diff --git a/packages/upload-client/package.json b/packages/upload-client/package.json
index 44a5ee183..8a8883ac2 100644
--- a/packages/upload-client/package.json
+++ b/packages/upload-client/package.json
@@ -65,7 +65,7 @@
   "dependencies": {
     "@ipld/car": "^5.0.3",
     "@ipld/dag-ucan": "^3.2.0",
-    "@ipld/unixfs": "^2.0.1",
+    "@ipld/unixfs": "^2.1.1",
     "@ucanto/client": "^5.1.0",
     "@ucanto/interface": "^6.0.0",
     "@ucanto/transport": "^5.1.0",
diff --git a/packages/upload-client/src/unixfs.js b/packages/upload-client/src/unixfs.js
index 07e3c8f1a..b8793c744 100644
--- a/packages/upload-client/src/unixfs.js
+++ b/packages/upload-client/src/unixfs.js
@@ -1,12 +1,16 @@
 import * as UnixFS from '@ipld/unixfs'
 import * as raw from 'multiformats/codecs/raw'
+import { withMaxChunkSize } from '@ipld/unixfs/file/chunker/fixed'
+import { withWidth } from '@ipld/unixfs/file/layout/balanced'
 
+const SHARD_THRESHOLD = 1000 // shard directory after > 1,000 items
 const queuingStrategy = UnixFS.withCapacity()
 
-// TODO: configure chunk size and max children https://github.com/ipld/js-unixfs/issues/36
 const settings = UnixFS.configure({
   fileChunkEncoder: raw,
   smallFileEncoder: raw,
+  chunker: withMaxChunkSize(1024 * 1024),
+  fileLayout: withWidth(1024),
 })
 
 /**
@@ -64,7 +68,10 @@ class UnixFSDirectoryBuilder {
 
   /** @param {import('@ipld/unixfs').View} writer */
   async finalize(writer) {
-    const dirWriter = UnixFS.createDirectoryWriter(writer)
+    const dirWriter =
+      this.entries.size <= SHARD_THRESHOLD
+        ? UnixFS.createDirectoryWriter(writer)
+        : UnixFS.createShardedDirectoryWriter(writer)
     for (const [name, entry] of this.entries) {
       const link = await entry.finalize(writer)
       dirWriter.set(name, link)
diff --git a/packages/upload-client/test/index.test.js b/packages/upload-client/test/index.test.js
index 024c1ee58..3c298f5e9 100644
--- a/packages/upload-client/test/index.test.js
+++ b/packages/upload-client/test/index.test.js
@@ -113,7 +113,7 @@ describe('uploadFile', () => {
   it('allows custom shard size to be set', async () => {
     const space = await Signer.generate()
     const agent = await Signer.generate() // The "user" that will ask the service to accept the upload
-    const file = new Blob([await randomBytes(500_000)])
+    const file = new Blob([await randomBytes(1024 * 1024 * 5)])
     /** @type {import('../src/types').CARLink[]} */
     const carCIDs = []
 
@@ -174,12 +174,12 @@ describe('uploadFile', () => {
       file,
       {
         connection,
-        shardSize: 400_000, // should end up with 2 CAR files
+        shardSize: 1024 * 1024 * 2, // should end up with 2 CAR files
         onShardStored: (meta) => carCIDs.push(meta.cid),
       }
     )
 
-    assert.equal(carCIDs.length, 2)
+    assert.equal(carCIDs.length, 3)
   })
 })
 
diff --git a/packages/upload-client/test/sharding.test.js b/packages/upload-client/test/sharding.test.js
index b0493d7e6..6156a95ee 100644
--- a/packages/upload-client/test/sharding.test.js
+++ b/packages/upload-client/test/sharding.test.js
@@ -15,8 +15,8 @@ import { mockService } from './helpers/mocks.js'
 
 describe('ShardingStream', () => {
   it('creates shards from blocks', async () => {
-    const file = new Blob([await randomBytes(1024 * 1024)])
-    const shardSize = 512 * 1024
+    const file = new Blob([await randomBytes(1024 * 1024 * 5)])
+    const shardSize = 1024 * 1024 * 2
 
     /** @type {import('../src/types').CARFile[]} */
     const shards = []
diff --git a/packages/upload-client/test/unixfs.test.js b/packages/upload-client/test/unixfs.test.js
index 7f197c9eb..8465e1b91 100644
--- a/packages/upload-client/test/unixfs.test.js
+++ b/packages/upload-client/test/unixfs.test.js
@@ -1,4 +1,5 @@
 import assert from 'assert'
+import { decode, NodeType } from '@ipld/unixfs'
 import { exporter } from 'ipfs-unixfs-exporter'
 import { MemoryBlockstore } from 'blockstore-core/memory'
 import * as raw from 'multiformats/codecs/raw'
@@ -67,6 +68,31 @@ describe('UnixFS', () => {
     expectedPaths.forEach((p) => assert(actualPaths.includes(p)))
   })
 
+  it('encodes a sharded directory', async () => {
+    const files = []
+    for (let i = 0; i < 1001; i++) {
+      files.push(new File([`data${i}`], `file${i}.txt`))
+    }
+
+    const { cid, blocks } = await encodeDirectory(files)
+    const blockstore = await blocksToBlockstore(blocks)
+    const dirEntry = await exporter(cid.toString(), blockstore)
+    assert.equal(dirEntry.type, 'directory')
+
+    const expectedPaths = files.map((f) => path.join(cid.toString(), f.name))
+    // @ts-expect-error
+    const entries = await collectDir(dirEntry)
+    const actualPaths = entries.map((e) => e.path)
+
+    expectedPaths.forEach((p) => assert(actualPaths.includes(p)))
+
+    // check root node is a HAMT sharded directory
+    // @ts-expect-error
+    const bytes = await blockstore.get(cid)
+    const node = decode(bytes)
+    assert.equal(node.type, NodeType.HAMTShard)
+  })
+
   it('throws then treating a file as a directory', () =>
     assert.rejects(
       encodeDirectory([
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index 053c62024..4fcc00e4c 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -328,7 +328,7 @@ importers:
     specifiers:
       '@ipld/car': ^5.0.3
       '@ipld/dag-ucan': ^3.2.0
-      '@ipld/unixfs': ^2.0.1
+      '@ipld/unixfs': ^2.1.1
       '@types/assert': ^1.5.6
       '@types/mocha': ^10.0.1
       '@ucanto/client': ^5.1.0
@@ -353,7 +353,7 @@ importers:
     dependencies:
       '@ipld/car': 5.1.0
       '@ipld/dag-ucan': 3.2.0
-      '@ipld/unixfs': 2.0.1
+      '@ipld/unixfs': 2.1.1
       '@ucanto/client': 5.1.0
       '@ucanto/interface': 6.0.0
       '@ucanto/transport': 5.1.0
@@ -2512,8 +2512,8 @@ packages:
       cborg: 1.10.0
       multiformats: 11.0.1
 
-  /@ipld/dag-pb/4.0.0:
-    resolution: {integrity: sha512-8FB/qTlNowCiszL9Sek8xH6xIQxIioXuzZ5B1jVPknQMVkd08nZUHzDjrn1Y6MqJ5PrXWLrBwNghGMWPPpvNVw==}
+  /@ipld/dag-pb/4.0.2:
+    resolution: {integrity: sha512-me9oEPb7UNPWSplUFCXyxnQE3/WlsjOljqO2RZN44XOmGkBY0/WVklbXorVE1eiv0Rt3p6dBS2x36Rq8A0Am8A==}
     engines: {node: '>=16.0.0', npm: '>=7.0.0'}
     dependencies:
       multiformats: 11.0.1
@@ -2525,10 +2525,12 @@ packages:
       '@ipld/dag-json': 10.0.1
       multiformats: 11.0.1
 
-  /@ipld/unixfs/2.0.1:
-    resolution: {integrity: sha512-W3LD67tLrIGpCVYFN6N/x6bL3o03zmsfd7jPAD1aXfGXaQWWa95qXPwc6PMVRTttxha/bHMKQiG2ZeFCqp83Ew==}
+  /@ipld/unixfs/2.1.1:
+    resolution: {integrity: sha512-g3gr/3XvfQs4x2VFjlICae09ul5fbWCKRInN6Vgeot2+GH0h/krr3PqZCIo4dy4Ou2mQOsIddxUvG8UZ4p9SbQ==}
     dependencies:
-      '@ipld/dag-pb': 4.0.0
+      '@ipld/dag-pb': 4.0.2
+      '@multiformats/murmur3': 2.1.3
+      '@perma/map': 1.0.2
       '@web-std/stream': 1.0.1
       actor: 2.3.1
       multiformats: 11.0.1
@@ -2813,6 +2815,14 @@ packages:
       murmurhash3js-revisited: 3.0.0
     dev: true
 
+  /@multiformats/murmur3/2.1.3:
+    resolution: {integrity: sha512-YvLK1IrLnRckPsvXhOkZjaIGNonsEdD1dL3NPSaLilV/WjVYeBgnNZXTUsaPzFXGrIFM7motx+yCmmqzXO6gtQ==}
+    engines: {node: '>=16.0.0', npm: '>=7.0.0'}
+    dependencies:
+      multiformats: 11.0.1
+      murmurhash3js-revisited: 3.0.0
+    dev: false
+
   /@noble/ed25519/1.7.3:
     resolution: {integrity: sha512-iR8GBkDt0Q3GyaVcIu7mSsVIqnFbkbRzGLWlvhwunacoLwt4J3swfKhfaM6rN6WY+TBGoYT1GtT1mIh2/jGbRQ==}
 
@@ -2841,6 +2851,12 @@ packages:
       fastq: 1.15.0
     dev: true
 
+  /@perma/map/1.0.2:
+    resolution: {integrity: sha512-hujwGOY6yTYnpf5YAtpD5MJAI1kcsVPqyN0lxG8Sampf/InO3jmX/MlJCHCGFPpPqB5JyO5WNnL+tUs1Umqe0A==}
+    dependencies:
+      murmurhash3js-revisited: 3.0.0
+    dev: false
+
   /@phenomnomnominal/tsquery/4.2.0_typescript@4.9.5:
     resolution: {integrity: sha512-hR2U3uVcrrdkuG30ItQ+uFDs4ncZAybxWG0OjTE8ptPzVoU7GVeXpy+vMU8zX9EbmjGeITPw/su5HjYQyAH8bA==}
     peerDependencies:
@@ -7830,7 +7846,7 @@ packages:
     engines: {node: '>=16.0.0', npm: '>=7.0.0'}
     dependencies:
       '@ipld/dag-cbor': 9.0.0
-      '@ipld/dag-pb': 4.0.0
+      '@ipld/dag-pb': 4.0.2
       '@multiformats/murmur3': 2.1.2
       err-code: 3.0.1
       hamt-sharding: 3.0.2
@@ -9093,7 +9109,6 @@ packages:
   /murmurhash3js-revisited/3.0.0:
     resolution: {integrity: sha512-/sF3ee6zvScXMb1XFJ8gDsSnY+X8PbOyjIuBhtgis10W2Jx4ZjIhikUCIF9c4gpJxVnQIsPAFrSwTCuAjicP6g==}
     engines: {node: '>=8.0.0'}
-    dev: true
 
   /mustache/4.2.0:
     resolution: {integrity: sha512-71ippSywq5Yb7/tVYyGbkBggbU8H3u5Rz56fH60jGFgr8uHwxs+aSKeqmluIVzM0m0kB7xQjKS6qPfd0b2ZoqQ==}