diff --git a/packages/cli/src/setup-project.test.ts b/packages/cli/src/setup-project.test.ts
index 70591077..e20b9544 100644
--- a/packages/cli/src/setup-project.test.ts
+++ b/packages/cli/src/setup-project.test.ts
@@ -3,6 +3,7 @@ import { tmpdir } from 'node:os';
 import { join } from 'node:path';
 import { initKtxProject, parseKtxProjectConfig, readKtxSetupState } from '@ktx/context/project';
 import { afterEach, beforeEach, describe, expect, it, vi } from 'vitest';
+import { gray } from './io/symbols.js';
 import { type KtxSetupProjectPromptAdapter, runKtxSetupProjectStep } from './setup-project.js';
 
 function makeIo(options: { stdoutIsTty?: boolean } = {}) {
@@ -37,6 +38,12 @@ function makePromptAdapter(options: { choice?: string; choices?: string[]; textV
   } satisfies KtxSetupProjectPromptAdapter;
 }
 
+function defaultSubfolderLabel(parentDir: string): string {
+  const childName = 'ktx-project';
+  const childDir = join(parentDir, childName);
+  return `New subfolder (${gray(childDir.slice(0, -childName.length))}${childName})`;
+}
+
 describe('setup project step', () => {
   let tempDir: string;
 
@@ -143,8 +150,11 @@ describe('setup project step', () => {
       expect.objectContaining({
         message: 'Where should KTX create the project?',
         options: [
-          expect.objectContaining({ value: 'current', label: 'Current directory' }),
-          expect.objectContaining({ value: 'new-default', label: 'New subfolder (./ktx-project)' }),
+          expect.objectContaining({ value: 'current', label: `Current directory (${projectDir})` }),
+          expect.objectContaining({
+            value: 'new-default',
+            label: defaultSubfolderLabel(projectDir),
+          }),
           expect.objectContaining({ value: 'new-custom', label: 'Custom path' }),
           expect.objectContaining({ value: 'exit', label: 'Exit' }),
         ],
@@ -174,7 +184,10 @@ describe('setup project step', () => {
       expect.objectContaining({
         message: 'Where should KTX create the project?',
         options: expect.arrayContaining([
-          expect.objectContaining({ value: 'new-default', label: 'New subfolder (./ktx-project)' }),
+          expect.objectContaining({
+            value: 'new-default',
+            label: defaultSubfolderLabel(startDir),
+          }),
         ]),
       }),
     );
diff --git a/packages/cli/src/setup-project.ts b/packages/cli/src/setup-project.ts
index 4b2f71d9..a6b4ca71 100644
--- a/packages/cli/src/setup-project.ts
+++ b/packages/cli/src/setup-project.ts
@@ -12,6 +12,7 @@ import {
   serializeKtxProjectConfig,
 } from '@ktx/context/project';
 import type { KtxCliIo } from './cli-runtime.js';
+import { gray } from './io/symbols.js';
 import { withMenuOptionsSpacing, withTextInputNavigation } from './prompt-navigation.js';
 import { withSetupInterruptConfirmation } from './setup-interrupt.js';
 
@@ -321,6 +322,10 @@ export async function runKtxSetupProjectStep(
 
   const prompts = deps.prompts ?? createClackSetupProjectPromptAdapter();
   const defaultProjectDir = join(projectDir, DEFAULT_NEW_PROJECT_FOLDER_NAME);
+  const defaultProjectDirLabel = [
+    gray(defaultProjectDir.slice(0, -DEFAULT_NEW_PROJECT_FOLDER_NAME.length)),
+    DEFAULT_NEW_PROJECT_FOLDER_NAME,
+  ].join('');
   io.stdout.write(
     '│  Use Up/Down to move, Enter to confirm the current selection, choose Back to return to the previous step, Ctrl+C to exit.\n',
   );
@@ -328,8 +333,8 @@ export async function runKtxSetupProjectStep(
     const choice = await prompts.select({
       message: 'Where should KTX create the project?',
       options: [
-        { value: 'current', label: 'Current directory' },
-        { value: 'new-default', label: 'New subfolder (./ktx-project)' },
+        { value: 'current', label: `Current directory (${projectDir})` },
+        { value: 'new-default', label: `New subfolder (${defaultProjectDirLabel})` },
         { value: 'new-custom', label: 'Custom path' },
         ...(args.allowBack ? [{ value: 'back', label: 'Back' }] : []),
         ...(args.allowBack ? [] : [{ value: 'exit', label: 'Exit' }]),