diff --git a/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentEntryEditor.java b/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentEntryEditor.java
index 00e499a60699..fc44c49de1fa 100644
--- a/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentEntryEditor.java
+++ b/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentEntryEditor.java
@@ -39,6 +39,7 @@ import java.awt.event.MouseAdapter;
 import java.awt.event.MouseEvent;
 import java.util.EventListener;
 import java.util.List;
+import java.util.Set;
 
 /**
  * @author Eugene Zhuravlev
@@ -303,16 +304,18 @@ public abstract class ContentEntryEditor implements ContentRootPanel.ActionCallb
   public static boolean isExcludedOrUnderExcludedDirectory(@Nullable Project project,
                                                            @NotNull ContentEntry entry,
                                                            @NotNull VirtualFile file) {
-    List<VirtualFile> excludedFiles = ContainerUtil.newArrayList(entry.getExcludeFolderFiles());
+    Set<VirtualFile> excludedFiles = ContainerUtil.newHashSet(entry.getExcludeFolderFiles());
     if (project != null) {
       for (DirectoryIndexExcludePolicy policy : DirectoryIndexExcludePolicy.getExtensions(project)) {
         ContainerUtil.addAllNotNull(excludedFiles, policy.getExcludeRootsForProject());
       }
     }
-    for (VirtualFile excludedFile : excludedFiles) {
-      if (VfsUtilCore.isAncestor(excludedFile, file, false)) {
-        return true;
-      }
+    Set<VirtualFile> sourceRoots = ContainerUtil.set(entry.getSourceFolderFiles());
+    VirtualFile parent = file;
+    while (parent != null) {
+      if (excludedFiles.contains(parent)) return true;
+      if (sourceRoots.contains(parent)) return false;
+      parent = parent.getParent();
     }
     return false;
   }
diff --git a/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentRootPanel.java b/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentRootPanel.java
index 3028906a9df6..bcc687b28b98 100644
--- a/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentRootPanel.java
+++ b/platform/lang-impl/src/com/intellij/openapi/roots/ui/configuration/ContentRootPanel.java
@@ -36,7 +36,6 @@ import com.intellij.ui.roots.IconActionComponent;
 import com.intellij.ui.roots.ResizingWrapper;
 import com.intellij.uiDesigner.core.GridConstraints;
 import com.intellij.uiDesigner.core.GridLayoutManager;
-import com.intellij.util.NotNullProducer;
 import com.intellij.util.containers.MultiMap;
 import com.intellij.util.ui.UIUtil;
 import org.jetbrains.annotations.NotNull;
@@ -108,14 +107,9 @@ public abstract class ContentRootPanel extends JPanel {
     final SourceFolder[] sourceFolders = getContentEntry().getSourceFolders();
     MultiMap<JpsModuleSourceRootType<?>, SourceFolder> folderByType = new MultiMap<>();
     for (SourceFolder folder : sourceFolders) {
-      if (folder.isSynthetic()) {
-        continue;
+      if (!folder.isSynthetic()) {
+        folderByType.putValue(folder.getRootType(), folder);
       }
-      final VirtualFile folderFile = folder.getFile();
-      if (folderFile != null && isExcludedOrUnderExcludedDirectory(folderFile)) {
-        continue;
-      }
-      folderByType.putValue(folder.getRootType(), folder);
     }
 
     Insets insets = new Insets(0, 0, 10, 0);