diff --git a/app/components/groups/row_component.rb b/app/components/groups/row_component.rb
index 51d7bebcc93..eea139a63ff 100644
--- a/app/components/groups/row_component.rb
+++ b/app/components/groups/row_component.rb
@@ -31,7 +31,14 @@
 module Groups
   class RowComponent < OpPrimer::BorderBoxRowComponent
     def name
-      render(Primer::Beta::Link.new(href: edit_group_path(model), font_weight: :bold)) { model.name }
+      depth = model.hierarchy_depth || 0
+      link = render(Primer::Beta::Link.new(href: edit_group_path(model), font_weight: :bold)) { model.name }
+
+      if depth > 0
+        tag.span(style: "margin-left: #{depth * 20}px") { link }
+      else
+        link
+      end
     end
 
     def user_count
diff --git a/app/controllers/groups_controller.rb b/app/controllers/groups_controller.rb
index 8ba62ac7f71..676366dcb8d 100644
--- a/app/controllers/groups_controller.rb
+++ b/app/controllers/groups_controller.rb
@@ -40,7 +40,7 @@ class GroupsController < ApplicationController
                                       edit_membership add_users]
 
   def index
-    @groups = Group.order(Arel.sql("lastname ASC"))
+    @groups = Group.in_tree_order
   end
 
   def show
diff --git a/app/forms/groups/form.rb b/app/forms/groups/form.rb
index ae1b2a672b1..b18a50f36b3 100644
--- a/app/forms/groups/form.rb
+++ b/app/forms/groups/form.rb
@@ -44,10 +44,13 @@ module Groups
         name: :parent_id,
         label: Group.human_attribute_name(:parent),
         include_blank: I18n.t(:label_no_parent_group),
+        caption: I18n.t(:label_parent_group_caption),
         input_width: :medium
       ) do |list|
-        Group.where.not(id: model.self_and_descendants.select(:id)).each do |group|
-          list.option(label: group.name, value: group.id, selected: model.parent_id == group.id)
+        excluded_ids = model.self_and_descendants.pluck(:id).to_set
+        Group.in_tree_order.reject { |g| excluded_ids.include?(g.id) }.each do |group|
+          prefix = "\u00A0\u00A0" * (group.hierarchy_depth || 0)
+          list.option(label: "#{prefix}#{group.name}", value: group.id, selected: model.parent_id == group.id)
         end
       end
 
diff --git a/app/models/group.rb b/app/models/group.rb
index 89c36de8cb3..07ac814278b 100644
--- a/app/models/group.rb
+++ b/app/models/group.rb
@@ -32,6 +32,8 @@ class Group < Principal
   include ::Scopes::Scoped
   include Groups::Hierarchy
 
+  attr_accessor :hierarchy_depth
+
   has_principal_details do
     belongs_to :parent, class_name: "Group", optional: true
 
diff --git a/app/models/groups/hierarchy.rb b/app/models/groups/hierarchy.rb
index 2de7aaca63b..17dc857efa6 100644
--- a/app/models/groups/hierarchy.rb
+++ b/app/models/groups/hierarchy.rb
@@ -69,6 +69,25 @@ module Groups::Hierarchy
     parent_id.nil?
   end
 
+  class_methods do
+    # Returns all groups in depth-first tree order, alphabetical within each level.
+    # Each group has its `hierarchy_depth` set to its nesting level (0 for roots).
+    def in_tree_order
+      all_groups = with_detail.order(Arel.sql("lastname ASC")).to_a
+      children_by_parent = all_groups.group_by(&:parent_id)
+      walk_tree(children_by_parent, nil, 0)
+    end
+
+    private
+
+    def walk_tree(children_by_parent, parent_id, depth)
+      (children_by_parent[parent_id] || []).flat_map do |group|
+        group.hierarchy_depth = depth
+        [group, *walk_tree(children_by_parent, group.id, depth + 1)]
+      end
+    end
+  end
+
   private
 
   def descendant_ids
diff --git a/config/locales/en.yml b/config/locales/en.yml
index f229efdf0e1..ef755505ede 100644
--- a/config/locales/en.yml
+++ b/config/locales/en.yml
@@ -3874,6 +3874,9 @@ en:
   label_overall_activity: "Overall activity"
   label_overview: "Overview"
   label_page_title: "Page title"
+  label_parent_group_caption: >
+    Setting a parent group will make this group a subgroup of the selected parent group.
+    This will also inherit all memberships, including permissions of the parent group.
   label_part_of: "part of"
   label_password_lost: "Forgot your password?"
   label_password_rule_lowercase: "Lowercase"
diff --git a/spec/components/groups/table_component_spec.rb b/spec/components/groups/table_component_spec.rb
index 834186bde3f..5376e197e70 100644
--- a/spec/components/groups/table_component_spec.rb
+++ b/spec/components/groups/table_component_spec.rb
@@ -61,4 +61,24 @@ RSpec.describe Groups::TableComponent, type: :component do
     it_behaves_like "rendering Border Box Grid headings"
     it_behaves_like "rendering Border Box Grid rows", row_count: 2, col_count: 3
   end
+
+  context "with nested groups" do
+    let(:parent_group) do
+      create(:group, lastname: "Parent").tap { |g| g.hierarchy_depth = 0 }
+    end
+    let(:child_group) do
+      create(:group, lastname: "Child", parent: parent_group).tap { |g| g.hierarchy_depth = 1 }
+    end
+    let(:groups) { [parent_group, child_group] }
+
+    it "renders child groups with indentation and arrow icon" do
+      expect(rendered_component).to have_css("span[style='margin-left: 20px']")
+      expect(rendered_component).to have_css("span[style='margin-left: 20px'] a", text: "Child")
+    end
+
+    it "renders parent groups without indentation" do
+      expect(rendered_component).to have_link("Parent")
+      expect(rendered_component).to have_no_css("span[style='margin-left: 0px']")
+    end
+  end
 end
diff --git a/spec/models/group_spec.rb b/spec/models/group_spec.rb
index 7b9e6c1dc13..5991ba21846 100644
--- a/spec/models/group_spec.rb
+++ b/spec/models/group_spec.rb
@@ -78,7 +78,7 @@ RSpec.describe Group do
       context "if it does not exist" do
         it "does not create a group user" do
           count = group.group_users.count
-          gu = group.group_users.create user_id: User.maximum(:id).to_i + 1
+          gu = group.group_users.create! user_id: User.maximum(:id).to_i + 1
 
           expect(gu).not_to be_valid
           expect(group.group_users.count).to eq count
@@ -87,7 +87,7 @@ RSpec.describe Group do
 
       it "updates the timestamp" do
         updated_at = group.updated_at
-        group.group_users.create(user:)
+        group.group_users.create!(user:)
 
         expect(updated_at < group.reload.updated_at)
           .to be_truthy
@@ -96,7 +96,7 @@ RSpec.describe Group do
 
     context "when removing a user" do
       it "updates the timestamp" do
-        group.group_users.create(user:)
+        group.group_users.create!(user:)
         updated_at = group.reload.updated_at
 
         group.group_users.destroy_all
@@ -149,12 +149,12 @@ RSpec.describe Group do
 
     before do
       # Add user1 to group1 and group2
-      group1.group_users.create(user: user1)
-      group2.group_users.create(user: user1)
+      group1.group_users.create!(user: user1)
+      group2.group_users.create!(user: user1)
 
       # Add user2 to group2 and group3
-      group2.group_users.create(user: user2)
-      group3.group_users.create(user: user2)
+      group2.group_users.create!(user: user2)
+      group3.group_users.create!(user: user2)
     end
 
     it "returns groups that contain the given user" do
@@ -185,11 +185,11 @@ RSpec.describe Group do
 
       before do
         # target_user is in both groups
-        shared_group.group_users.create(user: target_user)
-        other_group.group_users.create(user: target_user)
+        shared_group.group_users.create!(user: target_user)
+        other_group.group_users.create!(user: target_user)
 
         # viewer is only in shared_group
-        shared_group.group_users.create(user: viewer)
+        shared_group.group_users.create!(user: viewer)
       end
 
       it "returns only the groups the viewer can see from the user's groups" do
@@ -283,6 +283,48 @@ RSpec.describe Group do
       end
     end
 
+    describe ".in_tree_order" do
+      it "returns groups in depth-first order, alphabetical within each level" do
+        result = described_class.in_tree_order
+
+        grandparent_idx = result.index(grandparent)
+        parent_idx = result.index(parent_group)
+        child_idx = result.index(child)
+        grandchild_idx = result.index(grandchild)
+
+        expect(grandparent_idx).to be < parent_idx
+        expect(parent_idx).to be < child_idx
+        expect(child_idx).to be < grandchild_idx
+      end
+
+      it "sets hierarchy_depth on each group" do
+        result = described_class.in_tree_order
+        depths = result.to_h { |g| [g.id, g.hierarchy_depth] }
+
+        expect(depths[grandparent.id]).to eq(0)
+        expect(depths[parent_group.id]).to eq(1)
+        expect(depths[child.id]).to eq(2)
+        expect(depths[grandchild.id]).to eq(3)
+        expect(depths[unrelated.id]).to eq(0)
+      end
+
+      it "includes all groups" do
+        result = described_class.in_tree_order
+        expect(result).to contain_exactly(grandparent, parent_group, child, grandchild, unrelated)
+      end
+
+      it "sorts siblings alphabetically" do
+        sibling_a = create(:group, lastname: "AAA Sibling", parent_id: grandparent.id)
+        sibling_z = create(:group, lastname: "ZZZ Sibling", parent_id: grandparent.id)
+
+        result = described_class.in_tree_order
+        sibling_a_idx = result.index(sibling_a)
+        sibling_z_idx = result.index(sibling_z)
+
+        expect(sibling_a_idx).to be < sibling_z_idx
+      end
+    end
+
     describe "circular dependency prevention" do
       it "is invalid when assigning self as parent" do
         grandparent.parent_id = grandparent.id