diff --git a/lua/oil/mutator/parser.lua b/lua/oil/mutator/parser.lua
index bb222749..d9a51ae5 100644
--- a/lua/oil/mutator/parser.lua
+++ b/lua/oil/mutator/parser.lua
@@ -57,8 +57,14 @@ local function compare_link_target(meta, parsed_entry)
   return meta_name == parsed_name
 end
 
+---@class oil.ParseResultData
+---@field _type 'directory'|'file'|'link'
+---@field id number
+---@field name string
+---@field link_target string
+
 ---@class (exact) oil.ParseResult
----@field data table Parsed entry data
+---@field data oil.ParseResultData | table Parsed entry data
 ---@field ranges table<string, integer[]> Locations of the various columns
 ---@field entry nil|oil.InternalEntry If the entry already exists
 
@@ -220,8 +226,6 @@ M.parse = function(bufnr)
           err_message = "No filename found"
         elseif not entry then
           err_message = "Could not find existing entry (was the ID changed?)"
-        elseif parsed_entry.name:match("/") or parsed_entry.name:match(fs.sep) then
-          err_message = "Filename cannot contain path separator"
         end
         if err_message then
           table.insert(errors, {
@@ -235,6 +239,16 @@ M.parse = function(bufnr)
         assert(entry)
 
         check_dupe(parsed_entry.name, i)
+
+        local maybe_new_dir = parsed_entry.name:gsub("/[^/]+$", "")
+        if #maybe_new_dir ~= 0 and maybe_new_dir ~= parsed_entry.name then
+          table.insert(diffs, {
+            type = "new",
+            name = maybe_new_dir,
+            entry_type = "directory",
+          })
+        end
+
         local meta = entry[FIELD_META]
         if original_entries[parsed_entry.name] == parsed_entry.id then
           if entry[FIELD_TYPE] == "link" and not compare_link_target(meta, parsed_entry) then
diff --git a/tests/parser_spec.lua b/tests/parser_spec.lua
index 9884ca1b..2fd6edbd 100644
--- a/tests/parser_spec.lua
+++ b/tests/parser_spec.lua
@@ -194,6 +194,60 @@ describe("parser", function()
     }, diffs)
   end)
 
+  it("moves a file into a new directory by renaming", function()
+    local file = test_adapter.test_set("/foo/a.txt", "file")
+    vim.cmd.edit({ args = { "oil-test:///foo/" } })
+    local bufnr = vim.api.nvim_get_current_buf()
+
+    set_lines(bufnr, {
+      string.format("/%d new/a.txt", file[FIELD_ID]),
+    })
+
+    local diffs = parser.parse(bufnr)
+
+    assert.are.same({
+      { type = "new", name = "new", entry_type = "directory" },
+      { type = "new", id = file[FIELD_ID], name = "new/a.txt", entry_type = "file" },
+      { type = "delete", id = file[FIELD_ID], name = "a.txt" },
+    }, diffs)
+  end)
+
+  it("moves a directory into a new directory by renaming", function()
+    local dir = test_adapter.test_set("/foo/0.7", "directory")
+    vim.cmd.edit({ args = { "oil-test:///foo/" } })
+    local bufnr = vim.api.nvim_get_current_buf()
+
+    set_lines(bufnr, {
+      string.format("/%d exercises/0.7/", dir[FIELD_ID]),
+    })
+
+    local diffs = parser.parse(bufnr)
+
+    assert.are.same({
+      { type = "new", name = "exercises", entry_type = "directory" },
+      { type = "new", id = dir[FIELD_ID], name = "exercises/0.7", entry_type = "directory" },
+      { type = "delete", id = dir[FIELD_ID], name = "0.7" },
+    }, diffs)
+  end)
+
+  it("moves a file into nested new directories by renaming", function()
+    local file = test_adapter.test_set("/foo/a.txt", "file")
+    vim.cmd.edit({ args = { "oil-test:///foo/" } })
+    local bufnr = vim.api.nvim_get_current_buf()
+
+    set_lines(bufnr, {
+      string.format("/%d one/two/a.txt", file[FIELD_ID]),
+    })
+
+    local diffs = parser.parse(bufnr)
+
+    assert.are.same({
+      { type = "new", name = "one/two", entry_type = "directory" },
+      { type = "new", id = file[FIELD_ID], name = "one/two/a.txt", entry_type = "file" },
+      { type = "delete", id = file[FIELD_ID], name = "a.txt" },
+    }, diffs)
+  end)
+
   it("detects a new trailing slash as a delete + create", function()
     local file = test_adapter.test_set("/foo", "file")
     vim.cmd.edit({ args = { "oil-test:///" } })