diff --git a/.changeset/silent-rules-cover.md b/.changeset/silent-rules-cover.md
new file mode 100644
index 00000000000..9e6ab3aa11b
--- /dev/null
+++ b/.changeset/silent-rules-cover.md
@@ -0,0 +1,5 @@
+---
+"shadcn": minor
+---
+
+handle nested file path
diff --git a/packages/shadcn/src/registry/api.ts b/packages/shadcn/src/registry/api.ts
index 95e20ba4602..4ad54d218dc 100644
--- a/packages/shadcn/src/registry/api.ts
+++ b/packages/shadcn/src/registry/api.ts
@@ -233,40 +233,6 @@ export async function fetchRegistry(paths: string[]) {
   }
 }
 
-export function getRegistryItemFileTargetPath(
-  file: z.infer<typeof registryItemFileSchema>,
-  config: Config,
-  override?: string
-) {
-  if (override) {
-    return override
-  }
-
-  if (file.type === "registry:ui") {
-    return config.resolvedPaths.ui
-  }
-
-  if (file.type === "registry:lib") {
-    return config.resolvedPaths.lib
-  }
-
-  if (file.type === "registry:block" || file.type === "registry:component") {
-    return config.resolvedPaths.components
-  }
-
-  if (file.type === "registry:hook") {
-    return config.resolvedPaths.hooks
-  }
-
-  // TODO: we put this in components for now.
-  // We should move this to pages as per framework.
-  if (file.type === "registry:page") {
-    return config.resolvedPaths.components
-  }
-
-  return config.resolvedPaths.components
-}
-
 export async function registryResolveItemsTree(
   names: z.infer<typeof registryItemSchema>["name"][],
   config: Config
diff --git a/packages/shadcn/src/utils/updaters/update-css-vars.ts b/packages/shadcn/src/utils/updaters/update-css-vars.ts
index 73fd2cebebb..f362961dd4a 100644
--- a/packages/shadcn/src/utils/updaters/update-css-vars.ts
+++ b/packages/shadcn/src/utils/updaters/update-css-vars.ts
@@ -56,6 +56,8 @@ export async function transformCssVars(
   config: Config,
   options: {
     cleanupDefaultNextStyles?: boolean
+  } = {
+    cleanupDefaultNextStyles: false,
   }
 ) {
   options = {
diff --git a/packages/shadcn/src/utils/updaters/update-files.ts b/packages/shadcn/src/utils/updaters/update-files.ts
index f91921989d0..2e1df1f022d 100644
--- a/packages/shadcn/src/utils/updaters/update-files.ts
+++ b/packages/shadcn/src/utils/updaters/update-files.ts
@@ -1,10 +1,7 @@
 import { existsSync, promises as fs } from "fs"
 import path, { basename } from "path"
-import {
-  getRegistryBaseColor,
-  getRegistryItemFileTargetPath,
-} from "@/src/registry/api"
-import { RegistryItem } from "@/src/registry/schema"
+import { getRegistryBaseColor } from "@/src/registry/api"
+import { RegistryItem, registryItemFileSchema } from "@/src/registry/schema"
 import { Config } from "@/src/utils/get-config"
 import { getProjectInfo } from "@/src/utils/get-project-info"
 import { highlighter } from "@/src/utils/highlighter"
@@ -17,19 +14,7 @@ import { transformImport } from "@/src/utils/transformers/transform-import"
 import { transformRsc } from "@/src/utils/transformers/transform-rsc"
 import { transformTwPrefixes } from "@/src/utils/transformers/transform-tw-prefix"
 import prompts from "prompts"
-
-export function resolveTargetDir(
-  projectInfo: Awaited<ReturnType<typeof getProjectInfo>>,
-  config: Config,
-  target: string
-) {
-  if (target.startsWith("~/")) {
-    return path.join(config.resolvedPaths.cwd, target.replace("~/", ""))
-  }
-  return projectInfo?.isSrcDir
-    ? path.join(config.resolvedPaths.cwd, "src", target)
-    : path.join(config.resolvedPaths.cwd, target)
-}
+import { z } from "zod"
 
 export async function updateFiles(
   files: RegistryItem["files"],
@@ -74,14 +59,15 @@ export async function updateFiles(
       continue
     }
 
-    let targetDir = getRegistryItemFileTargetPath(file, config)
+    let filePath = resolveFilePath(file, config, {
+      isSrcDir: projectInfo?.isSrcDir,
+      commonRoot: findCommonRoot(
+        files.map((f) => f.path),
+        file.path
+      ),
+    })
     const fileName = basename(file.path)
-    let filePath = path.join(targetDir, fileName)
-
-    if (file.target) {
-      filePath = resolveTargetDir(projectInfo, config, file.target)
-      targetDir = path.dirname(filePath)
-    }
+    const targetDir = path.dirname(filePath)
 
     if (!config.tsx) {
       filePath = filePath.replace(/\.tsx?$/, (match) =>
@@ -210,3 +196,113 @@ export async function updateFiles(
     filesSkipped,
   }
 }
+
+export function resolveFilePath(
+  file: z.infer<typeof registryItemFileSchema>,
+  config: Config,
+  options: {
+    isSrcDir?: boolean
+    commonRoot?: string
+  }
+) {
+  if (file.target) {
+    if (file.target.startsWith("~/")) {
+      return path.join(config.resolvedPaths.cwd, file.target.replace("~/", ""))
+    }
+
+    return options.isSrcDir
+      ? path.join(
+          config.resolvedPaths.cwd,
+          "src",
+          file.target.replace("src/", "")
+        )
+      : path.join(config.resolvedPaths.cwd, file.target.replace("src/", ""))
+  }
+
+  const targetDir = resolveFileTargetDirectory(file, config)
+
+  const relativePath = resolveNestedFilePath(file.path, targetDir)
+  return path.join(targetDir, relativePath)
+}
+
+function resolveFileTargetDirectory(
+  file: z.infer<typeof registryItemFileSchema>,
+  config: Config
+) {
+  if (file.type === "registry:ui") {
+    return config.resolvedPaths.ui
+  }
+
+  if (file.type === "registry:lib") {
+    return config.resolvedPaths.lib
+  }
+
+  if (file.type === "registry:block" || file.type === "registry:component") {
+    return config.resolvedPaths.components
+  }
+
+  if (file.type === "registry:hook") {
+    return config.resolvedPaths.hooks
+  }
+
+  return config.resolvedPaths.components
+}
+
+export function findCommonRoot(paths: string[], needle: string): string {
+  // Remove leading slashes for consistent handling
+  const normalizedPaths = paths.map((p) => p.replace(/^\//, ""))
+  const normalizedNeedle = needle.replace(/^\//, "")
+
+  // Get the directory path of the needle by removing the file name
+  const needleDir = normalizedNeedle.split("/").slice(0, -1).join("/")
+
+  // If needle is at root level, return empty string
+  if (!needleDir) {
+    return ""
+  }
+
+  // Split the needle directory into segments
+  const needleSegments = needleDir.split("/")
+
+  // Start from the full path and work backwards
+  for (let i = needleSegments.length; i > 0; i--) {
+    const testPath = needleSegments.slice(0, i).join("/")
+    // Check if this is a common root by verifying if any other paths start with it
+    const hasRelatedPaths = normalizedPaths.some(
+      (path) => path !== normalizedNeedle && path.startsWith(testPath + "/")
+    )
+    if (hasRelatedPaths) {
+      return "/" + testPath // Add leading slash back for the result
+    }
+  }
+
+  // If no common root found with other files, return the parent directory of the needle
+  return "/" + needleDir // Add leading slash back for the result
+}
+
+export function resolveNestedFilePath(
+  filePath: string,
+  targetDir: string
+): string {
+  // Normalize paths by removing leading/trailing slashes
+  const normalizedFilePath = filePath.replace(/^\/|\/$/g, "")
+  const normalizedTargetDir = targetDir.replace(/^\/|\/$/g, "")
+
+  // Split paths into segments
+  const fileSegments = normalizedFilePath.split("/")
+  const targetSegments = normalizedTargetDir.split("/")
+
+  // Find the last matching segment from targetDir in filePath
+  const lastTargetSegment = targetSegments[targetSegments.length - 1]
+  const commonDirIndex = fileSegments.findIndex(
+    (segment) => segment === lastTargetSegment
+  )
+
+  if (commonDirIndex === -1) {
+    // Return just the filename if no common directory is found
+    return fileSegments[fileSegments.length - 1]
+  }
+
+  // Return everything after the common directory
+  return fileSegments.slice(commonDirIndex + 1).join("/")
+}
diff --git a/packages/shadcn/test/utils/updaters/update-files.test.ts b/packages/shadcn/test/utils/updaters/update-files.test.ts
index 4d12fcb841e..c605c357896 100644
--- a/packages/shadcn/test/utils/updaters/update-files.test.ts
+++ b/packages/shadcn/test/utils/updaters/update-files.test.ts
@@ -1,65 +1,471 @@
 import { describe, expect, test } from "vitest"
 
-import { resolveTargetDir } from "../../../src/utils/updaters/update-files"
+import {
+  findCommonRoot,
+  resolveFilePath,
+  resolveNestedFilePath,
+} from "../../../src/utils/updaters/update-files"
 
-describe("resolveTargetDir", () => {
-  test("should handle a home target without a src directory", () => {
-    const targetDir = resolveTargetDir(
-      {
+describe("resolveFilePath", () => {
+  test.each([
+    {
+      description: "should use target when provided",
+      file: {
+        path: "hello-world/ui/button.tsx",
+        type: "registry:ui",
+        target: "ui/button.tsx",
+      },
+      resolvedPath: "/foo/bar/ui/button.tsx",
+      projectInfo: {
         isSrcDir: false,
       },
-      {
-        resolvedPaths: {
-          cwd: "/foo/bar",
-        },
+    },
+    {
+      description: "should use nested target when provided",
+      file: {
+        path: "hello-world/components/example-card.tsx",
+        type: "registry:component",
+        target: "components/cards/example-card.tsx",
+      },
+      resolvedPath: "/foo/bar/components/cards/example-card.tsx",
+      projectInfo: {
+        isSrcDir: false,
+      },
+    },
+    {
+      description: "should use home target (~) when provided",
+      file: {
+        path: "hello-world/foo.json",
+        type: "registry:lib",
+        target: "~/foo.json",
       },
-      "~/.env"
-    )
-    expect(targetDir).toBe("/foo/bar/.env")
+      resolvedPath: "/foo/bar/foo.json",
+      projectInfo: {
+        isSrcDir: false,
+      },
+    },
+  ])("$description", ({ file, resolvedPath, projectInfo }) => {
+    expect(
+      resolveFilePath(
+        file,
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        projectInfo
+      )
+    ).toBe(resolvedPath)
   })
 
-  test("should handle a home target even with a src directory", () => {
-    const targetDir = resolveTargetDir(
-      {
+  test.each([
+    {
+      description: "should use src directory when provided",
+      file: {
+        path: "hello-world/ui/button.tsx",
+        type: "registry:ui",
+        target: "design-system/ui/button.tsx",
+      },
+      resolvedPath: "/foo/bar/src/design-system/ui/button.tsx",
+      projectInfo: {
         isSrcDir: true,
       },
-      {
-        resolvedPaths: {
-          cwd: "/foo/bar",
-        },
+    },
+    {
+      description: "should NOT use src directory for root files",
+      file: {
+        path: "hello-world/.env",
+        type: "registry:lib",
+        target: "~/.env",
       },
-      "~/.env"
-    )
-    expect(targetDir).toBe("/foo/bar/.env")
-  })
-
-  test("should handle a simple target", () => {
-    const targetDir = resolveTargetDir(
-      {
+      resolvedPath: "/foo/bar/.env",
+      projectInfo: {
+        isSrcDir: true,
+      },
+    },
+    {
+      description: "should use src directory when isSrcDir is true",
+      file: {
+        path: "hello-world/lib/foo.ts",
+        type: "registry:lib",
+        target: "lib/foo.ts",
+      },
+      resolvedPath: "/foo/bar/src/lib/foo.ts",
+      projectInfo: {
+        isSrcDir: true,
+      },
+    },
+    {
+      description: "should strip src directory when isSrcDir is false",
+      file: {
+        path: "hello-world/path/to/bar/baz.ts",
+        type: "registry:lib",
+        target: "src/path/to/bar/baz.ts",
+      },
+      resolvedPath: "/foo/bar/path/to/bar/baz.ts",
+      projectInfo: {
         isSrcDir: false,
       },
-      {
-        resolvedPaths: {
-          cwd: "/foo/bar",
+    },
+  ])("$description", ({ file, resolvedPath, projectInfo }) => {
+    expect(
+      resolveFilePath(
+        file,
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
         },
-      },
-      "./components/ui/button.tsx"
-    )
-    expect(targetDir).toBe("/foo/bar/components/ui/button.tsx")
+        projectInfo
+      )
+    ).toBe(resolvedPath)
   })
 
-  test("should handle a simple target with src directory", () => {
-    const targetDir = resolveTargetDir(
-      {
-        isSrcDir: true,
-      },
-      {
-        resolvedPaths: {
-          cwd: "/foo/bar",
+  test("should resolve registry:ui file types", () => {
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/ui/button.tsx",
+          type: "registry:ui",
         },
-      },
-      "./components/ui/button.tsx"
-    )
-    expect(targetDir).toBe("/foo/bar/src/components/ui/button.tsx")
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/components/ui/button.tsx")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/ui/button.tsx",
+          type: "registry:ui",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
+        },
+        {
+          isSrcDir: true,
+        }
+      )
+    ).toBe("/foo/bar/src/primitives/button.tsx")
+  })
+
+  test("should resolve registry:component and registry:block file types", () => {
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/components/example-card.tsx",
+          type: "registry:component",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/components/example-card.tsx")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/components/example-card.tsx",
+          type: "registry:block",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/components/example-card.tsx")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/components/example-card.tsx",
+          type: "registry:component",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
+        },
+        {
+          isSrcDir: true,
+        }
+      )
+    ).toBe("/foo/bar/src/components/example-card.tsx")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/components/example-card.tsx",
+          type: "registry:block",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
+        },
+        {
+          isSrcDir: true,
+        }
+      )
+    ).toBe("/foo/bar/src/components/example-card.tsx")
+  })
+
+  test("should resolve registry:lib file types", () => {
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/lib/foo.ts",
+          type: "registry:lib",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/lib/foo.ts")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/lib/foo.ts",
+          type: "registry:lib",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
+        },
+        {
+          isSrcDir: true,
+        }
+      )
+    ).toBe("/foo/bar/src/lib/foo.ts")
+  })
+
+  test("should resolve registry:hook file types", () => {
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/hooks/use-foo.ts",
+          type: "registry:hook",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/hooks/use-foo.ts")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/hooks/use-foo.ts",
+          type: "registry:hook",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/src/components",
+            ui: "/foo/bar/src/primitives",
+            lib: "/foo/bar/src/lib",
+            hooks: "/foo/bar/src/hooks",
+          },
+        },
+        {
+          isSrcDir: true,
+        }
+      )
+    ).toBe("/foo/bar/src/hooks/use-foo.ts")
+  })
+
+  test("should resolve nested files", () => {
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/components/path/to/example-card.tsx",
+          type: "registry:component",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/components/path/to/example-card.tsx")
+
+    expect(
+      resolveFilePath(
+        {
+          path: "hello-world/design-system/primitives/button.tsx",
+          type: "registry:ui",
+        },
+        {
+          resolvedPaths: {
+            cwd: "/foo/bar",
+            components: "/foo/bar/components",
+            ui: "/foo/bar/components/ui",
+            lib: "/foo/bar/lib",
+            hooks: "/foo/bar/hooks",
+          },
+        },
+        {
+          isSrcDir: false,
+        }
+      )
+    ).toBe("/foo/bar/components/ui/button.tsx")
+  })
+})
+
+describe("findCommonRoot", () => {
+  test.each([
+    {
+      description: "should find the common root of sibling files",
+      paths: ["/foo/bar/baz/qux", "/foo/bar/baz/quux"],
+      needle: "/foo/bar/baz/qux",
+      expected: "/foo/bar/baz",
+    },
+    {
+      description: "should find common root with nested structures",
+      paths: [
+        "/app/components/header/nav.tsx",
+        "/app/components/header/logo.tsx",
+        "/app/components/header/menu/item.tsx",
+      ],
+      needle: "/app/components/header/nav.tsx",
+      expected: "/app/components/header",
+    },
+    {
+      description: "should handle single file in paths",
+      paths: ["/foo/bar/baz/single.tsx"],
+      needle: "/foo/bar/baz/single.tsx",
+      expected: "/foo/bar/baz",
+    },
+    {
+      description: "should handle root level files",
+      paths: ["root.tsx", "config.ts", "package.json"],
+      needle: "root.tsx",
+      expected: "",
+    },
+    {
+      description: "should handle unrelated paths",
+      paths: ["/foo/bar/baz", "/completely/different/path"],
+      needle: "/foo/bar/baz",
+      expected: "/foo/bar",
+    },
+  ])("$description", ({ paths, needle, expected }) => {
+    expect(findCommonRoot(paths, needle)).toBe(expected)
+  })
+})
+
+describe("resolveNestedFilePath", () => {
+  test.each([
+    {
+      description: "should resolve path after common components directory",
+      filePath: "hello-world/components/path/to/example-card.tsx",
+      targetDir: "/foo/bar/components",
+      expected: "path/to/example-card.tsx",
+    },
+    {
+      description: "should handle different directory depths",
+      filePath: "/foo-bar/components/ui/button.tsx",
+      targetDir: "/src/ui",
+      expected: "button.tsx",
+    },
+    {
+      description: "should handle nested component paths",
+      filePath: "blocks/sidebar/components/nav/item.tsx",
+      targetDir: "/app/components",
+      expected: "nav/item.tsx",
+    },
+    {
+      description: "should return the file path if no common directory",
+      filePath: "something/else/file.tsx",
+      targetDir: "/foo/bar/components",
+      expected: "file.tsx",
+    },
+    {
+      description: "should handle paths with multiple common directories",
+      filePath: "ui/shared/components/utils/button.tsx",
+      targetDir: "/src/components/utils",
+      expected: "button.tsx",
+    },
+  ])("$description", ({ filePath, targetDir, expected }) => {
+    expect(resolveNestedFilePath(filePath, targetDir)).toBe(expected)
   })
 })