I downloaded the latest version of the main game as well as Dragonfall yesterday. After updating the main game, I tried to install Dragonfall but I get an error that says:

'Installation failed! Is Shadowrun.app inside Applications directory?'

I have confirmed that Shadowrun.app IS inside the Applications directory. Can anyone help?

I'm not sure what you mean by ~/ but I have not moved the applications folder.

I'm in Australia.

Just to make sure, both are from gog?
Because Steam game + gog expansion wont work together, or the other way around.

Also, there's (at least) two Applications directories.
One directly under the startup disk (which I expect is where the expansion installer looks at)
and another in: users/yourusername/applications.

Both should work, but sometimes don't, if the installer is badly built, or something.

~/ is shorthand for your home directory.
located /Users/<your user name>/
if you put it under applications listed there then chances are it won't find it.
if you put i under Applications which user /Applications
(root of the filesystem/Applications) That's where the DF updater looks

Ok I worked out the problem, I feel a bit silly.

When i updated to the latest version of SR, it put the game and the editor in a folder inside the applications folder. The earlier version did not do that so I had to move the two apps into the application folder so they would overwrite the old versions.

Thing is I never put them back when I tried to install Dragonfall. Once I did it worked fine.

Thanks to everyone who helped out.