diff --git a/internal/core/config.go b/internal/core/config.go
index 1425bbea..7e89146d 100644
--- a/internal/core/config.go
+++ b/internal/core/config.go
@@ -113,21 +113,29 @@ func (c Config) GroupConfigNamed(name string) (GroupConfig, error) {
 // GroupNameForPath returns the name of the GroupConfig matching the given
 // path, relative to the notebook.
 func (c Config) GroupNameForPath(path string) (string, error) {
+	var longestMatch string
+	var matchedName string
+
 	for name, config := range c.Groups {
 		for _, groupPath := range config.Paths {
 			matches, err := filepath.Match(groupPath, path)
 			if err != nil {
 				return "", errors.Wrapf(err, "failed to match group %s to %s", name, path)
 			} else if matches {
+				// Early return if an exact match
 				return name, nil
 			}
 			if strings.HasPrefix(path, groupPath+"/") {
-				return name, nil
+				// If the match is partial, find the longest prefix overlap
+				if len(groupPath) > len(longestMatch) {
+					longestMatch = groupPath
+					matchedName = name
+				}
 			}
 		}
 	}
 
-	return "", nil
+	return matchedName, nil
 }
 
 // FormatConfig holds the configuration for document formats, such as Markdown.
diff --git a/internal/core/config_test.go b/internal/core/config_test.go
index 7148fef2..14c2e9b0 100644
--- a/internal/core/config_test.go
+++ b/internal/core/config_test.go
@@ -275,6 +275,34 @@ func TestParseComplete(t *testing.T) {
 	})
 }
 
+func TestGroupNameForPathApplyDeepestMatch(t *testing.T) {
+	config := Config{
+		Groups: map[string]GroupConfig{
+			"parent": {
+				Paths: []string{"dir1"},
+			},
+			"child": {
+				Paths: []string{"dir1/dir2"},
+			},
+			"other": {
+				Paths: []string{"other"},
+			},
+		},
+	}
+
+	name, err := config.GroupNameForPath("dir1/dir2/note.md")
+	assert.Nil(t, err)
+	assert.Equal(t, name, "child")
+
+	name, err = config.GroupNameForPath("dir1/note.md")
+	assert.Nil(t, err)
+	assert.Equal(t, name, "parent")
+
+	name, err = config.GroupNameForPath("other/note.md")
+	assert.Nil(t, err)
+	assert.Equal(t, name, "other")
+}
+
 func TestParseMergesGroupConfig(t *testing.T) {
 	conf, err := ParseConfig([]byte(`
 		[note]
diff --git a/tests/fixtures/issue-490/.zk/config.toml b/tests/fixtures/issue-490/.zk/config.toml
new file mode 100644
index 00000000..166856cc
--- /dev/null
+++ b/tests/fixtures/issue-490/.zk/config.toml
@@ -0,0 +1,18 @@
+[note]
+filename = "untitled"
+
+[group.t1]
+paths = ["dir1", "dir1/dir2/dir3"]
+
+[group.t1.note]
+extension = "md"
+template = "template1.md"
+
+
+# This group sits between the two directories of t1.
+[group.t2]
+paths = ["dir1/dir2"]
+
+[group.t2.note]
+extension = "md"
+template = "template2.md"
diff --git a/tests/fixtures/issue-490/.zk/templates/template1.md b/tests/fixtures/issue-490/.zk/templates/template1.md
new file mode 100644
index 00000000..a56f4e52
--- /dev/null
+++ b/tests/fixtures/issue-490/.zk/templates/template1.md
@@ -0,0 +1 @@
+Template 1
diff --git a/tests/fixtures/issue-490/.zk/templates/template2.md b/tests/fixtures/issue-490/.zk/templates/template2.md
new file mode 100644
index 00000000..3e9461a9
--- /dev/null
+++ b/tests/fixtures/issue-490/.zk/templates/template2.md
@@ -0,0 +1 @@
+Template 2
diff --git a/tests/fixtures/issue-490/dir1/dir2/dir3/.gitkeep b/tests/fixtures/issue-490/dir1/dir2/dir3/.gitkeep
new file mode 100644
index 00000000..e69de29b
diff --git a/tests/issue-490.tesh b/tests/issue-490.tesh
new file mode 100644
index 00000000..6d65be0b
--- /dev/null
+++ b/tests/issue-490.tesh
@@ -0,0 +1,25 @@
+$ cd issue-490
+
+# This test ensures that group rules do not override other group
+# rules that are applied to child directories.
+
+# Test that group t1 rules are followed.
+$ zk new dir1 --dry-run
+>Template 1
+2>{{working-dir}}/dir1/untitled.md
+
+# Test that group t1 rules are followed.
+$ zk new dir1/dir2/dir3 --dry-run
+>Template 1
+2>{{working-dir}}/dir1/dir2/dir3/untitled.md
+
+# Test that group t2 rules are followed, signifying that nested group rules are
+# functioning correctly.
+$ zk new dir1/dir2 --dry-run
+>Template 2
+2>{{working-dir}}/dir1/dir2/untitled.md
+
+# Test that explicit group override still works
+$ zk new dir1/dir2 --group t1 --dry-run
+>Template 1
+2>{{working-dir}}/dir1/dir2/untitled.md