diff --git a/project.godot b/project.godot
index 7979e0032..b10078036 100644
--- a/project.godot
+++ b/project.godot
@@ -25,7 +25,7 @@ config/icon="res://assets/graphics/icons/icon.png"
 config/macos_native_icon="res://assets/graphics/icons/icon.icns"
 config/windows_native_icon="res://assets/graphics/icons/icon.ico"
 config/ExtensionsAPI_Version=5
-config/Pxo_Version=3
+config/Pxo_Version=4
 
 [audio]
 
diff --git a/src/Classes/Project.gd b/src/Classes/Project.gd
index fbfee1362..3016ad133 100644
--- a/src/Classes/Project.gd
+++ b/src/Classes/Project.gd
@@ -278,6 +278,9 @@ func serialize() -> Dictionary:
 
 func deserialize(dict: Dictionary, zip_reader: ZIPReader = null, file: FileAccess = null) -> void:
 	about_to_deserialize.emit(dict)
+	var pxo_version = dict.get(
+		"pxo_version", ProjectSettings.get_setting("application/config/Pxo_Version")
+	)
 	if dict.has("size_x") and dict.has("size_y"):
 		size.x = dict.size_x
 		size.y = dict.size_y
@@ -327,8 +330,7 @@ func deserialize(dict: Dictionary, zip_reader: ZIPReader = null, file: FileAcces
 							# Don't do anything with it, just read it so that the file can move on
 							file.get_buffer(size.x * size.y * 4)
 						cels.append(Cel3D.new(size, true))
-				if dict.has("pxo_version"):
-					cel["pxo_version"] = dict["pxo_version"]
+				cel["pxo_version"] = pxo_version
 				cels[cel_i].deserialize(cel)
 				_deserialize_metadata(cels[cel_i], cel)
 				cel_i += 1
@@ -348,7 +350,15 @@ func deserialize(dict: Dictionary, zip_reader: ZIPReader = null, file: FileAcces
 		# a layer, so loop again after creating them:
 		for layer_i in dict.layers.size():
 			layers[layer_i].index = layer_i
-			layers[layer_i].deserialize(dict.layers[layer_i])
+			var layer_dict: Dictionary = dict.layers[layer_i]
+			# Ensure that loaded pxo files from v1.0-v1.0.3 have the correct
+			# blend mode, after the addition of the Erase mode in v1.0.4.
+			if pxo_version < 4 and layer_dict.has("blend_mode"):
+				var blend_mode: int = layer_dict.get("blend_mode")
+				if blend_mode >= BaseLayer.BlendModes.ERASE:
+					blend_mode += 1
+				layer_dict["blend_mode"] = blend_mode
+			layers[layer_i].deserialize(layer_dict)
 			_deserialize_metadata(layers[layer_i], dict.layers[layer_i])
 	if dict.has("tags"):
 		for tag in dict.tags: