diff --git a/apps/browser-extension/src/entrypoints/popup/pages/items/ItemsList.tsx b/apps/browser-extension/src/entrypoints/popup/pages/items/ItemsList.tsx
index d25cec83b..33d7f59dd 100644
--- a/apps/browser-extension/src/entrypoints/popup/pages/items/ItemsList.tsx
+++ b/apps/browser-extension/src/entrypoints/popup/pages/items/ItemsList.tsx
@@ -22,6 +22,7 @@ import { PopoutUtility } from '@/entrypoints/popup/utils/PopoutUtility';
 import type { CredentialSortOrder } from '@/utils/db/repositories/SettingsRepository';
 import type { Item, ItemType } from '@/utils/dist/core/models/vault';
 import { ItemTypes } from '@/utils/dist/core/models/vault';
+import { LocalPreferencesService } from '@/utils/LocalPreferencesService';
 
 import { useMinDurationLoading } from '@/hooks/useMinDurationLoading';
 
@@ -125,8 +126,14 @@ const ItemsList: React.FC = () => {
   const [folderRefreshKey, setFolderRefreshKey] = useState(0);
   const [sortOrder, setSortOrder] = useState<CredentialSortOrder>('OldestFirst');
   const [showSortMenu, setShowSortMenu] = useState(false);
+  const [showFolders, setShowFolders] = useState(true);
   const { setIsInitialLoading } = useLoading();
 
+  // Load showFolders preference from storage on mount
+  useEffect(() => {
+    LocalPreferencesService.getShowFolders().then(setShowFolders);
+  }, []);
+
   // Derive current folder from URL params
   const currentFolderId = folderIdParam ?? null;
 
@@ -442,8 +449,11 @@ const ItemsList: React.FC = () => {
       if (item.FolderId !== currentFolderId) {
         return false;
       }
-    } else if (!searchTerm) {
-      // In root view without search, exclude items that are in folders
+    } else if (!searchTerm && showFolders) {
+      /*
+       * When showing folders (checkbox ON): only show root items (exclude items in folders)
+       * When not showing folders (checkbox OFF): show all items flat
+       */
       if (item.FolderId) {
         return false;
       }
@@ -587,22 +597,49 @@ const ItemsList: React.FC = () => {
                   setShowFilterMenu(false);
                 }}
               />
-              <div className="absolute left-0 top-full mt-1 w-56 bg-white dark:bg-gray-800 border border-gray-200 dark:border-gray-700 rounded-lg shadow-xl ring-1 ring-black/5 dark:ring-white/10 z-20">
+              <div className="absolute left-0 top-full mt-1 w-72 bg-white dark:bg-gray-800 border border-gray-200 dark:border-gray-700 rounded-lg shadow-xl ring-1 ring-black/5 dark:ring-white/10 z-20">
                 <div className="py-1">
-                  {/* All items filter */}
-                  <button
-                    onClick={() => {
-                      const newFilter = 'all';
-                      setFilterType(newFilter);
-                      storeFilter(newFilter);
-                      setShowFilterMenu(false);
-                    }}
-                    className={`w-full text-left px-4 py-2 text-sm hover:bg-gray-100 dark:hover:bg-gray-700 ${
-                      filterType === 'all' ? 'bg-orange-50 dark:bg-orange-900/20 text-orange-600 dark:text-orange-400' : 'text-gray-700 dark:text-gray-300'
-                    }`}
-                  >
-                    {t('items.filters.all')}
-                  </button>
+                  {/* All items filter with show folders toggle (only show toggle on root view) */}
+                  <div className="relative">
+                    <button
+                      onClick={() => {
+                        const newFilter = 'all';
+                        setFilterType(newFilter);
+                        storeFilter(newFilter);
+                        setShowFilterMenu(false);
+                      }}
+                      className={`w-full text-left px-4 py-2 text-sm hover:bg-gray-100 dark:hover:bg-gray-700 ${
+                        filterType === 'all' ? 'bg-orange-50 dark:bg-orange-900/20 text-orange-600 dark:text-orange-400' : 'text-gray-700 dark:text-gray-300'
+                      }`}
+                    >
+                      {t('items.title')}
+                    </button>
+                    {!currentFolderId && (
+                      <button
+                        onClick={(e) => {
+                          e.stopPropagation();
+                          const newValue = !showFolders;
+                          setShowFolders(newValue);
+                          LocalPreferencesService.setShowFolders(newValue);
+                        }}
+                        className="absolute right-2 top-1/2 -translate-y-1/2 flex items-center gap-1.5 px-2 py-1 text-xs text-gray-500 dark:text-gray-400 hover:text-gray-700 dark:hover:text-gray-300 rounded hover:bg-gray-200 dark:hover:bg-gray-600"
+                      >
+                        <span>{t('items.filters.showFolders')}</span>
+                        <svg
+                          className={`w-5 h-5 ${showFolders ? 'text-orange-500 dark:text-orange-400' : 'text-gray-400 dark:text-gray-500'}`}
+                          viewBox="0 0 24 24"
+                          fill="none"
+                          stroke="currentColor"
+                          strokeWidth="2"
+                        >
+                          <rect x="3" y="3" width="18" height="18" rx="2" />
+                          {showFolders && (
+                            <polyline points="7 12 10 15 17 8" />
+                          )}
+                        </svg>
+                      </button>
+                    )}
+                  </div>
                   <div className="border-t border-gray-200 dark:border-gray-700 my-1" />
                   {/* Item type filters - dynamically generated from ItemTypes */}
                   {ITEM_TYPE_OPTIONS.map((option) => (
@@ -851,8 +888,8 @@ const ItemsList: React.FC = () => {
         </>
       ) : (
         <>
-          {/* Folders as inline pills (only show at root level when not searching) */}
-          {!currentFolderId && !searchTerm && (
+          {/* Folders as inline pills (only show at root level when not searching and showFolders is enabled) */}
+          {!currentFolderId && !searchTerm && showFolders && (
             <div className="flex flex-wrap items-center gap-2 mb-4">
               {folders.map(folder => (
                 <FolderPill
diff --git a/apps/browser-extension/src/i18n/locales/en.json b/apps/browser-extension/src/i18n/locales/en.json
index 60ba8fa9e..1f028784c 100644
--- a/apps/browser-extension/src/i18n/locales/en.json
+++ b/apps/browser-extension/src/i18n/locales/en.json
@@ -202,7 +202,7 @@
     "deleteFolderAndItems": "Delete folder and all items",
     "deleteFolderAndItemsDescription": "{{count}} item(s) will be moved to Recently Deleted.",
     "filters": {
-      "all": "(All) Items",
+      "showFolders": "show folders",
       "passkeys": "Passkeys"
     },
     "sort": {
diff --git a/apps/browser-extension/src/utils/LocalPreferencesService.ts b/apps/browser-extension/src/utils/LocalPreferencesService.ts
new file mode 100644
index 000000000..575b676ab
--- /dev/null
+++ b/apps/browser-extension/src/utils/LocalPreferencesService.ts
@@ -0,0 +1,333 @@
+import { storage } from '#imports';
+
+/*
+ * Storage keys for local preferences.
+ * These are defined inline since they're only used by this service.
+ */
+const KEYS = {
+  // Site settings
+  DISABLED_SITES: 'local:aliasvault_disabled_sites',
+  TEMPORARY_DISABLED_SITES: 'local:aliasvault_temporary_disabled_sites',
+  PASSKEY_DISABLED_SITES: 'local:aliasvault_passkey_disabled_sites',
+
+  // Global toggles
+  GLOBAL_AUTOFILL_POPUP_ENABLED: 'local:aliasvault_global_autofill_popup_enabled',
+  GLOBAL_CONTEXT_MENU_ENABLED: 'local:aliasvault_global_context_menu_enabled',
+  PASSKEY_PROVIDER_ENABLED: 'local:aliasvault_passkey_provider_enabled',
+
+  // Timeouts
+  CLIPBOARD_CLEAR_TIMEOUT: 'local:aliasvault_clipboard_clear_timeout',
+  AUTO_LOCK_TIMEOUT: 'local:aliasvault_auto_lock_timeout',
+  VAULT_LOCKED_DISMISS_UNTIL: 'local:aliasvault_vault_locked_dismiss_until',
+
+  // Matching mode
+  AUTOFILL_MATCHING_MODE: 'local:aliasvault_autofill_matching_mode',
+
+  // History (TODO: move to vault in v1.0)
+  CUSTOM_EMAIL_HISTORY: 'local:aliasvault_custom_email_history',
+  CUSTOM_USERNAME_HISTORY: 'local:aliasvault_custom_username_history',
+
+  // UI preferences
+  SHOW_FOLDERS: 'local:aliasvault_show_folders',
+} as const;
+
+/**
+ * Autofill matching mode options.
+ */
+export enum AutofillMatchingMode {
+  DEFAULT = 'default',
+  URL_SUBDOMAIN = 'url_subdomain',
+  URL_EXACT = 'url_exact',
+}
+
+/**
+ * Service for managing user preferences that are stored locally (not in the vault).
+ * Provides typed getters/setters with sensible defaults for all local storage settings.
+ */
+export const LocalPreferencesService = {
+  /*
+   * ============================================
+   * UI Preferences
+   * ============================================
+   */
+
+  /**
+   * Get the show folders preference.
+   * @returns Whether to show folders (true) or show all items flat (false). Defaults to true.
+   */
+  async getShowFolders(): Promise<boolean> {
+    const value = await storage.getItem(KEYS.SHOW_FOLDERS) as boolean | null;
+    return value ?? true;
+  },
+
+  /**
+   * Set the show folders preference.
+   */
+  async setShowFolders(showFolders: boolean): Promise<void> {
+    await storage.setItem(KEYS.SHOW_FOLDERS, showFolders);
+  },
+
+  /*
+   * ============================================
+   * Autofill Settings
+   * ============================================
+   */
+
+  /**
+   * Get whether the global autofill popup is enabled.
+   * @returns Whether autofill popup is globally enabled. Defaults to true.
+   */
+  async getGlobalAutofillPopupEnabled(): Promise<boolean> {
+    const value = await storage.getItem(KEYS.GLOBAL_AUTOFILL_POPUP_ENABLED) as boolean | null;
+    return value !== false;
+  },
+
+  /**
+   * Set whether the global autofill popup is enabled.
+   */
+  async setGlobalAutofillPopupEnabled(enabled: boolean): Promise<void> {
+    await storage.setItem(KEYS.GLOBAL_AUTOFILL_POPUP_ENABLED, enabled);
+  },
+
+  /**
+   * Get the autofill matching mode.
+   * @returns The matching mode. Defaults to DEFAULT.
+   */
+  async getAutofillMatchingMode(): Promise<AutofillMatchingMode> {
+    const value = await storage.getItem(KEYS.AUTOFILL_MATCHING_MODE) as AutofillMatchingMode | null;
+    return value ?? AutofillMatchingMode.DEFAULT;
+  },
+
+  /**
+   * Set the autofill matching mode.
+   */
+  async setAutofillMatchingMode(mode: AutofillMatchingMode): Promise<void> {
+    await storage.setItem(KEYS.AUTOFILL_MATCHING_MODE, mode);
+  },
+
+  /**
+   * Get the list of permanently disabled sites.
+   * @returns Array of disabled site URLs. Defaults to empty array.
+   */
+  async getDisabledSites(): Promise<string[]> {
+    const value = await storage.getItem(KEYS.DISABLED_SITES) as string[] | null;
+    return value ?? [];
+  },
+
+  /**
+   * Set the list of permanently disabled sites.
+   */
+  async setDisabledSites(sites: string[]): Promise<void> {
+    await storage.setItem(KEYS.DISABLED_SITES, sites);
+  },
+
+  /**
+   * Get the map of temporarily disabled sites with their expiry timestamps.
+   * @returns Record of site URL to expiry timestamp. Defaults to empty object.
+   */
+  async getTemporaryDisabledSites(): Promise<Record<string, number>> {
+    const value = await storage.getItem(KEYS.TEMPORARY_DISABLED_SITES) as Record<string, number> | null;
+    return value ?? {};
+  },
+
+  /**
+   * Set the map of temporarily disabled sites.
+   */
+  async setTemporaryDisabledSites(sites: Record<string, number>): Promise<void> {
+    await storage.setItem(KEYS.TEMPORARY_DISABLED_SITES, sites);
+  },
+
+  /*
+   * ============================================
+   * Context Menu Settings
+   * ============================================
+   */
+
+  /**
+   * Get whether the global context menu is enabled.
+   * @returns Whether context menu is globally enabled. Defaults to true.
+   */
+  async getGlobalContextMenuEnabled(): Promise<boolean> {
+    const value = await storage.getItem(KEYS.GLOBAL_CONTEXT_MENU_ENABLED) as boolean | null;
+    return value !== false;
+  },
+
+  /**
+   * Set whether the global context menu is enabled.
+   */
+  async setGlobalContextMenuEnabled(enabled: boolean): Promise<void> {
+    await storage.setItem(KEYS.GLOBAL_CONTEXT_MENU_ENABLED, enabled);
+  },
+
+  /*
+   * ============================================
+   * Passkey Settings
+   * ============================================
+   */
+
+  /**
+   * Get whether the passkey provider is globally enabled.
+   * @returns Whether passkey provider is enabled. Defaults to true.
+   */
+  async getPasskeyProviderEnabled(): Promise<boolean> {
+    const value = await storage.getItem(KEYS.PASSKEY_PROVIDER_ENABLED) as boolean | null;
+    return value !== false;
+  },
+
+  /**
+   * Set whether the passkey provider is globally enabled.
+   */
+  async setPasskeyProviderEnabled(enabled: boolean): Promise<void> {
+    await storage.setItem(KEYS.PASSKEY_PROVIDER_ENABLED, enabled);
+  },
+
+  /**
+   * Get the list of sites where passkey provider is disabled.
+   * @returns Array of disabled site URLs. Defaults to empty array.
+   */
+  async getPasskeyDisabledSites(): Promise<string[]> {
+    const value = await storage.getItem(KEYS.PASSKEY_DISABLED_SITES) as string[] | null;
+    return value ?? [];
+  },
+
+  /**
+   * Set the list of sites where passkey provider is disabled.
+   */
+  async setPasskeyDisabledSites(sites: string[]): Promise<void> {
+    await storage.setItem(KEYS.PASSKEY_DISABLED_SITES, sites);
+  },
+
+  /*
+   * ============================================
+   * Timeout Settings
+   * ============================================
+   */
+
+  /**
+   * Get the clipboard clear timeout in seconds.
+   * @returns Timeout in seconds. Defaults to 10.
+   */
+  async getClipboardClearTimeout(): Promise<number> {
+    const value = await storage.getItem(KEYS.CLIPBOARD_CLEAR_TIMEOUT) as number | null;
+    return value ?? 10;
+  },
+
+  /**
+   * Set the clipboard clear timeout in seconds.
+   */
+  async setClipboardClearTimeout(timeout: number): Promise<void> {
+    await storage.setItem(KEYS.CLIPBOARD_CLEAR_TIMEOUT, timeout);
+  },
+
+  /**
+   * Get the auto-lock timeout in seconds.
+   * @returns Timeout in seconds. Defaults to 0 (never).
+   */
+  async getAutoLockTimeout(): Promise<number> {
+    const value = await storage.getItem(KEYS.AUTO_LOCK_TIMEOUT) as number | null;
+    return value ?? 0;
+  },
+
+  /**
+   * Set the auto-lock timeout in seconds.
+   */
+  async setAutoLockTimeout(timeout: number): Promise<void> {
+    await storage.setItem(KEYS.AUTO_LOCK_TIMEOUT, timeout);
+  },
+
+  /**
+   * Get the vault locked dismiss until timestamp.
+   * @returns Timestamp until which the vault locked message is dismissed. Defaults to 0.
+   */
+  async getVaultLockedDismissUntil(): Promise<number> {
+    const value = await storage.getItem(KEYS.VAULT_LOCKED_DISMISS_UNTIL) as number | null;
+    return value ?? 0;
+  },
+
+  /**
+   * Set the vault locked dismiss until timestamp.
+   */
+  async setVaultLockedDismissUntil(timestamp: number): Promise<void> {
+    await storage.setItem(KEYS.VAULT_LOCKED_DISMISS_UNTIL, timestamp);
+  },
+
+  /*
+   * ============================================
+   * History Settings (for custom email/username)
+   * ============================================
+   */
+
+  /**
+   * Get the custom email history.
+   * @returns Array of previously used custom emails. Defaults to empty array.
+   */
+  async getCustomEmailHistory(): Promise<string[]> {
+    const value = await storage.getItem(KEYS.CUSTOM_EMAIL_HISTORY) as string[] | null;
+    return value ?? [];
+  },
+
+  /**
+   * Set the custom email history.
+   */
+  async setCustomEmailHistory(history: string[]): Promise<void> {
+    await storage.setItem(KEYS.CUSTOM_EMAIL_HISTORY, history);
+  },
+
+  /**
+   * Get the custom username history.
+   * @returns Array of previously used custom usernames. Defaults to empty array.
+   */
+  async getCustomUsernameHistory(): Promise<string[]> {
+    const value = await storage.getItem(KEYS.CUSTOM_USERNAME_HISTORY) as string[] | null;
+    return value ?? [];
+  },
+
+  /**
+   * Set the custom username history.
+   */
+  async setCustomUsernameHistory(history: string[]): Promise<void> {
+    await storage.setItem(KEYS.CUSTOM_USERNAME_HISTORY, history);
+  },
+
+  /*
+   * ============================================
+   * Utility Methods
+   * ============================================
+   */
+
+  /**
+   * Clear all UI preferences. Can be called on logout.
+   * Note: This only clears UI preferences, not security-related settings.
+   */
+  async clearUiPreferences(): Promise<void> {
+    await storage.removeItem(KEYS.SHOW_FOLDERS);
+  },
+
+  /**
+   * Reset all site-specific settings (disabled sites, temporary disabled sites).
+   */
+  async resetAllSiteSettings(): Promise<void> {
+    await storage.setItem(KEYS.DISABLED_SITES, []);
+    await storage.setItem(KEYS.TEMPORARY_DISABLED_SITES, {});
+    await storage.setItem(KEYS.PASSKEY_DISABLED_SITES, []);
+  },
+
+  /**
+   * Clear all preferences. Called on logout to reset everything.
+   */
+  async clearAll(): Promise<void> {
+    await Promise.all([
+      storage.removeItem(KEYS.SHOW_FOLDERS),
+      storage.removeItem(KEYS.DISABLED_SITES),
+      storage.removeItem(KEYS.TEMPORARY_DISABLED_SITES),
+      storage.removeItem(KEYS.PASSKEY_DISABLED_SITES),
+      storage.removeItem(KEYS.VAULT_LOCKED_DISMISS_UNTIL),
+      storage.removeItem(KEYS.CUSTOM_EMAIL_HISTORY),
+      storage.removeItem(KEYS.CUSTOM_USERNAME_HISTORY),
+      /*
+       * Note: We don't clear global settings like autofill enabled, clipboard timeout, etc.
+       * as those are user preferences that should persist across logins.
+       */
+    ]);
+  },
+};