diff --git a/reposerver/repository/repository.go b/reposerver/repository/repository.go
index 493136b1c6919..57a6838730da2 100644
--- a/reposerver/repository/repository.go
+++ b/reposerver/repository/repository.go
@@ -875,12 +875,15 @@ func findManifests(appPath string, repoRoot string, env *v1alpha1.Env, directory
 			return nil
 		}
 
-		fileNameWithPath := filepath.Join(appPath, f.Name())
-		if directory.Exclude != "" && glob.Match(directory.Exclude, fileNameWithPath) {
+		relPath, err := filepath.Rel(appPath, path)
+		if err != nil {
+			return err
+		}
+		if directory.Exclude != "" && glob.Match(directory.Exclude, relPath) {
 			return nil
 		}
 
-		if directory.Include != "" && !glob.Match(directory.Include, fileNameWithPath) {
+		if directory.Include != "" && !glob.Match(directory.Include, relPath) {
 			return nil
 		}
 
diff --git a/reposerver/repository/repository_test.go b/reposerver/repository/repository_test.go
index 7e680c4288126..135ed492d567c 100644
--- a/reposerver/repository/repository_test.go
+++ b/reposerver/repository/repository_test.go
@@ -1393,5 +1393,82 @@ func TestGenerateManifestWithAnnotatedAndRegularGitTagHashes(t *testing.T) {
 
 		})
 	}
+}
+
+func TestFindResources(t *testing.T) {
+	testCases := []struct {
+		name          string
+		include       string
+		exclude       string
+		expectedNames []string
+	}{{
+		name:          "Include One Match",
+		include:       "subdir/deploymentSub.yaml",
+		expectedNames: []string{"nginx-deployment-sub"},
+	}, {
+		name:          "Include Everything",
+		include:       "*.yaml",
+		expectedNames: []string{"nginx-deployment", "nginx-deployment-sub"},
+	}, {
+		name:          "Include Subdirectory",
+		include:       "**/*.yaml",
+		expectedNames: []string{"nginx-deployment-sub"},
+	}, {
+		name:          "Include No Matches",
+		include:       "nothing.yaml",
+		expectedNames: []string{},
+	}, {
+		name:          "Exclude - One Match",
+		exclude:       "subdir/deploymentSub.yaml",
+		expectedNames: []string{"nginx-deployment"},
+	}, {
+		name:          "Exclude - Everything",
+		exclude:       "*.yaml",
+		expectedNames: []string{},
+	}}
+	for i := range testCases {
+		tc := testCases[i]
+		t.Run(tc.name, func(t *testing.T) {
+			objs, err := findManifests("testdata/app-include-exclude", ".", nil, argoappv1.ApplicationSourceDirectory{
+				Recurse: true,
+				Include: tc.include,
+				Exclude: tc.exclude,
+			})
+			if !assert.NoError(t, err) {
+				return
+			}
+			var names []string
+			for i := range objs {
+				names = append(names, objs[i].GetName())
+			}
+			assert.ElementsMatch(t, tc.expectedNames, names)
+		})
+	}
+}
+
+func TestFindManifests_Exclude(t *testing.T) {
+	objs, err := findManifests("testdata/app-include-exclude", ".", nil, argoappv1.ApplicationSourceDirectory{
+		Recurse: true,
+		Exclude: "subdir/deploymentSub.yaml",
+	})
+
+	if !assert.NoError(t, err) || !assert.Len(t, objs, 1) {
+		return
+	}
+
+	assert.Equal(t, "nginx-deployment", objs[0].GetName())
+}
+
+func TestFindManifests_Exclude_NothingMatches(t *testing.T) {
+	objs, err := findManifests("testdata/app-include-exclude", ".", nil, argoappv1.ApplicationSourceDirectory{
+		Recurse: true,
+		Exclude: "nothing.yaml",
+	})
+
+	if !assert.NoError(t, err) || !assert.Len(t, objs, 2) {
+		return
+	}
 
+	assert.ElementsMatch(t,
+		[]string{"nginx-deployment", "nginx-deployment-sub"}, []string{objs[0].GetName(), objs[1].GetName()})
 }
diff --git a/test/e2e/testdata/app-exclusions/deployment.yaml b/reposerver/repository/testdata/app-include-exclude/deployment.yaml
similarity index 100%
rename from test/e2e/testdata/app-exclusions/deployment.yaml
rename to reposerver/repository/testdata/app-include-exclude/deployment.yaml
diff --git a/test/e2e/testdata/app-exclusions/subdir/deploymentSub.yaml b/reposerver/repository/testdata/app-include-exclude/subdir/deploymentSub.yaml
similarity index 100%
rename from test/e2e/testdata/app-exclusions/subdir/deploymentSub.yaml
rename to reposerver/repository/testdata/app-include-exclude/subdir/deploymentSub.yaml
diff --git a/test/e2e/app_management_test.go b/test/e2e/app_management_test.go
index cf22213cca499..a0f1b42eef683 100644
--- a/test/e2e/app_management_test.go
+++ b/test/e2e/app_management_test.go
@@ -1432,29 +1432,6 @@ spec:
 			assert.Equal(t, []HelmParameter{{Name: "foo", Value: "foo"}}, app.Spec.Source.Helm.Parameters)
 		})
 }
-func TestAppCreationWithExclude(t *testing.T) {
-	Given(t).
-		Path("app-exclusions").
-		When().
-		Create("--directory-exclude", "**/.*", "--directory-recurse").
-		Sync().
-		Then().
-		Expect(OperationPhaseIs(OperationSucceeded)).
-		Expect(SyncStatusIs(SyncStatusCodeSynced)).
-		Expect(HealthIs(health.HealthStatusHealthy))
-}
-
-func TestAppCreationWithInclude(t *testing.T) {
-	Given(t).
-		Path("app-inclusions").
-		When().
-		Create("--directory-include", "**/.*", "--directory-recurse").
-		Sync().
-		Then().
-		Expect(OperationPhaseIs(OperationSucceeded)).
-		Expect(SyncStatusIs(SyncStatusCodeSynced)).
-		Expect(HealthIs(health.HealthStatusHealthy))
-}
 
 // Ensure actions work when using a resource action that modifies status and/or spec
 func TestCRDStatusSubresourceAction(t *testing.T) {
diff --git a/test/e2e/testdata/app-exclusions/.bot.yaml b/test/e2e/testdata/app-exclusions/.bot.yaml
deleted file mode 100644
index edac8fb9bbd13..0000000000000
--- a/test/e2e/testdata/app-exclusions/.bot.yaml
+++ /dev/null
@@ -1,14 +0,0 @@
-metadata:
-  labels:
-    app.kubernetes.io/instance: a-single-pod
-    foo: bar
-  name: helloBot
-spec:
-  containers:
-    - name: hello
-      image: busybox
-      command:
-        - sh
-      args:
-        - -c
-        - "echo HI && tail -f /dev/null"
diff --git a/test/e2e/testdata/app-exclusions/deploymentDoc.yaml b/test/e2e/testdata/app-exclusions/deploymentDoc.yaml
deleted file mode 100644
index e8d058fb6330e..0000000000000
--- a/test/e2e/testdata/app-exclusions/deploymentDoc.yaml
+++ /dev/null
@@ -1,16 +0,0 @@
-##Purpose of this file is to test this kind of files should be ignored from marshalling since it is lacking of apiVersion, kind, and metadata
-spec:
-  replicas: 0
-  selector:
-    matchLabels:
-      app: nginx
-  template:
-    metadata:
-      labels:
-        app: nginx
-    spec:
-      containers:
-        - name: nginx
-          image: nginx:1.17.4-alpine
-          ports:
-            - containerPort: 80
diff --git a/test/e2e/testdata/app-exclusions/subdir/.botSub.yaml b/test/e2e/testdata/app-exclusions/subdir/.botSub.yaml
deleted file mode 100644
index 6c4c1fbabc9c5..0000000000000
--- a/test/e2e/testdata/app-exclusions/subdir/.botSub.yaml
+++ /dev/null
@@ -1,14 +0,0 @@
-metadata:
-  labels:
-    app.kubernetes.io/instance: a-single-pod
-    foo: bar
-  name: helloBotSub
-spec:
-  containers:
-    - name: hello
-      image: busybox
-      command:
-        - sh
-      args:
-        - -c
-        - "echo HI && tail -f /dev/null"
diff --git a/test/e2e/testdata/app-inclusions/.bot.yaml b/test/e2e/testdata/app-inclusions/.bot.yaml
deleted file mode 100644
index edac8fb9bbd13..0000000000000
--- a/test/e2e/testdata/app-inclusions/.bot.yaml
+++ /dev/null
@@ -1,14 +0,0 @@
-metadata:
-  labels:
-    app.kubernetes.io/instance: a-single-pod
-    foo: bar
-  name: helloBot
-spec:
-  containers:
-    - name: hello
-      image: busybox
-      command:
-        - sh
-      args:
-        - -c
-        - "echo HI && tail -f /dev/null"
diff --git a/test/e2e/testdata/app-inclusions/deployment.yaml b/test/e2e/testdata/app-inclusions/deployment.yaml
deleted file mode 100644
index d84ca5e1f785f..0000000000000
--- a/test/e2e/testdata/app-inclusions/deployment.yaml
+++ /dev/null
@@ -1,21 +0,0 @@
-apiVersion: apps/v1
-kind: Deployment
-metadata:
-  name: nginx-deployment
-  labels:
-    app: nginx
-spec:
-  replicas: 0
-  selector:
-    matchLabels:
-      app: nginx
-  template:
-    metadata:
-      labels:
-        app: nginx
-    spec:
-      containers:
-        - name: nginx
-          image: nginx:1.17.4-alpine
-          ports:
-            - containerPort: 80
diff --git a/test/e2e/testdata/app-inclusions/deploymentDoc.yaml b/test/e2e/testdata/app-inclusions/deploymentDoc.yaml
deleted file mode 100644
index e8d058fb6330e..0000000000000
--- a/test/e2e/testdata/app-inclusions/deploymentDoc.yaml
+++ /dev/null
@@ -1,16 +0,0 @@
-##Purpose of this file is to test this kind of files should be ignored from marshalling since it is lacking of apiVersion, kind, and metadata
-spec:
-  replicas: 0
-  selector:
-    matchLabels:
-      app: nginx
-  template:
-    metadata:
-      labels:
-        app: nginx
-    spec:
-      containers:
-        - name: nginx
-          image: nginx:1.17.4-alpine
-          ports:
-            - containerPort: 80
diff --git a/test/e2e/testdata/app-inclusions/subdir/.botSub.yaml b/test/e2e/testdata/app-inclusions/subdir/.botSub.yaml
deleted file mode 100644
index 6c4c1fbabc9c5..0000000000000
--- a/test/e2e/testdata/app-inclusions/subdir/.botSub.yaml
+++ /dev/null
@@ -1,14 +0,0 @@
-metadata:
-  labels:
-    app.kubernetes.io/instance: a-single-pod
-    foo: bar
-  name: helloBotSub
-spec:
-  containers:
-    - name: hello
-      image: busybox
-      command:
-        - sh
-      args:
-        - -c
-        - "echo HI && tail -f /dev/null"
diff --git a/test/e2e/testdata/app-inclusions/subdir/deploymentSub.yaml b/test/e2e/testdata/app-inclusions/subdir/deploymentSub.yaml
deleted file mode 100644
index 29a6f9da215c5..0000000000000
--- a/test/e2e/testdata/app-inclusions/subdir/deploymentSub.yaml
+++ /dev/null
@@ -1,21 +0,0 @@
-apiVersion: apps/v1
-kind: Deployment
-metadata:
-  name: nginx-deployment-sub
-  labels:
-    app: nginx
-spec:
-  replicas: 0
-  selector:
-    matchLabels:
-      app: nginx
-  template:
-    metadata:
-      labels:
-        app: nginx
-    spec:
-      containers:
-        - name: nginx
-          image: nginx:1.17.4-alpine
-          ports:
-            - containerPort: 80