diff --git a/src/components/workspace-canvas/FolderCard.tsx b/src/components/workspace-canvas/FolderCard.tsx
index 87f74c43..5683d46e 100644
--- a/src/components/workspace-canvas/FolderCard.tsx
+++ b/src/components/workspace-canvas/FolderCard.tsx
@@ -53,6 +53,7 @@ interface FolderCardProps {
   onOpenFolder: (folderId: string) => void;
   onUpdateItem: (itemId: string, updates: Partial<Item>) => void;
   onDeleteItem: (itemId: string) => void;
+  onDeleteFolderWithContents?: (folderId: string) => void; // Callback to delete folder and all items inside
   onMoveItem?: (itemId: string, folderId: string | null) => void; // Callback to move folder to another location
 }
 
@@ -70,10 +71,12 @@ function FolderCardComponent({
   onOpenFolder,
   onUpdateItem,
   onDeleteItem,
+  onDeleteFolderWithContents,
   onMoveItem,
 }: FolderCardProps) {
   const [showColorPicker, setShowColorPicker] = useState(false);
   const [showDeleteConfirm, setShowDeleteConfirm] = useState(false);
+  const [deleteOption, setDeleteOption] = useState<'keep' | 'delete' | null>(null);
   const [showMoveDialog, setShowMoveDialog] = useState(false);
   const [isDropdownOpen, setIsDropdownOpen] = useState(false);
   const [isDragHover, setIsDragHover] = useState(false);
@@ -210,9 +213,21 @@ function FolderCardComponent({
   }, [item.id, onUpdateItem]);
 
   const handleDelete = useCallback(() => {
-    onDeleteItem(item.id);
+    if (deleteOption === 'delete' && onDeleteFolderWithContents) {
+      onDeleteFolderWithContents(item.id);
+    } else {
+      onDeleteItem(item.id);
+    }
     setShowDeleteConfirm(false);
-  }, [item.id, onDeleteItem]);
+    setDeleteOption(null);
+  }, [item.id, onDeleteItem, onDeleteFolderWithContents, deleteOption]);
+
+  // Reset delete option when dialog closes
+  useEffect(() => {
+    if (!showDeleteConfirm) {
+      setDeleteOption(null);
+    }
+  }, [showDeleteConfirm]);
 
   // Calculate colors using the same utilities as WorkspaceCard
   const bodyBgColor = getCardColorCSS(folderColor, 0.4); // Body is more transparent
@@ -436,14 +451,57 @@ function FolderCardComponent({
             >
               <AlertDialogHeader>
                 <AlertDialogTitle>Delete Folder</AlertDialogTitle>
-                <AlertDialogDescription>
-                  Are you sure you want to delete &quot;{item.name}&quot;? Items in this
-                  folder will be moved out, but not deleted.
+                <AlertDialogDescription asChild>
+                  <div className="space-y-4">
+                    <div>
+                      Choose what happens to the {itemCount} {itemCount === 1 ? 'item' : 'items'} in &quot;{item.name}&quot;:
+                    </div>
+                    <div className="space-y-3 pt-2">
+                      <label className="flex items-start space-x-3 cursor-pointer group">
+                        <input
+                          type="radio"
+                          name="deleteOption"
+                          value="keep"
+                          checked={deleteOption === 'keep'}
+                          onChange={() => setDeleteOption('keep')}
+                          className="mt-1 h-4 w-4 text-primary focus:ring-primary border-gray-300"
+                          onClick={(e) => e.stopPropagation()}
+                        />
+                        <div className="flex-1">
+                          <div className="font-medium text-sm">Keep items</div>
+                          <div className="text-xs text-muted-foreground">
+                            Move items out of folder before deleting
+                          </div>
+                        </div>
+                      </label>
+                      <label className={`flex items-start space-x-3 group ${onDeleteFolderWithContents ? 'cursor-pointer' : 'cursor-not-allowed opacity-50'}`}>
+                        <input
+                          type="radio"
+                          name="deleteOption"
+                          value="delete"
+                          checked={deleteOption === 'delete'}
+                          onChange={() => setDeleteOption('delete')}
+                          disabled={!onDeleteFolderWithContents}
+                          className="mt-1 h-4 w-4 text-destructive focus:ring-destructive border-gray-300 disabled:opacity-50"
+                          onClick={(e) => e.stopPropagation()}
+                        />
+                        <div className="flex-1">
+                          <div className="font-medium text-sm text-destructive">Delete items</div>
+                          <div className="text-xs text-muted-foreground">
+                            Permanently delete folder and all {itemCount} {itemCount === 1 ? 'item' : 'items'} inside
+                          </div>
+                        </div>
+                      </label>
+                    </div>
+                  </div>
                 </AlertDialogDescription>
               </AlertDialogHeader>
               <AlertDialogFooter>
                 <AlertDialogCancel
-                  onClick={(e) => e.stopPropagation()}
+                  onClick={(e) => {
+                    e.stopPropagation();
+                    setDeleteOption(null);
+                  }}
                   onMouseDown={(e) => e.stopPropagation()}
                 >
                   Cancel
@@ -454,7 +512,8 @@ function FolderCardComponent({
                     handleDelete();
                   }}
                   onMouseDown={(e) => e.stopPropagation()}
-                  className="bg-destructive text-destructive-foreground hover:bg-destructive/90"
+                  disabled={deleteOption === null}
+                  className="bg-destructive text-destructive-foreground hover:bg-destructive/90 disabled:opacity-50 disabled:cursor-not-allowed"
                 >
                   Delete
                 </AlertDialogAction>
diff --git a/src/components/workspace-canvas/WorkspaceContent.tsx b/src/components/workspace-canvas/WorkspaceContent.tsx
index c2dd612f..7702d8a2 100644
--- a/src/components/workspace-canvas/WorkspaceContent.tsx
+++ b/src/components/workspace-canvas/WorkspaceContent.tsx
@@ -32,6 +32,7 @@ interface WorkspaceContentProps {
   onMoveItem?: (itemId: string, folderId: string | null) => void; // Callback to move item to folder
   onMoveItems?: (itemIds: string[], folderId: string | null) => void; // Callback to move multiple items to folder (bulk move)
   onOpenFolder?: (folderId: string) => void; // Callback when folder is clicked
+  onDeleteFolderWithContents?: (folderId: string) => void; // Callback to delete folder and all items inside
   onPDFUpload?: (files: File[]) => Promise<void>; // Function to handle PDF upload
 }
 
@@ -55,6 +56,7 @@ export default function WorkspaceContent({
   onMoveItem,
   onMoveItems,
   onOpenFolder,
+  onDeleteFolderWithContents,
   onPDFUpload,
 }: WorkspaceContentProps) {
   // Use external ref if provided (from dashboard page), otherwise create local one
@@ -406,6 +408,7 @@ export default function WorkspaceContent({
           onMoveItem={onMoveItem}
           onMoveItems={onMoveItems}
           onOpenFolder={handleOpenFolder}
+          onDeleteFolderWithContents={onDeleteFolderWithContents}
           addItem={addItem}
           onPDFUpload={onPDFUpload}
           setOpenModalItemId={setOpenModalItemId}
diff --git a/src/components/workspace-canvas/WorkspaceGrid.tsx b/src/components/workspace-canvas/WorkspaceGrid.tsx
index 235b2ec3..f67e5cb1 100644
--- a/src/components/workspace-canvas/WorkspaceGrid.tsx
+++ b/src/components/workspace-canvas/WorkspaceGrid.tsx
@@ -30,6 +30,7 @@ interface WorkspaceGridProps {
   onMoveItem?: (itemId: string, folderId: string | null) => void; // Callback to move item to folder
   onMoveItems?: (itemIds: string[], folderId: string | null) => void; // Callback to move multiple items to folder (bulk move)
   onOpenFolder?: (folderId: string) => void; // Callback when folder is clicked
+  onDeleteFolderWithContents?: (folderId: string) => void; // Callback to delete folder and all items inside
   addItem?: (type: CardType, name?: string, initialData?: Partial<Item['data']>) => string | void; // Function to add new items
   onPDFUpload?: (files: File[]) => Promise<void>; // Function to handle PDF upload
   setOpenModalItemId?: (id: string | null) => void; // Function to open modal for newly created items
@@ -59,6 +60,7 @@ export function WorkspaceGrid({
   onMoveItem,
   onMoveItems,
   onOpenFolder,
+  onDeleteFolderWithContents,
   addItem,
   onPDFUpload,
   setOpenModalItemId,
@@ -531,6 +533,7 @@ export function WorkspaceGrid({
             onOpenFolder={handleOpenFolder}
             onUpdateItem={handleUpdateItem}
             onDeleteItem={handleDeleteItem}
+            onDeleteFolderWithContents={onDeleteFolderWithContents}
             onMoveItem={onMoveItem}
           />
         ) : item.type === 'flashcard' ? (
@@ -570,6 +573,7 @@ export function WorkspaceGrid({
     handleOpenModal,
     existingColors,
     onMoveItem,
+    onDeleteFolderWithContents,
     handleOpenFolder,
     folderItemCounts,
     workspaceName,
diff --git a/src/components/workspace-canvas/WorkspaceSection.tsx b/src/components/workspace-canvas/WorkspaceSection.tsx
index a2f7a30c..05432f7e 100644
--- a/src/components/workspace-canvas/WorkspaceSection.tsx
+++ b/src/components/workspace-canvas/WorkspaceSection.tsx
@@ -501,6 +501,7 @@ export function WorkspaceSection({
                   workspaceColor={workspaceColor}
                   onMoveItem={operations?.moveItemToFolder}
                   onMoveItems={operations?.moveItemsToFolder}
+                  onDeleteFolderWithContents={operations?.deleteFolderWithContents}
                   onPDFUpload={handlePDFUpload}
                 />
               )}
diff --git a/src/hooks/workspace/use-workspace-operations.ts b/src/hooks/workspace/use-workspace-operations.ts
index fd96e654..2080721b 100644
--- a/src/hooks/workspace/use-workspace-operations.ts
+++ b/src/hooks/workspace/use-workspace-operations.ts
@@ -33,6 +33,7 @@ export interface WorkspaceOperations {
   createFolderWithItems: (name: string, itemIds: string[], color?: CardColor) => string;
   updateFolder: (folderId: string, changes: Partial<Item>) => void;
   deleteFolder: (folderId: string) => void;
+  deleteFolderWithContents: (folderId: string) => void;
   moveItemToFolder: (itemId: string, folderId: string | null) => void;
   moveItemsToFolder: (itemIds: string[], folderId: string | null) => void;
   isPending: boolean;
@@ -484,6 +485,87 @@ export function useWorkspaceOperations(
     [deleteItem, currentState.items]
   );
 
+  // Helper to recursively find all descendant IDs (items in folder and nested subfolders)
+  const getAllDescendantIds = useCallback(
+    (folderId: string, items: Item[]): string[] => {
+      const directChildren = items.filter(item => item.folderId === folderId);
+      const descendantIds: string[] = [];
+      
+      for (const child of directChildren) {
+        descendantIds.push(child.id);
+        // Recursively get descendants of nested folders
+        if (child.type === 'folder') {
+          descendantIds.push(...getAllDescendantIds(child.id, items));
+        }
+      }
+      
+      return descendantIds;
+    },
+    []
+  );
+
+  // deleteFolderWithContents deletes the folder and all items inside it (including nested)
+  // Uses atomic bulk update pattern (same as handleBulkDelete in WorkspaceSection)
+  const deleteFolderWithContents = useCallback(
+    (folderId: string) => {
+      // CRITICAL: Read latest state from cache to avoid stale data issues
+      // (same pattern as updateAllItems - currentState prop can be stale)
+      let latestItems: Item[];
+      if (workspaceId) {
+        const cacheData = queryClient.getQueryData<EventResponse>([
+          "workspace",
+          workspaceId,
+          "events",
+        ]);
+        if (cacheData?.events) {
+          const latestState = replayEvents(cacheData.events, workspaceId, cacheData.snapshot?.state);
+          latestItems = latestState.items;
+        } else {
+          latestItems = currentState.items;
+        }
+      } else {
+        latestItems = currentState.items;
+      }
+      
+      const folder = latestItems.find(i => i.id === folderId && i.type === 'folder');
+      logger.debug("📁 [FOLDER-DELETE-WITH-CONTENTS] Deleting folder and contents:", { folderId, folderName: folder?.name });
+      
+      // Find all descendant items recursively (handles nested folders)
+      const allDescendantIds = getAllDescendantIds(folderId, latestItems);
+      
+      // Create set of all IDs to delete (descendants + folder itself)
+      const idsToDelete = new Set([...allDescendantIds, folderId]);
+      const itemCount = allDescendantIds.length;
+      
+      logger.debug("📁 [FOLDER-DELETE-WITH-CONTENTS] Found items to delete:", { itemCount, itemIds: [...idsToDelete] });
+      
+      // Delete PDF files from storage (fire-and-forget, non-blocking)
+      // This is best-effort cleanup - files may become orphaned if this fails
+      const itemsToDelete = latestItems.filter(item => idsToDelete.has(item.id));
+      for (const item of itemsToDelete) {
+        if (item.type === 'pdf') {
+          const pdfData = item.data as { fileUrl?: string };
+          if (pdfData?.fileUrl) {
+            fetch(`/api/delete-file?url=${encodeURIComponent(pdfData.fileUrl)}`, {
+              method: 'DELETE',
+            }).catch(err => logger.warn("📁 [FOLDER-DELETE-WITH-CONTENTS] Failed to delete PDF file:", err));
+          }
+        }
+      }
+      
+      // Atomic bulk delete using updateAllItems pattern (single BULK_ITEMS_UPDATED event)
+      const remainingItems = latestItems.filter(item => !idsToDelete.has(item.id));
+      updateAllItems(remainingItems);
+      
+      toast.success(
+        folder 
+          ? `Folder "${folder.name}" and ${itemCount} ${itemCount === 1 ? 'item' : 'items'} deleted`
+          : `Folder and ${itemCount} ${itemCount === 1 ? 'item' : 'items'} deleted`
+      );
+    },
+    [workspaceId, queryClient, currentState.items, getAllDescendantIds, updateAllItems]
+  );
+
   const moveItemToFolder = useCallback(
     (itemId: string, folderId: string | null) => {
       logger.debug("📁 [ITEM-MOVE] Moving item to folder:", { itemId, folderId });
@@ -566,6 +648,7 @@ export function useWorkspaceOperations(
     createFolderWithItems,
     updateFolder,
     deleteFolder,
+    deleteFolderWithContents,
     moveItemToFolder,
     moveItemsToFolder,
     isPending: mutation.isPending,
diff --git a/src/lib/workspace/event-reducer.ts b/src/lib/workspace/event-reducer.ts
index 1c48373a..8b22ef33 100644
--- a/src/lib/workspace/event-reducer.ts
+++ b/src/lib/workspace/event-reducer.ts
@@ -74,14 +74,34 @@ export function eventReducer(state: AgentState, event: WorkspaceEvent): AgentSta
         workspaceId: state.workspaceId, // Preserve workspace ID
       };
 
-    case 'BULK_ITEMS_UPDATED':
-      // Used for layout changes (drag/resize) and reordering
+    case 'BULK_ITEMS_UPDATED': {
+      // Used for layout changes (drag/resize), reordering, and bulk delete
       // Support both new format (layoutUpdates only) and legacy format (full items array)
       if (event.payload.items) {
-        // Legacy format: full items array (for backwards compatibility)
+        // Full items array format (used for bulk delete and item add/remove operations)
+        const newItems = event.payload.items;
+        
+        // Find folders that were deleted (existed in old state but not in new state)
+        const newItemIds = new Set(newItems.map(item => item.id));
+        const deletedFolderIds = new Set(
+          state.items
+            .filter(item => item.type === 'folder' && !newItemIds.has(item.id))
+            .map(item => item.id)
+        );
+        
+        // If any folders were deleted, clear folderId on orphaned items
+        // This prevents items from pointing to non-existent folders
+        const cleanedItems = deletedFolderIds.size > 0
+          ? newItems.map(item => 
+              item.folderId && deletedFolderIds.has(item.folderId)
+                ? { ...item, folderId: undefined }
+                : item
+            )
+          : newItems;
+        
         return {
           ...state,
-          items: event.payload.items,
+          items: cleanedItems,
         };
       } else {
         // New format: only layout changes - apply to existing items
@@ -107,6 +127,7 @@ export function eventReducer(state: AgentState, event: WorkspaceEvent): AgentSta
           }),
         };
       }
+    }
 
     case 'BULK_ITEMS_CREATED':
       // Create multiple items atomically in a single event