diff --git a/package-lock.json b/package-lock.json
index d01cf083..9bee93a3 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -942,8 +942,9 @@
 		},
 		"ignore": {
 			"version": "5.1.8",
-			"resolved": "https://registry.npmjs.org/ignore/-/ignore-5.1.8.tgz",
-			"integrity": "sha512-BMpfD7PpiETpBl/A6S498BaIJ6Y/ABT93ETbby2fP00v4EbvPBXWEoaR1UBPKs3iR53pJY7EtZk5KACI57i1Uw=="
+			"resolved": "https://registry.yarnpkg.com/ignore/-/ignore-5.1.8.tgz",
+			"integrity": "sha1-8VCotQo0KJsz4i9YiavU2AFvDlc= sha512-BMpfD7PpiETpBl/A6S498BaIJ6Y/ABT93ETbby2fP00v4EbvPBXWEoaR1UBPKs3iR53pJY7EtZk5KACI57i1Uw==",
+			"dev": true
 		},
 		"import-fresh": {
 			"version": "3.2.1",
diff --git a/package.json b/package.json
index 1ee1df7a..b9682c4c 100644
--- a/package.json
+++ b/package.json
@@ -42,11 +42,11 @@
 		"commander": "^6.1.0",
 		"denodeify": "^1.2.1",
 		"glob": "^7.0.6",
-		"ignore": "^5.1.8",
 		"leven": "^3.1.0",
 		"lodash": "^4.17.15",
 		"markdown-it": "^10.0.0",
 		"mime": "^1.3.4",
+		"minimatch": "^3.0.3",
 		"osenv": "^0.1.3",
 		"parse-semver": "^1.1.1",
 		"read": "^1.0.7",
@@ -64,6 +64,7 @@
 		"@types/lodash": "^4.14.123",
 		"@types/markdown-it": "0.0.2",
 		"@types/mime": "^1",
+		"@types/minimatch": "^3.0.3",
 		"@types/mocha": "^7.0.2",
 		"@types/node": "^10.17.60",
 		"@types/read": "^0.0.28",
diff --git a/src/package.ts b/src/package.ts
index d54d8ebc..84963c18 100644
--- a/src/package.ts
+++ b/src/package.ts
@@ -7,6 +7,7 @@ import { ExtensionKind, Manifest } from './manifest';
 import { ITranslations, patchNLS } from './nls';
 import * as util from './util';
 import * as _glob from 'glob';
+import * as minimatch from 'minimatch';
 import * as denodeify from 'denodeify';
 import * as markdownit from 'markdown-it';
 import * as cheerio from 'cheerio';
@@ -22,7 +23,6 @@ import {
 	validateVSCodeTypesCompatibility,
 } from './validation';
 import { detectYarn, getDependencies } from './npm';
-import ignore from 'ignore';
 
 const readFile = denodeify<string, string, string>(fs.readFile);
 const unlink = denodeify<string, void>(fs.unlink as any);
@@ -37,6 +37,8 @@ const resourcesPath = path.join(path.dirname(__dirname), 'resources');
 const vsixManifestTemplatePath = path.join(resourcesPath, 'extension.vsixmanifest');
 const contentTypesTemplatePath = path.join(resourcesPath, '[Content_Types].xml');
 
+const MinimatchOptions: minimatch.IOptions = { dot: true };
+
 export interface IInMemoryFile {
 	path: string;
 	mode?: number;
@@ -1118,28 +1120,53 @@ function collectAllFiles(cwd: string, useYarn?: boolean, dependencyEntryPoints?:
 	});
 }
 
-async function readIgnoreFile(cwd: string, ignoreFile?: string): Promise<string> {
-	try {
-		return await readFile(ignoreFile ? ignoreFile : path.join(cwd, '.vscodeignore'), 'utf8');
-	} catch (err) {
-		if (err.code !== 'ENOENT' || ignoreFile) {
-			throw err;
-		}
-
-		return '';
-	}
-}
-
-async function collectFiles(
+function collectFiles(
 	cwd: string,
 	useYarn?: boolean,
 	dependencyEntryPoints?: string[],
 	ignoreFile?: string
 ): Promise<string[]> {
-	const files = (await collectAllFiles(cwd, useYarn, dependencyEntryPoints)).filter(f => !/\r$/m.test(f));
-	const rawIgnore = await readIgnoreFile(cwd, ignoreFile);
-
-	return ignore().add(defaultIgnore).add(rawIgnore).add(notIgnored).filter(files);
+	return collectAllFiles(cwd, useYarn, dependencyEntryPoints).then(files => {
+		files = files.filter(f => !/\r$/m.test(f));
+
+		return (
+			readFile(ignoreFile ? ignoreFile : path.join(cwd, '.vscodeignore'), 'utf8')
+				.catch<string>(err =>
+					err.code !== 'ENOENT' ? Promise.reject(err) : ignoreFile ? Promise.reject(err) : Promise.resolve('')
+				)
+
+				// Parse raw ignore by splitting output into lines and filtering out empty lines and comments
+				.then(rawIgnore =>
+					rawIgnore
+						.split(/[\n\r]/)
+						.map(s => s.trim())
+						.filter(s => !!s)
+						.filter(i => !/^\s*#/.test(i))
+				)
+
+				// Add '/**' to possible folder names
+				.then(ignore => [
+					...ignore,
+					...ignore.filter(i => !/(^|\/)[^/]*\*[^/]*$/.test(i)).map(i => (/\/$/.test(i) ? `${i}**` : `${i}/**`)),
+				])
+
+				// Combine with default ignore list
+				.then(ignore => [...defaultIgnore, ...ignore, ...notIgnored])
+
+				// Split into ignore and negate list
+				.then(ignore => _.partition(ignore, i => !/^\s*!/.test(i)))
+				.then(r => ({ ignore: r[0], negate: r[1] }))
+
+				// Filter out files
+				.then(({ ignore, negate }) =>
+					files.filter(
+						f =>
+							!ignore.some(i => minimatch(f, i, MinimatchOptions)) ||
+							negate.some(i => minimatch(f, i.substr(1), MinimatchOptions))
+					)
+				)
+		);
+	});
 }
 
 export function processFiles(processors: IProcessor[], files: IFile[]): Promise<IFile[]> {
diff --git a/src/test/package.test.ts b/src/test/package.test.ts
index fe31ec76..8f199b81 100644
--- a/src/test/package.test.ts
+++ b/src/test/package.test.ts
@@ -156,7 +156,12 @@ describe('collect', function () {
 		const files = await collect(manifest, { cwd });
 		const names = files.map(f => f.path).sort();
 
-		assert.deepStrictEqual(names, ['[Content_Types].xml', 'extension.vsixmanifest', 'extension/package.json']);
+		assert.deepStrictEqual(names, [
+			'[Content_Types].xml',
+			'extension.vsixmanifest',
+			'extension/foo/bar/hello.txt',
+			'extension/package.json',
+		]);
 	});
 
 	it('should ignore devDependencies', () => {