diff --git a/packages/builder/src/components/common/NavItem.svelte b/packages/builder/src/components/common/NavItem.svelte
index f0c447826e..4cb67dc9c4 100644
--- a/packages/builder/src/components/common/NavItem.svelte
+++ b/packages/builder/src/components/common/NavItem.svelte
@@ -156,6 +156,7 @@
   }
   .icon.arrow {
     flex: 0 0 20px;
+    pointer-events: all;
   }
   .icon.arrow.absolute {
     position: absolute;
diff --git a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentListPanel.svelte b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentListPanel.svelte
index c887735ce7..5b86d4da29 100644
--- a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentListPanel.svelte
+++ b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentListPanel.svelte
@@ -1,14 +1,15 @@
 <script>
   import Panel from "components/design/Panel.svelte"
   import ComponentTree from "./ComponentTree.svelte"
-  import createDNDStore from "./dndStore.js"
+  import { dndStore } from "./dndStore.js"
   import { goto } from "@roxi/routify"
   import { store, selectedScreen } from "builderStore"
   import NavItem from "components/common/NavItem.svelte"
   import ScreenslotDropdownMenu from "./ScreenslotDropdownMenu.svelte"
   import { setContext } from "svelte"
+  import DNDPositionIndicator from "./DNDPositionIndicator.svelte"
+  import { DropPosition } from "./dndStore"
 
-  const dndStore = createDNDStore()
   let scrollRef
 
   const scrollTo = bounds => {
@@ -68,24 +69,43 @@
   borderRight
 >
   <div class="nav-items-container" bind:this={scrollRef}>
-    <NavItem
-      text="Screen"
-      indentLevel={0}
-      selected={$store.selectedComponentId === $selectedScreen?.props._id}
-      opened
-      scrollable
-      icon="WebPage"
-      on:click={() => {
-        $store.selectedComponentId = $selectedScreen?.props._id
-      }}
-    >
-      <ScreenslotDropdownMenu component={$selectedScreen?.props} />
-    </NavItem>
-    <ComponentTree
-      level={0}
-      components={$selectedScreen?.props._children}
-      {dndStore}
-    />
+    <ul>
+      <li
+        on:click={() => {
+          $store.selectedComponentId = $selectedScreen?.props._id
+        }}
+        id={`component-${$selectedScreen?.props._id}`}
+      >
+        <NavItem
+          text="Screen"
+          indentLevel={0}
+          selected={$store.selectedComponentId === $selectedScreen?.props._id}
+          opened
+          scrollable
+          icon="WebPage"
+        >
+          <ScreenslotDropdownMenu component={$selectedScreen?.props} />
+        </NavItem>
+        <ComponentTree
+          level={0}
+          components={$selectedScreen?.props._children}
+        />
+
+        <!-- Show drop indicators for the target and the parent -->
+        {#if $dndStore.dragging && $dndStore.valid}
+          <DNDPositionIndicator
+            component={$dndStore.target}
+            position={$dndStore.dropPosition}
+          />
+          {#if $dndStore.dropPosition !== DropPosition.INSIDE}
+            <DNDPositionIndicator
+              component={$dndStore.targetParent}
+              position={DropPosition.INSIDE}
+            />
+          {/if}
+        {/if}
+      </li>
+    </ul>
   </div>
 </Panel>
 
@@ -95,6 +115,15 @@
     flex: 1 1 auto;
     overflow: auto;
     height: 0;
+  }
+  ul {
+    list-style: none;
+    padding-left: 0;
+    margin: 0;
     position: relative;
   }
+  ul,
+  li {
+    min-width: max-content;
+  }
 </style>
diff --git a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentTree.svelte b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentTree.svelte
index b5ef926061..cc7f70f2c5 100644
--- a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentTree.svelte
+++ b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/ComponentTree.svelte
@@ -1,6 +1,5 @@
 <script>
   import { store } from "builderStore"
-  import { DropEffect, DropPosition } from "./dndStore"
   import ComponentDropdownMenu from "./ComponentDropdownMenu.svelte"
   import NavItem from "components/common/NavItem.svelte"
   import { capitalise } from "helpers"
@@ -12,17 +11,12 @@
   } from "builderStore"
   import { findComponentPath } from "builderStore/componentUtils"
   import { get } from "svelte/store"
+  import { dndStore } from "./dndStore"
 
   export let components = []
   export let level = 0
-  export let dndStore
 
   let closedNodes = {}
-  let ref
-
-  const dragstart = component => e => {
-    dndStore.actions.dragstart(component)
-  }
 
   const dragover = (component, index) => e => {
     const mousePosition = e.offsetY / e.currentTarget.offsetHeight
@@ -98,26 +92,24 @@
 
 <ul>
   {#each components || [] as component, index (component._id)}
-    {@const hasChildren = componentHasChildren(component)}
     {@const opened = isOpen(component, $selectedComponentPath, closedNodes)}
     <li
-      bind:this={ref}
       on:click|stopPropagation={() => {
         $store.selectedComponentId = component._id
       }}
-      id={`nav-${component._id}`}
+      id={`component-${component._id}`}
     >
       <NavItem
         scrollable
         draggable
         on:dragend={dndStore.actions.reset}
-        on:dragstart={dragstart(component)}
+        on:dragstart={() => dndStore.actions.dragstart(component)}
         on:dragover={dragover(component, index)}
         on:iconClick={() => toggleNodeOpen(component._id)}
         on:drop={onDrop}
         text={getComponentText(component)}
         icon={getComponentIcon(component)}
-        withArrow={hasChildren}
+        withArrow={componentHasChildren(component)}
         indentLevel={level + 1}
         selected={$store.selectedComponentId === component._id}
         {opened}
@@ -125,7 +117,6 @@
       >
         <ComponentDropdownMenu {component} />
       </NavItem>
-
       {#if opened}
         <svelte:self
           components={component._children}
@@ -154,7 +145,4 @@
   li {
     min-width: max-content;
   }
-  li {
-    position: relative;
-  }
 </style>
diff --git a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDParentPositionIndicator.svelte b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDParentPositionIndicator.svelte
deleted file mode 100644
index df576919ba..0000000000
--- a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDParentPositionIndicator.svelte
+++ /dev/null
@@ -1,9 +0,0 @@
-<script>
-</script>
-
-{#if $dndStore.targetParent?._id === component._id && $dndStore.dropPosition !== DropPosition.INSIDE}
-  <div
-    class="inside drop-item"
-    style="--indicatorX: {indicatorX}px; --indicatorY:{indicatorY}px;"
-  />
-{/if}
diff --git a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDPositionIndicator.svelte b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDPositionIndicator.svelte
index 8dbdc29c02..24b5839019 100644
--- a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDPositionIndicator.svelte
+++ b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/DNDPositionIndicator.svelte
@@ -1,47 +1,65 @@
 <script>
-  import { level } from "./ComponentTree.svelte"
+  import { DropPosition } from "./dndStore"
 
-  export let componentId
-  export let dndStore
+  export let component
+  export let position
 
-  const indicatorX = (level + 2) * 14
-  let indicatorY = 0
+  let x
+  let y
+  let width
+  let height
+
+  $: calculatePosition(component)
+
+  const calculatePosition = component => {
+    // Get root li element
+    const el = document.getElementById(`component-${component?._id}`)
+    // Get inner nav item content element
+    const child = el?.childNodes[0]?.childNodes[0]
+    if (!el) {
+      return
+    }
+    x = child.offsetLeft
+    y = child.offsetTop
+    width = child.clientWidth
+    height = child.clientHeight
+  }
 </script>
 
-{#if $dndStore.dragging && $dndStore.valid}
-  {#if $dndStore?.target?._id === componentId}
-    <div
-      class:above={$dndStore.dropPosition === DropPosition.ABOVE}
-      class:below={$dndStore.dropPosition === DropPosition.BELOW}
-      class:inside={$dndStore.dropPosition === DropPosition.INSIDE}
-      class="drop-item"
-      style="--indicatorX: {indicatorX}px; --indicatorY:{indicatorY}px;"
-    />
-  {/if}
+{#if component && position}
+  <div
+    class:above={position === DropPosition.ABOVE}
+    class:below={position === DropPosition.BELOW}
+    class:inside={position === DropPosition.INSIDE}
+    class="indicator"
+    style="--x:{x}px; --y:{y}px; --width:{width}px; --height:{height}px"
+  />
 {/if}
-]
 
 <style>
-  .drop-item {
+  .indicator {
     height: 2px;
     background: var(--spectrum-global-color-static-green-500);
     z-index: 999;
     position: absolute;
-    left: var(--indicatorX);
-    width: calc(100% - var(--indicatorX));
+    left: calc(var(--x) + 18px);
+    top: var(--y);
+    width: calc(100% - var(--x) - 18px);
     border-radius: 4px;
     pointer-events: none;
   }
-  .drop-item.above {
+  .indicator.above {
   }
-  .drop-item.below {
+  .indicator.below {
     margin-top: 32px;
   }
-  .drop-item.inside {
+  .indicator.inside {
     background: transparent;
     border: 2px solid var(--spectrum-global-color-static-green-500);
-    height: 29px;
     pointer-events: none;
-    width: calc(100% - var(--indicatorX) - 4px);
+    width: calc(var(--width) - 34px);
+    height: calc(var(--height) - 9px);
+    left: calc(var(--x) + 13px);
+    top: calc(var(--y) + 2px);
   }
 </style>
diff --git a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/dndStore.js b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/dndStore.js
index e512ddcca2..8a9e7ed915 100644
--- a/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/dndStore.js
+++ b/packages/builder/src/pages/builder/app/[application]/design/[screenId]/components/[componentId]/_components/navigation/dndStore.js
@@ -20,7 +20,7 @@ const initialState = {
   valid: false,
 }
 
-export default function () {
+const createDNDStore = () => {
   const store = writable(initialState)
   const actions = {
     dragstart: component => {
@@ -46,17 +46,8 @@ export default function () {
       let target
       let targetParent
 
-      // If the component has children, it cannot be dropped below
-      if (hasChildren) {
-        if (mousePosition <= 0.33) {
-          dropPosition = DropPosition.ABOVE
-        } else {
-          dropPosition = DropPosition.INSIDE
-        }
-      }
-
       // If it can have children then it can be any position
-      else if (canHaveChildren) {
+      if (canHaveChildren) {
         if (mousePosition <= 0.33) {
           dropPosition = DropPosition.ABOVE
         } else if (mousePosition >= 0.66) {
@@ -81,6 +72,15 @@ export default function () {
         target = component
       }
 
+      // If drop position and target are the same then we can skip this update
+      const state = get(store)
+      if (
+        dropPosition === state.dropPosition &&
+        target?._id === state.target?._id
+      ) {
+        return
+      }
+
       // Find the parent of the target component
       if (target) {
         targetParent = findComponentParent(
@@ -125,3 +125,5 @@ export default function () {
     actions,
   }
 }
+
+export const dndStore = createDNDStore()