diff --git a/packages/tree-extension/src/index.ts b/packages/tree-extension/src/index.ts
index 6ba3a6ecc3e..918c2858d1e 100644
--- a/packages/tree-extension/src/index.ts
+++ b/packages/tree-extension/src/index.ts
@@ -37,6 +37,7 @@ import {
   caretDownIcon,
   folderIcon,
   runningIcon,
+  terminalIcon,
 } from '@jupyterlab/ui-components';
 
 import { Menu, MenuBar } from '@lumino/widgets';
@@ -54,6 +55,9 @@ const FILE_BROWSER_FACTORY = 'FileBrowser';
  * The namespace for command IDs.
  */
 namespace CommandIDs {
+  // Create a terminal in the current file browser directory.
+  export const createNewTerminal = 'filebrowser:create-new-terminal';
+
   // The command to show the filebrowser widget in tree view.
   export const openDirectory = 'filebrowser:open-directory';
 
@@ -74,17 +78,39 @@ const createNew: JupyterFrontEndPlugin<void> = {
   id: '@jupyter-notebook/tree-extension:new',
   description:
     'Plugin to add extra commands to the file browser to create new notebooks, files, consoles and terminals.',
-  requires: [ITranslator],
+  requires: [IFileBrowserFactory, ITranslator],
   optional: [IToolbarWidgetRegistry],
   autoStart: true,
   activate: (
     app: JupyterFrontEnd,
+    fileBrowserFactory: IFileBrowserFactory,
     translator: ITranslator,
     toolbarRegistry: IToolbarWidgetRegistry | null
   ) => {
     const { commands, serviceManager } = app;
     const trans = translator.load('notebook');
 
+    commands.addCommand(CommandIDs.createNewTerminal, {
+      label: trans.__('Terminal'),
+      icon: terminalIcon,
+      isEnabled: () => commands.isEnabled('terminal:create-new'),
+      isVisible: () => commands.isVisible('terminal:create-new'),
+      execute: () => {
+        const browser = fileBrowserFactory.tracker.currentWidget;
+        if (browser) {
+          return commands.execute('terminal:create-new', {
+            cwd: browser.model.path,
+          });
+        }
+      },
+      describedBy: {
+        args: {
+          type: 'object',
+          properties: {},
+        },
+      },
+    });
+
     const overflowOptions = {
       overflowMenuOptions: { isVisible: false },
     };
@@ -105,7 +131,7 @@ const createNew: JupyterFrontEndPlugin<void> = {
       }
 
       const baseCommands = [
-        'terminal:create-new',
+        CommandIDs.createNewTerminal,
         'console:create',
         'filebrowser:create-new-file',
         'filebrowser:create-new-directory',
diff --git a/ui-tests/test/tree.spec.ts b/ui-tests/test/tree.spec.ts
index 74eba32df96..11bf7860f9c 100644
--- a/ui-tests/test/tree.spec.ts
+++ b/ui-tests/test/tree.spec.ts
@@ -37,6 +37,44 @@ test('should update url when navigating in filebrowser', async ({
   expect(url.pathname).toEqual(`/tree/${tmpPath}/${SUBFOLDER}`);
 });
 
+test('should create a terminal in the current directory', async ({
+  page,
+  tmpPath,
+}) => {
+  const dir = `${tmpPath}/${SUBFOLDER}`;
+  const marker = 'terminal-cwd.txt';
+  await page.contents.createDirectory(dir);
+  await page.filebrowser.refresh();
+  await page.dblclick(`.jp-FileBrowser-listing >> text=${SUBFOLDER}`);
+  await page.waitForSelector(`.jp-FileBrowser-crumbs >> text=/${SUBFOLDER}/`);
+
+  const [terminal] = await Promise.all([
+    page.waitForEvent('popup'),
+    page.menu.clickMenuItem('New>Terminal'),
+  ]);
+
+  const terminalPanel = terminal.locator('.jp-Terminal');
+  await terminalPanel.waitFor();
+  await terminalPanel.locator('.xterm-screen').click();
+  const input = terminalPanel.locator('[aria-label="Terminal input"]');
+  await input.waitFor({ state: 'attached' });
+  await expect(input).toBeFocused();
+  await terminal.keyboard.type(`pwd > ${marker}`);
+  await terminal.keyboard.press('Enter');
+
+  const markerItem = page.locator(`.jp-FileBrowser-listing >> text=${marker}`);
+  await expect
+    .poll(
+      async () => {
+        await page.filebrowser.refresh();
+        return markerItem.count();
+      },
+      { timeout: 10_000 }
+    )
+    .toBeGreaterThan(0);
+  await terminal.close();
+});
+
 test('Should redirect from notebooks route to tree route for directories', async ({
   page,
   tmpPath,