diff --git a/packages/databricks-vscode/src/bundle/BundleFileSet.test.ts b/packages/databricks-vscode/src/bundle/BundleFileSet.test.ts
index 05bf2a275..ef5889066 100644
--- a/packages/databricks-vscode/src/bundle/BundleFileSet.test.ts
+++ b/packages/databricks-vscode/src/bundle/BundleFileSet.test.ts
@@ -20,10 +20,10 @@ describe(__filename, async function () {
         await tmpdir.cleanup();
     });
 
-    function getWorkspaceFolderManagerMock() {
+    function getWorkspaceFolderManagerMock(projectDir?: string) {
         const mockWorkspaceFolderManager = mock<WorkspaceFolderManager>();
         const mockWorkspaceFolder = mock<WorkspaceFolder>();
-        const uri = Uri.file(tmpdir.path);
+        const uri = Uri.file(projectDir ?? tmpdir.path);
         when(mockWorkspaceFolder.uri).thenReturn(uri);
         when(mockWorkspaceFolderManager.activeWorkspaceFolder).thenReturn(
             instance(mockWorkspaceFolder)
@@ -73,6 +73,71 @@ describe(__filename, async function () {
         expect(await bundleFileSet.getRootFile()).to.be.undefined;
     });
 
+    describe("parent-directory includes", async () => {
+        it("getIncludedFiles should find files referenced via .. paths", async () => {
+            // Structure: tmpdir/shared/config.yml (included), tmpdir/project/sub/ (project root)
+            const sharedDir = path.join(tmpdir.path, "shared");
+            const projectDir = path.join(tmpdir.path, "project", "sub");
+            await fs.mkdir(sharedDir, {recursive: true});
+            await fs.mkdir(projectDir, {recursive: true});
+
+            const sharedFile = path.join(sharedDir, "config.yml");
+            const sharedFile2 = path.join(sharedDir, "config2.yml");
+            await fs.writeFile(sharedFile, "");
+            await fs.writeFile(sharedFile2, "");
+
+            const rootBundleData: BundleSchema = {
+                include: ["../../shared/config.yml", "../../shared/config2.yml"],
+            };
+            await fs.writeFile(
+                path.join(projectDir, "databricks.yml"),
+                yaml.stringify(rootBundleData)
+            );
+
+            const bundleFileSet = new BundleFileSet(
+                getWorkspaceFolderManagerMock(projectDir)
+            );
+
+            const files = await bundleFileSet.getIncludedFiles();
+            expect(files).to.not.be.undefined;
+            expect(files!.map((f) => f.fsPath).sort()).to.deep.equal(
+                [sharedFile, sharedFile2].sort()
+            );
+        });
+
+        it("isIncludedBundleFile should return true for files referenced via .. paths", async () => {
+            const sharedDir = path.join(tmpdir.path, "shared");
+            const projectDir = path.join(tmpdir.path, "project", "sub");
+            await fs.mkdir(sharedDir, {recursive: true});
+            await fs.mkdir(projectDir, {recursive: true});
+
+            const sharedFile = path.join(sharedDir, "config.yml");
+            await fs.writeFile(sharedFile, "");
+
+            const rootBundleData: BundleSchema = {
+                include: ["../../shared/config.yml", "local.yml"],
+            };
+            await fs.writeFile(
+                path.join(projectDir, "databricks.yml"),
+                yaml.stringify(rootBundleData)
+            );
+
+            const bundleFileSet = new BundleFileSet(
+                getWorkspaceFolderManagerMock(projectDir)
+            );
+
+            expect(
+                await bundleFileSet.isIncludedBundleFile(Uri.file(sharedFile))
+            ).to.be.true;
+
+            expect(
+                await bundleFileSet.isIncludedBundleFile(
+                    Uri.file(path.join(projectDir, "other.yml"))
+                )
+            ).to.be.false;
+        });
+    });
+
     describe("file listing", async () => {
         beforeEach(async () => {
             const rootBundleData: BundleSchema = {
diff --git a/packages/databricks-vscode/src/bundle/BundleFileSet.ts b/packages/databricks-vscode/src/bundle/BundleFileSet.ts
index f362e004e..641a65765 100644
--- a/packages/databricks-vscode/src/bundle/BundleFileSet.ts
+++ b/packages/databricks-vscode/src/bundle/BundleFileSet.ts
@@ -88,33 +88,47 @@ export class BundleFileSet {
         return Uri.file(rootFile[0]);
     }
 
-    async getIncludedFilesGlob() {
+    private async getIncludePatterns(): Promise<string[]> {
         const rootFile = await this.getRootFile();
         if (rootFile === undefined) {
-            return undefined;
+            return [];
+        }
+        const bundle = await parseBundleYaml(rootFile);
+        if (!bundle?.include?.length) {
+            return [];
         }
-        const bundle = await parseBundleYaml(Uri.file(rootFile.fsPath));
-        if (bundle?.include === undefined || bundle?.include.length === 0) {
+        return bundle.include;
+    }
+
+    async getIncludedFilesGlob() {
+        const patterns = await this.getIncludePatterns();
+        if (patterns.length === 0) {
             return undefined;
         }
-        if (bundle?.include.length === 1) {
-            return bundle.include[0];
+        if (patterns.length === 1) {
+            return patterns[0];
         }
-        return `{${bundle.include.join(",")}}`;
+        return `{${patterns.join(",")}}`;
     }
 
     async getIncludedFiles() {
-        const includedFilesGlob = await this.getIncludedFilesGlob();
-        if (includedFilesGlob !== undefined) {
-            return (
-                await glob.glob(
-                    toGlobPath(
-                        path.join(this.projectRoot.fsPath, includedFilesGlob)
-                    ),
-                    {nocase: process.platform === "win32"}
-                )
-            ).map((i) => Uri.file(i));
+        const patterns = await this.getIncludePatterns();
+        if (patterns.length === 0) {
+            return undefined;
+        }
+
+        const allFiles: string[] = [];
+        for (const pattern of patterns) {
+            const absolutePattern = toGlobPath(
+                path.resolve(this.projectRoot.fsPath, pattern)
+            );
+            const files = await glob.glob(absolutePattern, {
+                nocase: process.platform === "win32",
+            });
+            allFiles.push(...files);
         }
+
+        return [...new Set(allFiles)].map((f) => Uri.file(f));
     }
 
     async allFiles() {
@@ -152,15 +166,16 @@ export class BundleFileSet {
     }
 
     async isIncludedBundleFile(e: Uri) {
-        let includedFilesGlob = await this.getIncludedFilesGlob();
-        if (includedFilesGlob === undefined) {
-            return false;
+        const patterns = await this.getIncludePatterns();
+        for (const pattern of patterns) {
+            const absolutePattern = toGlobPath(
+                path.resolve(this.projectRoot.fsPath, pattern)
+            );
+            if (minimatch(toGlobPath(e.fsPath), absolutePattern)) {
+                return true;
+            }
         }
-        includedFilesGlob = getAbsoluteGlobPath(
-            includedFilesGlob,
-            this.projectRoot
-        );
-        return minimatch(e.fsPath, toGlobPath(includedFilesGlob));
+        return false;
     }
 
     async isBundleFile(e: Uri) {