diff --git a/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all-2.snap b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all-2.snap
new file mode 100644
index 00000000..f5203d43
--- /dev/null
+++ b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all-2.snap
@@ -0,0 +1,16 @@
+---
+source: tests/tests/serve.rs
+expression: "read_response.intern_and_redact(&mut redactions, root_id)"
+---
+instances:
+  id-2:
+    Children: []
+    ClassName: Folder
+    Id: id-2
+    Metadata:
+      ignoreUnknownInstances: false
+    Name: remove_folder
+    Parent: "00000000000000000000000000000000"
+    Properties: {}
+messageCursor: 1
+sessionId: id-1
diff --git a/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all.snap b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all.snap
new file mode 100644
index 00000000..ca429826
--- /dev/null
+++ b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_all.snap
@@ -0,0 +1,38 @@
+---
+source: tests/tests/serve.rs
+expression: "read_response.intern_and_redact(&mut redactions, root_id)"
+---
+instances:
+  id-2:
+    Children:
+      - id-3
+    ClassName: Folder
+    Id: id-2
+    Metadata:
+      ignoreUnknownInstances: false
+    Name: remove_folder
+    Parent: "00000000000000000000000000000000"
+    Properties: {}
+  id-3:
+    Children:
+      - id-4
+    ClassName: Folder
+    Id: id-3
+    Metadata:
+      ignoreUnknownInstances: false
+    Name: my-folder
+    Parent: id-2
+    Properties: {}
+  id-4:
+    Children: []
+    ClassName: StringValue
+    Id: id-4
+    Metadata:
+      ignoreUnknownInstances: false
+    Name: test
+    Parent: id-3
+    Properties:
+      Value:
+        String: "This file is inside my-folder\r\n"
+messageCursor: 0
+sessionId: id-1
diff --git a/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_info.snap b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_info.snap
new file mode 100644
index 00000000..6796e4ec
--- /dev/null
+++ b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_info.snap
@@ -0,0 +1,13 @@
+---
+source: tests/tests/serve.rs
+expression: redactions.redacted_yaml(info)
+---
+expectedPlaceIds: ~
+gameId: ~
+placeId: ~
+projectName: remove_folder
+protocolVersion: 5
+rootInstanceId: id-2
+serverVersion: "[server-version]"
+sessionId: id-1
+unexpectedPlaceIds: ~
diff --git a/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_subscribe.snap b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_subscribe.snap
new file mode 100644
index 00000000..e9e39e04
--- /dev/null
+++ b/rojo-test/serve-test-snapshots/end_to_end__tests__serve__remove_folder_subscribe.snap
@@ -0,0 +1,13 @@
+---
+source: tests/tests/serve.rs
+expression: "socket_packet.intern_and_redact(&mut redactions, ())"
+---
+body:
+  messageCursor: 1
+  messages:
+    - added: {}
+      removed:
+        - id-3
+      updated: []
+packetType: messages
+sessionId: id-1
diff --git a/rojo-test/serve-tests/remove_folder/default.project.json b/rojo-test/serve-tests/remove_folder/default.project.json
new file mode 100644
index 00000000..28d0bc72
--- /dev/null
+++ b/rojo-test/serve-tests/remove_folder/default.project.json
@@ -0,0 +1,6 @@
+{
+	"name": "remove_folder",
+	"tree": {
+		"$path": "src"
+	}
+}
diff --git a/rojo-test/serve-tests/remove_folder/src/my-folder/test.txt b/rojo-test/serve-tests/remove_folder/src/my-folder/test.txt
new file mode 100644
index 00000000..44c07d0f
--- /dev/null
+++ b/rojo-test/serve-tests/remove_folder/src/my-folder/test.txt
@@ -0,0 +1 @@
+This file is inside my-folder
diff --git a/src/change_processor.rs b/src/change_processor.rs
index 6c5c8224..78ca2858 100644
--- a/src/change_processor.rs
+++ b/src/change_processor.rs
@@ -172,12 +172,23 @@ impl JobThreadContext {
                 self.apply_patches(self.vfs.canonicalize(&path).unwrap())
             }
             VfsEvent::Remove(path) => {
-                // MemoFS does not track parent removals yet, so we can canonicalize
-                // the parent path safely and then append the removed path's file name.
+                // Try to canonicalize the parent path and append the removed path's
+                // file name. If the parent no longer exists (e.g., a folder and its
+                // contents were deleted together), we skip processing since the
+                // parent's removal event will handle cleaning up the instances.
                 let parent = path.parent().unwrap();
                 let file_name = path.file_name().unwrap();
-                let parent_normalized = self.vfs.canonicalize(parent).unwrap();
-                self.apply_patches(parent_normalized.join(file_name))
+                match self.vfs.canonicalize(parent) {
+                    Ok(parent_normalized) => self.apply_patches(parent_normalized.join(file_name)),
+                    Err(err) => {
+                        log::debug!(
+                            "Parent path no longer exists for removed path {}: {}",
+                            path.display(),
+                            err
+                        );
+                        Vec::new()
+                    }
+                }
             }
             _ => {
                 log::warn!("Unhandled VFS event: {:?}", event);
diff --git a/tests/tests/serve.rs b/tests/tests/serve.rs
index 748f1687..d41ee72e 100644
--- a/tests/tests/serve.rs
+++ b/tests/tests/serve.rs
@@ -126,6 +126,41 @@ fn remove_file() {
     });
 }
 
+/// Test that removing a folder (directory) with contents doesn't crash the server.
+/// This is a regression test for a bug where deleting a folder would cause a panic
+/// due to the parent path no longer existing when processing child removal events.
+#[test]
+fn remove_folder() {
+    run_serve_test("remove_folder", |session, mut redactions| {
+        let info = session.get_api_rojo().unwrap();
+        let root_id = info.root_instance_id;
+
+        assert_yaml_snapshot!("remove_folder_info", redactions.redacted_yaml(info));
+
+        let read_response = session.get_api_read(root_id).unwrap();
+        assert_yaml_snapshot!(
+            "remove_folder_all",
+            read_response.intern_and_redact(&mut redactions, root_id)
+        );
+
+        fs::remove_dir_all(session.path().join("src/my-folder")).unwrap();
+
+        let socket_packet = session
+            .get_api_socket_packet(SocketPacketType::Messages, 0)
+            .unwrap();
+        assert_yaml_snapshot!(
+            "remove_folder_subscribe",
+            socket_packet.intern_and_redact(&mut redactions, ())
+        );
+
+        let read_response = session.get_api_read(root_id).unwrap();
+        assert_yaml_snapshot!(
+            "remove_folder_all-2",
+            read_response.intern_and_redact(&mut redactions, root_id)
+        );
+    });
+}
+
 #[test]
 fn edit_init() {
     run_serve_test("edit_init", |session, mut redactions| {