diff --git a/scripts/include-dep-report.py b/scripts/include-dep-report.py
index 35c29e54b1a..efd54752900 100755
--- a/scripts/include-dep-report.py
+++ b/scripts/include-dep-report.py
@@ -2,7 +2,7 @@
 """Directory-level include dependency report for the LinuxCNC src tree.
 
 Resolves every #include the way the compiler does, aggregates the result to the
-directory granularity of SUBDIRS, finds the strongly connected components, and
+directory that builds each file, finds the strongly connected components, and
 writes a markdown report.  The exported-header list is read out of SRCHEADERS in
 src/Makefile, so the report follows what the build actually installs.
 
@@ -103,13 +103,52 @@ def include_lines(path):
             yield lineno, m.group(1), m.group(2)
 
 
+def folded_dirs():
+    """Subdirectories the build does not treat as units of their own.
+
+    A directory whose sources are listed by its parent's Submakefile compiles and
+    links as part of the parent, so an include crossing that boundary crosses
+    nothing.  libnml is the case in the tree: SUBDIRS names its six
+    subdirectories and each has an empty Submakefile purely to satisfy
+    SUBMAKEFILES, while libnml/Submakefile lists every source and links them into
+    one libnml.so.  Reporting those as separate nodes invents a cycle out of a
+    directory layout.  Subdirectories the top-level Makefile builds on their own,
+    emc/tp into tpmod for one, are not folded.
+    """
+    fold = {}
+    for cur, dirs, files in os.walk(SRC):
+        dirs[:] = [d for d in dirs if d not in SKIP_DIRS and not d.startswith(".")]
+        if "Submakefile" not in files:
+            continue
+        rel = os.path.relpath(cur, SRC)
+        if rel == ".":
+            continue
+        parent = os.path.dirname(rel)
+        pmake = os.path.join(SRC, parent, "Submakefile")
+        if not os.path.exists(pmake):
+            continue
+        with open(pmake, errors="replace") as f:
+            text = f.read()
+        pat = r"(^|[\s/])" + re.escape(os.path.basename(rel)) + r"/[\w.-]+\.(c|cc|cpp)\b"
+        if re.search(pat, text, re.M):
+            fold[rel] = parent
+    return fold
+
+
+FOLD = folded_dirs()
+
+
 def module_of(rel):
     parts = rel.split("/")
     if len(parts) == 1:
         return "src"
     if parts[0] in ("emc", "hal", "libnml", "rtapi") and len(parts) > 2:
-        return "/".join(parts[:2])
-    return parts[0]
+        mod = "/".join(parts[:2])
+    else:
+        return parts[0]
+    while mod in FOLD:
+        mod = FOLD[mod]
+    return mod
 
 
 def sccs(adj, nodes):
@@ -253,9 +292,11 @@ def main():
 
     w("# src/ directory dependency report\n\n")
     w("Generated by `scripts/include-dep-report.py`, which resolves every `#include` "
-      "in the tree the way the compiler that sees it would, buckets each file into a "
-      "directory at the granularity of `SUBDIRS`, and reports the edges between those "
-      "buckets.\n\n")
+      "in the tree the way the compiler that sees it would, buckets each file into the "
+      "directory that builds it, and reports the edges between those buckets. A "
+      "subdirectory whose sources the parent's `Submakefile` lists compiles and links "
+      "as part of the parent, so it is folded into it; a subdirectory the top-level "
+      "`Makefile` builds on its own is not.\n\n")
     w("The two compiles do not get the same `-I`. Userspace gets `INCLUDE` from "
       "`src/Makefile`, which is `.` plus the `emc` added by `src/emc/Submakefile`. "
       "Realtime gets only what `EXTRA_CFLAGS` carries, `$(BASEPWD)` and the exported "
@@ -276,7 +317,8 @@ def main():
           f"{len(incycle)} directories, {len(intra)} edges, {intra_sites} include sites:\n")
         for c in comps:
             w(f"  - {', '.join('`%s`' % m for m in c)}\n")
-        w(f"- {len(thin)} of those {len(intra)} cycle edges are **a single `#include`**.\n")
+        w(f"- {len(thin)} of those {len(intra)} cycle edges "
+          f"{'is' if len(thin) == 1 else 'are'} **a single `#include`**.\n")
     else:
         w("- No dependency cycles.\n")
     w(f"- {len(exported)} exported headers.\n\n")