If a folktale stays true enough to the original it goes in nonfiction. Example, "Sleeping Bunny" may be considered nonfiction because it is only slightly modified from the original. Though the characters are all illustrated as rabbits, the basic story is not altered that much.
If it is a retelling, reimagining or fractured fairy tale, it goes in fiction. Examples would be "Mufaro's Beautiful Daughters" (Cinderella retelling), "Petit Rouge" (Cajun LRR Hood) or "Cinderella Skeleton."