diff --git a/java/java-tests/testData/projectView/hideEmptyMiddlePackages/src/com/company/name/I.java b/java/java-tests/testData/projectView/hideEmptyMiddlePackages/src/com/company/name/I.java
new file mode 100644
index 000000000000..703f2f7005c2
--- /dev/null
+++ b/java/java-tests/testData/projectView/hideEmptyMiddlePackages/src/com/company/name/I.java
@@ -0,0 +1,5 @@
+package com.company.name;
+
+interface I {
+  void m();
+}
\ No newline at end of file
diff --git a/java/java-tests/testSrc/com/intellij/projectView/ProjectViewUpdatingTest.java b/java/java-tests/testSrc/com/intellij/projectView/ProjectViewUpdatingTest.java
index a402a9a2e9d1..2744682d1351 100644
--- a/java/java-tests/testSrc/com/intellij/projectView/ProjectViewUpdatingTest.java
+++ b/java/java-tests/testSrc/com/intellij/projectView/ProjectViewUpdatingTest.java
@@ -16,6 +16,7 @@ import com.intellij.openapi.command.WriteCommandAction;
 import com.intellij.openapi.editor.Document;
 import com.intellij.openapi.fileEditor.FileDocumentManager;
 import com.intellij.openapi.project.Project;
+import com.intellij.openapi.util.Computable;
 import com.intellij.psi.*;
 import com.intellij.refactoring.rename.RenameProcessor;
 import com.intellij.testFramework.PlatformTestUtil;
@@ -420,4 +421,70 @@ public class ProjectViewUpdatingTest extends BaseProjectViewTestCase {
     };
   }
 
+  public void testHideEmptyMiddlePackages() {
+    myStructure.setProviders(new ClassesTreeStructureProvider(myProject));
+    myStructure.setHideEmptyMiddlePackages(true);
+    myStructure.setShowMembers(true);
+    myStructure.setShowLibraryContents(false);
+
+    PsiDirectory directory = getPackageDirectory("com/company");
+    AbstractProjectViewPSIPane pane = myStructure.createPane();
+    JTree tree = pane.getTree();
+
+    assertTreeEqual(tree, " +PsiDirectory: hideEmptyMiddlePackages\n");
+
+    TreeUtil.promiseExpandAll(tree);
+
+    assertTreeEqual(tree, " -PsiDirectory: hideEmptyMiddlePackages\n" +
+                          "  -PsiDirectory: src\n" +
+                          "   -PsiDirectory: name\n" + // com.company.name
+                          "    -I\n" +
+                          "     m():void\n");
+
+    directory = createSubdirectory(directory, "a");
+    TreeUtil.promiseExpandAll(tree);
+
+    assertTreeEqual(tree, " -PsiDirectory: hideEmptyMiddlePackages\n" +
+                          "  -PsiDirectory: src\n" +
+                          "   -PsiDirectory: company\n" + // com.company
+                          "    PsiDirectory: a\n" +
+                          "    -PsiDirectory: name\n" +
+                          "     -I\n" +
+                          "      m():void\n");
+
+    directory = createSubdirectory(directory, "b");
+
+    assertTreeEqual(tree, " -PsiDirectory: hideEmptyMiddlePackages\n" +
+                          "  -PsiDirectory: src\n" +
+                          "   -PsiDirectory: company\n" + // com.company
+                          "    PsiDirectory: b\n" + // a.b
+                          "    -PsiDirectory: name\n" +
+                          "     -I\n" +
+                          "      m():void\n");
+
+    createSubdirectory(directory, "z");
+
+    assertTreeEqual(tree, " -PsiDirectory: hideEmptyMiddlePackages\n" +
+                          "  -PsiDirectory: src\n" +
+                          "   -PsiDirectory: company\n" + // com.company
+                          "    PsiDirectory: z\n" + // a.b.z
+                          "    -PsiDirectory: name\n" +
+                          "     -I\n" +
+                          "      m():void\n");
+  }
+
+  private void assertTreeEqual(@NotNull JTree tree, @NotNull String expected) {
+    PlatformTestUtil.waitWhileBusy(tree);
+    PlatformTestUtil.assertTreeEqual(tree, "-Project\n" + expected + getRootFiles());
+  }
+
+  private static PsiDirectory createSubdirectory(@NotNull PsiDirectory directory, @NotNull String name) {
+    return computeAndWaitFor(100, directory.getProject(), () -> directory.createSubdirectory(name));
+  }
+
+  private static <T> T computeAndWaitFor(int millis, @NotNull Project project, @NotNull Computable<T> computable) {
+    T result = WriteCommandAction.runWriteCommandAction(project, computable);
+    PlatformTestUtil.waitFor(millis);
+    return result;
+  }
 }
diff --git a/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/ProjectViewDirectoryHelper.java b/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/ProjectViewDirectoryHelper.java
index 4197e15f0feb..a4d96c597805 100644
--- a/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/ProjectViewDirectoryHelper.java
+++ b/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/ProjectViewDirectoryHelper.java
@@ -40,6 +40,7 @@ import com.intellij.openapi.vfs.VirtualFile;
 import com.intellij.openapi.vfs.pointers.VirtualFilePointer;
 import com.intellij.psi.*;
 import com.intellij.psi.search.PsiElementProcessor;
+import com.intellij.psi.util.PsiTreeUtil;
 import com.intellij.psi.util.PsiUtilCore;
 import com.intellij.util.FontUtil;
 import com.intellij.util.containers.ContainerUtil;
@@ -150,6 +151,57 @@ public class ProjectViewDirectoryHelper {
     return false;
   }
 
+  public boolean canRepresent(Object element, PsiDirectory directory, Object owner, ViewSettings settings) {
+    if (directory != null) {
+      if (canRepresent(element, directory)) return true;
+      if (settings == null) return false; // unexpected
+      if (!settings.isFlattenPackages() && settings.isHideEmptyMiddlePackages()) {
+        if (element instanceof PsiDirectory) {
+          for (PsiDirectory dir : collectParents(directory, owner)) {
+            if (Comparing.equal(element, dir)) return true;
+          }
+        }
+        else if (element instanceof VirtualFile) {
+          for (PsiDirectory dir : collectParents(directory, owner)) {
+            if (Comparing.equal(element, dir.getVirtualFile())) return true;
+          }
+        }
+      }
+    }
+    return false;
+  }
+
+  public boolean isValidDirectory(PsiDirectory directory, Object owner, ViewSettings settings, PsiFileSystemItemFilter filter) {
+    if (directory == null || !directory.isValid()) return false;
+    if (settings == null) return true; // unexpected
+    if (!settings.isFlattenPackages() && settings.isHideEmptyMiddlePackages()) {
+      PsiDirectory parent = directory.getParent();
+      if (parent == null || skipDirectory(parent)) return true;
+      if (isEmptyMiddleDirectory(directory, true, filter)) return false;
+      for (PsiDirectory dir : collectParents(directory, owner)) {
+        if (!dir.isValid()) return false;
+        parent = dir.getParent();
+        if (parent == null || skipDirectory(parent)) return false;
+        if (!isEmptyMiddleDirectory(dir, true, filter)) return false;
+      }
+    }
+    return true;
+  }
+
+  @NotNull
+  private static List<PsiDirectory> collectParents(PsiDirectory directory, Object owner) {
+    if (directory != null && owner instanceof PsiDirectory && PsiTreeUtil.isAncestor((PsiDirectory)owner, directory, true)) {
+      List<PsiDirectory> list = ContainerUtil.newSmartList();
+      while (true) {
+        directory = directory.getParent();
+        if (directory == null) break; // unexpected
+        if (directory.equals(owner)) return list;
+        list.add(directory);
+      }
+    }
+    return Collections.emptyList();
+  }
+
   @NotNull
   public Collection<AbstractTreeNode> getDirectoryChildren(final PsiDirectory psiDirectory,
                                                            final ViewSettings settings,
diff --git a/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/PsiDirectoryNode.java b/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/PsiDirectoryNode.java
index cc4b8176dd65..dba0b0499c39 100644
--- a/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/PsiDirectoryNode.java
+++ b/platform/lang-impl/src/com/intellij/ide/projectView/impl/nodes/PsiDirectoryNode.java
@@ -237,9 +237,15 @@ public class PsiDirectoryNode extends BasePsiNode<PsiDirectory> implements Navig
   @Override
   public boolean canRepresent(final Object element) {
     if (super.canRepresent(element)) return true;
-    PsiDirectory directory = getValue();
-    if (directory == null) return false;
-    return ProjectViewDirectoryHelper.getInstance(getProject()).canRepresent(element, directory);
+    return ProjectViewDirectoryHelper.getInstance(getProject())
+      .canRepresent(element, getValue(), getParentValue(), getSettings());
+  }
+
+  @Override
+  public boolean isValid() {
+    if (!super.isValid()) return false;
+    return ProjectViewDirectoryHelper.getInstance(getProject())
+      .isValidDirectory(getValue(), getParentValue(), getSettings(), getFilter());
   }
 
   @Override