diff --git a/crates/project_panel/src/project_panel.rs b/crates/project_panel/src/project_panel.rs
index 29f8f6459e..0095e4ab79 100644
--- a/crates/project_panel/src/project_panel.rs
+++ b/crates/project_panel/src/project_panel.rs
@@ -4246,7 +4246,7 @@ impl ProjectPanel {
             if skip_ignored
                 && worktree
                     .entry_for_id(entry_id)
-                    .map_or(true, |entry| entry.is_ignored)
+                    .map_or(true, |entry| entry.is_ignored && !entry.is_always_included)
             {
                 return;
             }
@@ -7871,6 +7871,123 @@ mod tests {
         );
     }
 
+    #[gpui::test]
+    async fn test_gitignored_and_always_included(cx: &mut gpui::TestAppContext) {
+        init_test_with_editor(cx);
+        cx.update(|cx| {
+            cx.update_global::<SettingsStore, _>(|store, cx| {
+                store.update_user_settings::<WorktreeSettings>(cx, |worktree_settings| {
+                    worktree_settings.file_scan_exclusions = Some(Vec::new());
+                    worktree_settings.file_scan_inclusions =
+                        Some(vec!["always_included_but_ignored_dir/*".to_string()]);
+                });
+                store.update_user_settings::<ProjectPanelSettings>(cx, |project_panel_settings| {
+                    project_panel_settings.auto_reveal_entries = Some(false)
+                });
+            })
+        });
+
+        let fs = FakeFs::new(cx.background_executor.clone());
+        fs.insert_tree(
+            "/project_root",
+            json!({
+                ".git": {},
+                ".gitignore": "**/gitignored_dir\n/always_included_but_ignored_dir",
+                "dir_1": {
+                    "file_1.py": "# File 1_1 contents",
+                    "file_2.py": "# File 1_2 contents",
+                    "file_3.py": "# File 1_3 contents",
+                    "gitignored_dir": {
+                        "file_a.py": "# File contents",
+                        "file_b.py": "# File contents",
+                        "file_c.py": "# File contents",
+                    },
+                },
+                "dir_2": {
+                    "file_1.py": "# File 2_1 contents",
+                    "file_2.py": "# File 2_2 contents",
+                    "file_3.py": "# File 2_3 contents",
+                },
+                "always_included_but_ignored_dir": {
+                    "file_a.py": "# File contents",
+                    "file_b.py": "# File contents",
+                    "file_c.py": "# File contents",
+                },
+            }),
+        )
+        .await;
+
+        let project = Project::test(fs.clone(), ["/project_root".as_ref()], cx).await;
+        let workspace =
+            cx.add_window(|window, cx| Workspace::test_new(project.clone(), window, cx));
+        let cx = &mut VisualTestContext::from_window(*workspace, cx);
+        let panel = workspace.update(cx, ProjectPanel::new).unwrap();
+
+        assert_eq!(
+            visible_entries_as_strings(&panel, 0..20, cx),
+            &[
+                "v project_root",
+                "    > .git",
+                "    > always_included_but_ignored_dir",
+                "    > dir_1",
+                "    > dir_2",
+                "      .gitignore",
+            ]
+        );
+
+        let gitignored_dir_file =
+            find_project_entry(&panel, "project_root/dir_1/gitignored_dir/file_a.py", cx);
+        let always_included_but_ignored_dir_file = find_project_entry(
+            &panel,
+            "project_root/always_included_but_ignored_dir/file_a.py",
+            cx,
+        )
+        .expect("file that is .gitignored but set to always be included should have an entry");
+        assert_eq!(
+            gitignored_dir_file, None,
+            "File in the gitignored dir should not have an entry unless its directory is toggled"
+        );
+
+        toggle_expand_dir(&panel, "project_root/dir_1", cx);
+        cx.run_until_parked();
+        cx.update(|_, cx| {
+            cx.update_global::<SettingsStore, _>(|store, cx| {
+                store.update_user_settings::<ProjectPanelSettings>(cx, |project_panel_settings| {
+                    project_panel_settings.auto_reveal_entries = Some(true)
+                });
+            })
+        });
+
+        panel.update(cx, |panel, cx| {
+            panel.project.update(cx, |_, cx| {
+                cx.emit(project::Event::ActiveEntryChanged(Some(
+                    always_included_but_ignored_dir_file,
+                )))
+            })
+        });
+        cx.run_until_parked();
+
+        assert_eq!(
+            visible_entries_as_strings(&panel, 0..20, cx),
+            &[
+                "v project_root",
+                "    > .git",
+                "    v always_included_but_ignored_dir",
+                "          file_a.py  <== selected  <== marked",
+                "          file_b.py",
+                "          file_c.py",
+                "    v dir_1",
+                "        > gitignored_dir",
+                "          file_1.py",
+                "          file_2.py",
+                "          file_3.py",
+                "    > dir_2",
+                "      .gitignore",
+            ],
+            "When auto reveal is enabled, a gitignored but always included selected entry should be revealed in the project panel"
+        );
+    }
+
     #[gpui::test]
     async fn test_explicit_reveal(cx: &mut gpui::TestAppContext) {
         init_test_with_editor(cx);