Cursor 2.3.23 Not Recognizing Folder-Based Project Rules

[fotoflo]

Where does the bug appear (feature/product)?

Cursor IDE

Describe the Bug

Bug Report: Cursor 2.3.23 Not Recognizing Folder-Based Project Rules
Environment
Cursor Version: 2.3.23
VSCode Version: 1.105.1
Commit: 655ee705c6c7b6da1da481d0fdf13191d5e3e980
Date: 2026-01-06T04:26:58.029Z
Electron: 37.7.0
Chromium: 138.0.7204.251
Node.js: 22.20.0
OS: macOS (Darwin arm64 24.5.0)
Issue Summary
Cursor 2.3.23 is exhibiting two bugs related to Project Rules:

Settings UI creates .mdc files instead of folder-based rules: When using the “Add Rule” button in Cursor Settings → Rules, Cursor creates .cursor/rules/rule-name.mdc instead of the documented .cursor/rules/rule-name/RULE.md folder structure.

Manually created folder-based rules are not recognized: When creating the correct folder structure manually (.cursor/rules/rule-name/RULE.md), Cursor does not detect or list these rules in the Project Rules section.

Expected Behavior
According to the documentation:

“As of 2.2, .mdc cursor rules will remain functional however all new rules will now be created as folders in .cursor/rules.”

In version 2.3.23:

The Settings UI should create folder-based rules (.cursor/rules/rule-name/RULE.md)
Manually created folder-based rules should be detected and appear in Cursor Settings → Rules under “Project Rules”
Actual Behavior
Bug 1: When creating a rule via Settings UI:

Open Cursor Settings → Rules, Commands
Click “+ Add Rule” next to Project Rules
Name the rule (e.g., “api-routes”)
Result: Creates .cursor/rules/api-routes.mdc (legacy format)
Expected: Should create .cursor/rules/api-routes/RULE.md (new folder format)
Bug 2: When manually creating the correct structure:

Create .cursor/rules/api-routes/RULE.md with valid frontmatter
Restart Cursor
Open Cursor Settings → Rules
Result: The rule does not appear in Project Rules list
Expected: The rule should be detected and listed

---

description: “API route standards for Next.js API endpoints including validation, error handling, and database interactions”
alwaysApply: true

API Route Standards

APPLY TO: All files in src/app/api//*.ts**
[Additional rule content here]
Completely quit and restart Cursor
Open Cursor Settings → Rules
Check if “api-routes” appears under Project Rules (it does not)
Additional Context
The .mdc files created by Bug 1 DO appear in the Project Rules list (legacy format still works)
The frontmatter in the manually created RULE.md follows the documented format exactly
File permissions are correct (same as other project files)
Tried restarting Cursor multiple times - no effect
No error messages appear in console or logs
Impact
Users cannot use the new folder-based rule format that provides better organization
Documentation contradicts actual behavior
Manual workarounds (creating .mdc files) require using legacy format
Blocks users from organizing rules with scripts and additional files as documented
Suggested Fix
Update the Settings UI rule creation to generate folder-based rules instead of .mdc files
Fix the rule detection logic to scan for RULE.md files in subfolders of .cursor/rules/
Ensure both formats work during migration period as documented
Additional Question for Cursor Team: Should the folder-based detection be case-sensitive for RULE.md? The documentation doesn’t specify, but this could be another potential issue.

Steps to Reproduce

Reproduction Steps
For Bug 1:

Open Cursor Settings → Rules, Commands
Click “+ Add Rule” next to Project Rules
Enter any rule name
Observe the created file in .cursor/rules/
For Bug 2:

Manually create folder: .cursor/rules/api-routes/
Create file: .cursor/rules/api-routes/RULE.md with the following content:

Expected Behavior

1. Expected: Should create .cursor/rules/api-routes/RULE.md (new folder format)

2. Expected: The rule should be detected and listed

Operating System

MacOS

Current Cursor Version (Menu → About Cursor → Copy)

Version: 2.3.23
VSCode Version: 1.105.1
Commit: 655ee705c6c7b6da1da481d0fdf13191d5e3e980
Date: 2026-01-06T04:26:58.029Z (1 day ago)
Electron: 37.7.0
Chromium: 138.0.7204.251
Node.js: 22.20.0
V8: 13.8.258.32-electron.0
OS: Darwin arm64 24.5.0

Additional Information

Im planning to run a training on cursor on Friday, hope this is consistant!

Does this stop you from using Cursor

Sometimes - I can sometimes use Cursor

[deanrie]

Hey, thanks for the report. This is a known issue that 12+ users confirmed in a similar thread: Project Rules: Documented RULE.md folder format not working, only undocumented .mdc format works

The bug was marked as fixed, but based on your report it still happens in version 2.3.23. I’ll pass this to the dev team so they can take another look.

Workaround:
Use the legacy .mdc format. Create files directly as .cursor/rules/rule-name.mdc instead of .cursor/rules/rule-name/RULE.md. The content format is the same (frontmatter + markdown), but these files show up in the Settings UI.

[Travis_Polland]

Thanks, Dean, I’m the one who raised this issue initially. I can reconfirm that no “fix” has been included in the most recent production release yet. I’ve tested the “create rule” and manually added the rules, and neither works. I can confirm that the MDC format does continue to work for the time being.

Keep us posted on the progress.

[cpakken]

isn’t rules an incredibly basic feature? how is cursor taking this long to fix folder rules even after declaring the old .mdc is legacy and the new folder rule version does not work.