diff --git a/crates/ide-lsp/src/external_project.rs b/crates/ide-lsp/src/external_project.rs
index cb9393c9e..b00900a4e 100644
--- a/crates/ide-lsp/src/external_project.rs
+++ b/crates/ide-lsp/src/external_project.rs
@@ -59,7 +59,7 @@ fn source_files(root: &Path, exclude_root: &Path, excludes: Vec<String>, limit:
     }
     let Ok(ignores) = ignores.build() else { return Vec::new() };
     let mut walk = ignore::WalkBuilder::new(root);
-    walk.require_git(false).follow_links(false).filter_entry(move |entry| {
+    walk.require_git(ide_core::ignored::inside_git_repo(root)).follow_links(false).filter_entry(move |entry| {
         if entry.depth() == 0 {
             return true;
         }
diff --git a/crates/ide-sdk/src/lombok.rs b/crates/ide-sdk/src/lombok.rs
index 8b292d482..3a4b41927 100644
--- a/crates/ide-sdk/src/lombok.rs
+++ b/crates/ide-sdk/src/lombok.rs
@@ -246,7 +246,7 @@ fn sources_import_lombok(root: &Path) -> bool {
     // Imports precede the first type, after at most a license header.
     const HEAD: u64 = 8 * 1024;
     let mut walker = ignore::WalkBuilder::new(root);
-    walker.require_git(false).follow_links(false).filter_entry(|e| {
+    walker.require_git(ide_core::ignored::inside_git_repo(root)).follow_links(false).filter_entry(|e| {
         e.depth() == 0
             || !e.file_type().is_some_and(|t| t.is_dir())
             || !OUTPUT_DIRS.contains(&e.file_name().to_string_lossy().as_ref())
diff --git a/crates/ide-search/tests/search.rs b/crates/ide-search/tests/search.rs
index bd0f7d097..b63c97220 100644
--- a/crates/ide-search/tests/search.rs
+++ b/crates/ide-search/tests/search.rs
@@ -207,6 +207,34 @@ fn honours_ignore_files_hidden_and_git() {
     assert_eq!(paths(&views), ["src/a.rs", "sub/kept.txt"]);
 }
 
+#[test]
+fn nested_repository_ignores_outer_repository_rules() {
+    // #1254: the opened project is a Git repository inside a folder its parent repository ignores.
+    let p = project(&[
+        (".git/HEAD", b"ref: refs/heads/main\n"),
+        ("projects/.gitignore", b"*\n!.gitignore\n"),
+        ("projects/nested/.git/HEAD", b"ref: refs/heads/main\n"),
+        ("projects/nested/.gitignore", b"*.log\n"),
+        ("projects/nested/search-test.txt", b"somesss\n"),
+        ("projects/nested/debug.log", b"somesss\n"),
+    ]);
+    let nested = p.path().join("projects/nested");
+    let (views, _) = run(&nested, &query("somesss"));
+    assert_eq!(paths(&views), ["search-test.txt"]);
+
+    let files = ide_search::scope_files(
+        &nested,
+        &SearchScope::Project,
+        &ide_search::FileMask::new(&[], &[]).unwrap(),
+        None,
+        &CancellationToken::new(),
+    )
+    .unwrap();
+    let mut rels: Vec<_> = files.iter().map(|f| f.rel_path.as_str()).collect();
+    rels.sort();
+    assert_eq!(rels, ["search-test.txt"]);
+}
+
 #[test]
 fn skips_binary_files() {
     let mut late_nul = b"needle\n".to_vec();
diff --git a/crates/ide-vfs/tests/vfs.rs b/crates/ide-vfs/tests/vfs.rs
index 76d2cdc71..0a08f7326 100644
--- a/crates/ide-vfs/tests/vfs.rs
+++ b/crates/ide-vfs/tests/vfs.rs
@@ -259,6 +259,47 @@ fn walk_honours_ignores() {
     assert_eq!(found, expected);
 }
 
+#[test]
+fn walk_scopes_gitignore_to_each_repository() {
+    let (_t, r) = root();
+    // An outer repository ignores everything under `projects/`, nested repository included (#1254).
+    write(&r.join("outer/.git/HEAD"), "ref: refs/heads/main\n");
+    write(&r.join("outer/top.txt"), "");
+    write(&r.join("outer/projects/.gitignore"), "*\n!.gitignore\n");
+    write(&r.join("outer/projects/nested/.git/HEAD"), "ref: refs/heads/main\n");
+    write(&r.join("outer/projects/nested/.git/info/exclude"), "local.txt\n");
+    write(&r.join("outer/projects/nested/.gitignore"), "*.log\n");
+    write(&r.join("outer/projects/nested/search-test.txt"), "");
+    write(&r.join("outer/projects/nested/src/a.rs"), "");
+    write(&r.join("outer/projects/nested/debug.log"), "");
+    write(&r.join("outer/projects/nested/local.txt"), "");
+    write(&r.join("outer/projects/plain/file.txt"), "");
+    write(&r.join("loose/.gitignore"), "*.log\n");
+    write(&r.join("loose/a.txt"), "");
+    write(&r.join("loose/b.log"), "");
+
+    let walk = |dir: &str| {
+        let base = r.join(dir);
+        let found = Mutex::new(BTreeSet::new());
+        walk_files(&base, &[], |p| {
+            found.lock().insert(p.strip_prefix(&base).unwrap().to_string_lossy().replace('\\', "/"));
+        });
+        found.into_inner().into_iter().collect::<Vec<_>>()
+    };
+    let cases: [(&str, &[&str]); 4] = [
+        // The nested repository's own rules apply; the outer repository's do not.
+        ("outer/projects/nested", &[".gitignore", "search-test.txt", "src/a.rs"]),
+        // A plain folder inside the outer repository is still governed by it, as in Git.
+        ("outer/projects/plain", &[]),
+        ("outer", &["projects/.gitignore", "top.txt"]),
+        // Outside any repository `.gitignore` still applies.
+        ("loose", &[".gitignore", "a.txt"]),
+    ];
+    for (dir, expected) in cases {
+        assert_eq!(walk(dir), expected, "{dir}");
+    }
+}
+
 fn wait_for(events: &Mutex<Vec<FsBatch>>, pred: impl Fn(&[FsBatch]) -> bool) -> bool {
     let deadline = Instant::now() + Duration::from_secs(10);
     while Instant::now() < deadline {