Comment 10 for bug 1778069

XFCE 18.04, nautilus was working fine. Started to see this behaviour recently. Possibly due to adding nautilus-extension-gnome-terminal.

Commenting out the line:
x-scheme-handler/file=exo-file-manager.desktop

in

/usr/share/xubuntu/applications/defaults.list (provided by Xubuntu)

Worked immediately when nautilus restarted.