Folds with axial traces parallel to the extension direction are a common feature in continental detachment systems and metamorphic core complexes. Yet, how they form has been puzzling for many decades. Here, we show that the key to solving the conundrum lies in revising the long-held single-scale view toward natural deformation and application of kinematic models. We demonstrate that extensional folding can result naturally from the partitioned stress field in competent layers in plate-scale extension and transtension deformations. Competent layers that develop extension folds should be regarded as rheological inclusions in the lithosphere rather than infinitely extending plates clamped at system boundaries and subjected to system boundary conditions.