diff --git a/Sources/AppDelegate.swift b/Sources/AppDelegate.swift
index cce5d5bd..5a79df65 100644
--- a/Sources/AppDelegate.swift
+++ b/Sources/AppDelegate.swift
@@ -723,6 +723,7 @@ final class AppDelegate: NSObject, NSApplicationDelegate, UNUserNotificationCent
             sidebarState: sidebarState,
             sidebarSelectionState: sidebarSelectionState
         )
+        installFileDropOverlay(on: window, tabManager: tabManager)
         window.makeKeyAndOrderFront(nil)
         setActiveMainWindow(window)
         NSApp.activate(ignoringOtherApps: true)
diff --git a/Sources/ContentView.swift b/Sources/ContentView.swift
index 6993ff69..b7df084d 100644
--- a/Sources/ContentView.swift
+++ b/Sources/ContentView.swift
@@ -158,6 +158,121 @@ final class SidebarState: ObservableObject {
     }
 }
 
+// MARK: - File Drop Overlay
+
+/// Transparent NSView installed on the window's theme frame (above the NSHostingView) to
+/// handle file/URL drags from Finder. Nested NSHostingController layers (created by bonsplit's
+/// SinglePaneWrapper) prevent AppKit's NSDraggingDestination routing from reaching deeply
+/// embedded terminal views. This overlay sits above the entire content view hierarchy and
+/// intercepts file drags, forwarding drops to the GhosttyNSView under the cursor.
+///
+/// Mouse events are forwarded to the views below via a hide-send-unhide pattern so clicks,
+/// scrolls, and other interactions pass through normally.
+final class FileDropOverlayView: NSView {
+    /// Fallback handler when no terminal is found under the drop point.
+    var onDrop: (([URL]) -> Bool)?
+
+    override var acceptsFirstResponder: Bool { false }
+
+    override init(frame frameRect: NSRect) {
+        super.init(frame: frameRect)
+        registerForDraggedTypes([.fileURL, .URL, .string])
+    }
+
+    required init?(coder: NSCoder) { fatalError("init(coder:) not implemented") }
+
+    // MARK: Mouse forwarding – hide self so the event reaches views below.
+
+    private func forwardEvent(_ event: NSEvent) {
+        isHidden = true
+        window?.sendEvent(event)
+        isHidden = false
+    }
+
+    override func mouseDown(with event: NSEvent) { forwardEvent(event) }
+    override func mouseUp(with event: NSEvent) { forwardEvent(event) }
+    override func mouseDragged(with event: NSEvent) { forwardEvent(event) }
+    override func rightMouseDown(with event: NSEvent) { forwardEvent(event) }
+    override func rightMouseUp(with event: NSEvent) { forwardEvent(event) }
+    override func rightMouseDragged(with event: NSEvent) { forwardEvent(event) }
+    override func otherMouseDown(with event: NSEvent) { forwardEvent(event) }
+    override func otherMouseUp(with event: NSEvent) { forwardEvent(event) }
+    override func otherMouseDragged(with event: NSEvent) { forwardEvent(event) }
+    override func scrollWheel(with event: NSEvent) { forwardEvent(event) }
+
+    // MARK: NSDraggingDestination – only accept drops over terminal views.
+
+    override func draggingEntered(_ sender: any NSDraggingInfo) -> NSDragOperation {
+        return dragOperationForSender(sender)
+    }
+
+    override func draggingUpdated(_ sender: any NSDraggingInfo) -> NSDragOperation {
+        return dragOperationForSender(sender)
+    }
+
+    override func performDragOperation(_ sender: any NSDraggingInfo) -> Bool {
+        guard let terminal = terminalUnderPoint(sender.draggingLocation) else { return false }
+        return terminal.performDragOperation(sender)
+    }
+
+    private func dragOperationForSender(_ sender: any NSDraggingInfo) -> NSDragOperation {
+        guard let types = sender.draggingPasteboard.types,
+              types.contains(where: { $0 == .fileURL || $0 == .URL || $0 == .string }),
+              terminalUnderPoint(sender.draggingLocation) != nil else {
+            return []
+        }
+        return .copy
+    }
+
+    /// Temporarily hides self, hit-tests the window to find the GhosttyNSView under the cursor.
+    private func terminalUnderPoint(_ windowPoint: NSPoint) -> GhosttyNSView? {
+        guard let window, let contentView = window.contentView,
+              let themeFrame = contentView.superview else { return nil }
+        isHidden = true
+        // hitTest expects the point in the receiver's superview's coordinate system.
+        // Converting to contentView's own coords would flip y (NSHostingView is flipped)
+        // causing top/bottom split targeting to be inverted.
+        let point = themeFrame.convert(windowPoint, from: nil)
+        let hitView = contentView.hitTest(point)
+        isHidden = false
+
+        var current: NSView? = hitView
+        while let view = current {
+            if let terminal = view as? GhosttyNSView { return terminal }
+            current = view.superview
+        }
+        return nil
+    }
+}
+
+var fileDropOverlayKey: UInt8 = 0
+
+/// Installs a FileDropOverlayView on the window's theme frame for Finder file drag support.
+func installFileDropOverlay(on window: NSWindow, tabManager: TabManager) {
+    guard objc_getAssociatedObject(window, &fileDropOverlayKey) == nil,
+          let contentView = window.contentView,
+          let themeFrame = contentView.superview else { return }
+
+    let overlay = FileDropOverlayView(frame: contentView.frame)
+    overlay.translatesAutoresizingMaskIntoConstraints = false
+    overlay.onDrop = { [weak tabManager] urls in
+        MainActor.assumeIsolated {
+            guard let tabManager, let terminal = tabManager.selectedWorkspace?.focusedTerminalPanel else { return false }
+            return terminal.hostedView.handleDroppedURLs(urls)
+        }
+    }
+
+    themeFrame.addSubview(overlay, positioned: .above, relativeTo: contentView)
+    NSLayoutConstraint.activate([
+        overlay.topAnchor.constraint(equalTo: contentView.topAnchor),
+        overlay.bottomAnchor.constraint(equalTo: contentView.bottomAnchor),
+        overlay.leadingAnchor.constraint(equalTo: contentView.leadingAnchor),
+        overlay.trailingAnchor.constraint(equalTo: contentView.trailingAnchor)
+    ])
+
+    objc_setAssociatedObject(window, &fileDropOverlayKey, overlay, .OBJC_ASSOCIATION_RETAIN)
+}
+
 struct ContentView: View {
     @ObservedObject var updateViewModel: UpdateViewModel
     let windowId: UUID
@@ -498,6 +613,7 @@ struct ContentView: View {
                 sidebarState: sidebarState,
                 sidebarSelectionState: sidebarSelectionState
             )
+            installFileDropOverlay(on: window, tabManager: tabManager)
         })
     }
 
diff --git a/Sources/GhosttyTerminalView.swift b/Sources/GhosttyTerminalView.swift
index e81c4969..b65a2452 100644
--- a/Sources/GhosttyTerminalView.swift
+++ b/Sources/GhosttyTerminalView.swift
@@ -2475,7 +2475,7 @@ class GhosttyNSView: NSView, NSUserInterfaceValidations {
         }
     }
 
-    private static func escapeDropForShell(_ value: String) -> String {
+    fileprivate static func escapeDropForShell(_ value: String) -> String {
         var result = value
         for char in shellEscapeCharacters {
             result = result.replacingOccurrences(of: String(char), with: "\\\(char)")
@@ -2531,6 +2531,18 @@ class GhosttyNSView: NSView, NSUserInterfaceValidations {
     // MARK: NSDraggingDestination
 
     override func draggingEntered(_ sender: any NSDraggingInfo) -> NSDragOperation {
+        #if DEBUG
+        let types = sender.draggingPasteboard.types ?? []
+        dlog("terminal.draggingEntered surface=\(terminalSurface?.id.uuidString.prefix(5) ?? "nil") types=\(types.map(\.rawValue))")
+        #endif
+        guard let types = sender.draggingPasteboard.types else { return [] }
+        if Set(types).isDisjoint(with: Self.dropTypes) {
+            return []
+        }
+        return .copy
+    }
+
+    override func draggingUpdated(_ sender: any NSDraggingInfo) -> NSDragOperation {
         guard let types = sender.draggingPasteboard.types else { return [] }
         if Set(types).isDisjoint(with: Self.dropTypes) {
             return []
@@ -2976,7 +2988,23 @@ final class GhosttySurfaceScrollView: NSView {
 
 #endif
 
-    #if DEBUG
+        /// Handle file/URL drops from SwiftUI's .onDrop, forwarding to the terminal as shell-escaped paths.
+    func handleDroppedURLs(_ urls: [URL]) -> Bool {
+        guard !urls.isEmpty else { return false }
+        let content = urls
+            .map { GhosttyNSView.escapeDropForShell($0.path) }
+            .joined(separator: " ")
+        #if DEBUG
+        dlog("terminal.swiftUIDrop surface=\(surfaceView.terminalSurface?.id.uuidString.prefix(5) ?? "nil") urls=\(urls.map(\.lastPathComponent))")
+        #endif
+        if let window = surfaceView.window {
+            window.makeFirstResponder(surfaceView)
+        }
+        surfaceView.sendTextToSurface(content)
+        return true
+    }
+
+#if DEBUG
     /// Sends a synthetic Ctrl+D key press directly to the surface view.
     /// This exercises the same key path as real keyboard input (ghostty_surface_key),
     /// unlike `sendText`, which bypasses key translation.
diff --git a/Sources/TerminalController.swift b/Sources/TerminalController.swift
index c4487325..2d2c27f0 100644
--- a/Sources/TerminalController.swift
+++ b/Sources/TerminalController.swift
@@ -352,6 +352,9 @@ class TerminalController {
         case "simulate_file_drop":
             return simulateFileDrop(args)
 
+        case "drop_hit_test":
+            return dropHitTest(args)
+
         case "activate_app":
             return activateApp()
 
@@ -6165,6 +6168,7 @@ class TerminalController {
           simulate_shortcut <combo>       - Simulate a keyDown shortcut (test-only)
           simulate_type <text>            - Insert text into the current first responder (test-only)
           simulate_file_drop <id|idx> <path[|path...]> - Simulate dropping file path(s) on terminal (test-only)
+          drop_hit_test <x 0-1> <y 0-1> - Hit-test file-drop overlay at normalised coords (test-only)
           activate_app                    - Bring app + main window to front (test-only)
           is_terminal_focused <id|idx>    - Return true/false if terminal surface is first responder (test-only)
           read_terminal_text [id|idx]     - Read visible terminal text (base64, test-only)
@@ -6373,6 +6377,62 @@ class TerminalController {
         return result
     }
 
+    /// Hit-tests the file-drop overlay's coordinate-to-terminal mapping.
+    /// Takes normalised (0-1) x,y within the content area where (0,0) is the
+    /// top-left corner and (1,1) is the bottom-right corner.  Returns the
+    /// surface UUID of the terminal under that point, or "none".
+    private func dropHitTest(_ args: String) -> String {
+        let parts = args.split(separator: " ").map(String.init)
+        guard parts.count == 2,
+              let nx = Double(parts[0]), let ny = Double(parts[1]),
+              (0...1).contains(nx), (0...1).contains(ny) else {
+            return "ERROR: Usage: drop_hit_test <x 0-1> <y 0-1>"
+        }
+
+        var result = "ERROR: No window"
+        DispatchQueue.main.sync {
+            guard let window = NSApp.mainWindow
+                ?? NSApp.keyWindow
+                ?? NSApp.windows.first(where: { win in
+                    guard let raw = win.identifier?.rawValue else { return false }
+                    return raw == "cmux.main" || raw.hasPrefix("cmux.main.")
+                }),
+                  let contentView = window.contentView,
+                  let themeFrame = contentView.superview else { return }
+
+            // Compute the point in contentView's own coordinate system.
+            // NSHostingView is flipped: (0,0) = top-left, matching our API.
+            let contentPoint = NSPoint(
+                x: contentView.bounds.width * nx,
+                y: contentView.bounds.height * ny
+            )
+
+            // hitTest expects the point in the receiver's superview's (themeFrame's)
+            // coordinate system.  Use convert to handle the coordinate transform.
+            let hitPoint = contentView.convert(contentPoint, to: themeFrame)
+
+            // Temporarily hide the overlay so it doesn't intercept the hit test.
+            let overlay = objc_getAssociatedObject(window, &fileDropOverlayKey) as? NSView
+            overlay?.isHidden = true
+
+            let hitView = contentView.hitTest(hitPoint)
+
+            overlay?.isHidden = false
+
+            var current: NSView? = hitView
+            while let view = current {
+                if let terminal = view as? GhosttyNSView,
+                   let surfaceId = terminal.terminalSurface?.id {
+                    result = surfaceId.uuidString.uppercased()
+                    return
+                }
+                current = view.superview
+            }
+            result = "none"
+        }
+        return result
+    }
+
     private func unescapeSocketText(_ input: String) -> String {
         var out = ""
         var escaping = false
diff --git a/Sources/WorkspaceContentView.swift b/Sources/WorkspaceContentView.swift
index ea60d8e9..bd2f6ccf 100644
--- a/Sources/WorkspaceContentView.swift
+++ b/Sources/WorkspaceContentView.swift
@@ -18,6 +18,19 @@ struct WorkspaceContentView: View {
         // AppKit-backed views can still intercept drags. Disable drop acceptance for them.
         let _ = { workspace.bonsplitController.isInteractive = isTabActive }()
 
+        // Wire up file drop handling so bonsplit's PaneDragContainerView can forward
+        // Finder file drops to the correct terminal panel.
+        let _ = {
+            workspace.bonsplitController.onFileDrop = { [weak workspace] urls, paneId in
+                guard let workspace else { return false }
+                // Find the focused panel in this pane and drop the files into it.
+                guard let tabId = workspace.bonsplitController.selectedTab(inPane: paneId)?.id,
+                      let panelId = workspace.panelIdFromSurfaceId(tabId),
+                      let panel = workspace.panels[panelId] as? TerminalPanel else { return false }
+                return panel.hostedView.handleDroppedURLs(urls)
+            }
+        }()
+
         BonsplitView(controller: workspace.bonsplitController) { tab, paneId in
             // Content for each tab in bonsplit
             let _ = Self.debugPanelLookup(tab: tab, workspace: workspace)
diff --git a/tests/cmux.py b/tests/cmux.py
index 57cedf94..22d61fa1 100755
--- a/tests/cmux.py
+++ b/tests/cmux.py
@@ -811,6 +811,17 @@ class cmux:
         if not response.startswith("OK"):
             raise cmuxError(response)
 
+    def drop_hit_test(self, x: float, y: float) -> Optional[str]:
+        """Hit-test the file-drop overlay at normalised (0-1) coords.
+
+        Returns the surface UUID string if a terminal is under the point, or None.
+        """
+        response = self._send_command(f"drop_hit_test {x} {y}")
+        if response.startswith("ERROR"):
+            raise cmuxError(response)
+        val = response.strip()
+        return None if val == "none" else val
+
     def activate_app(self) -> None:
         """Bring app + main window to front (debug builds only)."""
         response = self._send_command("activate_app")
diff --git a/tests/test_file_drop_split_targeting.py b/tests/test_file_drop_split_targeting.py
new file mode 100644
index 00000000..b186ce2e
--- /dev/null
+++ b/tests/test_file_drop_split_targeting.py
@@ -0,0 +1,167 @@
+#!/usr/bin/env python3
+"""
+Regression test: file drops in vertical splits target the correct terminal.
+
+When the window has a vertical split (top/bottom), a file drop over the top
+terminal must be routed to the top terminal (not the bottom one), and vice
+versa.  A coordinate-system bug (y-axis inversion in hitTest) previously
+caused drops to land in the wrong pane.
+"""
+
+import os
+import sys
+import time
+
+sys.path.insert(0, os.path.dirname(os.path.abspath(__file__)))
+
+from cmux import cmux
+
+
+def surface_ids_from_layout(layout: dict):
+    """Extract panel IDs keyed by vertical position from layout_debug output.
+
+    Returns (top_surface_id, bottom_surface_id) based on pane frame y-origins.
+    Bonsplit's pane frames use a top-left origin (flipped) coordinate system,
+    so smaller y = higher on screen = top pane.
+    """
+    panels = layout.get("selectedPanels", [])
+    if len(panels) < 2:
+        return None, None
+
+    def y_origin(p):
+        frame = p.get("paneFrame")
+        if frame is None:
+            return 0
+        return frame.get("y", 0)
+
+    # Sort ascending by y: smallest y = top pane visually
+    sorted_panels = sorted(panels, key=y_origin)
+    top_id = sorted_panels[0].get("panelId")
+    bottom_id = sorted_panels[1].get("panelId")
+    return top_id, bottom_id
+
+
+def main() -> int:
+    with cmux() as client:
+        try:
+            client.activate_app()
+        except Exception:
+            pass
+
+        # Start with a single terminal surface.
+        surfaces = client.list_surfaces()
+        if not surfaces:
+            client.new_workspace()
+            time.sleep(0.3)
+            surfaces = client.list_surfaces()
+        if not surfaces:
+            print("FAIL: no surfaces available")
+            return 1
+
+        # Create a vertical (top/bottom) split.
+        client.new_split("down")
+        time.sleep(0.5)
+
+        layout = client.layout_debug()
+        top_panel_id, bottom_panel_id = surface_ids_from_layout(layout)
+        if not top_panel_id or not bottom_panel_id:
+            print("FAIL: could not determine top/bottom panel IDs from layout")
+            print(f"layout: {layout}")
+            return 1
+
+        if top_panel_id == bottom_panel_id:
+            print("FAIL: top and bottom panel IDs are the same")
+            return 1
+
+        # Test the hit-test mapping directly: given a point in the top/bottom
+        # half, does it resolve to *different* terminals in the expected order?
+        # drop_hit_test uses content-area coordinates: (0,0)=top-left, (1,1)=bottom-right.
+
+        # Hit-test near the vertical centre of the top pane (y ≈ 0.25).
+        top_hit = client.drop_hit_test(0.5, 0.25)
+        # Hit-test near the vertical centre of the bottom pane (y ≈ 0.75).
+        bottom_hit = client.drop_hit_test(0.5, 0.75)
+
+        if top_hit is None:
+            print("FAIL: drop_hit_test returned 'none' for top region")
+            return 1
+        if bottom_hit is None:
+            print("FAIL: drop_hit_test returned 'none' for bottom region")
+            return 1
+        if top_hit == bottom_hit:
+            print("FAIL: top and bottom hit test returned the same surface")
+            print(f"  top_hit={top_hit}  bottom_hit={bottom_hit}")
+            return 1
+
+        # Verify the mapping is not inverted: the top hit should correspond to
+        # the top pane and the bottom hit to the bottom pane.
+        # Cross-check via layout_debug pane frames (flipped coords: smaller y = top).
+        panels = layout.get("selectedPanels", [])
+        panel_to_y = {}
+        for p in panels:
+            pid = p.get("panelId")
+            frame = p.get("paneFrame")
+            if pid and frame:
+                panel_to_y[pid] = frame.get("y", 0)
+
+        # drop_hit_test returns uppercase UUIDs; panelId may differ in case.
+        def normalise(uuid_str):
+            return uuid_str.upper() if uuid_str else ""
+
+        top_y = panel_to_y.get(normalise(top_hit), panel_to_y.get(top_hit))
+        bottom_y = panel_to_y.get(normalise(bottom_hit), panel_to_y.get(bottom_hit))
+
+        if top_y is None or bottom_y is None:
+            print("FAIL: could not find hit-test surface IDs in layout panel map")
+            print(f"  top_hit={top_hit}  bottom_hit={bottom_hit}")
+            print(f"  panel_to_y={panel_to_y}")
+            return 1
+
+        # In flipped coords: top pane has smaller y
+        if top_y >= bottom_y:
+            print("FAIL: y-axis is inverted — top hit resolved to bottom pane")
+            print(f"  top_hit={top_hit} (y={top_y})  bottom_hit={bottom_hit} (y={bottom_y})")
+            return 1
+
+        print("PASS: vertical split drop targeting is correct")
+        print(f"  top_hit={top_hit}  bottom_hit={bottom_hit}")
+
+        # Also test horizontal split targeting.
+        # Close the bottom pane and create a horizontal split instead.
+        # First, close all extra surfaces to get back to 1.
+        surfaces = client.list_surfaces()
+        if len(surfaces) > 1:
+            # Focus and close the non-first surface
+            for _, sid, is_focused in surfaces[1:]:
+                try:
+                    client.close_surface(sid)
+                except Exception:
+                    pass
+            time.sleep(0.3)
+
+        client.new_split("right")
+        time.sleep(0.5)
+
+        # Hit-test left half and right half
+        left_hit = client.drop_hit_test(0.25, 0.5)
+        right_hit = client.drop_hit_test(0.75, 0.5)
+
+        if left_hit is None:
+            print("FAIL: drop_hit_test returned 'none' for left region")
+            return 1
+        if right_hit is None:
+            print("FAIL: drop_hit_test returned 'none' for right region")
+            return 1
+        if left_hit == right_hit:
+            print("FAIL: left and right hit test returned the same surface")
+            print(f"  left_hit={left_hit}  right_hit={right_hit}")
+            return 1
+
+        print("PASS: horizontal split drop targeting is correct")
+        print(f"  left_hit={left_hit}  right_hit={right_hit}")
+
+        return 0
+
+
+if __name__ == "__main__":
+    raise SystemExit(main())