icon_variant(path: &Path) -> bool {
+    let Some(file_name) = path.file_name().and_then(|name| name.to_str()) else {
+        return false;
+    };
+    let normalized = file_name.to_ascii_lowercase();
+    let stem = path
+        .file_stem()
+        .and_then(|name| name.to_str())
+        .unwrap_or_default()
+        .to_ascii_lowercase();
+    let mostly_size_token = stem
+        .chars()
+        .all(|c| c.is_ascii_digit() || matches!(c, 'x' | '@' | '-' | '_'));
+
+    normalized.starts_with("appicon-")
+        || normalized.starts_with("square")
+        || normalized.starts_with("storelogo")
+        || normalized.contains("template")
+        || normalized.contains("@2x")
+        || normalized.contains("@3x")
+        || mostly_size_token
+        || stem
+            .strip_prefix("icon-")
+            .is_some_and(|suffix| suffix.chars().all(|c| c.is_ascii_digit()))
+        || stem
+            .strip_prefix("icon@")
+            .is_some_and(|suffix| suffix.ends_with('x'))
+}
+
+fn is_likely_project_icon(path: &Path) -> bool {
+    let Some(file_name) = path.file_name().and_then(|name| name.to_str()) else {
+        return false;
+    };
+    let normalized = file_name.to_ascii_lowercase();
+    normalized == "favicon.ico"
+        || normalized == "favicon.svg"
+        || normalized == "favicon.png"
+        || normalized.starts_with("apple-touch-icon")
+        || normalized.starts_with("mstile-")
+        || normalized.contains("logo")
+        || normalized.contains("brand")
+        || normalized.contains("wordmark")
+        || normalized.contains("app-icon")
+        || normalized.contains("appicon")
+        || normalized.contains("icon")
+}
+
+fn project_icon_score(root: &Path, path: &Path) -> i32 {
+    let file_name = path
+        .file_name()
+        .and_then(|name| name.to_str())
+        .unwrap_or_default()
+        .to_ascii_lowercase();
+    let relative = path
+        .strip_prefix(root)
+        .unwrap_or(path)
+        .to_string_lossy()
+        .to_ascii_lowercase();
+
+    let mut score = 100;
+    if file_name.starts_with("favicon") {
+        score -= 35;
+    }
+    if file_name.contains("logo") {
+        score -= 30;
+    }
+    if file_name.contains("brand") || file_name.contains("wordmark") {
+        score -= 25;
+    }
+    if relative.starts_with("public/")
+        || relative.starts_with("static/")
+        || relative.starts_with("assets/")
+        || relative.starts_with("src/assets/")
+        || relative.starts_with("src/images/")
+    {
+        score -= 20;
+    }
+    score + relative.matches('/').count() as i32
+}
+
+fn project_icon_group_key(path: &Path) -> String {
+    let file_stem = path
+        .file_stem()
+        .and_then(|name| name.to_str())
+        .unwrap_or_default()
+        .to_ascii_lowercase();
+    let normalized = file_stem
+        .replace("goose-logo", "logo")
+        .replace("logo-codename-goose", "logo")
+        .replace("codename-goose", "logo");
+
+    if normalized.contains("favicon") {
+        "favicon".to_string()
+    } else if normalized.contains("wordmark") {
+        "wordmark".to_string()
+    } else if normalized.contains("brand") {
+        "brand".to_string()
+    } else if normalized.contains("logo") {
+        "logo".to_string()
+    } else if normalized.contains("app-icon") || normalized.contains("appicon") {
+        "app-icon".to_string()
+    } else {
+        normalized
+    }
+}
+
+fn project_icon_root_key(root: &Path) -> String {
+    root.to_string_lossy().into_owned()
+}
+
+fn project_icon_candidate_group_key(root: &Path, path: &Path) -> String {
+    format!(
+        "{}:{}",
+        project_icon_root_key(root),
+        project_icon_group_key(path)
+    )
+}
+
+fn read_project_icon_data_url(path: &Path) -> Result<String, String> {
+    let metadata = fs::metadata(path).map_err(|e| format!("Failed to inspect icon: {}", e))?;
+    if !metadata.is_file() {
+        return Err("Icon path is not a file".to_string());
+    }
+    if metadata.len() > MAX_PROJECT_ICON_BYTES {
+        return Err("Icon file is too large".to_string());
+    }
+
+    let mime = mime_guess::from_path(path)
+        .first_or_octet_stream()
+        .essence_str()
+        .to_string();
+    if !matches!(
+        mime.as_str(),
+        "image/svg+xml"
+            | "image/png"
+            | "image/x-icon"
+            | "image/vnd.microsoft.icon"
+            | "image/jpeg"
+            | "image/webp"
+    ) {
+        return Err("Icon file type is not supported".to_string());
+    }
+
+    let bytes = fs::read(path).map_err(|e| format!("Failed to read icon: {}", e))?;
+    Ok(format!(
+        "data:{};base64,{}",
+        mime,
+        general_purpose::STANDARD.encode(bytes)
+    ))
+}
+
+#[tauri::command]
+pub fn scan_project_icons(working_dirs: Vec<String>) -> Result<Vec<ProjectIconCandidate>, String> {
+    let mut candidates: Vec<ScoredProjectIconPath> = Vec::new();
+    let mut seen = HashSet::new();
+
+    for dir in working_dirs {
+        let root = PathBuf::from(dir.trim());
+        if !root.is_dir() {
+            continue;
+        }
+
+        let source_dir = root
+            .file_name()
+            .and_then(|name| name.to_str())
+            .unwrap_or("project")
+            .to_string();
+
+        let walker = ignore::WalkBuilder::new(&root)
+            .max_depth(Some(6))
+            .standard_filters(true)
+            .build();
+
+        for entry in walker.flatten() {
+            let path = entry.path();
+            if !path.is_file()
+                || is_ignored_icon_search_dir(&root, path)
+                || is_generated_icon_variant(path)
+                || !is_project_icon_extension(path)
+                || !is_likely_project_icon(path)
+            {
+                continue;
+            }
+
+            let path_string = path.to_string_lossy().into_owned();
+            if !seen.insert(path_string.clone()) {
+                continue;
+            }
+
+            let relative = path.strip_prefix(&root).unwrap_or(path);
+            let label = relative.to_string_lossy().into_owned();
+            let score = project_icon_score(&root, path);
+            let group_key = project_icon_candidate_group_key(&root, path);
+            candidates.push(ScoredProjectIconPath {
+                score,
+                path: path.to_path_buf(),
+                path_string,
+                label,
+                source_dir: source_dir.clone(),
+                group_key,
+            });
+        }
+    }
+
+    candidates.sort_by(|a, b| a.score.cmp(&b.score).then_with(|| a.label.cmp(&b.label)));
+
+    let mut seen_groups = HashSet::new();
+    let mut icons = Vec::new();
+    for candidate in candidates {
+        if icons.len() >= MAX_ICON_CANDIDATES {
+            break;
+        }
+        if seen_groups.contains(&candidate.group_key) {
+            continue;
+        }
+        let icon = match read_project_icon_data_url(&candidate.path) {
+            Ok(icon) => icon,
+            Err(_) => continue,
+        };
+        seen_groups.insert(candidate.group_key);
+        icons.push(ProjectIconCandidate {
+            id: candidate.path_string.clone(),
+            label: candidate.label,
+            icon,
+            source_dir: candidate.source_dir,
+        });
+    }
+
+    Ok(icons)
+}
+
+#[tauri::command]
+pub fn read_project_icon(path: String) -> Result<ProjectIconData, String> {
+    let path = PathBuf::from(path.trim());
+    if !is_project_icon_extension(&path) {
+        return Err("Icon file type is not supported".to_string());
+    }
+    let icon = read_project_icon_data_url(&path)?;
+    Ok(ProjectIconData { icon })
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+
+    #[test]
+    fn ignored_icon_search_dirs_do_not_match_root_ancestors() {
+        let root = Path::new("/Users/alice/build/myapp");
+        let icon = root.join("public/logo.svg");
+
+        assert!(!is_ignored_icon_search_dir(root, &icon));
+    }
+
+    #[test]
+    fn ignored_icon_search_dirs_match_descendant_dirs() {
+        let root = Path::new("/Users/alice/projects/myapp");
+        let icon = root.join("dist/logo.svg");
+
+        assert!(is_ignored_icon_search_dir(root, &icon));
+    }
+
+    #[test]
+    fn project_icon_group_keys_distinguish_roots_with_same_basename() {
+        let first_root = Path::new("/work/client");
+        let second_root = Path::new("/archive/client");
+        let first_icon = first_root.join("public/logo.svg");
+        let second_icon = second_root.join("public/logo.svg");
+
+        assert_ne!(
+            project_icon_candidate_group_key(first_root, &first_icon),
+            project_icon_candidate_group_key(second_root, &second_icon)
+        );
+    }
+}
diff --git a/ui/goose2/src-tauri/src/lib.rs b/ui/goose2/src-tauri/src/lib.rs
index fff92e60..92184145 100644
--- a/ui/goose2/src-tauri/src/lib.rs
+++ b/ui/goose2/src-tauri/src/lib.rs
@@ -52,6 +52,8 @@ pub fn run() {
             commands::projects::list_archived_projects,
             commands::projects::archive_project,
             commands::projects::restore_project,
+            commands::project_icons::scan_project_icons,
+            commands::project_icons::read_project_icon,
             commands::doctor::run_doctor,
             commands::doctor::run_doctor_fix,
             commands::git::get_git_state,
diff --git a/ui/goose2/src/app/AppShell.tsx b/ui/goose2/src/app/AppShell.tsx
index 6fa9312e..cc8cddb4 100644
--- a/ui/goose2/src/app/AppShell.tsx
+++ b/ui/goose2/src/app/AppShell.tsx
@@ -1,6 +1,5 @@
-import { useCallback, useEffect, useMemo, useRef, useState } from "react";
+import { useCallback, useEffect, useRef, useState } from "react";
 import { Sidebar } from "@/features/sidebar/ui/Sidebar";
-import { StatusBar } from "@/features/status/ui/StatusBar";
 import { CreateProjectDialog } from "@/features/projects/ui/CreateProjectDialog";
 import { archiveProject } from "@/features/projects/api/projects";
 import type { ProjectInfo } from "@/features/projects/api/projects";
@@ -152,17 +151,9 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
     }
   }, [activeSessionId, activeView]);
 
-  const isHome = activeView === "home";
-
   const activeSession = activeSessionId
     ? sessionStore.getSession(activeSessionId)
     : undefined;
-  const modelName =
-    activeView === "chat" ? activeSession?.modelName : undefined;
-  const tokenCount =
-    activeView === "chat" && activeSessionId
-      ? chatStore.getSessionRuntime(activeSessionId).tokenState.totalTokens
-      : 0;
   const homeSession = homeSessionId
     ? sessionStore.getSession(homeSessionId)
     : undefined;
@@ -646,28 +637,9 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
     return () => window.removeEventListener("keydown", handler);
   }, [clearActiveSession, sessionStore]);
 
-  const editingProjectProp = useMemo(
-    () =>
-      editingProject
-        ? {
-            id: editingProject.id,
-            name: editingProject.name,
-            description: editingProject.description,
-            prompt: editingProject.prompt,
-            icon: editingProject.icon,
-            color: editingProject.color,
-            preferredProvider: editingProject.preferredProvider,
-            preferredModel: editingProject.preferredModel,
-            workingDirs: editingProject.workingDirs,
-            useWorktrees: editingProject.useWorktrees,
-          }
-        : undefined,
-    [editingProject],
-  );
-
   return (
     <div className="flex h-screen w-screen flex-col overflow-hidden bg-background text-foreground">
-      <TopBar onSettingsClick={() => openSettings()} />
+      <TopBar />
 
       <div className="flex flex-1 min-h-0 overflow-hidden">
         <div
@@ -684,6 +656,7 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
             width={sidebarWidth}
             isResizing={isResizing}
             onCollapse={toggleSidebar}
+            onSettingsClick={() => openSettings()}
             onNavigate={handleNavigate}
             onNewChatInProject={handleNewChatInProject}
             onNewChat={() => {
@@ -710,7 +683,7 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
         <div
           onMouseDown={handleResizeStart}
           onDoubleClick={handleResizeDoubleClick}
-          className="flex-shrink-0 w-2 h-full cursor-col-resize group flex items-center justify-center"
+          className="flex-shrink-0 w-4 h-full cursor-col-resize group flex items-center justify-center"
         >
           <div className="w-px h-8 rounded-full bg-transparent group-hover:bg-border transition-colors" />
         </div>
@@ -735,18 +708,6 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
         </main>
       </div>
 
-      <div
-        className={`overflow-hidden transition-all duration-300 ease-in-out ${
-          isHome ? "max-h-0 opacity-0" : "max-h-8 opacity-100"
-        }`}
-      >
-        <StatusBar
-          modelName={modelName}
-          sessionId={activeSessionId ?? undefined}
-          tokenCount={tokenCount}
-        />
-      </div>
-
       {settingsOpen && (
         <SettingsModal
           initialSection={settingsInitialSection}
@@ -769,7 +730,7 @@ export function AppShell({ children }: { children?: React.ReactNode }) {
           setCreateProjectInitialWorkingDir(null);
         }}
         initialWorkingDir={createProjectInitialWorkingDir}
-        editingProject={editingProjectProp}
+        editingProject={editingProject ?? undefined}
       />
     </div>
   );
diff --git a/ui/goose2/src/app/ui/TopBar.tsx b/ui/goose2/src/app/ui/TopBar.tsx
index 4618ff75..7e7f57d2 100644
--- a/ui/goose2/src/app/ui/TopBar.tsx
+++ b/ui/goose2/src/app/ui/TopBar.tsx
@@ -1,16 +1,10 @@
-import { User } from "lucide-react";
-import { useTranslation } from "react-i18next";
 import { cn } from "@/shared/lib/cn";
-import { Button } from "@/shared/ui/button";
 
 interface TopBarProps {
-  onSettingsClick?: () => void;
   className?: string;
 }
 
-export function TopBar({ onSettingsClick, className }: TopBarProps) {
-  const { t } = useTranslation("settings");
-
+export function TopBar({ className }: TopBarProps) {
   return (
     <header
       className={cn(
@@ -20,17 +14,6 @@ export function TopBar({ onSettingsClick, className }: TopBarProps) {
       data-tauri-drag-region
     >
       <div className="min-w-0 flex-1" />
-
-      <Button
-        type="button"
-        variant="ghost"
-        size="icon-xs"
-        onClick={onSettingsClick}
-        className="bg-accent text-muted-foreground hover:bg-accent/80"
-        title={t("title")}
-      >
-        <User className="size-3.5" />
-      </Button>
     </header>
   );
 }
diff --git a/ui/goose2/src/features/chat/hooks/useChatSessionController.ts b/ui/goose2/src/features/chat/hooks/useChatSessionController.ts
index 9db7e11c..dc8f629d 100644
--- a/ui/goose2/src/features/chat/hooks/useChatSessionController.ts
+++ b/ui/goose2/src/features/chat/hooks/useChatSessionController.ts
@@ -135,6 +135,7 @@ export function useChatSessionController({
           id: projectInfo.id,
           name: projectInfo.name,
           workingDirs: projectInfo.workingDirs,
+          icon: projectInfo.icon,
           color: projectInfo.color,
         })),
     [projects],
diff --git a/ui/goose2/src/features/chat/types.ts b/ui/goose2/src/features/chat/types.ts
index 1e35c460..287e4883 100644
--- a/ui/goose2/src/features/chat/types.ts
+++ b/ui/goose2/src/features/chat/types.ts
@@ -18,6 +18,7 @@ export interface ProjectOption {
   id: string;
   name: string;
   workingDirs: string[];
+  icon?: string | null;
   color?: string | null;
 }
 
diff --git a/ui/goose2/src/features/chat/ui/ChatContextPanel.tsx b/ui/goose2/src/features/chat/ui/ChatContextPanel.tsx
index 242dcbb6..916e8d31 100644
--- a/ui/goose2/src/features/chat/ui/ChatContextPanel.tsx
+++ b/ui/goose2/src/features/chat/ui/ChatContextPanel.tsx
@@ -84,6 +84,11 @@ export function ChatContextPanel({
           variant="ghost"
           size="icon-sm"
           onClick={() => setOpen(activeSessionId, !isOpen)}
+          className={
+            isOpen
+              ? "text-muted-foreground transition-opacity duration-150 hover:text-foreground"
+              : "h-9 w-11 rounded-sm border border-border bg-background/80 text-muted-foreground shadow-sm backdrop-blur-sm transition-opacity duration-150 hover:bg-accent/50 hover:text-foreground"
+          }
           aria-label={label}
           title={label}
         >
diff --git a/ui/goose2/src/features/chat/ui/ChatInputToolbar.tsx b/ui/goose2/src/features/chat/ui/ChatInputToolbar.tsx
index 1670e951..26250037 100644
--- a/ui/goose2/src/features/chat/ui/ChatInputToolbar.tsx
+++ b/ui/goose2/src/features/chat/ui/ChatInputToolbar.tsx
@@ -32,23 +32,11 @@ import { formatProviderLabel } from "@/shared/ui/icons/ProviderIcons";
 import { getCatalogEntry } from "@/features/providers/providerCatalog";
 import { supportsContextCompactionControls } from "../lib/autoCompact";
 import { requestOpenSettings } from "@/features/settings/lib/settingsEvents";
+import { ProjectSelectorIcon } from "./ProjectSelectorIcon";
 
 const NO_PROJECT_VALUE = "__no_project__";
 const CREATE_PROJECT_VALUE = "__create_project__";
 
-function ProjectDot({ color }: { color?: string | null }) {
-  return (
-    <span
-      aria-hidden="true"
-      className={cn(
-        "inline-block size-2 rounded-full",
-        color ? "" : "bg-muted-foreground/40",
-      )}
-      style={color ? { backgroundColor: color } : undefined}
-    />
-  );
-}
-
 interface ChatInputToolbarProps {
   selectedPersonaId: string | null;
   // Provider
@@ -245,7 +233,7 @@ export function ChatInputToolbar({
           value={selectedProjectId ?? NO_PROJECT_VALUE}
           triggerLabel={projectLabel}
           triggerTitle={projectTitle}
-          icon={<ProjectDot color={selectedProject?.color} />}
+          icon={<ProjectSelectorIcon icon={selectedProject?.icon} />}
           triggerVariant="toolbar"
           triggerSize="sm"
           menuLabel={t("toolbar.chooseProject")}
@@ -257,7 +245,7 @@ export function ChatInputToolbar({
                   value: NO_PROJECT_VALUE,
                   label: t("toolbar.noProject"),
                   description: t("toolbar.generalChatWithoutProject"),
-                  icon: <ProjectDot />,
+                  icon: <ProjectSelectorIcon />,
                 },
                 ...availableProjects.map((project) => ({
                   value: project.id,
@@ -265,7 +253,7 @@ export function ChatInputToolbar({
                   description: project.workingDirs.length
                     ? project.workingDirs.join(", ")
                     : undefined,
-                  icon: <ProjectDot color={project.color} />,
+                  icon: <ProjectSelectorIcon icon={project.icon} />,
                 })),
               ],
             },
diff --git a/ui/goose2/src/features/chat/ui/ProjectSelectorIcon.tsx b/ui/goose2/src/features/chat/ui/ProjectSelectorIcon.tsx
new file mode 100644
index 00000000..c54d7ced
--- /dev/null
+++ b/ui/goose2/src/features/chat/ui/ProjectSelectorIcon.tsx
@@ -0,0 +1,20 @@
+import { ProjectIcon } from "@/features/projects/ui/ProjectIcon";
+
+export function ProjectSelectorIcon({ icon }: { icon?: string | null }) {
+  if (!icon) {
+    return (
+      <span
+        aria-hidden="true"
+        className="inline-block size-2 rounded-full bg-muted-foreground/40"
+      />
+    );
+  }
+
+  return (
+    <ProjectIcon
+      icon={icon}
+      className="size-3.5"
+      imageClassName="size-3.5 rounded-[3px]"
+    />
+  );
+}
diff --git a/ui/goose2/src/features/projects/api/projects.ts b/ui/goose2/src/features/projects/api/projects.ts
index 405ca70a..621e4288 100644
--- a/ui/goose2/src/features/projects/api/projects.ts
+++ b/ui/goose2/src/features/projects/api/projects.ts
@@ -18,10 +18,31 @@ export interface ProjectInfo {
   artifactsDir: string;
 }
 
+export interface ProjectIconCandidate {
+  id: string;
+  label: string;
+  icon: string;
+  sourceDir: string;
+}
+
+export interface ProjectIconData {
+  icon: string;
+}
+
 export async function listProjects(): Promise<ProjectInfo[]> {
   return invoke("list_projects");
 }
 
+export async function scanProjectIcons(
+  workingDirs: string[],
+): Promise<ProjectIconCandidate[]> {
+  return invoke("scan_project_icons", { workingDirs });
+}
+
+export async function readProjectIcon(path: string): Promise<ProjectIconData> {
+  return invoke("read_project_icon", { path });
+}
+
 export async function createProject(
   name: string,
   description: string,
diff --git a/ui/goose2/src/features/projects/hooks/__tests__/useProjectIconSelection.test.ts b/ui/goose2/src/features/projects/hooks/__tests__/useProjectIconSelection.test.ts
new file mode 100644
index 00000000..45a8fb67
--- /dev/null
+++ b/ui/goose2/src/features/projects/hooks/__tests__/useProjectIconSelection.test.ts
@@ -0,0 +1,137 @@
+import { act, renderHook } from "@testing-library/react";
+import { open } from "@tauri-apps/plugin-dialog";
+import { afterEach, beforeEach, describe, expect, it, vi } from "vitest";
+import { readProjectIcon, scanProjectIcons } from "../../api/projects";
+import { DEFAULT_PROJECT_ICON } from "../../lib/projectIcons";
+import { useProjectIconSelection } from "../useProjectIconSelection";
+
+vi.mock("../../api/projects", () => ({
+  scanProjectIcons: vi.fn().mockResolvedValue([]),
+  readProjectIcon: vi.fn().mockResolvedValue({
+    icon: "data:image/png;base64,aWNvbg==",
+  }),
+}));
+
+vi.mock("@tauri-apps/plugin-dialog", () => ({
+  open: vi.fn().mockResolvedValue(null),
+}));
+
+describe("useProjectIconSelection", () => {
+  beforeEach(() => {
+    vi.useFakeTimers();
+    vi.clearAllMocks();
+    vi.mocked(scanProjectIcons).mockResolvedValue([]);
+    vi.mocked(readProjectIcon).mockResolvedValue({
+      icon: "data:image/png;base64,aWNvbg==",
+    });
+    vi.mocked(open).mockResolvedValue(null);
+  });
+
+  afterEach(() => {
+    vi.useRealTimers();
+  });
+
+  it("scans project working dirs after a short debounce", async () => {
+    vi.mocked(scanProjectIcons).mockResolvedValueOnce([
+      {
+        id: "/repo/public/logo.svg",
+        label: "public/logo.svg",
+        icon: "data:image/svg+xml;base64,bG9nbw==",
+        sourceDir: "repo",
+      },
+    ]);
+
+    const { result } = renderHook(() =>
+      useProjectIconSelection({
+        isOpen: true,
+        prompt: "include: /repo",
+      }),
+    );
+
+    expect(result.current.iconScanPending).toBe(true);
+
+    await act(async () => {
+      await vi.advanceTimersByTimeAsync(250);
+    });
+
+    expect(scanProjectIcons).toHaveBeenCalledWith(["/repo"]);
+    expect(result.current.iconCandidates).toHaveLength(1);
+    expect(result.current.iconScanPending).toBe(false);
+  });
+
+  it("clears scanned candidates when the dialog is closed", () => {
+    const { result } = renderHook(() =>
+      useProjectIconSelection({
+        isOpen: false,
+        prompt: "include: /repo",
+      }),
+    );
+
+    expect(result.current.iconCandidates).toEqual([]);
+    expect(result.current.iconScanPending).toBe(false);
+    expect(scanProjectIcons).not.toHaveBeenCalled();
+  });
+
+  it("resets and chooses icons while clearing icon errors", async () => {
+    vi.mocked(open).mockResolvedValueOnce("/tmp/logo.png");
+
+    const { result } = renderHook(() =>
+      useProjectIconSelection({
+        isOpen: true,
+        prompt: "",
+      }),
+    );
+
+    act(() => {
+      result.current.chooseIcon("tabler:code");
+    });
+    expect(result.current.icon).toBe("tabler:code");
+
+    await act(async () => {
+      await result.current.chooseCustomIcon({
+        title: "Custom icon",
+        filterName: "Images",
+      });
+    });
+
+    expect(open).toHaveBeenCalledWith({
+      directory: false,
+      multiple: false,
+      title: "Custom icon",
+      filters: [
+        {
+          name: "Images",
+          extensions: ["svg", "png", "ico", "jpg", "jpeg", "webp"],
+        },
+      ],
+    });
+    expect(readProjectIcon).toHaveBeenCalledWith("/tmp/logo.png");
+    expect(result.current.icon).toBe("data:image/png;base64,aWNvbg==");
+
+    act(() => {
+      result.current.resetIcon(null);
+    });
+    expect(result.current.icon).toBe(DEFAULT_PROJECT_ICON);
+  });
+
+  it("surfaces custom icon upload errors", async () => {
+    vi.mocked(open).mockResolvedValueOnce("/tmp/large-icon.png");
+    vi.mocked(readProjectIcon).mockRejectedValueOnce("Icon file is too large");
+
+    const { result } = renderHook(() =>
+      useProjectIconSelection({
+        isOpen: true,
+        prompt: "",
+      }),
+    );
+
+    await act(async () => {
+      await result.current.chooseCustomIcon({
+        title: "Custom icon",
+        filterName: "Images",
+      });
+    });
+
+    expect(result.current.iconError).toBe("Icon file is too large");
+  });
+});
diff --git a/ui/goose2/src/features/projects/hooks/useProjectIconSelection.ts b/ui/goose2/src/features/projects/hooks/useProjectIconSelection.ts
new file mode 100644
index 00000000..c551334d
--- /dev/null
+++ b/ui/goose2/src/features/projects/hooks/useProjectIconSelection.ts
@@ -0,0 +1,118 @@
+import { useCallback, useEffect, useMemo, useState } from "react";
+import {
+  readProjectIcon,
+  scanProjectIcons,
+  type ProjectIconCandidate,
+} from "../api/projects";
+import {
+  DEFAULT_PROJECT_ICON,
+  normalizeProjectIcon,
+} from "../lib/projectIcons";
+import { parseEditorText } from "../lib/projectPromptText";
+
+interface ChooseCustomProjectIconOptions {
+  title: string;
+  filterName: string;
+}
+
+export function useProjectIconSelection({
+  isOpen,
+  prompt,
+}: {
+  isOpen: boolean;
+  prompt: string;
+}) {
+  const [icon, setIcon] = useState(DEFAULT_PROJECT_ICON);
+  const [iconError, setIconError] = useState<string | null>(null);
+  const [iconCandidates, setIconCandidates] = useState<ProjectIconCandidate[]>(
+    [],
+  );
+  const [iconScanPending, setIconScanPending] = useState(false);
+
+  const scannedWorkingDirKey = useMemo(
+    () => parseEditorText(prompt).workingDirs.join("\n"),
+    [prompt],
+  );
+
+  useEffect(() => {
+    const workingDirs = scannedWorkingDirKey.split("\n").filter(Boolean);
+    if (!isOpen || workingDirs.length === 0) {
+      setIconCandidates([]);
+      setIconScanPending(false);
+      return;
+    }
+
+    let active = true;
+    setIconScanPending(true);
+    const timeout = window.setTimeout(() => {
+      scanProjectIcons(workingDirs)
+        .then((candidates) => {
+          if (active) {
+            setIconCandidates(candidates);
+          }
+        })
+        .catch(() => {
+          if (active) {
+            setIconCandidates([]);
+          }
+        })
+        .finally(() => {
+          if (active) {
+            setIconScanPending(false);
+          }
+        });
+    }, 250);
+
+    return () => {
+      active = false;
+      window.clearTimeout(timeout);
+    };
+  }, [isOpen, scannedWorkingDirKey]);
+
+  const resetIcon = useCallback((nextIcon?: string | null) => {
+    setIcon(normalizeProjectIcon(nextIcon));
+    setIconError(null);
+  }, []);
+
+  const chooseIcon = useCallback((nextIcon: string) => {
+    setIcon(nextIcon);
+    setIconError(null);
+  }, []);
+
+  const chooseCustomIcon = useCallback(
+    async ({ title, filterName }: ChooseCustomProjectIconOptions) => {
+      try {
+        const { open } = await import("@tauri-apps/plugin-dialog");
+        const selected = await open({
+          directory: false,
+          multiple: false,
+          title,
+          filters: [
+            {
+              name: filterName,
+              extensions: ["svg", "png", "ico", "jpg", "jpeg", "webp"],
+            },
+          ],
+        });
+        if (selected && typeof selected === "string") {
+          const iconData = await readProjectIcon(selected);
+          setIcon(iconData.icon);
+          setIconError(null);
+        }
+      } catch (err) {
+        setIconError(String(err));
+      }
+    },
+    [],
+  );
+
+  return {
+    icon,
+    iconCandidates,
+    iconScanPending,
+    iconError,
+    chooseIcon,
+    chooseCustomIcon,
+    resetIcon,
+  };
+}
diff --git a/ui/goose2/src/features/projects/lib/projectIcons.test.ts b/ui/goose2/src/features/projects/lib/projectIcons.test.ts
new file mode 100644
index 00000000..ad5a38b1
--- /dev/null
+++ b/ui/goose2/src/features/projects/lib/projectIcons.test.ts
@@ -0,0 +1,33 @@
+import { describe, expect, it } from "vitest";
+import {
+  DEFAULT_PROJECT_ICON,
+  fileProjectIconValue,
+  isFileProjectIcon,
+  isImageProjectIcon,
+  normalizeProjectIcon,
+} from "./projectIcons";
+
+describe("projectIcons", () => {
+  it("normalizes empty and legacy folder icons to the default preset", () => {
+    expect(normalizeProjectIcon(null)).toBe(DEFAULT_PROJECT_ICON);
+    expect(normalizeProjectIcon(undefined)).toBe(DEFAULT_PROJECT_ICON);
+    expect(normalizeProjectIcon("\u{1F4C1}")).toBe(DEFAULT_PROJECT_ICON);
+  });
+
+  it("preserves explicit icon values", () => {
+    expect(normalizeProjectIcon("tabler:code")).toBe("tabler:code");
+    expect(normalizeProjectIcon("data:image/png;base64,aWNvbg==")).toBe(
+      "data:image/png;base64,aWNvbg==",
+    );
+  });
+
+  it("identifies file and image-backed icon values", () => {
+    const fileIcon = fileProjectIconValue("/tmp/logo.svg");
+
+    expect(fileIcon).toBe("file:/tmp/logo.svg");
+    expect(isFileProjectIcon(fileIcon)).toBe(true);
+    expect(isImageProjectIcon(fileIcon)).toBe(true);
+    expect(isImageProjectIcon("data:image/svg+xml;base64,aWNvbg==")).toBe(true);
+    expect(isImageProjectIcon(DEFAULT_PROJECT_ICON)).toBe(false);
+  });
+});
diff --git a/ui/goose2/src/features/projects/lib/projectIcons.ts b/ui/goose2/src/features/projects/lib/projectIcons.ts
new file mode 100644
index 00000000..34dc813f
--- /dev/null
+++ b/ui/goose2/src/features/projects/lib/projectIcons.ts
@@ -0,0 +1,87 @@
+export const DEFAULT_PROJECT_ICON = "tabler:folder-code";
+
+export const PROJECT_TABLER_ICONS = [
+  {
+    value: DEFAULT_PROJECT_ICON,
+    labelKey: "dialog.iconPresets.folderCode",
+  },
+  { value: "tabler:code", labelKey: "dialog.iconPresets.code" },
+  {
+    value: "tabler:git-branch",
+    labelKey: "dialog.iconPresets.gitBranch",
+  },
+  {
+    value: "tabler:brand-github",
+    labelKey: "dialog.iconPresets.github",
+  },
+  {
+    value: "tabler:terminal",
+    labelKey: "dialog.iconPresets.terminal",
+  },
+  {
+    value: "tabler:server",
+    labelKey: "dialog.iconPresets.server",
+  },
+  {
+    value: "tabler:database",
+    labelKey: "dialog.iconPresets.database",
+  },
+  { value: "tabler:api", labelKey: "dialog.iconPresets.api" },
+  {
+    value: "tabler:app-window",
+    labelKey: "dialog.iconPresets.app",
+  },
+  {
+    value: "tabler:components",
+    labelKey: "dialog.iconPresets.components",
+  },
+  {
+    value: "tabler:package",
+    labelKey: "dialog.iconPresets.package",
+  },
+  {
+    value: "tabler:world",
+    labelKey: "dialog.iconPresets.website",
+  },
+  { value: "tabler:book", labelKey: "dialog.iconPresets.docs" },
+  {
+    value: "tabler:palette",
+    labelKey: "dialog.iconPresets.design",
+  },
+  { value: "tabler:brain", labelKey: "dialog.iconPresets.ai" },
+  {
+    value: "tabler:bolt",
+    labelKey: "dialog.iconPresets.automation",
+  },
+  {
+    value: "tabler:rocket",
+    labelKey: "dialog.iconPresets.launch",
+  },
+  {
+    value: "tabler:settings",
+    labelKey: "dialog.iconPresets.settings",
+  },
+] satisfies Array<{
+  value: string;
+  labelKey: string;
+}>;
+
+export function normalizeProjectIcon(icon: string | null | undefined): string {
+  if (!icon || icon === "\u{1F4C1}") {
+    return DEFAULT_PROJECT_ICON;
+  }
+
+  return icon;
+}
+
+export function isFileProjectIcon(icon: string): boolean {
+  return icon.startsWith("file:");
+}
+
+export function isImageProjectIcon(icon: string): boolean {
+  return icon.startsWith("data:image/") || isFileProjectIcon(icon);
+}
+
+export function fileProjectIconValue(path: string): string {
+  return `file:${path}`;
+}
diff --git a/ui/goose2/src/features/projects/ui/CreateProjectDialog.tsx b/ui/goose2/src/features/projects/ui/CreateProjectDialog.tsx
index 33fab704..bf168744 100644
--- a/ui/goose2/src/features/projects/ui/CreateProjectDialog.tsx
+++ b/ui/goose2/src/features/projects/ui/CreateProjectDialog.tsx
@@ -1,7 +1,6 @@
-import { useState, useEffect, useRef } from "react";
+import { useState, useEffect, useRef, type FormEvent } from "react";
 import { useTranslation } from "react-i18next";
-import { FolderOpen } from "lucide-react";
-import { cn } from "@/shared/lib/cn";
+import { IconFolderOpen } from "@tabler/icons-react";
 import { getHomeDir } from "@/shared/api/system";
 import { Button } from "@/shared/ui/button";
 import { Checkbox } from "@/shared/ui/checkbox";
@@ -27,6 +26,7 @@ import {
   type ProjectInfo,
 } from "../api/projects";
 import { discoverAcpProviders, type AcpProvider } from "@/shared/api/acp";
+import { useProjectIconSelection } from "../hooks/useProjectIconSelection";
 import {
   buildEditorText,
   hasEquivalentWorkingDir,
@@ -34,23 +34,10 @@ import {
   parseEditorText,
 } from "../lib/projectPromptText";
 import { PromptEditor } from "./PromptEditor";
+import { DEFAULT_PROJECT_ICON } from "../lib/projectIcons";
+import { ProjectIconPicker } from "./ProjectIconPicker";
 
-const COLOR_OPTIONS = [
-  "#64748b",
-  "#ef4444",
-  "#f97316",
-  "#f59e0b",
-  "#22c55e",
-  "#10b981",
-  "#14b8a6",
-  "#06b6d4",
-  "#3b82f6",
-  "#6366f1",
-  "#8b5cf6",
-  "#a855f7",
-  "#ec4899",
-  "#f43f5e",
-];
+const DEFAULT_PROJECT_COLOR = "#64748b";
 
 function getDefaultProjectName(path: string | null | undefined): string {
   const trimmed = path?.trim();
@@ -68,18 +55,7 @@ interface CreateProjectDialogProps {
   onClose: () => void;
   onCreated: (project: ProjectInfo) => void;
   initialWorkingDir?: string | null;
-  editingProject?: {
-    id: string;
-    name: string;
-    description: string;
-    prompt: string;
-    icon: string;
-    color: string;
-    preferredProvider: string | null;
-    preferredModel: string | null;
-    workingDirs: string[];
-    useWorktrees: boolean;
-  };
+  editingProject?: ProjectInfo;
 }
 
 export function CreateProjectDialog({
@@ -92,8 +68,16 @@ export function CreateProjectDialog({
   const { t } = useTranslation(["projects", "common"]);
   const [name, setName] = useState("");
   const [prompt, setPrompt] = useState("");
-  const icon = "\u{1F4C1}";
-  const [color, setColor] = useState(COLOR_OPTIONS[0]);
+  const {
+    icon,
+    iconCandidates,
+    iconScanPending,
+    iconError,
+    chooseIcon,
+    chooseCustomIcon,
+    resetIcon,
+  } = useProjectIconSelection({ isOpen, prompt });
+  const [color, setColor] = useState(DEFAULT_PROJECT_COLOR);
   const [preferredProvider, setPreferredProvider] = useState<string | null>(
     null,
   );
@@ -135,6 +119,13 @@ export function CreateProjectDialog({
     }
   };
 
+  const handleChooseCustomIcon = async () => {
+    await chooseCustomIcon({
+      title: t("dialog.customIconDialogTitle"),
+      filterName: t("dialog.iconFileFilter"),
+    });
+  };
+
   // Pre-fill fields when the dialog opens or when the project identity changes,
   // but NOT on every parent re-render (which would reset user edits mid-typing).
   const prevOpenRef = useRef(false);
@@ -154,6 +145,7 @@ export function CreateProjectDialog({
       setPrompt(
         buildEditorText(editingProject.workingDirs, editingProject.prompt),
       );
+      resetIcon(editingProject.icon);
       setColor(editingProject.color);
       setPreferredProvider(editingProject.preferredProvider ?? null);
       setUseWorktrees(editingProject.useWorktrees);
@@ -166,26 +158,28 @@ export function CreateProjectDialog({
           "",
         ),
       );
-      setColor(COLOR_OPTIONS[0]);
+      resetIcon(DEFAULT_PROJECT_ICON);
+      setColor(DEFAULT_PROJECT_COLOR);
       setPreferredProvider(null);
       setUseWorktrees(false);
       setError(null);
     }
-  }, [isOpen, editingProject, initialWorkingDir]);
+  }, [isOpen, editingProject, initialWorkingDir, resetIcon]);
 
   const canSave = name.trim().length > 0 && !saving;
 
   const handleClose = () => {
     setName("");
     setPrompt("");
-    setColor(COLOR_OPTIONS[0]);
+    resetIcon(DEFAULT_PROJECT_ICON);
+    setColor(DEFAULT_PROJECT_COLOR);
     setPreferredProvider(null);
     setUseWorktrees(false);
     setError(null);
     onClose();
   };
 
-  const handleSave = async (e: React.FormEvent) => {
+  const handleSave = async (e: FormEvent) => {
     e.preventDefault();
     if (!canSave) return;
     setSaving(true);
@@ -257,7 +251,6 @@ export function CreateProjectDialog({
             />
           </div>
 
-          {/* Instructions */}
           <div className="space-y-1">
             <Label className="text-xs font-medium text-muted-foreground">
               {t("dialog.instructions")}
@@ -275,34 +268,19 @@ export function CreateProjectDialog({
               onClick={handleAddDirectory}
               className="mt-1.5"
             >
-              <FolderOpen className="size-3.5" />
+              <IconFolderOpen className="size-3.5" />
               {t("dialog.addDirectory")}
             </Button>
           </div>
 
-          {/* Color */}
-          <div className="space-y-1">
-            <Label className="text-xs font-medium text-muted-foreground">
-              {t("dialog.color")}
-            </Label>
-            <div className="flex flex-wrap gap-1.5 pt-1">
-              {COLOR_OPTIONS.map((c) => (
-                <button
-                  key={c}
-                  type="button"
-                  onClick={() => setColor(c)}
-                  className={cn(
-                    "h-6 w-6 rounded-full border-2 transition-transform",
-                    color === c
-                      ? "border-foreground scale-110"
-                      : "border-transparent hover:scale-105",
-                  )}
-                  style={{ backgroundColor: c }}
-                  aria-label={t("dialog.colorAria", { color: c })}
-                />
-              ))}
-            </div>
-          </div>
+          <ProjectIconPicker
+            icon={icon}
+            iconCandidates={iconCandidates}
+            iconScanPending={iconScanPending}
+            error={iconError}
+            onChooseIcon={chooseIcon}
+            onChooseCustomIcon={handleChooseCustomIcon}
+          />
 
           {/* Provider */}
           <div className="space-y-1.5">
diff --git a/ui/goose2/src/features/projects/ui/ProjectIcon.tsx b/ui/goose2/src/features/projects/ui/ProjectIcon.tsx
new file mode 100644
index 00000000..51f5c198
--- /dev/null
+++ b/ui/goose2/src/features/projects/ui/ProjectIcon.tsx
@@ -0,0 +1,94 @@
+import { convertFileSrc } from "@tauri-apps/api/core";
+import { useState, type ComponentType } from "react";
+import {
+  IconApi,
+  IconAppWindow,
+  IconBolt,
+  IconBook,
+  IconBrain,
+  IconBrandGithub,
+  IconCode,
+  IconComponents,
+  IconDatabase,
+  IconFolder,
+  IconFolderCode,
+  IconGitBranch,
+  IconPackage,
+  IconPalette,
+  IconRocket,
+  IconServer,
+  IconSettings,
+  IconTerminal2,
+  IconWorld,
+} from "@tabler/icons-react";
+import { cn } from "@/shared/lib/cn";
+import {
+  DEFAULT_PROJECT_ICON,
+  isFileProjectIcon,
+  isImageProjectIcon,
+  normalizeProjectIcon,
+} from "../lib/projectIcons";
+
+type TablerIconComponent = ComponentType<{
+  className?: string;
+  stroke?: number;
+}>;
+
+const tablerIconsByValue = new Map<string, TablerIconComponent>([
+  [DEFAULT_PROJECT_ICON, IconFolderCode],
+  ["tabler:code", IconCode],
+  ["tabler:git-branch", IconGitBranch],
+  ["tabler:brand-github", IconBrandGithub],
+  ["tabler:terminal", IconTerminal2],
+  ["tabler:server", IconServer],
+  ["tabler:database", IconDatabase],
+  ["tabler:api", IconApi],
+  ["tabler:app-window", IconAppWindow],
+  ["tabler:components", IconComponents],
+  ["tabler:package", IconPackage],
+  ["tabler:world", IconWorld],
+  ["tabler:book", IconBook],
+  ["tabler:palette", IconPalette],
+  ["tabler:brain", IconBrain],
+  ["tabler:bolt", IconBolt],
+  ["tabler:rocket", IconRocket],
+  ["tabler:settings", IconSettings],
+]);
+
+export function ProjectIcon({
+  icon,
+  className,
+  imageClassName,
+}: {
+  icon: string | null | undefined;
+  className?: string;
+  imageClassName?: string;
+}) {
+  const normalizedIcon = normalizeProjectIcon(icon);
+  const [failedImageIcon, setFailedImageIcon] = useState<string | null>(null);
+  const imageFailed = failedImageIcon === normalizedIcon;
+
+  if (isImageProjectIcon(normalizedIcon) && !imageFailed) {
+    const path = isFileProjectIcon(normalizedIcon)
+      ? normalizedIcon.slice("file:".length)
+      : normalizedIcon;
+    const src =
+      isFileProjectIcon(normalizedIcon) &&
+      typeof window !== "undefined" &&
+      window.__TAURI_INTERNALS__
+        ? convertFileSrc(path)
+        : path;
+    return (
+      <img
+        src={src}
+        alt=""
+        className={cn("size-4 rounded-[3px] object-contain", imageClassName)}
+        onError={() => setFailedImageIcon(normalizedIcon)}
+      />
+    );
+  }
+
+  const Icon = tablerIconsByValue.get(normalizedIcon) ?? IconFolder;
+
+  return <Icon className={cn("size-4", className)} stroke={1.8} />;
+}
diff --git a/ui/goose2/src/features/projects/ui/ProjectIconPicker.tsx b/ui/goose2/src/features/projects/ui/ProjectIconPicker.tsx
new file mode 100644
index 00000000..ee4eca40
--- /dev/null
+++ b/ui/goose2/src/features/projects/ui/ProjectIconPicker.tsx
@@ -0,0 +1,114 @@
+import { IconLoader2, IconUpload } from "@tabler/icons-react";
+import { useTranslation } from "react-i18next";
+import { cn } from "@/shared/lib/cn";
+import type { ProjectIconCandidate } from "../api/projects";
+import { PROJECT_TABLER_ICONS, isImageProjectIcon } from "../lib/projectIcons";
+import { ProjectIcon } from "./ProjectIcon";
+
+interface ProjectIconPickerProps {
+  icon: string;
+  iconCandidates: ProjectIconCandidate[];
+  iconScanPending: boolean;
+  error?: string | null;
+  onChooseIcon: (icon: string) => void;
+  onChooseCustomIcon: () => void;
+}
+
+export function ProjectIconPicker({
+  icon,
+  iconCandidates,
+  iconScanPending,
+  error,
+  onChooseIcon,
+  onChooseCustomIcon,
+}: ProjectIconPickerProps) {
+  const { t } = useTranslation("projects");
+  const selectedCustomIcon =
+    isImageProjectIcon(icon) &&
+    !iconCandidates.some((candidate) => candidate.icon === icon);
+
+  return (
+    <div className="space-y-1.5">
+      <div className="flex items-center justify-between gap-3">
+        <span className="text-xs font-medium text-muted-foreground">
+          {t("dialog.icon")}
+        </span>
+        {iconScanPending && (
+          <span className="inline-flex items-center gap-1 text-[11px] text-muted-foreground">
+            <IconLoader2 className="size-3 animate-spin" />
+            {t("dialog.scanningIcons")}
+          </span>
+        )}
+      </div>
+      <div className="max-h-36 overflow-y-auto rounded-md border border-border bg-muted/20 p-2">
+        <div className="grid grid-cols-[repeat(auto-fit,minmax(2.5rem,1fr))] justify-items-center gap-2">
+          {iconCandidates.map((candidate) => (
+            <button
+              key={candidate.id}
+              type="button"
+              onClick={() => onChooseIcon(candidate.icon)}
+              className={cn(
+                "flex size-9 items-center justify-center rounded-md border bg-background transition-colors hover:bg-muted",
+                icon === candidate.icon
+                  ? "border-foreground"
+                  : "border-border-soft",
+              )}
+              title={t("dialog.iconCandidateTitle", {
+                sourceDir: candidate.sourceDir,
+                label: candidate.label,
+              })}
+              aria-label={t("dialog.iconAria", { icon: candidate.label })}
+            >
+              <ProjectIcon
+                icon={candidate.icon}
+                imageClassName="size-5 rounded-[4px]"
+              />
+            </button>
+          ))}
+          {PROJECT_TABLER_ICONS.map((tablerIcon) => {
+            const label = t(tablerIcon.labelKey);
+            return (
+              <button
+                key={tablerIcon.value}
+                type="button"
+                onClick={() => onChooseIcon(tablerIcon.value)}
+                className={cn(
+                  "flex size-9 items-center justify-center rounded-md border bg-background text-foreground transition-colors hover:bg-muted",
+                  icon === tablerIcon.value
+                    ? "border-foreground"
+                    : "border-border-soft",
+                )}
+                title={label}
+                aria-label={t("dialog.iconAria", { icon: label })}
+              >
+                <ProjectIcon icon={tablerIcon.value} />
+              </button>
+            );
+          })}
+          <button
+            type="button"
+            onClick={onChooseCustomIcon}
+            className={cn(
+              "col-span-2 flex h-9 min-w-[88px] items-center justify-center gap-1.5 rounded-md border bg-background px-3 text-xs text-foreground transition-colors hover:bg-muted",
+              selectedCustomIcon ? "border-foreground" : "border-border-soft",
+            )}
+            title={
+              selectedCustomIcon
+                ? t("dialog.customIcon")
+                : t("dialog.uploadIcon")
+            }
+            aria-label={t("dialog.customIcon")}
+          >
+            {selectedCustomIcon ? (
+              <ProjectIcon icon={icon} imageClassName="size-4 rounded-[3px]" />
+            ) : (
+              <IconUpload className="size-3.5" />
+            )}
+            <span>{t("dialog.uploadIcon")}</span>
+          </button>
+        </div>
+      </div>
+      {error && <p className="text-xs text-destructive">{error}</p>}
+    </div>
+  );
+}
diff --git a/ui/goose2/src/features/projects/ui/ProjectsView.tsx b/ui/goose2/src/features/projects/ui/ProjectsView.tsx
index 3f48c5aa..debe5e8f 100644
--- a/ui/goose2/src/features/projects/ui/ProjectsView.tsx
+++ b/ui/goose2/src/features/projects/ui/ProjectsView.tsx
@@ -27,6 +27,7 @@ import {
   AlertDialogTitle,
 } from "@/shared/ui/alert-dialog";
 import { CreateProjectDialog } from "./CreateProjectDialog";
+import { ProjectIcon } from "./ProjectIcon";
 import { deleteProject, type ProjectInfo } from "../api/projects";
 import { useProjectStore } from "../stores/projectStore";
 
@@ -88,21 +89,9 @@ export function ProjectsView({ onStartChat }: ProjectsViewProps) {
   const fetchProjects = useProjectStore((s) => s.fetchProjects);
   const [search, setSearch] = useState("");
   const [dialogOpen, setDialogOpen] = useState(false);
-  const [editingProject, setEditingProject] = useState<
-    | {
-        id: string;
-        name: string;
-        description: string;
-        prompt: string;
-        icon: string;
-        color: string;
-        preferredProvider: string | null;
-        preferredModel: string | null;
-        workingDirs: string[];
-        useWorktrees: boolean;
-      }
-    | undefined
-  >(undefined);
+  const [editingProject, setEditingProject] = useState<ProjectInfo | undefined>(
+    undefined,
+  );
   const [projects, setProjects] = useState<ProjectInfo[]>([]);
   const [loading, setLoading] = useState(true);
   const [deletingProject, setDeletingProject] = useState<ProjectInfo | null>(
@@ -141,18 +130,7 @@ export function ProjectsView({ onStartChat }: ProjectsViewProps) {
   };
 
   const handleEdit = (project: ProjectInfo) => {
-    setEditingProject({
-      id: project.id,
-      name: project.name,
-      description: project.description,
-      prompt: project.prompt,
-      icon: project.icon,
-      color: project.color,
-      preferredProvider: project.preferredProvider,
-      preferredModel: project.preferredModel,
-      workingDirs: project.workingDirs,
-      useWorktrees: project.useWorktrees,
-    });
+    setEditingProject(project);
     setDialogOpen(true);
   };
 
@@ -215,9 +193,10 @@ export function ProjectsView({ onStartChat }: ProjectsViewProps) {
                   className="flex items-start justify-between gap-3 rounded-lg border border-border px-4 py-3"
                 >
                   <div className="min-w-0 flex-1 flex items-start gap-3">
-                    <span
-                      className="inline-block w-2.5 h-2.5 rounded-full mt-1.5 shrink-0"
-                      style={{ backgroundColor: project.color }}
+                    <ProjectIcon
+                      icon={project.icon}
+                      className="mt-0.5 size-4 shrink-0 text-foreground"
+                      imageClassName="mt-0.5 size-4 shrink-0 rounded-[4px]"
                     />
                     <div className="min-w-0 flex-1">
                       <p className="text-sm font-medium">{project.name}</p>
diff --git a/ui/goose2/src/features/projects/ui/__tests__/CreateProjectDialog.test.tsx b/ui/goose2/src/features/projects/ui/__tests__/CreateProjectDialog.test.tsx
index b414add6..17b72059 100644
--- a/ui/goose2/src/features/projects/ui/__tests__/CreateProjectDialog.test.tsx
+++ b/ui/goose2/src/features/projects/ui/__tests__/CreateProjectDialog.test.tsx
@@ -1,6 +1,8 @@
 import { render, screen } from "@testing-library/react";
 import userEvent from "@testing-library/user-event";
 import { describe, expect, it, vi, beforeEach } from "vitest";
+import { open } from "@tauri-apps/plugin-dialog";
+import { readProjectIcon, type ProjectInfo } from "../../api/projects";
 import { CreateProjectDialog } from "../CreateProjectDialog";
 
 // ── ResizeObserver polyfill (needed by Radix Select in jsdom) ────────
@@ -29,7 +31,7 @@ vi.mock("../../api/projects", () => ({
     name: "Test",
     description: "",
     prompt: "",
-    icon: "\u{1F4C1}",
+    icon: "tabler:folder-code",
     color: "#64748b",
     preferredProvider: null,
     preferredModel: null,
@@ -45,7 +47,7 @@ vi.mock("../../api/projects", () => ({
     name: "Updated",
     description: "",
     prompt: "",
-    icon: "\u{1F4C1}",
+    icon: "tabler:folder-code",
     color: "#ef4444",
     preferredProvider: null,
     preferredModel: null,
@@ -56,6 +58,10 @@ vi.mock("../../api/projects", () => ({
     createdAt: "2024-01-01",
     updatedAt: "2024-01-01",
   }),
+  scanProjectIcons: vi.fn().mockResolvedValue([]),
+  readProjectIcon: vi.fn().mockResolvedValue({
+    icon: "data:image/png;base64,aWNvbg==",
+  }),
 }));
 
 vi.mock("@tauri-apps/plugin-dialog", () => ({
@@ -84,18 +90,23 @@ vi.mock("../PromptEditor", () => ({
 
 // ── Helpers ───────────────────────────────────────────────────────────
 
-function makeEditingProject(overrides: Record<string, unknown> = {}) {
+function makeEditingProject(overrides: Partial<ProjectInfo> = {}): ProjectInfo {
   return {
     id: "proj-1",
     name: "My Project",
     description: "A test project",
     prompt: "Do the thing",
-    icon: "\u{1F4C1}",
+    icon: "tabler:folder-code",
     color: "#ef4444",
     preferredProvider: null,
     preferredModel: null,
     workingDirs: ["/home/user/code"],
     useWorktrees: false,
+    order: 0,
+    archivedAt: null,
+    createdAt: "2024-01-01",
+    updatedAt: "2024-01-01",
+    artifactsDir: "/home/user/code/.goose",
     ...overrides,
   };
 }
@@ -111,6 +122,10 @@ const defaultProps = {
 describe("CreateProjectDialog", () => {
   beforeEach(() => {
     vi.clearAllMocks();
+    vi.mocked(open).mockResolvedValue(null);
+    vi.mocked(readProjectIcon).mockResolvedValue({
+      icon: "data:image/png;base64,aWNvbg==",
+    });
   });
 
   // ── Form populates on open ──────────────────────────────────────────
@@ -170,8 +185,8 @@ describe("CreateProjectDialog", () => {
       );
     });
 
-    it("selects the correct color from editingProject", () => {
-      const editingProject = makeEditingProject({ color: "#ef4444" });
+    it("selects the correct icon from editingProject", () => {
+      const editingProject = makeEditingProject({ icon: "tabler:code" });
 
       render(
         <CreateProjectDialog
@@ -181,11 +196,24 @@ describe("CreateProjectDialog", () => {
         />,
       );
 
-      const colorButton = screen.getByRole("button", {
-        name: "Color #ef4444",
+      const iconButton = screen.getByRole("button", {
+        name: "Icon Code",
       });
-      // The selected color has border-foreground in its class
-      expect(colorButton.className).toContain("border-foreground");
+      expect(iconButton.className).toContain("border-foreground");
+    });
+
+    it("shows custom icon upload errors", async () => {
+      const user = userEvent.setup();
+      vi.mocked(open).mockResolvedValueOnce("/tmp/large-icon.png");
+      vi.mocked(readProjectIcon).mockRejectedValueOnce(
+        "Icon file is too large",
+      );
+
+      render(<CreateProjectDialog {...defaultProps} isOpen={true} />);
+
+      await user.click(screen.getByRole("button", { name: "Custom icon" }));
+
+      expect(await screen.findByText("Icon file is too large")).toBeVisible();
     });
   });
 
@@ -268,9 +296,9 @@ describe("CreateProjectDialog", () => {
       expect(promptEditor).toHaveValue("New instructions");
     });
 
-    it("preserves changed color when editingProject reference changes but dialog stays open", async () => {
+    it("preserves changed icon when editingProject reference changes but dialog stays open", async () => {
       const user = userEvent.setup();
-      const editingProject1 = makeEditingProject({ color: "#ef4444" });
+      const editingProject1 = makeEditingProject({ icon: "tabler:code" });
 
       const { rerender } = render(
         <CreateProjectDialog
@@ -280,22 +308,20 @@ describe("CreateProjectDialog", () => {
         />,
       );
 
-      // Verify initial color is selected
-      const redButton = screen.getByRole("button", {
-        name: "Color #ef4444",
+      const codeButton = screen.getByRole("button", {
+        name: "Icon Code",
       });
-      expect(redButton.className).toContain("border-foreground");
+      expect(codeButton.className).toContain("border-foreground");
 
-      // User clicks a different color
-      const blueButton = screen.getByRole("button", {
-        name: "Color #3b82f6",
+      const terminalButton = screen.getByRole("button", {
+        name: "Icon Terminal",
       });
-      await user.click(blueButton);
-      expect(blueButton.className).toContain("border-foreground");
-      expect(redButton.className).not.toContain("border-foreground");
+      await user.click(terminalButton);
+      expect(terminalButton.className).toContain("border-foreground");
+      expect(codeButton.className).not.toContain("border-foreground");
 
       // Re-render with new reference, same values
-      const editingProject2 = makeEditingProject({ color: "#ef4444" });
+      const editingProject2 = makeEditingProject({ icon: "tabler:code" });
 
       rerender(
         <CreateProjectDialog
@@ -305,9 +331,8 @@ describe("CreateProjectDialog", () => {
         />,
       );
 
-      // The user-selected blue color should be preserved, not reset to red
-      expect(blueButton.className).toContain("border-foreground");
-      expect(redButton.className).not.toContain("border-foreground");
+      expect(terminalButton.className).toContain("border-foreground");
+      expect(codeButton.className).not.toContain("border-foreground");
     });
   });
 
@@ -317,7 +342,7 @@ describe("CreateProjectDialog", () => {
     it("re-populates fields when dialog closes and reopens with a different project", async () => {
       const project1 = makeEditingProject({
         name: "Project Alpha",
-        color: "#ef4444",
+        icon: "tabler:code",
         prompt: "Alpha instructions",
         workingDirs: ["/alpha"],
       });
@@ -347,7 +372,7 @@ describe("CreateProjectDialog", () => {
       // Reopen with a different project
       const project2 = makeEditingProject({
         name: "Project Beta",
-        color: "#3b82f6",
+        icon: "tabler:database",
         prompt: "Beta instructions",
         workingDirs: ["/beta"],
       });
@@ -367,10 +392,10 @@ describe("CreateProjectDialog", () => {
       const promptEditor = screen.getByTestId("prompt-editor");
       expect(promptEditor).toHaveValue("Beta instructions\n\ninclude: /beta");
 
-      const blueButton = screen.getByRole("button", {
-        name: "Color #3b82f6",
+      const databaseButton = screen.getByRole("button", {
+        name: "Icon Database",
       });
-      expect(blueButton.className).toContain("border-foreground");
+      expect(databaseButton.className).toContain("border-foreground");
     });
 
     it("re-populates with same project data after close and reopen (discards user edits)", async () => {
diff --git a/ui/goose2/src/features/settings/ui/SettingsModal.tsx b/ui/goose2/src/features/settings/ui/SettingsModal.tsx
index 0544f0f6..85e0c341 100644
--- a/ui/goose2/src/features/settings/ui/SettingsModal.tsx
+++ b/ui/goose2/src/features/settings/ui/SettingsModal.tsx
@@ -37,6 +37,7 @@ import {
   deleteProject,
   type ProjectInfo,
 } from "@/features/projects/api/projects";
+import { ProjectIcon } from "@/features/projects/ui/ProjectIcon";
 import { useChatSessionStore } from "@/features/chat/stores/chatSessionStore";
 import { useProjectStore } from "@/features/projects/stores/projectStore";
 import { getDisplaySessionTitle } from "@/features/chat/lib/sessionTitle";
@@ -270,9 +271,10 @@ export function SettingsModal({
                         className="flex items-center justify-between gap-3 rounded-lg border border-border px-3 py-2"
                       >
                         <div className="flex items-center gap-2 min-w-0">
-                          <span
-                            className="inline-block w-2 h-2 rounded-full flex-shrink-0"
-                            style={{ backgroundColor: project.color }}
+                          <ProjectIcon
+                            icon={project.icon}
+                            className="size-4 shrink-0 text-foreground"
+                            imageClassName="size-4 shrink-0 rounded-[4px]"
                           />
                           <span className="text-sm truncate">
                             {project.name}
diff --git a/ui/goose2/src/features/sidebar/ui/Sidebar.tsx b/ui/goose2/src/features/sidebar/ui/Sidebar.tsx
index 41b8bdc8..f4c56ea2 100644
--- a/ui/goose2/src/features/sidebar/ui/Sidebar.tsx
+++ b/ui/goose2/src/features/sidebar/ui/Sidebar.tsx
@@ -1,10 +1,15 @@
-import { useCallback, useEffect, useRef, useState } from "react";
+import { useEffect, useRef, useState } from "react";
 import { useTranslation } from "react-i18next";
 import {
+  IconHistory,
+  IconHome,
   IconLayoutSidebar,
   IconLayoutSidebarFilled,
+  IconRobotFace,
+  IconSearch,
+  IconSettings,
+  IconStack,
 } from "@tabler/icons-react";
-import { BookOpen, Bot, History, Home, Search } from "lucide-react";
 import { getDisplaySessionTitle } from "@/features/chat/lib/sessionTitle";
 import { GooseIcon } from "@/shared/ui/icons/GooseIcon";
 import { cn } from "@/shared/lib/cn";
@@ -21,14 +26,15 @@ import { useProjectStore } from "@/features/projects/stores/projectStore";
 import { Button } from "@/shared/ui/button";
 import { useSessionSearch } from "@/features/sessions/hooks/useSessionSearch";
 import { SidebarProjectsSection } from "./SidebarProjectsSection";
+import { SidebarNavItem } from "./SidebarNavItem";
 import { SidebarSearchResults } from "./SidebarSearchResults";
-import { useSidebarHighlight } from "./useSidebarHighlight";
 
 interface SidebarProps {
   collapsed: boolean;
   width?: number;
   isResizing?: boolean;
   onCollapse: () => void;
+  onSettingsClick?: () => void;
   onNewChatInProject?: (projectId: string) => void;
   onNewChat?: () => void;
   onCreateProject?: () => void;
@@ -58,6 +64,7 @@ export function Sidebar({
   width = 240,
   isResizing = false,
   onCollapse,
+  onSettingsClick,
   onNewChatInProject,
   onNewChat,
   onCreateProject,
@@ -75,7 +82,7 @@ export function Sidebar({
   className,
   projects,
 }: SidebarProps) {
-  const { t, i18n } = useTranslation(["sidebar", "common"]);
+  const { t, i18n } = useTranslation(["sidebar", "common", "settings"]);
   const [expanded, setExpanded] = useState(!collapsed);
   const searchInputRef = useRef<HTMLInputElement>(null);
   const prevCollapsed = useRef(collapsed);
@@ -118,16 +125,19 @@ export function Sidebar({
   const labelTransition = "transition-[opacity,width] duration-300 ease-out";
   const labelVisible = expanded && !collapsed;
   const defaultTitle = t("common:session.defaultTitle");
-  const navItems: readonly { id: AppView; label: string; icon: typeof Bot }[] =
-    [
-      { id: "agents", label: t("navigation.agents"), icon: Bot },
-      { id: "skills", label: t("navigation.skills"), icon: BookOpen },
-      {
-        id: "session-history",
-        label: t("navigation.sessionHistory"),
-        icon: History,
-      },
-    ];
+  const navItems: readonly {
+    id: AppView;
+    label: string;
+    icon: typeof IconRobotFace;
+  }[] = [
+    { id: "agents", label: t("navigation.agents"), icon: IconRobotFace },
+    { id: "skills", label: t("navigation.skills"), icon: IconStack },
+    {
+      id: "session-history",
+      label: t("navigation.sessionHistory"),
+      icon: IconHistory,
+    },
+  ];
 
   const MAX_RECENTS = 20;
   const validProjectIds = new Set(projects.map((project) => project.id));
@@ -248,48 +258,6 @@ export function Sidebar({
   const toggleProject = (projectId: string) =>
     setExpandedProjects((prev) => ({ ...prev, [projectId]: !prev[projectId] }));
 
-  const navRef = useRef<HTMLElement>(null);
-  const homeRef = useRef<HTMLButtonElement>(null);
-  const navItemRefs = useRef<Record<string, HTMLButtonElement | null>>({});
-
-  const {
-    currentRect,
-    isHovering,
-    isResizing: isHighlightResizing,
-    onItemMouseEnter,
-    onNavMouseLeave,
-    updateActiveRect,
-  } = useSidebarHighlight(navRef);
-
-  const activeProjectId =
-    activeSessionId && activeView === "chat"
-      ? (sessions.find((s) => s.id === activeSessionId)?.projectId ?? null)
-      : null;
-
-  useEffect(() => {
-    if (activeSessionId && activeView === "chat") return;
-    if (activeView === "home") {
-      updateActiveRect(homeRef.current);
-    } else if (activeView && navItemRefs.current[activeView]) {
-      updateActiveRect(navItemRefs.current[activeView]);
-    } else {
-      updateActiveRect(null);
-    }
-  }, [activeSessionId, activeView, updateActiveRect]);
-
-  const activeSessionRefCallback = useCallback(
-    (el: HTMLElement | null) => {
-      if (activeSessionId && el) updateActiveRect(el);
-    },
-    [activeSessionId, updateActiveRect],
-  );
-  const activeProjectRefCallback = useCallback(
-    (el: HTMLElement | null) => {
-      if (activeProjectId && el) updateActiveRect(el);
-    },
-    [activeProjectId, updateActiveRect],
-  );
-
   return (
     <div
       className={cn(
@@ -299,7 +267,7 @@ export function Sidebar({
       )}
       style={{ width: collapsed ? 54 : width }}
     >
-      <div className="flex h-full flex-col overflow-hidden rounded-xl border border-border bg-background [--muted-foreground:var(--text-subtle)]">
+      <div className="flex h-full flex-col overflow-hidden rounded-xl border border-border bg-background">
         <div
           className={cn(
             "flex-shrink-0 pt-3",
@@ -319,7 +287,7 @@ export function Sidebar({
                 variant="ghost"
                 size="icon-sm"
                 onClick={onCollapse}
-                className="text-muted-foreground hover:text-foreground"
+                className="text-foreground hover:text-foreground"
                 aria-label={t("actions.collapse")}
                 title={t("actions.collapse")}
               >
@@ -329,217 +297,195 @@ export function Sidebar({
           </div>
         </div>
 
-        <nav
-          ref={navRef}
-          className="relative flex-1 min-h-0 overflow-y-auto overflow-x-hidden px-1.5 py-1 pt-1.5 scrollbar-none"
-          onMouseLeave={onNavMouseLeave}
-        >
-          {currentRect && !collapsed && (
-            <div
-              className="absolute left-1.5 right-1.5 rounded-lg bg-accent/50 pointer-events-none z-0"
-              style={{
-                top: currentRect.top,
-                height: currentRect.height,
-                transition:
-                  isHovering || isHighlightResizing
-                    ? "top 0ms, height 0ms"
-                    : "top 200ms ease, height 200ms ease, opacity 200ms ease",
-              }}
-            />
-          )}
-
-          <div className="relative z-10 space-y-0.5">
-            {collapsed && (
-              <button
-                type="button"
-                onClick={onCollapse}
-                title={t("actions.expand")}
-                className="flex w-full items-center gap-2.5 rounded-md p-3 text-[13px] text-muted-foreground transition-colors duration-200 hover:text-foreground"
-                aria-label={t("actions.expand")}
-              >
-                <IconLayoutSidebar className="size-4 flex-shrink-0" />
-                <span className="sr-only">{t("actions.expand")}</span>
-              </button>
+        <div className="relative flex-1 min-h-0 overflow-hidden">
+          <nav
+            className={cn(
+              "relative h-full overflow-y-auto overflow-x-hidden px-1.5 py-1 pt-1 scrollbar-none",
+              collapsed ? "pb-16" : "pb-[72px]",
             )}
+          >
+            <div className="relative z-10 space-y-0.5">
+              {collapsed && (
+                <button
+                  type="button"
+                  onClick={onCollapse}
+                  title={t("actions.expand")}
+                  className="flex w-full items-center gap-2.5 rounded-md px-3 py-1.5 text-sm text-foreground transition-colors duration-200 hover:text-foreground"
+                  aria-label={t("actions.expand")}
+                >
+                  <IconLayoutSidebar className="size-4 flex-shrink-0" />
+                  <span className="sr-only">{t("actions.expand")}</span>
+                </button>
+              )}
 
-            <div
-              className={cn(
-                "mb-4 flex items-center w-full rounded-md transition-all duration-300 ease-out",
-                collapsed
-                  ? "justify-center p-3 text-muted-foreground"
-                  : "gap-2 border border-border px-2.5 py-1.5 text-xs text-muted-foreground hover:text-foreground hover:bg-transparent",
-              )}
-            >
-              <Search className="size-3.5 flex-shrink-0 text-placeholder" />
-              {!collapsed && (
-                <input
-                  ref={searchInputRef}
-                  type="text"
-                  enterKeyHint="search"
-                  value={sidebarSearch.query}
-                  onChange={(e) => sidebarSearch.setQuery(e.target.value)}
-                  onKeyDown={(e) => {
-                    if (e.key === "Enter") {
-                      e.preventDefault();
-                      void sidebarSearch.search();
-                    }
-                  }}
-                  placeholder={t("search.placeholder")}
-                  className={cn(
-                    "focus-override appearance-none bg-transparent border-none text-xs flex-1 min-w-0 placeholder:text-placeholder outline-none focus-visible:ring-0 focus-visible:ring-offset-0",
-                    labelTransition,
-                    labelVisible
-                      ? "opacity-100 w-auto"
-                      : "opacity-0 w-0 overflow-hidden",
-                  )}
-                  onClick={(e) => e.stopPropagation()}
-                />
-              )}
-            </div>
-
-            <button
-              ref={homeRef}
-              type="button"
-              data-testid="nav-home"
-              onClick={() => onNavigate?.("home")}
-              onMouseEnter={onItemMouseEnter}
-              title={collapsed ? t("navigation.home") : undefined}
-              aria-label={t("navigation.home")}
-              className={cn(
-                "flex items-center w-full text-[13px] transition-colors duration-200 rounded-md",
-                "gap-2.5 p-3",
-                activeView === "home"
-                  ? "font-medium text-foreground"
-                  : "text-muted-foreground hover:text-foreground",
-              )}
-            >
-              <Home className="size-4 flex-shrink-0" />
-              <span
+              <div
                 className={cn(
-                  "whitespace-nowrap",
-                  labelTransition,
-                  labelVisible
-                    ? "opacity-100 w-auto"
-                    : "opacity-0 w-0 overflow-hidden",
+                  "mb-3 flex items-center w-full rounded-md transition-all duration-300 ease-out",
+                  collapsed
+                    ? "justify-center p-3 text-foreground"
+                    : "gap-2 border border-border px-2.5 py-1.5 text-xs text-foreground hover:text-foreground hover:bg-transparent",
                 )}
               >
-                {t("navigation.home")}
-              </span>
-            </button>
-
-            {navItems.map((item, index) => {
-              const Icon = item.icon;
-              const isActive = activeView === item.id;
-              return (
-                <button
-                  key={item.id}
-                  ref={(el) => {
-                    navItemRefs.current[item.id] = el;
-                  }}
-                  type="button"
-                  onClick={() => onNavigate?.(item.id)}
-                  onMouseEnter={onItemMouseEnter}
-                  title={collapsed ? item.label : undefined}
-                  className={cn(
-                    "flex items-center w-full text-[13px] transition-colors duration-200 rounded-md",
-                    "gap-2.5 p-3",
-                    isActive
-                      ? "font-medium text-foreground"
-                      : "text-muted-foreground hover:text-foreground",
-                  )}
-                  aria-current={isActive ? "page" : undefined}
-                  style={{
-                    transitionDelay:
-                      !collapsed && expanded ? `${index * 30}ms` : "0ms",
-                  }}
-                >
-                  <Icon className="size-4 flex-shrink-0" />
-                  <span
+                <IconSearch className="size-3.5 flex-shrink-0 text-placeholder" />
+                {!collapsed && (
+                  <input
+                    ref={searchInputRef}
+                    type="text"
+                    enterKeyHint="search"
+                    value={sidebarSearch.query}
+                    onChange={(e) => sidebarSearch.setQuery(e.target.value)}
+                    onKeyDown={(e) => {
+                      if (e.key === "Enter") {
+                        e.preventDefault();
+                        void sidebarSearch.search();
+                      }
+                    }}
+                    placeholder={t("search.placeholder")}
                     className={cn(
-                      "whitespace-nowrap",
+                      "focus-override appearance-none bg-transparent border-none text-xs flex-1 min-w-0 placeholder:text-placeholder outline-none focus-visible:ring-0 focus-visible:ring-offset-0",
                       labelTransition,
                       labelVisible
                         ? "opacity-100 w-auto"
                         : "opacity-0 w-0 overflow-hidden",
                     )}
-                    style={{
-                      transitionDelay: labelVisible
-                        ? `${index * 30 + 60}ms`
-                        : "0ms",
-                    }}
-                  >
-                    {item.label}
-                  </span>
-                </button>
-              );
-            })}
-          </div>
-
-          {!collapsed &&
-            (sidebarSearch.submittedQuery ? (
-              <div className="relative z-10 space-y-2">
-                {sidebarSearch.error && (
-                  <p className="px-1 text-xs text-danger">
-                    {t("search.error")}
-                  </p>
-                )}
-
-                {sidebarSearch.isSearching &&
-                  sidebarSearch.results.length === 0 && (
-                    <div className="rounded-lg border border-dashed border-border px-3 py-6 text-center text-xs text-muted-foreground">
-                      {t("search.searching")}
-                    </div>
-                  )}
-
-                {(!sidebarSearch.isSearching ||
-                  sidebarSearch.results.length > 0) && (
-                  <SidebarSearchResults
-                    results={sidebarSearch.results}
-                    activeSessionId={activeSessionId}
-                    onSelectResult={(sessionId, messageId) => {
-                      if (messageId) {
-                        onSelectSearchResult?.(
-                          sessionId,
-                          messageId,
-                          sidebarSearch.submittedQuery,
-                        );
-                        return;
-                      }
-                      onSelectSession?.(sessionId);
-                    }}
-                    getPersonaName={sidebarResolvers.getPersonaName}
-                    getProjectName={sidebarResolvers.getProjectName}
+                    onClick={(e) => e.stopPropagation()}
                   />
                 )}
               </div>
-            ) : (
-              <SidebarProjectsSection
-                projects={projects}
-                projectSessions={projectSessions}
-                expandedProjects={expandedProjects}
-                toggleProject={toggleProject}
+
+              <SidebarNavItem
+                testId="nav-home"
+                icon={IconHome}
+                label={t("navigation.home")}
                 collapsed={collapsed}
                 labelTransition={labelTransition}
                 labelVisible={labelVisible}
-                activeSessionId={activeSessionId}
-                activeProjectId={activeProjectId}
-                onNavigate={onNavigate}
-                onSelectSession={onSelectSession}
-                onNewChatInProject={onNewChatInProject}
-                onNewChat={onNewChat}
-                onCreateProject={onCreateProject}
-                onEditProject={onEditProject}
-                onArchiveProject={onArchiveProject}
-                onArchiveChat={onArchiveChat}
-                onRenameChat={onRenameChat}
-                onMoveToProject={onMoveToProject}
-                onReorderProject={onReorderProject}
-                onItemMouseEnter={onItemMouseEnter}
-                activeSessionRefCallback={activeSessionRefCallback}
-                activeProjectRefCallback={activeProjectRefCallback}
+                isActive={activeView === "home"}
+                onClick={() => onNavigate?.("home")}
               />
-            ))}
-        </nav>
+
+              {navItems.map((item, index) => {
+                const isActive = activeView === item.id;
+                return (
+                  <SidebarNavItem
+                    key={item.id}
+                    icon={item.icon}
+                    label={item.label}
+                    collapsed={collapsed}
+                    labelTransition={labelTransition}
+                    labelVisible={labelVisible}
+                    isActive={isActive}
+                    onClick={() => onNavigate?.(item.id)}
+                    itemTransitionDelay={
+                      !collapsed && expanded ? `${index * 30}ms` : "0ms"
+                    }
+                    labelTransitionDelay={
+                      labelVisible ? `${index * 30 + 60}ms` : "0ms"
+                    }
+                  />
+                );
+              })}
+            </div>
+
+            {!collapsed &&
+              (sidebarSearch.submittedQuery ? (
+                <div className="relative z-10 space-y-2">
+                  {sidebarSearch.error && (
+                    <p className="px-1 text-xs text-danger">
+                      {t("search.error")}
+                    </p>
+                  )}
+
+                  {sidebarSearch.isSearching &&
+                    sidebarSearch.results.length === 0 && (
+                      <div className="rounded-lg border border-dashed border-border px-3 py-6 text-center text-xs text-muted-foreground">
+                        {t("search.searching")}
+                      </div>
+                    )}
+
+                  {(!sidebarSearch.isSearching ||
+                    sidebarSearch.results.length > 0) && (
+                    <SidebarSearchResults
+                      results={sidebarSearch.results}
+                      activeSessionId={activeSessionId}
+                      onSelectResult={(sessionId, messageId) => {
+                        if (messageId) {
+                          onSelectSearchResult?.(
+                            sessionId,
+                            messageId,
+                            sidebarSearch.submittedQuery,
+                          );
+                          return;
+                        }
+                        onSelectSession?.(sessionId);
+                      }}
+                      getPersonaName={sidebarResolvers.getPersonaName}
+                      getProjectName={sidebarResolvers.getProjectName}
+                    />
+                  )}
+                </div>
+              ) : (
+                <SidebarProjectsSection
+                  projects={projects}
+                  projectSessions={projectSessions}
+                  expandedProjects={expandedProjects}
+                  toggleProject={toggleProject}
+                  collapsed={collapsed}
+                  labelTransition={labelTransition}
+                  labelVisible={labelVisible}
+                  activeSessionId={activeSessionId}
+                  onNavigate={onNavigate}
+                  onSelectSession={onSelectSession}
+                  onNewChatInProject={onNewChatInProject}
+                  onNewChat={onNewChat}
+                  onCreateProject={onCreateProject}
+                  onEditProject={onEditProject}
+                  onArchiveProject={onArchiveProject}
+                  onArchiveChat={onArchiveChat}
+                  onRenameChat={onRenameChat}
+                  onMoveToProject={onMoveToProject}
+                  onReorderProject={onReorderProject}
+                />
+              ))}
+          </nav>
+
+          <div
+            className={cn(
+              "absolute inset-x-0 bottom-0 z-20 bg-background",
+              "px-1.5 py-1.5",
+            )}
+          >
+            <Button
+              type="button"
+              variant="ghost"
+              size={collapsed ? "icon-sm" : "default"}
+              onClick={onSettingsClick}
+              className={cn(
+                "h-10 w-full rounded-md bg-transparent text-foreground hover:bg-transparent hover:text-foreground active:bg-transparent",
+                collapsed
+                  ? "justify-center p-3"
+                  : "justify-start gap-2.5 px-3 py-2.5",
+              )}
+              title={t("settings:title")}
+              aria-label={t("settings:title")}
+            >
+              <IconSettings className="size-4 flex-shrink-0" />
+              {!collapsed && (
+                <span
+                  className={cn(
+                    "whitespace-nowrap text-sm",
+                    labelTransition,
+                    labelVisible
+                      ? "opacity-100 w-auto"
+                      : "opacity-0 w-0 overflow-hidden",
+                  )}
+                >
+                  {t("settings:title")}
+                </span>
+              )}
+            </Button>
+          </div>
+        </div>
       </div>
     </div>
   );
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarChatRow.tsx b/ui/goose2/src/features/sidebar/ui/SidebarChatRow.tsx
index 5e4b0f6f..78a4de66 100644
--- a/ui/goose2/src/features/sidebar/ui/SidebarChatRow.tsx
+++ b/ui/goose2/src/features/sidebar/ui/SidebarChatRow.tsx
@@ -18,9 +18,9 @@ import { Input } from "@/shared/ui/input";
 import { SessionActivityIndicator } from "@/shared/ui/SessionActivityIndicator";
 
 const INACTIVE_CHAT_ROW_CLASS =
-  "text-muted-foreground hover:bg-transparent hover:text-foreground group-hover:text-foreground";
+  "text-foreground hover:bg-background-alt hover:text-foreground";
 const ACTIVE_CHAT_ROW_CLASS =
-  "font-medium text-foreground hover:bg-transparent hover:text-foreground";
+  "bg-background-alt font-normal text-foreground hover:bg-background-alt hover:text-foreground";
 
 interface SidebarChatRowProps {
   id: string;
@@ -29,11 +29,10 @@ interface SidebarChatRowProps {
   isRunning?: boolean;
   hasUnread?: boolean;
   className?: string;
+  nested?: boolean;
   onSelect?: (id: string) => void;
   onRename?: (id: string, nextTitle: string) => void;
   onArchive?: (id: string) => void;
-  onMouseEnter?: (e: React.MouseEvent<HTMLElement>) => void;
-  activeRef?: (el: HTMLElement | null) => void;
 }
 
 export function SidebarChatRow({
@@ -43,18 +42,16 @@ export function SidebarChatRow({
   isRunning = false,
   hasUnread = false,
   className,
+  nested = false,
   onSelect,
   onRename,
   onArchive,
-  onMouseEnter,
-  activeRef,
 }: SidebarChatRowProps) {
   const { t } = useTranslation(["sidebar", "common"]);
   const [menuOpen, setMenuOpen] = useState(false);
   const [editing, setEditing] = useState(false);
   const [dragging, setDragging] = useState(false);
   const inputRef = useRef<HTMLInputElement>(null);
-  const rowRef = useRef<HTMLDivElement>(null);
   const displayTitle = getDisplaySessionTitle(
     title,
     t("common:session.defaultTitle"),
@@ -76,20 +73,6 @@ export function SidebarChatRow({
     inputRef.current?.select();
   }, [editing]);
 
-  useEffect(() => {
-    if (!activeRef || !isActive || !rowRef.current) {
-      return;
-    }
-
-    const frame = requestAnimationFrame(() => {
-      if (rowRef.current) {
-        activeRef(rowRef.current);
-      }
-    });
-
-    return () => cancelAnimationFrame(frame);
-  }, [activeRef, isActive]);
-
   const startRename = () => {
     setDraftTitle(editableTitle);
     setMenuOpen(false);
@@ -142,7 +125,7 @@ export function SidebarChatRow({
               cancelRename();
             }
           }}
-          className="flex-1 min-w-0 px-3 text-[13px] font-light"
+          className="flex-1 min-w-0 px-3 text-sm font-normal"
           style={{ height: 32 }}
         />
       </div>
@@ -150,9 +133,8 @@ export function SidebarChatRow({
   }
 
   return (
-    // biome-ignore lint/a11y/noStaticElementInteractions: wrapper div for hover detection, interactive content is the inner Button
+    // biome-ignore lint/a11y/noStaticElementInteractions: wrapper handles drag and context menu, interactive content is the inner Button
     <div
-      ref={rowRef}
       draggable
       onDragStart={(e) => {
         e.dataTransfer.setData("text/x-session-id", id);
@@ -165,11 +147,11 @@ export function SidebarChatRow({
         setMenuOpen(true);
       }}
       className={cn(
-        "relative flex items-center group rounded-md transition-colors duration-200 active:cursor-grabbing",
+        "relative flex items-center group/chat-row rounded-md transition-colors duration-200 hover:bg-background-alt focus-within:bg-background-alt active:cursor-grabbing",
+        (isActive || menuOpen) && "bg-background-alt",
         dragging && "opacity-40 bg-accent/30",
         className,
       )}
-      onMouseEnter={onMouseEnter}
     >
       <Button
         type="button"
@@ -183,11 +165,12 @@ export function SidebarChatRow({
         }}
         title={t("actions.renameHint")}
         className={cn(
-          "flex-1 min-w-0 justify-start gap-2 rounded-md pl-3 pr-8 py-2 text-[13px] font-light active:cursor-grabbing",
+          "flex-1 min-w-0 justify-start gap-2 rounded-md pr-8 py-2 text-sm font-normal active:cursor-grabbing",
+          nested ? "pl-9" : "pl-3",
           isActive ? ACTIVE_CHAT_ROW_CLASS : INACTIVE_CHAT_ROW_CLASS,
         )}
       >
-        {showActivityIndicator && (
+        {showActivityIndicator && !nested && (
           <span className="flex h-3 w-3 shrink-0 items-center justify-center">
             <SessionActivityIndicator
               isRunning={isRunning}
@@ -199,6 +182,14 @@ export function SidebarChatRow({
           {displayTitle}
         </span>
       </Button>
+      {showActivityIndicator && nested && (
+        <SessionActivityIndicator
+          isRunning={isRunning}
+          hasUnread={hasUnread}
+          variant="overlay"
+          className="left-4 right-auto top-1/2 -translate-y-1/2"
+        />
+      )}
 
       <DropdownMenu open={menuOpen} onOpenChange={setMenuOpen}>
         <DropdownMenuTrigger asChild>
@@ -209,13 +200,13 @@ export function SidebarChatRow({
             aria-label={t("menu.optionsFor", { label: displayTitle })}
             onClick={(e) => e.stopPropagation()}
             className={cn(
-              "absolute right-1 size-6 rounded-md text-muted-foreground hover:text-foreground hover:bg-accent/50",
+              "absolute right-1 size-6 rounded-md",
               menuOpen
                 ? "visible opacity-100"
-                : "invisible group-hover:visible opacity-0 group-hover:opacity-100",
+                : "invisible group-hover/chat-row:visible opacity-0 group-hover/chat-row:opacity-100",
             )}
           >
-            <MoreHorizontal className="size-3.5" />
+            <MoreHorizontal className="size-4" />
           </Button>
         </DropdownMenuTrigger>
         <DropdownMenuContent align="end" sideOffset={4}>
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarItemMenu.tsx b/ui/goose2/src/features/sidebar/ui/SidebarItemMenu.tsx
index cfae89e5..393b23ed 100644
--- a/ui/goose2/src/features/sidebar/ui/SidebarItemMenu.tsx
+++ b/ui/goose2/src/features/sidebar/ui/SidebarItemMenu.tsx
@@ -14,20 +14,26 @@ import {
 
 interface SidebarItemMenuProps {
   label: string;
+  onOpenChange?: (open: boolean) => void;
   onEdit?: () => void;
   onArchive?: () => void;
 }
 
 export function SidebarItemMenu({
   label,
+  onOpenChange,
   onEdit,
   onArchive,
 }: SidebarItemMenuProps) {
   const { t } = useTranslation(["sidebar", "common"]);
   const [open, setOpen] = useState(false);
+  const handleOpenChange = (nextOpen: boolean) => {
+    setOpen(nextOpen);
+    onOpenChange?.(nextOpen);
+  };
 
   return (
-    <DropdownMenu open={open} onOpenChange={setOpen}>
+    <DropdownMenu open={open} onOpenChange={handleOpenChange}>
       <DropdownMenuTrigger asChild>
         <Button
           type="button"
@@ -42,7 +48,7 @@ export function SidebarItemMenu({
               : "invisible group-hover:visible group-focus-within:visible opacity-0 group-hover:opacity-100 group-focus-within:opacity-100",
           )}
         >
-          <IconDots className="size-3.5" />
+          <IconDots className="size-4" />
         </Button>
       </DropdownMenuTrigger>
       <DropdownMenuContent align="end" sideOffset={4}>
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarNavItem.tsx b/ui/goose2/src/features/sidebar/ui/SidebarNavItem.tsx
new file mode 100644
index 00000000..70b70016
--- /dev/null
+++ b/ui/goose2/src/features/sidebar/ui/SidebarNavItem.tsx
@@ -0,0 +1,59 @@
+import type { ComponentType } from "react";
+import { cn } from "@/shared/lib/cn";
+
+interface SidebarNavItemProps {
+  icon: ComponentType<{ className?: string }>;
+  label: string;
+  collapsed: boolean;
+  labelTransition: string;
+  labelVisible: boolean;
+  isActive: boolean;
+  onClick: () => void;
+  testId?: string;
+  itemTransitionDelay?: string;
+  labelTransitionDelay?: string;
+}
+
+export function SidebarNavItem({
+  icon: Icon,
+  label,
+  collapsed,
+  labelTransition,
+  labelVisible,
+  isActive,
+  onClick,
+  testId,
+  itemTransitionDelay,
+  labelTransitionDelay,
+}: SidebarNavItemProps) {
+  return (
+    <button
+      type="button"
+      data-testid={testId}
+      onClick={onClick}
+      title={collapsed ? label : undefined}
+      aria-label={label}
+      aria-current={isActive ? "page" : undefined}
+      className={cn(
+        "flex items-center w-full text-sm transition-colors duration-200 rounded-md",
+        "gap-2.5 px-3 py-1.5",
+        isActive
+          ? "bg-background-alt font-normal text-foreground"
+          : "font-normal text-foreground hover:bg-background-alt hover:text-foreground",
+      )}
+      style={{ transitionDelay: itemTransitionDelay }}
+    >
+      <Icon className="size-4 flex-shrink-0" />
+      <span
+        className={cn(
+          "whitespace-nowrap",
+          labelTransition,
+          labelVisible ? "opacity-100 w-auto" : "opacity-0 w-0 overflow-hidden",
+        )}
+        style={{ transitionDelay: labelTransitionDelay }}
+      >
+        {label}
+      </span>
+    </button>
+  );
+}
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarProjectList.tsx b/ui/goose2/src/features/sidebar/ui/SidebarProjectList.tsx
new file mode 100644
index 00000000..fbb49734
--- /dev/null
+++ b/ui/goose2/src/features/sidebar/ui/SidebarProjectList.tsx
@@ -0,0 +1,150 @@
+import { useState } from "react";
+import type { AppView } from "@/app/AppShell";
+import type { ProjectInfo } from "@/features/projects/api/projects";
+import { ProjectIcon } from "@/features/projects/ui/ProjectIcon";
+import { cn } from "@/shared/lib/cn";
+import { Button } from "@/shared/ui/button";
+import { SidebarProjectSection } from "./SidebarProjectSection";
+
+interface TabInfo {
+  id: string;
+  title: string;
+  projectId?: string;
+  isRunning?: boolean;
+  hasUnread?: boolean;
+}
+
+export function SidebarProjectList({
+  projects,
+  projectSessionsByProject,
+  expandedProjects,
+  toggleProject,
+  collapsed,
+  activeSessionId,
+  onNavigate,
+  onSelectSession,
+  onNewChatInProject,
+  onEditProject,
+  onArchiveProject,
+  onArchiveChat,
+  onRenameChat,
+  onMoveToProject,
+  onReorderProject,
+}: {
+  projects: ProjectInfo[];
+  projectSessionsByProject: Record<string, TabInfo[]>;
+  expandedProjects: Record<string, boolean>;
+  toggleProject: (projectId: string) => void;
+  collapsed: boolean;
+  activeSessionId?: string | null;
+  onNavigate?: (view: AppView) => void;
+  onSelectSession?: (sessionId: string) => void;
+  onNewChatInProject?: (projectId: string) => void;
+  onEditProject?: (projectId: string) => void;
+  onArchiveProject?: (projectId: string) => void;
+  onArchiveChat?: (sessionId: string) => void;
+  onRenameChat?: (sessionId: string, nextTitle: string) => void;
+  onMoveToProject?: (sessionId: string, projectId: string | null) => void;
+  onReorderProject?: (fromId: string, toId: string) => void;
+}) {
+  const [draggedProjectId, setDraggedProjectId] = useState<string | null>(null);
+  const [dropTargetProjectId, setDropTargetProjectId] = useState<string | null>(
+    null,
+  );
+
+  if (collapsed) {
+    return (
+      <div className="flex flex-col items-center gap-1">
+        {projects.map((project) => (
+          <Button
+            type="button"
+            variant="ghost"
+            size="icon-xs"
+            key={project.id}
+            title={project.name}
+            onClick={() => onNavigate?.("projects")}
+            className="rounded-lg text-foreground hover:bg-transparent hover:text-foreground"
+          >
+            <ProjectIcon
+              icon={project.icon}
+              className="size-4"
+              imageClassName="size-4 rounded-[4px]"
+            />
+          </Button>
+        ))}
+      </div>
+    );
+  }
+
+  return (
+    <div className="space-y-0.5">
+      {projects.map((project) => (
+        // biome-ignore lint/a11y/noStaticElementInteractions: drag-and-drop reorder target
+        <div
+          key={project.id}
+          draggable
+          onDragStart={(e) => {
+            if (e.dataTransfer.types.includes("text/x-session-id")) return;
+            e.dataTransfer.setData("text/x-project-id", project.id);
+            e.dataTransfer.effectAllowed = "move";
+            setDraggedProjectId(project.id);
+          }}
+          onDragOver={(e) => {
+            if (e.dataTransfer.types.includes("text/x-project-id")) {
+              e.preventDefault();
+              e.dataTransfer.dropEffect = "move";
+              if (project.id !== draggedProjectId) {
+                setDropTargetProjectId(project.id);
+              }
+            }
+          }}
+          onDragLeave={(e) => {
+            if (!e.currentTarget.contains(e.relatedTarget as Node)) {
+              setDropTargetProjectId((prev) =>
+                prev === project.id ? null : prev,
+              );
+            }
+          }}
+          onDrop={(e) => {
+            const fromId = e.dataTransfer.getData("text/x-project-id");
+            if (fromId && fromId !== project.id) {
+              e.preventDefault();
+              e.stopPropagation();
+              onReorderProject?.(fromId, project.id);
+            }
+            setDraggedProjectId(null);
+            setDropTargetProjectId(null);
+          }}
+          onDragEnd={() => {
+            setDraggedProjectId(null);
+            setDropTargetProjectId(null);
+          }}
+          className={cn(
+            "relative",
+            draggedProjectId === project.id && "opacity-40",
+          )}
+        >
+          {dropTargetProjectId === project.id &&
+            draggedProjectId !== project.id && (
+              <div className="absolute top-0 left-3 right-3 h-0.5 rounded-full bg-foreground" />
+            )}
+          <SidebarProjectSection
+            project={project}
+            projectChats={projectSessionsByProject[project.id] ?? []}
+            isExpanded={expandedProjects[project.id] ?? false}
+            toggleProject={toggleProject}
+            activeSessionId={activeSessionId}
+            onSelectSession={onSelectSession}
+            onNewChatInProject={onNewChatInProject}
+            onNavigate={onNavigate}
+            onEditProject={onEditProject}
+            onArchiveProject={onArchiveProject}
+            onArchiveChat={onArchiveChat}
+            onRenameChat={onRenameChat}
+            onMoveToProject={onMoveToProject}
+          />
+        </div>
+      ))}
+    </div>
+  );
+}
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarProjectSection.tsx b/ui/goose2/src/features/sidebar/ui/SidebarProjectSection.tsx
new file mode 100644
index 00000000..3036f067
--- /dev/null
+++ b/ui/goose2/src/features/sidebar/ui/SidebarProjectSection.tsx
@@ -0,0 +1,226 @@
+import { useCallback, useState, type DragEvent } from "react";
+import { useTranslation } from "react-i18next";
+import {
+  IconChevronDown,
+  IconChevronRight,
+  IconEdit,
+} from "@tabler/icons-react";
+import type { AppView } from "@/app/AppShell";
+import type { ProjectInfo } from "@/features/projects/api/projects";
+import { ProjectIcon } from "@/features/projects/ui/ProjectIcon";
+import { cn } from "@/shared/lib/cn";
+import { Button } from "@/shared/ui/button";
+import { SidebarChatRow } from "./SidebarChatRow";
+import { SidebarItemMenu } from "./SidebarItemMenu";
+
+const MAX_VISIBLE_CHATS = 5;
+const PROJECT_ROW_TEXT_CLASS =
+  "text-foreground hover:bg-transparent hover:text-foreground";
+
+interface TabInfo {
+  id: string;
+  title: string;
+  projectId?: string;
+  isRunning?: boolean;
+  hasUnread?: boolean;
+}
+
+export function SidebarProjectSection({
+  project,
+  projectChats,
+  isExpanded,
+  toggleProject,
+  activeSessionId,
+  onSelectSession,
+  onNewChatInProject,
+  onNavigate,
+  onEditProject,
+  onArchiveProject,
+  onArchiveChat,
+  onRenameChat,
+  onMoveToProject,
+}: {
+  project: ProjectInfo;
+  projectChats: TabInfo[];
+  isExpanded: boolean;
+  toggleProject: (projectId: string) => void;
+  activeSessionId?: string | null;
+  onSelectSession?: (sessionId: string) => void;
+  onNewChatInProject?: (projectId: string) => void;
+  onNavigate?: (view: AppView) => void;
+  onEditProject?: (projectId: string) => void;
+  onArchiveProject?: (projectId: string) => void;
+  onArchiveChat?: (sessionId: string) => void;
+  onRenameChat?: (sessionId: string, nextTitle: string) => void;
+  onMoveToProject?: (sessionId: string, projectId: string | null) => void;
+}) {
+  const { t } = useTranslation(["sidebar", "common"]);
+  const [showAll, setShowAll] = useState(false);
+  const [dragOver, setDragOver] = useState(false);
+  const [menuOpen, setMenuOpen] = useState(false);
+
+  const handleDragOver = useCallback((e: DragEvent<HTMLDivElement>) => {
+    if (e.dataTransfer.types.includes("text/x-session-id")) {
+      e.preventDefault();
+      e.dataTransfer.dropEffect = "move";
+      setDragOver(true);
+    }
+  }, []);
+
+  const handleDragLeave = useCallback((e: DragEvent<HTMLDivElement>) => {
+    if (!e.currentTarget.contains(e.relatedTarget as Node)) {
+      setDragOver(false);
+    }
+  }, []);
+
+  const handleDrop = useCallback(
+    (e: DragEvent<HTMLDivElement>) => {
+      e.preventDefault();
+      setDragOver(false);
+      const sessionId = e.dataTransfer.getData("text/x-session-id");
+      if (sessionId) {
+        onMoveToProject?.(sessionId, project.id);
+        if (!isExpanded) toggleProject(project.id);
+      }
+    },
+    [onMoveToProject, project.id, isExpanded, toggleProject],
+  );
+  const visibleChats = projectChats.slice(
+    0,
+    showAll ? undefined : MAX_VISIBLE_CHATS,
+  );
+
+  return (
+    // biome-ignore lint/a11y/noStaticElementInteractions: drop target for drag-and-drop
+    <div
+      onDragOver={handleDragOver}
+      onDragLeave={handleDragLeave}
+      onDrop={handleDrop}
+    >
+      <div
+        className={cn(
+          "relative flex items-center group rounded-md transition-colors duration-200 hover:bg-background-alt focus-within:bg-background-alt",
+          menuOpen && "bg-background-alt",
+        )}
+      >
+        <Button
+          type="button"
+          variant="ghost"
+          size="sm"
+          onClick={() => toggleProject(project.id)}
+          className={cn(
+            "flex-1 min-w-0 justify-start gap-2 rounded-md px-3 py-2 text-sm font-normal",
+            PROJECT_ROW_TEXT_CLASS,
+          )}
+        >
+          <span className="relative flex h-4 w-4 flex-shrink-0 items-center justify-center text-foreground">
+            <span className="absolute group-hover:opacity-0">
+              <ProjectIcon
+                icon={project.icon}
+                className="size-3.5"
+                imageClassName="size-3.5 rounded-[3px]"
+              />
+            </span>
+            {isExpanded ? (
+              <IconChevronDown className="absolute size-3 opacity-0 group-hover:opacity-100" />
+            ) : (
+              <IconChevronRight className="absolute size-3 opacity-0 group-hover:opacity-100" />
+            )}
+          </span>
+          <span className="flex-1 min-w-0 truncate text-left">
+            {project.name}
+          </span>
+        </Button>
+        <SidebarItemMenu
+          label={project.name}
+          onOpenChange={setMenuOpen}
+          onEdit={() => onEditProject?.(project.id)}
+          onArchive={() => onArchiveProject?.(project.id)}
+        />
+        <Button
+          type="button"
+          variant="ghost"
+          size="icon-xs"
+          onClick={(e) => {
+            e.stopPropagation();
+            onNewChatInProject?.(project.id);
+          }}
+          title={t("actions.newChatInProject")}
+          className={cn(
+            "mr-1 size-6 flex-shrink-0 rounded-md",
+            menuOpen
+              ? "visible opacity-100"
+              : "invisible opacity-0 group-hover:visible group-hover:opacity-100 group-focus-within:visible group-focus-within:opacity-100",
+          )}
+        >
+          <IconEdit className="size-4" />
+        </Button>
+
+        {dragOver && (
+          <div className="absolute bottom-0 left-3 right-3 h-px bg-foreground" />
+        )}
+      </div>
+
+      {isExpanded && (
+        <div className="mt-0.5 space-y-0.5">
+          {visibleChats.map((session) => {
+            const isActive = activeSessionId === session.id;
+            return (
+              <SidebarChatRow
+                key={session.id}
+                id={session.id}
+                title={session.title}
+                isActive={isActive}
+                isRunning={session.isRunning ?? false}
+                hasUnread={session.hasUnread ?? false}
+                nested
+                onSelect={onSelectSession}
+                onRename={onRenameChat}
+                onArchive={onArchiveChat}
+              />
+            );
+          })}
+          {projectChats.length > MAX_VISIBLE_CHATS && (
+            <Button
+              type="button"
+              variant="ghost"
+              size="xs"
+              onClick={() => {
+                if (showAll) {
+                  setShowAll(false);
+                } else {
+                  if (projectChats.length > 8) {
+                    onNavigate?.("projects");
+                  } else {
+                    setShowAll(true);
+                  }
+                }
+              }}
+              className="h-auto w-full justify-start gap-1.5 rounded-md py-1 pl-8 pr-3 text-[11px] text-foreground hover:text-foreground"
+            >
+              {showAll ? (
+                <>
+                  <IconChevronDown className="size-3" />
+                  {t("showLess")}
+                </>
+              ) : (
+                <>
+                  <IconChevronRight className="size-3" />
+                  {projectChats.length > 8
+                    ? t("viewAllChats", {
+                        count: projectChats.length,
+                        displayCount: projectChats.length,
+                      })
+                    : t("moreChats", {
+                        count: projectChats.length - MAX_VISIBLE_CHATS,
+                        displayCount: projectChats.length - MAX_VISIBLE_CHATS,
+                      })}
+                </>
+              )}
+            </Button>
+          )}
+        </div>
+      )}
+    </div>
+  );
+}
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarProjectsSection.tsx b/ui/goose2/src/features/sidebar/ui/SidebarProjectsSection.tsx
index be880b98..39d5517a 100644
--- a/ui/goose2/src/features/sidebar/ui/SidebarProjectsSection.tsx
+++ b/ui/goose2/src/features/sidebar/ui/SidebarProjectsSection.tsx
@@ -1,24 +1,10 @@
-import { useCallback, useState } from "react";
 import { useTranslation } from "react-i18next";
-import {
-  IconChevronDown,
-  IconChevronRight,
-  IconLibraryPlusFilled,
-  IconMessage,
-  IconPlus,
-} from "@tabler/icons-react";
-import { getDisplaySessionTitle } from "@/features/chat/lib/sessionTitle";
-import { cn } from "@/shared/lib/cn";
-import { Button } from "@/shared/ui/button";
 import type { AppView } from "@/app/AppShell";
 import type { ProjectInfo } from "@/features/projects/api/projects";
-import { SessionActivityIndicator } from "@/shared/ui/SessionActivityIndicator";
-import { SidebarItemMenu } from "./SidebarItemMenu";
-import { SidebarChatRow } from "./SidebarChatRow";
-
-const MAX_VISIBLE_CHATS = 5;
-const PROJECT_ROW_TEXT_CLASS =
-  "text-muted-foreground hover:bg-transparent hover:text-foreground group-hover:text-foreground";
+import { cn } from "@/shared/lib/cn";
+import { Button } from "@/shared/ui/button";
+import { SidebarProjectList } from "./SidebarProjectList";
+import { SidebarRecentsSection } from "./SidebarRecentsSection";
 
 interface TabInfo {
   id: string;
@@ -39,7 +25,6 @@ interface SidebarProjectsSectionProps {
   labelTransition: string;
   labelVisible: boolean;
   activeSessionId?: string | null;
-  activeProjectId?: string | null;
   onNavigate?: (view: AppView) => void;
   onSelectSession?: (sessionId: string) => void;
   onNewChatInProject?: (projectId: string) => void;
@@ -51,212 +36,6 @@ interface SidebarProjectsSectionProps {
   onRenameChat?: (sessionId: string, nextTitle: string) => void;
   onMoveToProject?: (sessionId: string, projectId: string | null) => void;
   onReorderProject?: (fromId: string, toId: string) => void;
-  onItemMouseEnter?: (e: React.MouseEvent<HTMLElement>) => void;
-  activeSessionRefCallback?: (el: HTMLElement | null) => void;
-  activeProjectRefCallback?: (el: HTMLElement | null) => void;
-}
-
-function ProjectSection({
-  project,
-  projectChats,
-  isExpanded,
-  toggleProject,
-  activeSessionId,
-  activeProjectId,
-  onSelectSession,
-  onNewChatInProject,
-  onNavigate,
-  onEditProject,
-  onArchiveProject,
-  onArchiveChat,
-  onRenameChat,
-  onMoveToProject,
-  onItemMouseEnter,
-  activeSessionRefCallback,
-  activeProjectRefCallback,
-}: {
-  project: ProjectInfo;
-  projectChats: TabInfo[];
-  isExpanded: boolean;
-  toggleProject: (projectId: string) => void;
-  activeSessionId?: string | null;
-  activeProjectId?: string | null;
-  onSelectSession?: (sessionId: string) => void;
-  onNewChatInProject?: (projectId: string) => void;
-  onNavigate?: (view: AppView) => void;
-  onEditProject?: (projectId: string) => void;
-  onArchiveProject?: (projectId: string) => void;
-  onArchiveChat?: (sessionId: string) => void;
-  onRenameChat?: (sessionId: string, nextTitle: string) => void;
-  onMoveToProject?: (sessionId: string, projectId: string | null) => void;
-  onItemMouseEnter?: (e: React.MouseEvent<HTMLElement>) => void;
-  activeSessionRefCallback?: (el: HTMLElement | null) => void;
-  activeProjectRefCallback?: (el: HTMLElement | null) => void;
-}) {
-  const { t } = useTranslation(["sidebar", "common"]);
-  const [showAll, setShowAll] = useState(false);
-  const [dragOver, setDragOver] = useState(false);
-
-  const handleDragOver = useCallback((e: React.DragEvent) => {
-    if (e.dataTransfer.types.includes("text/x-session-id")) {
-      e.preventDefault();
-      e.dataTransfer.dropEffect = "move";
-      setDragOver(true);
-    }
-  }, []);
-
-  const handleDragLeave = useCallback((e: React.DragEvent) => {
-    if (!e.currentTarget.contains(e.relatedTarget as Node)) {
-      setDragOver(false);
-    }
-  }, []);
-
-  const handleDrop = useCallback(
-    (e: React.DragEvent) => {
-      e.preventDefault();
-      setDragOver(false);
-      const sessionId = e.dataTransfer.getData("text/x-session-id");
-      if (sessionId) {
-        onMoveToProject?.(sessionId, project.id);
-        if (!isExpanded) toggleProject(project.id);
-      }
-    },
-    [onMoveToProject, project.id, isExpanded, toggleProject],
-  );
-  const visibleChats = projectChats.slice(
-    0,
-    showAll ? undefined : MAX_VISIBLE_CHATS,
-  );
-
-  return (
-    // biome-ignore lint/a11y/noStaticElementInteractions: drop target for drag-and-drop
-    <div
-      onDragOver={handleDragOver}
-      onDragLeave={handleDragLeave}
-      onDrop={handleDrop}
-    >
-      <div
-        ref={
-          activeProjectId === project.id ? activeProjectRefCallback : undefined
-        }
-        className="relative flex items-center group rounded-md transition-colors duration-200"
-      >
-        <Button
-          type="button"
-          variant="ghost"
-          size="sm"
-          onClick={() => toggleProject(project.id)}
-          onMouseEnter={onItemMouseEnter}
-          className={cn(
-            "flex-1 min-w-0 justify-start gap-2 rounded-md px-3 py-2 text-[13px] font-light",
-            activeProjectId === project.id
-              ? "font-medium text-foreground hover:bg-transparent hover:text-foreground group-hover:text-foreground"
-              : PROJECT_ROW_TEXT_CLASS,
-          )}
-        >
-          <span className="relative flex h-3 w-3 flex-shrink-0 items-center justify-center">
-            <span
-              className="absolute inline-block h-2 w-2 rounded-full transition-opacity duration-150 group-hover:opacity-0"
-              style={{ backgroundColor: project.color }}
-            />
-            {isExpanded ? (
-              <IconChevronDown className="absolute h-3 w-3 opacity-0 transition-opacity duration-150 group-hover:opacity-100" />
-            ) : (
-              <IconChevronRight className="absolute h-3 w-3 opacity-0 transition-opacity duration-150 group-hover:opacity-100" />
-            )}
-          </span>
-          <span className="flex-1 min-w-0 truncate text-left">
-            {project.name}
-          </span>
-        </Button>
-        <SidebarItemMenu
-          label={project.name}
-          onEdit={() => onEditProject?.(project.id)}
-          onArchive={() => onArchiveProject?.(project.id)}
-        />
-        <Button
-          type="button"
-          variant="ghost"
-          size="icon-xs"
-          onClick={(e) => {
-            e.stopPropagation();
-            onNewChatInProject?.(project.id);
-          }}
-          title={t("actions.newChatInProject")}
-          className="mr-1 size-6 flex-shrink-0 rounded-md text-muted-foreground hover:text-foreground"
-        >
-          <IconPlus className="size-3.5" />
-        </Button>
-
-        {dragOver && (
-          <div className="absolute bottom-0 left-3 right-3 h-px bg-foreground" />
-        )}
-      </div>
-
-      {isExpanded && (
-        <div className="mt-0.5 space-y-0.5">
-          {visibleChats.map((session) => {
-            const isActive = activeSessionId === session.id;
-            return (
-              <SidebarChatRow
-                key={session.id}
-                id={session.id}
-                title={session.title}
-                isActive={isActive}
-                isRunning={session.isRunning ?? false}
-                hasUnread={session.hasUnread ?? false}
-                className="pl-5"
-                onSelect={onSelectSession}
-                onRename={onRenameChat}
-                onArchive={onArchiveChat}
-                onMouseEnter={onItemMouseEnter}
-                activeRef={isActive ? activeSessionRefCallback : undefined}
-              />
-            );
-          })}
-          {projectChats.length > MAX_VISIBLE_CHATS && (
-            <Button
-              type="button"
-              variant="ghost"
-              size="xs"
-              onClick={() => {
-                if (showAll) {
-                  setShowAll(false);
-                } else {
-                  if (projectChats.length > 8) {
-                    onNavigate?.("projects");
-                  } else {
-                    setShowAll(true);
-                  }
-                }
-              }}
-              className="h-auto w-full justify-start gap-1.5 rounded-md py-1 pl-8 pr-3 text-[11px] text-muted-foreground hover:text-muted-foreground"
-            >
-              {showAll ? (
-                <>
-                  <IconChevronDown className="size-3" />
-                  {t("showLess")}
-                </>
-              ) : (
-                <>
-                  <IconChevronRight className="size-3" />
-                  {projectChats.length > 8
-                    ? t("viewAllChats", {
-                        count: projectChats.length,
-                        displayCount: projectChats.length,
-                      })
-                    : t("moreChats", {
-                        count: projectChats.length - MAX_VISIBLE_CHATS,
-                        displayCount: projectChats.length - MAX_VISIBLE_CHATS,
-                      })}
-                </>
-              )}
-            </Button>
-          )}
-        </div>
-      )}
-    </div>
-  );
 }
 
 export function SidebarProjectsSection({
@@ -268,7 +47,6 @@ export function SidebarProjectsSection({
   labelTransition,
   labelVisible,
   activeSessionId,
-  activeProjectId,
   onNavigate,
   onSelectSession,
   onNewChatInProject,
@@ -280,43 +58,8 @@ export function SidebarProjectsSection({
   onRenameChat,
   onMoveToProject,
   onReorderProject,
-  onItemMouseEnter,
-  activeSessionRefCallback,
-  activeProjectRefCallback,
 }: SidebarProjectsSectionProps) {
   const { t } = useTranslation(["sidebar", "common"]);
-  const [recentsDragOver, setRecentsDragOver] = useState(false);
-  const [draggedProjectId, setDraggedProjectId] = useState<string | null>(null);
-  const [dropTargetProjectId, setDropTargetProjectId] = useState<string | null>(
-    null,
-  );
-
-  const handleRecentsDragOver = useCallback((e: React.DragEvent) => {
-    const hasSession = e.dataTransfer.types.includes("text/x-session-id");
-    if (hasSession) {
-      e.preventDefault();
-      e.dataTransfer.dropEffect = "move";
-      setRecentsDragOver(true);
-    }
-  }, []);
-
-  const handleRecentsDragLeave = useCallback((e: React.DragEvent) => {
-    if (!e.currentTarget.contains(e.relatedTarget as Node)) {
-      setRecentsDragOver(false);
-    }
-  }, []);
-
-  const handleRecentsDrop = useCallback(
-    (e: React.DragEvent) => {
-      e.preventDefault();
-      setRecentsDragOver(false);
-      const sessionId = e.dataTransfer.getData("text/x-session-id");
-      if (sessionId) {
-        onMoveToProject?.(sessionId, null);
-      }
-    },
-    [onMoveToProject],
-  );
 
   return (
     <div
@@ -332,13 +75,13 @@ export function SidebarProjectsSection({
     >
       <div
         className={cn(
-          "group flex items-center transition-all duration-300",
-          collapsed ? "px-0 pt-0 pb-1 justify-center" : "pt-4 pb-1",
+          "group/projects-header flex items-center transition-all duration-300",
+          collapsed ? "px-0 pt-0 pb-1 justify-center" : "pt-5 pb-1.5",
         )}
       >
         <span
           className={cn(
-            "text-xs font-light uppercase tracking-wider text-muted-foreground flex-1 pl-3",
+            "text-[12px] font-normal text-muted-foreground/80 flex-1 pl-3",
             labelTransition,
             labelVisible
               ? "opacity-100 w-auto"
@@ -351,211 +94,49 @@ export function SidebarProjectsSection({
           <Button
             type="button"
             variant="ghost"
-            size="icon-xs"
+            size="xs"
             onClick={onCreateProject}
             title={t("actions.newProject")}
             className={cn(
-              "mr-1 size-6 flex-shrink-0 rounded-md text-muted-foreground hover:text-foreground",
-              "opacity-0 group-hover:opacity-100 group-focus-within:opacity-100",
+              "mr-1 h-6 flex-shrink-0 rounded-full bg-muted px-2 text-[11px] text-foreground opacity-0 transition-opacity duration-150 ease-out hover:bg-muted/80 hover:text-foreground",
+              "pointer-events-none group-hover/projects-header:pointer-events-auto group-hover/projects-header:opacity-100 focus-visible:pointer-events-auto focus-visible:opacity-100",
             )}
           >
-            <IconLibraryPlusFilled className="size-3.5" />
+            {t("actions.newProject")}
           </Button>
         )}
       </div>
 
-      {collapsed ? (
-        <div className="flex flex-col items-center gap-1">
-          {projects.map((project) => (
-            <Button
-              type="button"
-              variant="ghost"
-              size="icon-xs"
-              key={project.id}
-              title={project.name}
-              onClick={() => onNavigate?.("projects")}
-              className="rounded-lg text-muted-foreground hover:text-foreground hover:bg-accent/50"
-            >
-              <span
-                className="inline-block size-2.5 rounded-full"
-                style={{ backgroundColor: project.color }}
-              />
-            </Button>
-          ))}
-        </div>
-      ) : (
-        <div className="space-y-0.5">
-          {projects.map((project) => (
-            // biome-ignore lint/a11y/noStaticElementInteractions: drag-and-drop reorder target
-            <div
-              key={project.id}
-              draggable
-              onDragStart={(e) => {
-                // Skip if a child chat row already initiated a session drag
-                if (e.dataTransfer.types.includes("text/x-session-id")) return;
-                e.dataTransfer.setData("text/x-project-id", project.id);
-                e.dataTransfer.effectAllowed = "move";
-                setDraggedProjectId(project.id);
-              }}
-              onDragOver={(e) => {
-                if (e.dataTransfer.types.includes("text/x-project-id")) {
-                  e.preventDefault();
-                  e.dataTransfer.dropEffect = "move";
-                  if (project.id !== draggedProjectId) {
-                    setDropTargetProjectId(project.id);
-                  }
-                }
-              }}
-              onDragLeave={(e) => {
-                if (!e.currentTarget.contains(e.relatedTarget as Node)) {
-                  setDropTargetProjectId((prev) =>
-                    prev === project.id ? null : prev,
-                  );
-                }
-              }}
-              onDrop={(e) => {
-                const fromId = e.dataTransfer.getData("text/x-project-id");
-                if (fromId && fromId !== project.id) {
-                  e.preventDefault();
-                  e.stopPropagation();
-                  onReorderProject?.(fromId, project.id);
-                }
-                setDraggedProjectId(null);
-                setDropTargetProjectId(null);
-              }}
-              onDragEnd={() => {
-                setDraggedProjectId(null);
-                setDropTargetProjectId(null);
-              }}
-              className={cn(
-                "relative",
-                draggedProjectId === project.id && "opacity-40",
-              )}
-            >
-              {dropTargetProjectId === project.id &&
-                draggedProjectId !== project.id && (
-                  <div className="absolute top-0 left-3 right-3 h-0.5 rounded-full bg-foreground" />
-                )}
-              <ProjectSection
-                project={project}
-                projectChats={projectSessions.byProject[project.id] ?? []}
-                isExpanded={expandedProjects[project.id] ?? false}
-                toggleProject={toggleProject}
-                activeSessionId={activeSessionId}
-                activeProjectId={activeProjectId}
-                onSelectSession={onSelectSession}
-                onNewChatInProject={onNewChatInProject}
-                onNavigate={onNavigate}
-                onEditProject={onEditProject}
-                onArchiveProject={onArchiveProject}
-                onArchiveChat={onArchiveChat}
-                onRenameChat={onRenameChat}
-                onMoveToProject={onMoveToProject}
-                onItemMouseEnter={onItemMouseEnter}
-                activeSessionRefCallback={activeSessionRefCallback}
-                activeProjectRefCallback={activeProjectRefCallback}
-              />
-            </div>
-          ))}
-        </div>
-      )}
+      <SidebarProjectList
+        projects={projects}
+        projectSessionsByProject={projectSessions.byProject}
+        expandedProjects={expandedProjects}
+        toggleProject={toggleProject}
+        collapsed={collapsed}
+        activeSessionId={activeSessionId}
+        onNavigate={onNavigate}
+        onSelectSession={onSelectSession}
+        onNewChatInProject={onNewChatInProject}
+        onEditProject={onEditProject}
+        onArchiveProject={onArchiveProject}
+        onArchiveChat={onArchiveChat}
+        onRenameChat={onRenameChat}
+        onMoveToProject={onMoveToProject}
+        onReorderProject={onReorderProject}
+      />
 
-      {/* --- RECENTS — always rendered as a drop target so chats can be unassigned from projects --- */}
-      {/* biome-ignore lint/a11y/noStaticElementInteractions: drop target for drag-and-drop */}
-      <div
-        onDragOver={handleRecentsDragOver}
-        onDragLeave={handleRecentsDragLeave}
-        onDrop={handleRecentsDrop}
-      >
-        <div
-          className={cn(
-            "relative group flex items-center transition-all duration-300",
-            collapsed ? "px-0 pt-0 pb-1 justify-center" : "pt-4 pb-1",
-          )}
-        >
-          <span
-            className={cn(
-              "text-xs font-light uppercase tracking-wider text-muted-foreground flex-1 pl-3",
-              labelTransition,
-              labelVisible
-                ? "opacity-100 w-auto"
-                : "opacity-0 w-0 overflow-hidden",
-            )}
-          >
-            {t("sections.recents")}
-          </span>
-          {!collapsed && onNewChat && (
-            <Button
-              type="button"
-              variant="ghost"
-              size="icon-xs"
-              onClick={onNewChat}
-              aria-label={t("actions.newChat")}
-              title={t("actions.newChat")}
-              className="mr-1 size-6 flex-shrink-0 rounded-md text-muted-foreground hover:text-foreground"
-            >
-              <IconPlus className="size-3.5" />
-            </Button>
-          )}
-
-          {recentsDragOver && (
-            <div className="absolute bottom-0 left-3 right-3 h-px bg-foreground" />
-          )}
-        </div>
-
-        {projectSessions.standalone.length > 0 &&
-          (collapsed ? (
-            <div className="flex flex-col items-center gap-1">
-              {projectSessions.standalone.map((session) => (
-                <Button
-                  type="button"
-                  variant="ghost"
-                  size="icon-xs"
-                  key={session.id}
-                  title={getDisplaySessionTitle(
-                    session.title,
-                    t("common:session.defaultTitle"),
-                  )}
-                  onClick={() => onSelectSession?.(session.id)}
-                  className={cn(
-                    "relative rounded-lg",
-                    activeSessionId === session.id
-                      ? "bg-accent/70 text-foreground hover:bg-accent/70"
-                      : "text-muted-foreground hover:text-foreground",
-                  )}
-                >
-                  <IconMessage className="size-4" />
-                  <SessionActivityIndicator
-                    isRunning={session.isRunning}
-                    hasUnread={session.hasUnread}
-                    variant="overlay"
-                  />
-                </Button>
-              ))}
-            </div>
-          ) : (
-            <div className="space-y-0.5">
-              {projectSessions.standalone.map((session) => {
-                const isActive = activeSessionId === session.id;
-                return (
-                  <SidebarChatRow
-                    key={session.id}
-                    id={session.id}
-                    title={session.title}
-                    isActive={isActive}
-                    isRunning={session.isRunning ?? false}
-                    hasUnread={session.hasUnread ?? false}
-                    onSelect={onSelectSession}
-                    onRename={onRenameChat}
-                    onArchive={onArchiveChat}
-                    onMouseEnter={onItemMouseEnter}
-                    activeRef={isActive ? activeSessionRefCallback : undefined}
-                  />
-                );
-              })}
-            </div>
-          ))}
-      </div>
+      <SidebarRecentsSection
+        sessions={projectSessions.standalone}
+        collapsed={collapsed}
+        labelTransition={labelTransition}
+        labelVisible={labelVisible}
+        activeSessionId={activeSessionId}
+        onNewChat={onNewChat}
+        onSelectSession={onSelectSession}
+        onArchiveChat={onArchiveChat}
+        onRenameChat={onRenameChat}
+        onMoveToProject={onMoveToProject}
+      />
     </div>
   );
 }
diff --git a/ui/goose2/src/features/sidebar/ui/SidebarRecentsSection.tsx b/ui/goose2/src/features/sidebar/ui/SidebarRecentsSection.tsx
new file mode 100644
index 00000000..e965d890
--- /dev/null
+++ b/ui/goose2/src/features/sidebar/ui/SidebarRecentsSection.tsx
@@ -0,0 +1,169 @@
+import { useCallback, useState, type DragEvent } from "react";
+import { useTranslation } from "react-i18next";
+import { IconMessage } from "@tabler/icons-react";
+import { getDisplaySessionTitle } from "@/features/chat/lib/sessionTitle";
+import { cn } from "@/shared/lib/cn";
+import { Button } from "@/shared/ui/button";
+import { SessionActivityIndicator } from "@/shared/ui/SessionActivityIndicator";
+import { SidebarChatRow } from "./SidebarChatRow";
+
+interface TabInfo {
+  id: string;
+  title: string;
+  projectId?: string;
+  isRunning?: boolean;
+  hasUnread?: boolean;
+}
+
+export function SidebarRecentsSection({
+  sessions,
+  collapsed,
+  labelTransition,
+  labelVisible,
+  activeSessionId,
+  onNewChat,
+  onSelectSession,
+  onArchiveChat,
+  onRenameChat,
+  onMoveToProject,
+}: {
+  sessions: TabInfo[];
+  collapsed: boolean;
+  labelTransition: string;
+  labelVisible: boolean;
+  activeSessionId?: string | null;
+  onNewChat?: () => void;
+  onSelectSession?: (sessionId: string) => void;
+  onArchiveChat?: (sessionId: string) => void;
+  onRenameChat?: (sessionId: string, nextTitle: string) => void;
+  onMoveToProject?: (sessionId: string, projectId: string | null) => void;
+}) {
+  const { t } = useTranslation(["sidebar", "common"]);
+  const [recentsDragOver, setRecentsDragOver] = useState(false);
+
+  const handleRecentsDragOver = useCallback((e: DragEvent<HTMLDivElement>) => {
+    const hasSession = e.dataTransfer.types.includes("text/x-session-id");
+    if (hasSession) {
+      e.preventDefault();
+      e.dataTransfer.dropEffect = "move";
+      setRecentsDragOver(true);
+    }
+  }, []);
+
+  const handleRecentsDragLeave = useCallback((e: DragEvent<HTMLDivElement>) => {
+    if (!e.currentTarget.contains(e.relatedTarget as Node)) {
+      setRecentsDragOver(false);
+    }
+  }, []);
+
+  const handleRecentsDrop = useCallback(
+    (e: DragEvent<HTMLDivElement>) => {
+      e.preventDefault();
+      setRecentsDragOver(false);
+      const sessionId = e.dataTransfer.getData("text/x-session-id");
+      if (sessionId) {
+        onMoveToProject?.(sessionId, null);
+      }
+    },
+    [onMoveToProject],
+  );
+
+  return (
+    // biome-ignore lint/a11y/noStaticElementInteractions: drop target for drag-and-drop
+    <div
+      onDragOver={handleRecentsDragOver}
+      onDragLeave={handleRecentsDragLeave}
+      onDrop={handleRecentsDrop}
+    >
+      <div
+        className={cn(
+          "relative group/chats-header flex items-center transition-all duration-300",
+          collapsed ? "px-0 pt-0 pb-1 justify-center" : "pt-5 pb-1.5",
+        )}
+      >
+        <span
+          className={cn(
+            "text-[12px] font-normal text-muted-foreground/80 flex-1 pl-3",
+            labelTransition,
+            labelVisible
+              ? "opacity-100 w-auto"
+              : "opacity-0 w-0 overflow-hidden",
+          )}
+        >
+          {t("sections.recents")}
+        </span>
+        {!collapsed && onNewChat && (
+          <Button
+            type="button"
+            variant="ghost"
+            size="xs"
+            onClick={onNewChat}
+            aria-label={t("actions.newChat")}
+            title={t("actions.newChat")}
+            className={cn(
+              "mr-1 h-6 flex-shrink-0 rounded-full bg-muted px-2 text-[11px] text-foreground opacity-0 transition-opacity duration-150 ease-out hover:bg-muted/80 hover:text-foreground",
+              "pointer-events-none group-hover/chats-header:pointer-events-auto group-hover/chats-header:opacity-100 focus-visible:pointer-events-auto focus-visible:opacity-100",
+            )}
+          >
+            {t("actions.newChat")}
+          </Button>
+        )}
+
+        {recentsDragOver && (
+          <div className="absolute bottom-0 left-3 right-3 h-px bg-foreground" />
+        )}
+      </div>
+
+      {sessions.length > 0 &&
+        (collapsed ? (
+          <div className="flex flex-col items-center gap-1">
+            {sessions.map((session) => (
+              <Button
+                type="button"
+                variant="ghost"
+                size="icon-xs"
+                key={session.id}
+                title={getDisplaySessionTitle(
+                  session.title,
+                  t("common:session.defaultTitle"),
+                )}
+                onClick={() => onSelectSession?.(session.id)}
+                className={cn(
+                  "relative rounded-lg",
+                  activeSessionId === session.id
+                    ? "bg-transparent text-foreground hover:bg-transparent"
+                    : "text-foreground hover:text-foreground",
+                )}
+              >
+                <IconMessage className="size-4" />
+                <SessionActivityIndicator
+                  isRunning={session.isRunning}
+                  hasUnread={session.hasUnread}
+                  variant="overlay"
+                />
+              </Button>
+            ))}
+          </div>
+        ) : (
+          <div className="space-y-0.5">
+            {sessions.map((session) => {
+              const isActive = activeSessionId === session.id;
+              return (
+                <SidebarChatRow
+                  key={session.id}
+                  id={session.id}
+                  title={session.title}
+                  isActive={isActive}
+                  isRunning={session.isRunning ?? false}
+                  hasUnread={session.hasUnread ?? false}
+                  onSelect={onSelectSession}
+                  onRename={onRenameChat}
+                  onArchive={onArchiveChat}
+                />
+              );
+            })}
+          </div>
+        ))}
+    </div>
+  );
+}
diff --git a/ui/goose2/src/features/sidebar/ui/useSidebarHighlight.ts b/ui/goose2/src/features/sidebar/ui/useSidebarHighlight.ts
deleted file mode 100644
index 4f8a67b9..00000000
--- a/ui/goose2/src/features/sidebar/ui/useSidebarHighlight.ts
+++ /dev/null
@@ -1,114 +0,0 @@
-import { useCallback, useEffect, useRef, useState } from "react";
-
-interface HighlightRect {
-  top: number;
-  height: number;
-  width: number;
-}
-
-export function useSidebarHighlight(
-  navRef: React.RefObject<HTMLElement | null>,
-) {
-  const [hoveredRect, setHoveredRect] = useState<HighlightRect | null>(null);
-  const [activeRect, setActiveRect] = useState<HighlightRect | null>(null);
-  const [isHovering, setIsHovering] = useState(false);
-  const [isResizing, setIsResizing] = useState(false);
-  const activeElRef = useRef<HTMLElement | null>(null);
-  const resizeTimerRef = useRef(0);
-
-  const measureElement = useCallback(
-    (el: HTMLElement): HighlightRect | null => {
-      const nav = navRef.current;
-      if (!nav || !el) return null;
-      const navRect = nav.getBoundingClientRect();
-      const elRect = el.getBoundingClientRect();
-      return {
-        top: elRect.top - navRect.top + nav.scrollTop,
-        height: elRect.height,
-        width: elRect.width,
-      };
-    },
-    [navRef],
-  );
-
-  // Re-measure the active element whenever the nav subtree changes
-  // (project expand/collapse, list re-sort, filtering, show-more, etc.).
-  useEffect(() => {
-    const nav = navRef.current;
-    if (!nav) return;
-
-    let rafId = 0;
-    const remeasure = () => {
-      cancelAnimationFrame(rafId);
-      rafId = requestAnimationFrame(() => {
-        const el = activeElRef.current;
-        if (!el) return;
-        const rect = measureElement(el);
-        if (rect) setActiveRect(rect);
-      });
-    };
-
-    const mutationObserver = new MutationObserver(remeasure);
-    mutationObserver.observe(nav, { childList: true, subtree: true });
-
-    // Also re-measure when the nav resizes (e.g. sidebar expand/collapse
-    // transitions change item positions even without DOM mutations).
-    // Suppress the frame's transition while resizing so it snaps to position
-    // instead of sliding from the old (collapsed-layout) coordinates.
-    const resizeObserver = new ResizeObserver(() => {
-      setIsResizing(true);
-      clearTimeout(resizeTimerRef.current);
-      resizeTimerRef.current = window.setTimeout(
-        () => setIsResizing(false),
-        400,
-      );
-      remeasure();
-    });
-    resizeObserver.observe(nav);
-
-    return () => {
-      cancelAnimationFrame(rafId);
-      clearTimeout(resizeTimerRef.current);
-      mutationObserver.disconnect();
-      resizeObserver.disconnect();
-    };
-  }, [navRef, measureElement]);
-
-  const onItemMouseEnter = useCallback(
-    (e: React.MouseEvent<HTMLElement>) => {
-      setIsHovering(true);
-      const rect = measureElement(e.currentTarget);
-      if (rect) setHoveredRect(rect);
-    },
-    [measureElement],
-  );
-
-  const onNavMouseLeave = useCallback(() => {
-    setIsHovering(false);
-    setHoveredRect(null);
-  }, []);
-
-  const updateActiveRect = useCallback(
-    (el: HTMLElement | null) => {
-      activeElRef.current = el;
-      if (el) {
-        const rect = measureElement(el);
-        if (rect) setActiveRect(rect);
-      } else {
-        setActiveRect(null);
-      }
-    },
-    [measureElement],
-  );
-
-  const currentRect = isHovering && hoveredRect ? hoveredRect : activeRect;
-
-  return {
-    currentRect,
-    isHovering,
-    isResizing,
-    onItemMouseEnter,
-    onNavMouseLeave,
-    updateActiveRect,
-  };
-}
diff --git a/ui/goose2/src/features/status/ui/StatusBar.tsx b/ui/goose2/src/features/status/ui/StatusBar.tsx
deleted file mode 100644
index 08dcd77c..00000000
--- a/ui/goose2/src/features/status/ui/StatusBar.tsx
+++ /dev/null
@@ -1,75 +0,0 @@
-import { useState } from "react";
-import { useTranslation } from "react-i18next";
-import { Bot, Copy, Check } from "lucide-react";
-import { cn } from "@/shared/lib/cn";
-import { Button } from "@/shared/ui/button";
-import { useLocaleFormatting } from "@/shared/i18n";
-
-interface StatusBarProps {
-  modelName?: string;
-  sessionId?: string;
-  tokenCount?: number;
-}
-
-export function StatusBar({
-  modelName,
-  sessionId,
-  tokenCount = 0,
-}: StatusBarProps) {
-  const { t } = useTranslation("status");
-  const { formatNumber } = useLocaleFormatting();
-  const [copied, setCopied] = useState(false);
-
-  const handleCopySessionId = () => {
-    if (!sessionId) return;
-    navigator.clipboard.writeText(sessionId);
-    setCopied(true);
-    setTimeout(() => setCopied(false), 2000);
-  };
-
-  return (
-    <div
-      className={cn(
-        "flex h-6 w-full items-center justify-between",
-        "bg-background/80 px-3 text-xs text-muted-foreground",
-      )}
-    >
-      <div className="flex items-center gap-1.5 min-w-0">
-        <div className="flex items-center gap-1 min-w-0">
-          <Bot className="h-3.5 w-3.5 flex-shrink-0 text-muted-foreground" />
-          <span className="truncate text-muted-foreground">
-            {modelName ?? t("noModel")}
-          </span>
-        </div>
-      </div>
-
-      <div className="flex items-center gap-2">
-        {sessionId && (
-          <Button
-            type="button"
-            variant="ghost"
-            size="xs"
-            onClick={handleCopySessionId}
-            className="h-auto gap-1 rounded px-1 py-0.5 text-muted-foreground hover:text-muted-foreground"
-            title={t("sessionTitle", { id: sessionId })}
-          >
-            <span className="font-mono">{sessionId.slice(0, 8)}</span>
-            {copied ? (
-              <Check className="size-2.5" />
-            ) : (
-              <Copy className="size-2.5" />
-            )}
-          </Button>
-        )}
-        {tokenCount > 0 && (
-          <span className="text-muted-foreground">
-            {t("tokens", {
-              count: tokenCount,
-              displayCount: formatNumber(tokenCount),
-            })}
-          </span>
-        )}
-      </div>
-    </div>
-  );
-}
diff --git a/ui/goose2/src/shared/i18n/constants.ts b/ui/goose2/src/shared/i18n/constants.ts
index 0ae42867..fd41c205 100644
--- a/ui/goose2/src/shared/i18n/constants.ts
+++ b/ui/goose2/src/shared/i18n/constants.ts
@@ -10,7 +10,6 @@ export const TRANSLATION_NAMESPACES = [
   "settings",
   "skills",
   "sidebar",
-  "status",
   "sessions",
 ] as const;
 export const LOCALE_STORAGE_KEY = "goose:locale";
diff --git a/ui/goose2/src/shared/i18n/i18n.ts b/ui/goose2/src/shared/i18n/i18n.ts
index 1145723f..85430a44 100644
--- a/ui/goose2/src/shared/i18n/i18n.ts
+++ b/ui/goose2/src/shared/i18n/i18n.ts
@@ -36,7 +36,6 @@ const localeResourceLoaders = {
     settings: () => import("./locales/en/settings.json"),
     skills: () => import("./locales/en/skills.json"),
     sidebar: () => import("./locales/en/sidebar.json"),
-    status: () => import("./locales/en/status.json"),
     sessions: () => import("./locales/en/sessions.json"),
   },
   es: {
@@ -48,7 +47,6 @@ const localeResourceLoaders = {
     settings: () => import("./locales/es/settings.json"),
     skills: () => import("./locales/es/skills.json"),
     sidebar: () => import("./locales/es/sidebar.json"),
-    status: () => import("./locales/es/status.json"),
     sessions: () => import("./locales/es/sessions.json"),
   },
 } as const satisfies Record<
diff --git a/ui/goose2/src/shared/i18n/locales/en/projects.json b/ui/goose2/src/shared/i18n/locales/en/projects.json
index 7224f667..a63f7abf 100644
--- a/ui/goose2/src/shared/i18n/locales/en/projects.json
+++ b/ui/goose2/src/shared/i18n/locales/en/projects.json
@@ -6,7 +6,33 @@
     "colorAria": "Color {{color}}",
     "createProject": "Create Project",
     "creating": "Creating...",
+    "customIcon": "Custom icon",
+    "customIconDialogTitle": "Select Icon",
     "editTitle": "Edit Project",
+    "icon": "Icon",
+    "iconAria": "Icon {{icon}}",
+    "iconCandidateTitle": "{{sourceDir}}: {{label}}",
+    "iconFileFilter": "Image files",
+    "iconPresets": {
+      "ai": "AI",
+      "api": "API",
+      "app": "App",
+      "automation": "Automation",
+      "code": "Code",
+      "components": "Components",
+      "database": "Database",
+      "design": "Design",
+      "docs": "Docs",
+      "folderCode": "Folder code",
+      "gitBranch": "Git branch",
+      "github": "GitHub",
+      "launch": "Launch",
+      "package": "Package",
+      "server": "Server",
+      "settings": "Settings",
+      "terminal": "Terminal",
+      "website": "Website"
+    },
     "instructions": "Instructions",
     "instructionsPlaceholder": "System prompt or context for agents working in this project...",
     "name": "Name",
@@ -15,6 +41,8 @@
     "noneUseDefault": "None (use default)",
     "provider": "Provider",
     "saving": "Saving...",
+    "scanningIcons": "Scanning...",
+    "uploadIcon": "Upload",
     "useWorktrees": "Use git worktrees for branch isolation"
   },
   "view": {
diff --git a/ui/goose2/src/shared/i18n/locales/en/sidebar.json b/ui/goose2/src/shared/i18n/locales/en/sidebar.json
index 114b0ce6..b1e0bda5 100644
--- a/ui/goose2/src/shared/i18n/locales/en/sidebar.json
+++ b/ui/goose2/src/shared/i18n/locales/en/sidebar.json
@@ -23,7 +23,7 @@
   },
   "sections": {
     "projects": "Projects",
-    "recents": "Recents"
+    "recents": "Chats"
   },
   "showLess": "Show less",
   "viewAllChats_one": "View all {{displayCount}} chat",
diff --git a/ui/goose2/src/shared/i18n/locales/en/status.json b/ui/goose2/src/shared/i18n/locales/en/status.json
deleted file mode 100644
index 489223ff..00000000
--- a/ui/goose2/src/shared/i18n/locales/en/status.json
+++ /dev/null
@@ -1,6 +0,0 @@
-{
-  "noModel": "No model",
-  "sessionTitle": "Session: {{id}}",
-  "tokens_one": "{{displayCount}} token",
-  "tokens_other": "{{displayCount}} tokens"
-}
diff --git a/ui/goose2/src/shared/i18n/locales/es/projects.json b/ui/goose2/src/shared/i18n/locales/es/projects.json
index 36fc75f5..9ac493a5 100644
--- a/ui/goose2/src/shared/i18n/locales/es/projects.json
+++ b/ui/goose2/src/shared/i18n/locales/es/projects.json
@@ -6,7 +6,33 @@
     "colorAria": "Color {{color}}",
     "createProject": "Crear proyecto",
     "creating": "Creando...",
+    "customIcon": "Icono personalizado",
+    "customIconDialogTitle": "Seleccionar icono",
     "editTitle": "Editar proyecto",
+    "icon": "Icono",
+    "iconAria": "Icono {{icon}}",
+    "iconCandidateTitle": "{{sourceDir}}: {{label}}",
+    "iconFileFilter": "Archivos de imagen",
+    "iconPresets": {
+      "ai": "IA",
+      "api": "API",
+      "app": "App",
+      "automation": "Automatización",
+      "code": "Código",
+      "components": "Componentes",
+      "database": "Base de datos",
+      "design": "Diseño",
+      "docs": "Documentación",
+      "folderCode": "Carpeta de código",
+      "gitBranch": "Rama de Git",
+      "github": "GitHub",
+      "launch": "Lanzamiento",
+      "package": "Paquete",
+      "server": "Servidor",
+      "settings": "Ajustes",
+      "terminal": "Terminal",
+      "website": "Sitio web"
+    },
     "instructions": "Instrucciones",
     "instructionsPlaceholder": "Prompt del sistema o contexto para agentes que trabajan en este proyecto...",
     "name": "Nombre",
@@ -15,6 +41,8 @@
     "noneUseDefault": "Ninguno (usar predeterminado)",
     "provider": "Proveedor",
     "saving": "Guardando...",
+    "scanningIcons": "Escaneando...",
+    "uploadIcon": "Subir",
     "useWorktrees": "Usar git worktrees para aislar ramas"
   },
   "view": {
diff --git a/ui/goose2/src/shared/i18n/locales/es/sidebar.json b/ui/goose2/src/shared/i18n/locales/es/sidebar.json
index 9bd9008e..ccf5f9d0 100644
--- a/ui/goose2/src/shared/i18n/locales/es/sidebar.json
+++ b/ui/goose2/src/shared/i18n/locales/es/sidebar.json
@@ -23,7 +23,7 @@
   },
   "sections": {
     "projects": "Proyectos",
-    "recents": "Recientes"
+    "recents": "Chats"
   },
   "showLess": "Mostrar menos",
   "viewAllChats_one": "Ver {{displayCount}} chat",
diff --git a/ui/goose2/src/shared/i18n/locales/es/status.json b/ui/goose2/src/shared/i18n/locales/es/status.json
deleted file mode 100644
index 02bfca09..00000000
--- a/ui/goose2/src/shared/i18n/locales/es/status.json
+++ /dev/null
@@ -1,6 +0,0 @@
-{
-  "noModel": "Sin modelo",
-  "sessionTitle": "Sesión: {{id}}",
-  "tokens_one": "{{displayCount}} token",
-  "tokens_other": "{{displayCount}} tokens"
-}
diff --git a/ui/goose2/src/shared/styles/globals.css b/ui/goose2/src/shared/styles/globals.css
index 868046a4..100912a2 100644
--- a/ui/goose2/src/shared/styles/globals.css
+++ b/ui/goose2/src/shared/styles/globals.css
@@ -717,6 +717,8 @@ body,
     @apply border-border;
   }
   html {
+    -webkit-font-smoothing: antialiased;
+    -moz-osx-font-smoothing: grayscale;
     -webkit-text-size-adjust: 100%;
     font-variation-settings: normal;
   }
diff --git a/ui/goose2/src/shared/ui/button.tsx b/ui/goose2/src/shared/ui/button.tsx
index 0e6d7548..471af3d4 100644
--- a/ui/goose2/src/shared/ui/button.tsx
+++ b/ui/goose2/src/shared/ui/button.tsx
@@ -68,25 +68,25 @@ const buttonVariants = cva(
         variant: "ghost",
         size: "icon-xs",
         className:
-          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent",
+          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent data-[state=open]:text-foreground aria-expanded:text-foreground",
       },
       {
         variant: "ghost",
         size: "icon-sm",
         className:
-          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent",
+          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent data-[state=open]:text-foreground aria-expanded:text-foreground",
       },
       {
         variant: "ghost",
         size: "icon",
         className:
-          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent",
+          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent data-[state=open]:text-foreground aria-expanded:text-foreground",
       },
       {
         variant: "ghost",
         size: "icon-lg",
         className:
-          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent",
+          "bg-transparent text-muted-foreground hover:bg-transparent hover:text-foreground active:bg-transparent data-[state=open]:text-foreground aria-expanded:text-foreground",
       },
     ],
     defaultVariants: {
diff --git a/ui/goose2/tests/e2e/drafts.spec.ts b/ui/goose2/tests/e2e/drafts.spec.ts
index 22da7d2b..57e8ab29 100644
--- a/ui/goose2/tests/e2e/drafts.spec.ts
+++ b/ui/goose2/tests/e2e/drafts.spec.ts
@@ -1,5 +1,20 @@
 import { test, expect, waitForHome } from "./fixtures/tauri-mock";
 
+async function clickNewChatInProject(
+  page: Parameters<typeof waitForHome>[0],
+  projectName: string,
+) {
+  const projectButton = page.getByRole("button", {
+    name: projectName,
+    exact: true,
+  });
+  await projectButton.hover();
+  await projectButton
+    .locator("xpath=..")
+    .getByTitle("New chat in project")
+    .click();
+}
+
 test.describe("Draft persistence", () => {
   test("home screen draft persists across navigation", async ({
     tauriMocked: page,
@@ -51,7 +66,7 @@ test.describe("Draft persistence", () => {
 
     // Create a new chat in project Alpha
     await page.getByRole("button", { name: "Alpha" }).click();
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Type a draft
     const chatInput = page.getByLabel("Chat message input");
@@ -65,11 +80,11 @@ test.describe("Draft persistence", () => {
     await waitForHome(page);
 
     await page.getByRole("button", { name: "Beta" }).click();
-    await page.getByTitle("New chat in project").last().click();
+    await clickNewChatInProject(page, "Beta");
     await expect(page.getByLabel("Chat message input")).toHaveValue("");
 
     // Go back to project Alpha's draft via its + button
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Draft should be restored
     await expect(page.getByLabel("Chat message input")).toHaveValue(
@@ -87,7 +102,7 @@ test.describe("Draft persistence", () => {
     await page.getByRole("button", { name: "Alpha" }).click();
 
     // Click the "+" for Alpha to create a new chat
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // We should be in chat view now
     const chatInput = page.getByLabel("Chat message input");
@@ -95,7 +110,9 @@ test.describe("Draft persistence", () => {
 
     // The draft session should NOT appear in the sidebar
     const sidebar = page.locator("nav");
-    await expect(sidebar.getByText("New Chat")).not.toBeVisible();
+    await expect(
+      sidebar.getByRole("button", { name: "New Chat", exact: true }),
+    ).not.toBeVisible();
   });
 
   test("empty draft cleans up when navigating away", async ({
@@ -106,7 +123,7 @@ test.describe("Draft persistence", () => {
 
     // Open project and create a new chat
     await page.getByRole("button", { name: "Alpha" }).click();
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Don't type anything — leave it empty
     await expect(page.getByLabel("Chat message input")).toBeVisible();
@@ -116,7 +133,7 @@ test.describe("Draft persistence", () => {
     await waitForHome(page);
 
     // Create another new chat in the same project
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Should get a fresh chat (the old empty one was cleaned up)
     await expect(page.getByLabel("Chat message input")).toHaveValue("");
@@ -130,7 +147,7 @@ test.describe("Draft persistence", () => {
 
     // Open project and create a new chat
     await page.getByRole("button", { name: "Alpha" }).click();
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Type a draft
     const chatInput = page.getByLabel("Chat message input");
@@ -140,7 +157,7 @@ test.describe("Draft persistence", () => {
     await page.waitForTimeout(500);
 
     // Click new chat in the same project again
-    await page.getByTitle("New chat in project").first().click();
+    await clickNewChatInProject(page, "Alpha");
 
     // Should reuse the existing draft instead of creating a new one
     await expect(page.getByLabel("Chat message input")).toHaveValue(