diff -r 2ca61e72c995 app/models/project.rb
--- a/app/models/project.rb	Mon Jul 30 01:32:31 2012 +0000
+++ b/app/models/project.rb	Tue Jul 31 00:42:18 2012 -0400
@@ -367,6 +367,25 @@
     end
     set_parent!(p)
   end
+  
+  def nested_set_rebuild(p)
+    sibs = (p.nil? ? self.class.roots : p.children)
+    to_be_inserted_before = sibs.detect {|c| c.name.to_s.downcase > name.to_s.downcase }
+    if to_be_inserted_before
+      move_to_left_of(to_be_inserted_before)
+    elsif p.nil?
+      if sibs.empty?
+        # move_to_root adds the project in first (ie. left) position
+        move_to_root
+      else
+        move_to_right_of(sibs.last) unless self == sibs.last
+      end
+    else
+      # move_to_child_of adds the project in last (ie.right) position
+      move_to_child_of(p)
+    end
+    Issue.update_versions_from_hierarchy_change(self)
+  end
 
   # Sets the parent of the project
   # Argument can be either a Project, a String, a Fixnum or nil
@@ -384,22 +403,7 @@
       true
     elsif p.nil? || (p.active? && move_possible?(p))
       # Insert the project so that target's children or root projects stay alphabetically sorted
-      sibs = (p.nil? ? self.class.roots : p.children)
-      to_be_inserted_before = sibs.detect {|c| c.name.to_s.downcase > name.to_s.downcase }
-      if to_be_inserted_before
-        move_to_left_of(to_be_inserted_before)
-      elsif p.nil?
-        if sibs.empty?
-          # move_to_root adds the project in first (ie. left) position
-          move_to_root
-        else
-          move_to_right_of(sibs.last) unless self == sibs.last
-        end
-      else
-        # move_to_child_of adds the project in last (ie.right) position
-        move_to_child_of(p)
-      end
-      Issue.update_versions_from_hierarchy_change(self)
+      nested_set_rebuild(p)
       true
     else
       # Can not move to the given target
@@ -660,6 +664,15 @@
     p = Project.find(:first, :order => 'created_on DESC')
     p.nil? ? nil : p.identifier.to_s.succ
   end
+  
+  def save
+    changed = name_changed?
+    ret_val = super
+    if changed
+      nested_set_rebuild(parent)
+    end
+    ret_val
+  end
 
   # Copies and saves the Project instance based on the +project+.
   # Duplicates the source project's:
diff -r 2ca61e72c995 test/unit/project_test.rb
--- a/test/unit/project_test.rb	Mon Jul 30 01:32:31 2012 +0000
+++ b/test/unit/project_test.rb	Tue Jul 31 00:42:18 2012 -0400
@@ -300,8 +300,37 @@
     assert_equal 4, parent.children.size
     assert_equal parent.children.all.sort_by(&:name), parent.children.all
   end
+  
+  # See issue #11508, updating a project does not reorder sibilings alphabetically.
+  def test_rebuild_should_sort_children_alphabetically_on_update
+    ProjectCustomField.delete_all
+    
+    # Create 4 projects under a parent project.
+    parent = Project.create!(:name => 'Parent', :identifier => 'parent')
+    Project.create!(:name => 'Project C', :identifier => 'project-c').move_to_child_of(parent)
+    Project.create!(:name => 'Project B', :identifier => 'project-b').move_to_child_of(parent)
+    Project.create!(:name => 'Project D', :identifier => 'project-d').move_to_child_of(parent)
+    renamed_project = Project.create!(:name => 'Project A', :identifier => 'project-a').move_to_child_of(parent)
 
+    # Rebuild them all.
+    Project.update_all("lft = NULL, rgt = NULL")
+    Project.rebuild!
 
+    # Confirm that everything is as expected.
+    all_projects = Project.find(:all, :order => 'lft')
+    assert_equal 'Project D', all_projects.last.name
+
+    # Load and modify project-a, which causes defect #11508
+    project = Project.find_by_id(renamed_project.id)
+    project.name = 'Project E'
+    assert_equal true, project.save
+
+    # Reload all projects and verify that "Project E" is last.
+    all_projects = Project.find(:all, :order => 'lft')
+    assert_equal 'Project E', all_projects.last.name
+  end
+  
+  
   def test_set_parent_should_update_issue_fixed_version_associations_when_a_fixed_version_is_moved_out_of_the_hierarchy
     # Parent issue with a hierarchy project's fixed version
     parent_issue = Issue.find(1)