diff --git a/HISTORY.md b/HISTORY.md
index 38feafac..90c3096f 100755
--- a/HISTORY.md
+++ b/HISTORY.md
@@ -58,6 +58,7 @@
 
 ### 2022-07-04
 * blocks, gui: directly import embedded blocks from a smart pic if the pic is dragged and dropped onto a scripting area or palette - otherwise import the pic as costume (with embedded blocks)
+* gui: import smart pic as costume via "Import..." item in the project menu
 
 ### 2022-07-01
 * extensions: added a slash-suffix to the EDC url allow-list entry 
diff --git a/src/gui.js b/src/gui.js
index f2085bd4..f9371ad6 100644
--- a/src/gui.js
+++ b/src/gui.js
@@ -297,6 +297,7 @@ IDE_Morph.prototype.init = function (isAutoFill) {
 
     this.bulkDropInProgress = false; // for handling multiple file-drops
     this.cachedSceneFlag = null; // for importing multiple scenes at once
+    this.isImportingLocalFile = false; // for handling imports of smart pics
 
     // initialize inherited properties:
     IDE_Morph.uber.init.call(this);
@@ -2465,6 +2466,7 @@ IDE_Morph.prototype.reactToWorldResize = function (rect) {
     if (this.filePicker) {
         document.body.removeChild(this.filePicker);
         this.filePicker = null;
+        this.isImportingLocalFile = false;
     }
 };
 
@@ -2502,15 +2504,18 @@ IDE_Morph.prototype.droppedImage = function (aCanvas, name, embeddedData, src) {
     // directly import embedded blocks if the image was dropped on
     // a scripting area or the palette, otherwise import as costume
     // (with embedded data)
-    if (isString(embeddedData) &&
+    if (!this.isImportingLocalFile &&
+        isString(embeddedData) &&
         ['scripts', 'palette', 'categories'].includes(src) &&
         embeddedData[0] === '<' &&
         ['blocks', 'block', 'script'].some(tag =>
             embeddedData.slice(1).startsWith(tag))
     ) {
+        this.isImportingLocalFile = false;
         return this.droppedText(embeddedData, name, '');
     }
 
+    this.isImportingLocalFile = false;
     costume.embeddedData = embeddedData || null;
     this.currentSprite.addCostume(costume);
     this.currentSprite.wearCostume(costume);
@@ -4578,6 +4583,7 @@ IDE_Morph.prototype.importLocalFile = function () {
             if (addingScenes) {
                 myself.isAddingNextScene = true;
             }
+            myself.isImportingLocalFile = true;
             world.hand.processDrop(inp.files);
         },
         false