diff --git a/packages/app/src/components/sidebar-workspace-list.tsx b/packages/app/src/components/sidebar-workspace-list.tsx
index 1af1386d5..4eb46ea30 100644
--- a/packages/app/src/components/sidebar-workspace-list.tsx
+++ b/packages/app/src/components/sidebar-workspace-list.tsx
@@ -55,6 +55,7 @@ import { buildSidebarShortcutModel } from '@/utils/sidebar-shortcuts'
 import { hasVisibleOrderChanged, mergeWithRemainder } from '@/utils/sidebar-reorder'
 import { decideLongPressMove } from '@/utils/sidebar-gesture-arbitration'
 import { confirmDialog } from '@/utils/confirm-dialog'
+import { projectIconPlaceholderLabelFromDisplayName } from '@/utils/project-display-name'
 
 const PASEO_WORKTREE_PATH_MARKER = '/.paseo/worktrees'
 
@@ -416,6 +417,8 @@ function ProjectHeaderRow({
     menuController: null,
     debugId: `project:${project.projectKey}`,
   })
+  const placeholderLabel = projectIconPlaceholderLabelFromDisplayName(displayName)
+  const placeholderInitial = placeholderLabel.charAt(0).toUpperCase()
 
   const handlePress = useCallback(() => {
     if (interaction.didLongPressRef.current) {
@@ -449,7 +452,7 @@ function ProjectHeaderRow({
           <Image source={{ uri: iconDataUri }} style={styles.projectIcon} />
         ) : (
           <View style={styles.projectIconFallback}>
-            <Text style={styles.projectIconFallbackText}>{displayName.charAt(0).toUpperCase()}</Text>
+            <Text style={styles.projectIconFallbackText}>{placeholderInitial}</Text>
           </View>
         )}
 
diff --git a/packages/app/src/utils/project-display-name.test.ts b/packages/app/src/utils/project-display-name.test.ts
new file mode 100644
index 000000000..0a5307878
--- /dev/null
+++ b/packages/app/src/utils/project-display-name.test.ts
@@ -0,0 +1,27 @@
+import { describe, expect, it } from "vitest";
+import {
+  projectDisplayNameFromProjectId,
+  projectIconPlaceholderLabelFromDisplayName,
+} from "./project-display-name";
+
+describe("projectDisplayNameFromProjectId", () => {
+  it("shows owner and repo for GitHub remote ids", () => {
+    expect(projectDisplayNameFromProjectId("remote:github.com/getpaseo/paseo")).toBe(
+      "getpaseo/paseo"
+    );
+  });
+
+  it("shows the trailing directory name for local projects", () => {
+    expect(projectDisplayNameFromProjectId("/Users/me/dev/paseo")).toBe("paseo");
+  });
+});
+
+describe("projectIconPlaceholderLabelFromDisplayName", () => {
+  it("uses repo name instead of owner for GitHub-style display names", () => {
+    expect(projectIconPlaceholderLabelFromDisplayName("getpaseo/paseo")).toBe("paseo");
+  });
+
+  it("returns the original display name when it has no path separator", () => {
+    expect(projectIconPlaceholderLabelFromDisplayName("paseo")).toBe("paseo");
+  });
+});
diff --git a/packages/app/src/utils/project-display-name.ts b/packages/app/src/utils/project-display-name.ts
index 9dce1588a..1d251e051 100644
--- a/packages/app/src/utils/project-display-name.ts
+++ b/packages/app/src/utils/project-display-name.ts
@@ -7,3 +7,15 @@ export function projectDisplayNameFromProjectId(projectId: string): string {
   const segments = projectId.split(/[\\/]/).filter(Boolean);
   return segments[segments.length - 1] || projectId;
 }
+
+export function projectIconPlaceholderLabelFromDisplayName(
+  displayName: string
+): string {
+  const trimmedDisplayName = displayName.trim();
+  if (!trimmedDisplayName) {
+    return "";
+  }
+
+  const segments = trimmedDisplayName.split("/").filter(Boolean);
+  return segments[segments.length - 1] || trimmedDisplayName;
+}