Hitting ENTER creates sibling of folder, not child

My wife recently started a short story project, and was trying to take advantage of the Characters folder. When she hits the ENTER key after clicking on the Characters folder, it creates a blank document at the same level as the folder, instead of creating a character sketch file from the templates as a child of the folder. I checked, and the Characters folder is set up with a default document type of the Character Sketch template file.

Is there some setting that I’m unaware of that would cause this behavior?

Sounds like you may have “Always create new items as siblings” checked in the Navigation preferences.

Aha! My eye just slid right past that setting earlier. Thanks!