diff --git a/doc/classes/FileSystemDock.xml b/doc/classes/FileSystemDock.xml
index 9028dd4b9fe6..b3dc51ffaa6f 100644
--- a/doc/classes/FileSystemDock.xml
+++ b/doc/classes/FileSystemDock.xml
@@ -51,6 +51,11 @@
 				Emitted when a file is moved from [param old_file] path to [param new_file] path.
 			</description>
 		</signal>
+		<signal name="folder_color_changed">
+			<description>
+				Emitted when folders change color.
+			</description>
+		</signal>
 		<signal name="folder_moved">
 			<param index="0" name="old_folder" type="String" />
 			<param index="1" name="new_folder" type="String" />
diff --git a/editor/filesystem_dock.cpp b/editor/filesystem_dock.cpp
index 2ed547a970cf..b811d0f21be1 100644
--- a/editor/filesystem_dock.cpp
+++ b/editor/filesystem_dock.cpp
@@ -234,15 +234,15 @@ bool FileSystemDock::_create_tree(TreeItem *p_parent, EditorFileSystemDirectory
 	Color custom_color = has_custom_color ? folder_colors[assigned_folder_colors[lpath]] : Color();
 
 	if (has_custom_color) {
-		subdirectory_item->set_icon_modulate(0, editor_is_dark_theme ? custom_color : custom_color * 1.75);
-		subdirectory_item->set_custom_bg_color(0, Color(custom_color, editor_is_dark_theme ? 0.1 : 0.15));
+		subdirectory_item->set_icon_modulate(0, editor_is_dark_theme ? custom_color : custom_color * ITEM_COLOR_SCALE);
+		subdirectory_item->set_custom_bg_color(0, Color(custom_color, editor_is_dark_theme ? ITEM_ALPHA_MIN : ITEM_ALPHA_MAX));
 	} else {
 		TreeItem *parent = subdirectory_item->get_parent();
 		if (parent) {
 			Color parent_bg_color = parent->get_custom_bg_color(0);
 			if (parent_bg_color != Color()) {
 				bool parent_has_custom_color = assigned_folder_colors.has(parent->get_metadata(0));
-				subdirectory_item->set_custom_bg_color(0, parent_has_custom_color ? parent_bg_color.darkened(0.3) : parent_bg_color);
+				subdirectory_item->set_custom_bg_color(0, parent_has_custom_color ? parent_bg_color.darkened(ITEM_BG_DARK_SCALE) : parent_bg_color);
 				subdirectory_item->set_icon_modulate(0, parent->get_icon_modulate(0));
 			} else {
 				subdirectory_item->set_icon_modulate(0, get_theme_color(SNAME("folder_icon_color"), SNAME("FileDialog")));
@@ -328,7 +328,7 @@ bool FileSystemDock::_create_tree(TreeItem *p_parent, EditorFileSystemDirectory
 			file_item->set_icon_max_width(0, icon_size);
 			Color parent_bg_color = subdirectory_item->get_custom_bg_color(0);
 			if (has_custom_color) {
-				file_item->set_custom_bg_color(0, parent_bg_color.darkened(0.3));
+				file_item->set_custom_bg_color(0, parent_bg_color.darkened(ITEM_BG_DARK_SCALE));
 			} else if (parent_bg_color != Color()) {
 				file_item->set_custom_bg_color(0, parent_bg_color);
 			}
@@ -1068,7 +1068,7 @@ void FileSystemDock::_update_file_list(bool p_keep_selection) {
 
 					files->set_item_metadata(-1, bd);
 					files->set_item_selectable(-1, false);
-					files->set_item_icon_modulate(-1, editor_is_dark_theme ? inherited_folder_color : inherited_folder_color * 1.75);
+					files->set_item_icon_modulate(-1, editor_is_dark_theme ? inherited_folder_color : inherited_folder_color * ITEM_COLOR_SCALE);
 				}
 
 				bool reversed = file_sort == FILE_SORT_NAME_REVERSE;
@@ -1082,7 +1082,7 @@ void FileSystemDock::_update_file_list(bool p_keep_selection) {
 					files->add_item(dname, folder_icon, true);
 					files->set_item_metadata(-1, dpath);
 					Color this_folder_color = has_custom_color ? folder_colors[assigned_folder_colors[dpath]] : inherited_folder_color;
-					files->set_item_icon_modulate(-1, editor_is_dark_theme ? this_folder_color : this_folder_color * 1.75);
+					files->set_item_icon_modulate(-1, editor_is_dark_theme ? this_folder_color : this_folder_color * ITEM_COLOR_SCALE);
 
 					if (previous_selection.has(dname)) {
 						files->select(files->get_item_count() - 1, false);
@@ -3086,6 +3086,8 @@ void FileSystemDock::_folder_color_index_pressed(int p_index, PopupMenu *p_menu)
 
 	_update_tree(get_uncollapsed_paths());
 	_update_file_list(true);
+
+	emit_signal(SNAME("folder_color_changed"));
 }
 
 void FileSystemDock::_file_and_folders_fill_popup(PopupMenu *p_popup, const Vector<String> &p_paths, bool p_display_path_dependent_options) {
@@ -3796,6 +3798,7 @@ void FileSystemDock::_bind_methods() {
 	ADD_SIGNAL(MethodInfo("folder_removed", PropertyInfo(Variant::STRING, "folder")));
 	ADD_SIGNAL(MethodInfo("files_moved", PropertyInfo(Variant::STRING, "old_file"), PropertyInfo(Variant::STRING, "new_file")));
 	ADD_SIGNAL(MethodInfo("folder_moved", PropertyInfo(Variant::STRING, "old_folder"), PropertyInfo(Variant::STRING, "new_folder")));
+	ADD_SIGNAL(MethodInfo("folder_color_changed"));
 
 	ADD_SIGNAL(MethodInfo("display_mode_changed"));
 }
diff --git a/editor/filesystem_dock.h b/editor/filesystem_dock.h
index 8830f31d2d46..f514de15e536 100644
--- a/editor/filesystem_dock.h
+++ b/editor/filesystem_dock.h
@@ -381,6 +381,11 @@ protected:
 	static void _bind_methods();
 
 public:
+	static constexpr double ITEM_COLOR_SCALE = 1.75;
+	static constexpr double ITEM_ALPHA_MIN = 0.1;
+	static constexpr double ITEM_ALPHA_MAX = 0.15;
+	static constexpr double ITEM_BG_DARK_SCALE = 0.3;
+
 	const HashMap<String, Color> &get_folder_colors() const;
 	Dictionary get_assigned_folder_colors() const;
 
diff --git a/editor/gui/editor_dir_dialog.cpp b/editor/gui/editor_dir_dialog.cpp
index 8821a0eeaed4..9d5464210b7d 100644
--- a/editor/gui/editor_dir_dialog.cpp
+++ b/editor/gui/editor_dir_dialog.cpp
@@ -32,27 +32,44 @@
 
 #include "editor/directory_create_dialog.h"
 #include "editor/editor_file_system.h"
+#include "editor/filesystem_dock.h"
+#include "editor/themes/editor_theme_manager.h"
 #include "scene/gui/box_container.h"
 #include "scene/gui/tree.h"
 #include "servers/display_server.h"
 
-void EditorDirDialog::_update_dir(TreeItem *p_item, EditorFileSystemDirectory *p_dir, const String &p_select_path) {
+void EditorDirDialog::_update_dir(const Color &p_default_folder_color, const Dictionary &p_assigned_folder_colors, const HashMap<String, Color> &p_folder_colors, bool p_is_dark_theme, TreeItem *p_item, EditorFileSystemDirectory *p_dir, const String &p_select_path) {
 	updating = true;
 
 	const String path = p_dir->get_path();
 
 	p_item->set_metadata(0, path);
 	p_item->set_icon(0, tree->get_editor_theme_icon(SNAME("Folder")));
-	p_item->set_icon_modulate(0, tree->get_theme_color(SNAME("folder_icon_color"), SNAME("FileDialog")));
 
 	if (!p_item->get_parent()) {
 		p_item->set_text(0, "res://");
+		p_item->set_icon_modulate(0, p_default_folder_color);
 	} else {
 		if (!opened_paths.has(path) && (p_select_path.is_empty() || !p_select_path.begins_with(path))) {
 			p_item->set_collapsed(true);
 		}
 
 		p_item->set_text(0, p_dir->get_name());
+
+		if (p_assigned_folder_colors.has(path)) {
+			const Color &folder_color = p_folder_colors[p_assigned_folder_colors[path]];
+			p_item->set_icon_modulate(0, p_is_dark_theme ? folder_color : folder_color * FileSystemDock::ITEM_COLOR_SCALE);
+			p_item->set_custom_bg_color(0, Color(folder_color, p_is_dark_theme ? FileSystemDock::ITEM_ALPHA_MIN : FileSystemDock::ITEM_ALPHA_MAX));
+		} else {
+			TreeItem *parent_item = p_item->get_parent();
+			Color parent_bg_color = parent_item->get_custom_bg_color(0);
+			if (parent_bg_color != Color()) {
+				p_item->set_custom_bg_color(0, p_assigned_folder_colors.has(parent_item->get_metadata(0)) ? parent_bg_color.darkened(FileSystemDock::ITEM_BG_DARK_SCALE) : parent_bg_color);
+				p_item->set_icon_modulate(0, parent_item->get_icon_modulate(0));
+			} else {
+				p_item->set_icon_modulate(0, p_default_folder_color);
+			}
+		}
 	}
 
 	if (path == new_dir_path || !p_item->get_parent()) {
@@ -62,7 +79,7 @@ void EditorDirDialog::_update_dir(TreeItem *p_item, EditorFileSystemDirectory *p
 	updating = false;
 	for (int i = 0; i < p_dir->get_subdir_count(); i++) {
 		TreeItem *ti = tree->create_item(p_item);
-		_update_dir(ti, p_dir->get_subdir(i));
+		_update_dir(p_default_folder_color, p_assigned_folder_colors, p_folder_colors, p_is_dark_theme, ti, p_dir->get_subdir(i));
 	}
 }
 
@@ -90,7 +107,7 @@ void EditorDirDialog::reload(const String &p_path) {
 
 	tree->clear();
 	TreeItem *root = tree->create_item();
-	_update_dir(root, EditorFileSystem::get_singleton()->get_filesystem(), p_path);
+	_update_dir(tree->get_theme_color(SNAME("folder_icon_color"), SNAME("FileDialog")), FileSystemDock::get_singleton()->get_assigned_folder_colors(), FileSystemDock::get_singleton()->get_folder_colors(), EditorThemeManager::is_dark_theme(), root, EditorFileSystem::get_singleton()->get_filesystem(), p_path);
 	_item_collapsed(root);
 	new_dir_path.clear();
 	must_reload = false;
@@ -99,6 +116,8 @@ void EditorDirDialog::reload(const String &p_path) {
 void EditorDirDialog::_notification(int p_what) {
 	switch (p_what) {
 		case NOTIFICATION_ENTER_TREE: {
+			FileSystemDock::get_singleton()->connect("folder_color_changed", callable_mp(this, &EditorDirDialog::reload).bind(""));
+
 			EditorFileSystem::get_singleton()->connect("filesystem_changed", callable_mp(this, &EditorDirDialog::reload).bind(""));
 			reload();
 
diff --git a/editor/gui/editor_dir_dialog.h b/editor/gui/editor_dir_dialog.h
index 40badec21210..b10cc8dd9f5e 100644
--- a/editor/gui/editor_dir_dialog.h
+++ b/editor/gui/editor_dir_dialog.h
@@ -53,7 +53,7 @@ class EditorDirDialog : public ConfirmationDialog {
 
 	void _item_collapsed(Object *p_item);
 	void _item_activated();
-	void _update_dir(TreeItem *p_item, EditorFileSystemDirectory *p_dir, const String &p_select_path = String());
+	void _update_dir(const Color &p_default_folder_color, const Dictionary &p_assigned_folder_colors, const HashMap<String, Color> &p_folder_colors, bool p_is_dark_theme, TreeItem *p_item, EditorFileSystemDirectory *p_dir, const String &p_select_path = String());
 
 	void _make_dir();
 	void _make_dir_confirm(const String &p_path);