diff --git a/app/models.py b/app/models.py
index bf548bd32..f5bd68eae 100644
--- a/app/models.py
+++ b/app/models.py
@@ -885,7 +885,7 @@ class Template(TemplateBase):
         )
 
     @classmethod
-    def from_json(cls, data):
+    def from_json(cls, data, folder):
         """
         Assumption: data has been validated appropriately.
 
@@ -895,7 +895,8 @@ class Template(TemplateBase):
 
         fields['created_by_id'] = fields.pop('created_by')
         fields['service_id'] = fields.pop('service')
-
+        if fields.pop("parent_folder_id"):
+            fields['folder'] = folder
         return cls(**fields)
 
 
diff --git a/app/template/rest.py b/app/template/rest.py
index 52a3497fb..2084bb674 100644
--- a/app/template/rest.py
+++ b/app/template/rest.py
@@ -29,7 +29,7 @@ from app.errors import (
     InvalidRequest
 )
 from app.letters.utils import get_letter_pdf
-from app.models import SMS_TYPE, Template
+from app.models import SMS_TYPE, Template, TemplateFolder
 from app.notifications.validators import service_has_permission, check_reply_to
 from app.schema_validation import validate
 from app.schemas import (template_schema, template_history_schema)
@@ -48,12 +48,19 @@ def _content_count_greater_than_limit(content, template_type):
     return template.content_count > SMS_CHAR_COUNT_LIMIT
 
 
+def validate_parent_folder(parent_folder_id, service_id):
+    return TemplateFolder.query.filter_by(service_id=service_id, id=parent_folder_id).one()
+
+
 @template_blueprint.route('', methods=['POST'])
 def create_template(service_id):
     fetched_service = dao_fetch_service_by_id(service_id=service_id)
     # permissions needs to be placed here otherwise marshmallow will interfere with versioning
     permissions = fetched_service.permissions
-    new_template = Template.from_json(validate(request.get_json(), post_create_template_schema))
+    template_json = validate(request.get_json(), post_create_template_schema)
+    folder = validate_parent_folder(parent_folder_id=template_json['parent_folder_id'],
+                                    service_id=template_json['service'])
+    new_template = Template.from_json(template_json, folder)
 
     if not service_has_permission(new_template.template_type, permissions):
         message = "Creating {} templates is not allowed".format(
@@ -72,6 +79,7 @@ def create_template(service_id):
     check_reply_to(service_id, new_template.reply_to, new_template.template_type)
 
     dao_create_template(new_template)
+
     return jsonify(data=template_schema.dump(new_template).data), 201
 
 
diff --git a/app/template/template_schemas.py b/app/template/template_schemas.py
index 4f13c8ced..f63ad4575 100644
--- a/app/template/template_schemas.py
+++ b/app/template/template_schemas.py
@@ -16,7 +16,8 @@ post_create_template_schema = {
         "process_type": {"emun": TEMPLATE_PROCESS_TYPE},
         "content": {"type": "string"},
         "subject": {"type": "string"},
-        "created_by": uuid
+        "created_by": uuid,
+        "parent_folder_id": uuid
     },
     "if": {
         "properties": {
diff --git a/tests/app/template/test_rest.py b/tests/app/template/test_rest.py
index 55e265f8b..c92545af9 100644
--- a/tests/app/template/test_rest.py
+++ b/tests/app/template/test_rest.py
@@ -12,7 +12,7 @@ from freezegun import freeze_time
 from notifications_utils import SMS_CHAR_COUNT_LIMIT
 
 
-from app.models import Template, SMS_TYPE, EMAIL_TYPE, LETTER_TYPE, TemplateHistory
+from app.models import Template, SMS_TYPE, EMAIL_TYPE, LETTER_TYPE, TemplateHistory, TemplateFolder
 from app.dao.templates_dao import dao_get_template_by_id, dao_redact_template
 
 from tests import create_authorization_header
@@ -21,7 +21,10 @@ from tests.app.conftest import (
     sample_template_without_email_permission,
     sample_template_without_letter_permission,
     sample_template_without_sms_permission)
-from tests.app.db import create_service, create_letter_contact, create_template, create_notification
+from tests.app.db import (
+    create_service, create_letter_contact, create_template, create_notification,
+    create_template_folder,
+)
 from tests.conftest import set_config_values
 
 
@@ -71,6 +74,57 @@ def test_should_create_a_new_template_for_a_service(
     assert sorted(json_resp['data']) == sorted(template_schema.dump(template).data)
 
 
+def test_should_create_a_new_template_for_a_service_adds_folder_relationship(
+    client, sample_service
+):
+    parent_folder = create_template_folder(service=sample_service, name='parent folder')
+
+    data = {
+        'name': 'my template',
+        'template_type': 'sms',
+        'content': 'template <b>content</b>',
+        'service': str(sample_service.id),
+        'created_by': str(sample_service.users[0].id),
+        'parent_folder_id': str(parent_folder.id)
+    }
+    data = json.dumps(data)
+    auth_header = create_authorization_header()
+
+    response = client.post(
+        '/service/{}/template'.format(sample_service.id),
+        headers=[('Content-Type', 'application/json'), auth_header],
+        data=data
+    )
+    assert response.status_code == 201
+    template = Template.query.filter(Template.name == 'my template').first()
+    assert template.folder == parent_folder
+
+
+def test_create_template_should_return_404_if_folder_is_for_a_different_service(
+        client, sample_service
+):
+    service2 = create_service(service_name='second service')
+    parent_folder = create_template_folder(service=service2)
+
+    data = {
+        'name': 'my template',
+        'template_type': 'sms',
+        'content': 'template <b>content</b>',
+        'service': str(sample_service.id),
+        'created_by': str(sample_service.users[0].id),
+        'parent_folder_id': str(parent_folder.id)
+    }
+    data = json.dumps(data)
+    auth_header = create_authorization_header()
+
+    response = client.post(
+        '/service/{}/template'.format(sample_service.id),
+        headers=[('Content-Type', 'application/json'), auth_header],
+        data=data
+    )
+    assert response.status_code == 404
+
+
 def test_should_raise_error_if_service_does_not_exist_on_create(client, sample_user, fake_uuid):
     data = {
         'name': 'my template',