diff --git a/rse/plugins/org.eclipse.rse.ui/UI/org/eclipse/rse/internal/ui/view/SystemDNDTransferRunnable.java b/rse/plugins/org.eclipse.rse.ui/UI/org/eclipse/rse/internal/ui/view/SystemDNDTransferRunnable.java
index c04f7a18748..62087380b2e 100644
--- a/rse/plugins/org.eclipse.rse.ui/UI/org/eclipse/rse/internal/ui/view/SystemDNDTransferRunnable.java
+++ b/rse/plugins/org.eclipse.rse.ui/UI/org/eclipse/rse/internal/ui/view/SystemDNDTransferRunnable.java
@@ -1,5 +1,5 @@
 /*******************************************************************************
- * Copyright (c) 2002, 2008 IBM Corporation and others.
+ * Copyright (c) 2002, 2010 IBM Corporation and others.
  * All rights reserved. This program and the accompanying materials
  * are made available under the terms of the Eclipse Public License v1.0
  * which accompanies this distribution, and is available at
@@ -26,6 +26,7 @@
  * David McKnight   (IBM)        - [196166] [usability][dnd] Changing the sort order of hosts in the SystemView should work by drag & drop
  * David McKnight   (IBM)        - [248922]  [dnd] display error message when copy operation hits exception
  * Radoslav Gerganov (ProSyst)   - [231428] [files] NPE on canceling copy operation from remote host
+ * David McKnight   (IBM)        - [328148] Dropping resource onto Eclipse IFile causes RSEG1003U unexpected exception
  *******************************************************************************/
 
 package org.eclipse.rse.internal.ui.view;
@@ -34,6 +35,7 @@ import java.util.ArrayList;
 import java.util.List;
 
 import org.eclipse.core.commands.ExecutionException;
+import org.eclipse.core.resources.IFile;
 import org.eclipse.core.resources.IResource;
 import org.eclipse.core.resources.IWorkspaceRoot;
 import org.eclipse.core.resources.WorkspaceJob;
@@ -363,6 +365,10 @@ public class SystemDNDTransferRunnable extends WorkspaceJob
 					IResource res = (IResource)tempFile;
 					try
 					{
+						if (target instanceof IFile){
+							// as per bug 328148, we should always use the parent of a file when it's a target
+							target = ((IFile)target).getParent();
+						}
 						IPath destPath = target.getFullPath();
 						destPath = destPath.append(res.getName());