diff --git a/pyrefly/lib/lsp/non_wasm/convert_module_package.rs b/pyrefly/lib/lsp/non_wasm/convert_module_package.rs
new file mode 100644
index 0000000000..44d32329b3
--- /dev/null
+++ b/pyrefly/lib/lsp/non_wasm/convert_module_package.rs
@@ -0,0 +1,191 @@
+/*
+ * Copyright (c) Meta Platforms, Inc. and affiliates.
+ *
+ * This source code is licensed under the MIT license found in the
+ * LICENSE file in the root directory of this source tree.
+ */
+
+use std::ffi::OsStr;
+use std::fs;
+use std::path::Path;
+
+use lsp_types::ClientCapabilities;
+use lsp_types::CodeAction;
+use lsp_types::CodeActionKind;
+use lsp_types::CodeActionOrCommand;
+use lsp_types::DeleteFile;
+use lsp_types::DeleteFileOptions;
+use lsp_types::DocumentChangeOperation;
+use lsp_types::DocumentChanges;
+use lsp_types::RenameFile;
+use lsp_types::ResourceOp;
+use lsp_types::ResourceOperationKind;
+use lsp_types::Url;
+use lsp_types::WorkspaceEdit;
+
+fn supports_workspace_edit_document_changes(capabilities: &ClientCapabilities) -> bool {
+    capabilities
+        .workspace
+        .as_ref()
+        .and_then(|workspace| workspace.workspace_edit.as_ref())
+        .and_then(|workspace_edit| workspace_edit.document_changes)
+        .unwrap_or(false)
+}
+
+fn supports_workspace_edit_resource_ops(
+    capabilities: &ClientCapabilities,
+    required: &[ResourceOperationKind],
+) -> bool {
+    let supported = capabilities
+        .workspace
+        .as_ref()
+        .and_then(|workspace| workspace.workspace_edit.as_ref())
+        .and_then(|workspace_edit| workspace_edit.resource_operations.as_ref());
+    required
+        .iter()
+        .all(|kind| supported.is_some_and(|ops| ops.contains(kind)))
+}
+
+fn package_dir_is_empty(dir: &Path, init_file: &OsStr) -> bool {
+    let entries = match fs::read_dir(dir) {
+        Ok(entries) => entries,
+        Err(_) => return false,
+    };
+    for entry in entries.flatten() {
+        let name = entry.file_name();
+        if name == init_file || name == OsStr::new("__pycache__") {
+            continue;
+        }
+        return false;
+    }
+    true
+}
+
+pub(crate) fn convert_module_package_code_actions(
+    capabilities: &ClientCapabilities,
+    uri: &Url,
+) -> Vec<CodeActionOrCommand> {
+    if !supports_workspace_edit_document_changes(capabilities) {
+        return Vec::new();
+    }
+    let path = match uri.to_file_path() {
+        Ok(path) => path,
+        Err(_) => return Vec::new(),
+    };
+    let extension = match path.extension().and_then(|ext| ext.to_str()) {
+        Some(ext @ "py") | Some(ext @ "pyi") => ext,
+        _ => return Vec::new(),
+    };
+    if !path.is_file() {
+        return Vec::new();
+    }
+    let Some(file_stem) = path.file_stem().and_then(|stem| stem.to_str()) else {
+        return Vec::new();
+    };
+    let mut actions = Vec::new();
+    if file_stem == "__init__" {
+        if !supports_workspace_edit_resource_ops(
+            capabilities,
+            &[ResourceOperationKind::Rename, ResourceOperationKind::Delete],
+        ) {
+            return actions;
+        }
+        let Some(package_dir) = path.parent() else {
+            return actions;
+        };
+        let Some(package_name) = package_dir.file_name().and_then(|name| name.to_str()) else {
+            return actions;
+        };
+        let Some(parent_dir) = package_dir.parent() else {
+            return actions;
+        };
+        let new_path = parent_dir.join(format!("{package_name}.{extension}"));
+        if new_path.exists() {
+            return actions;
+        }
+        let Some(init_name) = path.file_name() else {
+            return actions;
+        };
+        if !package_dir_is_empty(package_dir, init_name) {
+            return actions;
+        }
+        let old_uri = match Url::from_file_path(&path) {
+            Ok(uri) => uri,
+            Err(_) => return actions,
+        };
+        let new_uri = match Url::from_file_path(&new_path) {
+            Ok(uri) => uri,
+            Err(_) => return actions,
+        };
+        let package_uri = match Url::from_file_path(package_dir) {
+            Ok(uri) => uri,
+            Err(_) => return actions,
+        };
+        let operations = vec![
+            DocumentChangeOperation::Op(ResourceOp::Rename(RenameFile {
+                old_uri,
+                new_uri,
+                options: None,
+                annotation_id: None,
+            })),
+            DocumentChangeOperation::Op(ResourceOp::Delete(DeleteFile {
+                uri: package_uri,
+                options: Some(DeleteFileOptions {
+                    recursive: Some(true),
+                    ignore_if_not_exists: Some(true),
+                    annotation_id: None,
+                }),
+            })),
+        ];
+        actions.push(CodeActionOrCommand::CodeAction(CodeAction {
+            title: "Convert package to module".to_owned(),
+            kind: Some(CodeActionKind::new("refactor.move")),
+            edit: Some(WorkspaceEdit {
+                document_changes: Some(DocumentChanges::Operations(operations)),
+                ..Default::default()
+            }),
+            ..Default::default()
+        }));
+    } else {
+        if !supports_workspace_edit_resource_ops(capabilities, &[ResourceOperationKind::Rename]) {
+            return actions;
+        }
+        let Some(parent_dir) = path.parent() else {
+            return actions;
+        };
+        let package_dir = parent_dir.join(file_stem);
+        if package_dir.exists() {
+            return actions;
+        }
+        let new_path = package_dir.join(format!("__init__.{extension}"));
+        if new_path.exists() {
+            return actions;
+        }
+        let old_uri = match Url::from_file_path(&path) {
+            Ok(uri) => uri,
+            Err(_) => return actions,
+        };
+        let new_uri = match Url::from_file_path(&new_path) {
+            Ok(uri) => uri,
+            Err(_) => return actions,
+        };
+        let operations = vec![DocumentChangeOperation::Op(ResourceOp::Rename(
+            RenameFile {
+                old_uri,
+                new_uri,
+                options: None,
+                annotation_id: None,
+            },
+        ))];
+        actions.push(CodeActionOrCommand::CodeAction(CodeAction {
+            title: "Convert module to package".to_owned(),
+            kind: Some(CodeActionKind::new("refactor.move")),
+            edit: Some(WorkspaceEdit {
+                document_changes: Some(DocumentChanges::Operations(operations)),
+                ..Default::default()
+            }),
+            ..Default::default()
+        }));
+    }
+    actions
+}
diff --git a/pyrefly/lib/lsp/non_wasm/mod.rs b/pyrefly/lib/lsp/non_wasm/mod.rs
index d5bd402c8a..579837013f 100644
--- a/pyrefly/lib/lsp/non_wasm/mod.rs
+++ b/pyrefly/lib/lsp/non_wasm/mod.rs
@@ -7,6 +7,7 @@
 
 mod build_system;
 pub mod call_hierarchy;
+pub mod convert_module_package;
 pub mod document_symbols;
 pub mod folding_ranges;
 pub mod lsp;
diff --git a/pyrefly/lib/lsp/non_wasm/server.rs b/pyrefly/lib/lsp/non_wasm/server.rs
index 0c6cdacd25..1582113e4d 100644
--- a/pyrefly/lib/lsp/non_wasm/server.rs
+++ b/pyrefly/lib/lsp/non_wasm/server.rs
@@ -220,6 +220,7 @@ use crate::lsp::non_wasm::call_hierarchy::find_function_at_position_in_ast;
 use crate::lsp::non_wasm::call_hierarchy::prepare_call_hierarchy_item;
 use crate::lsp::non_wasm::call_hierarchy::transform_incoming_calls;
 use crate::lsp::non_wasm::call_hierarchy::transform_outgoing_calls;
+use crate::lsp::non_wasm::convert_module_package::convert_module_package_code_actions;
 use crate::lsp::non_wasm::lsp::apply_change_events;
 use crate::lsp::non_wasm::lsp::as_notification;
 use crate::lsp::non_wasm::lsp::as_request;
@@ -2938,6 +2939,10 @@ impl Server {
         {
             push_refactor_actions(refactors);
         }
+        actions.extend(convert_module_package_code_actions(
+            &self.initialize_params.capabilities,
+            uri,
+        ));
         if actions.is_empty() {
             None
         } else {
diff --git a/pyrefly/lib/test/lsp/lsp_interaction/convert_module_package.rs b/pyrefly/lib/test/lsp/lsp_interaction/convert_module_package.rs
new file mode 100644
index 0000000000..179813579a
--- /dev/null
+++ b/pyrefly/lib/test/lsp/lsp_interaction/convert_module_package.rs
@@ -0,0 +1,163 @@
+/*
+ * Copyright (c) Meta Platforms, Inc. and affiliates.
+ *
+ * This source code is licensed under the MIT license found in the
+ * LICENSE file in the root directory of this source tree.
+ */
+
+use lsp_types::CodeActionOrCommand;
+use lsp_types::DocumentChangeOperation;
+use lsp_types::DocumentChanges;
+use lsp_types::ResourceOp;
+use lsp_types::Url;
+use lsp_types::request::CodeActionRequest;
+use serde_json::json;
+
+use crate::test::lsp::lsp_interaction::object_model::InitializeSettings;
+use crate::test::lsp::lsp_interaction::object_model::LspInteraction;
+use crate::test::lsp::lsp_interaction::util::get_test_files_root;
+
+fn init_with_workspace_edit_support(root_path: &std::path::Path) -> (LspInteraction, Url) {
+    let scope_uri = Url::from_file_path(root_path).unwrap();
+    let mut interaction = LspInteraction::new();
+    interaction.set_root(root_path.to_path_buf());
+    interaction
+        .initialize(InitializeSettings {
+            workspace_folders: Some(vec![("test".to_owned(), scope_uri.clone())]),
+            capabilities: Some(json!({
+                "workspace": {
+                    "workspaceEdit": {
+                        "documentChanges": true,
+                        "resourceOperations": ["rename", "delete"]
+                    }
+                }
+            })),
+            ..Default::default()
+        })
+        .unwrap();
+    (interaction, scope_uri)
+}
+
+#[test]
+fn test_convert_module_to_package_code_action() {
+    let root = get_test_files_root();
+    let root_path = root.path().join("convert_module_package");
+    let (interaction, _scope_uri) = init_with_workspace_edit_support(&root_path);
+
+    let file = "foo.py";
+    let file_path = root_path.join(file);
+    let uri = Url::from_file_path(&file_path).unwrap();
+
+    interaction.client.did_open(file);
+
+    let expected_old = Url::from_file_path(&file_path).unwrap();
+    let expected_new = Url::from_file_path(root_path.join("foo/__init__.py")).unwrap();
+
+    interaction
+        .client
+        .send_request::<CodeActionRequest>(json!({
+            "textDocument": { "uri": uri },
+            "range": {
+                "start": { "line": 0, "character": 0 },
+                "end": { "line": 0, "character": 0 }
+            },
+            "context": { "diagnostics": [] }
+        }))
+        .expect_response_with(|response| {
+            let Some(actions) = response else {
+                return false;
+            };
+            actions.iter().any(|action| {
+                let CodeActionOrCommand::CodeAction(code_action) = action else {
+                    return false;
+                };
+                if code_action.title != "Convert module to package" {
+                    return false;
+                }
+                let Some(edit) = &code_action.edit else {
+                    return false;
+                };
+                let Some(DocumentChanges::Operations(ops)) = &edit.document_changes else {
+                    return false;
+                };
+                if ops.len() != 1 {
+                    return false;
+                }
+                match &ops[0] {
+                    DocumentChangeOperation::Op(ResourceOp::Rename(rename)) => {
+                        rename.old_uri == expected_old && rename.new_uri == expected_new
+                    }
+                    _ => false,
+                }
+            })
+        })
+        .unwrap();
+
+    interaction.shutdown().unwrap();
+}
+
+#[test]
+fn test_convert_package_to_module_code_action() {
+    let root = get_test_files_root();
+    let root_path = root.path().join("convert_module_package");
+    let (interaction, _scope_uri) = init_with_workspace_edit_support(&root_path);
+
+    let file = "empty_pkg/__init__.py";
+    let file_path = root_path.join(file);
+    let uri = Url::from_file_path(&file_path).unwrap();
+
+    interaction.client.did_open(file);
+
+    let expected_old = Url::from_file_path(&file_path).unwrap();
+    let expected_new = Url::from_file_path(root_path.join("empty_pkg.py")).unwrap();
+    let expected_delete = Url::from_file_path(root_path.join("empty_pkg")).unwrap();
+
+    interaction
+        .client
+        .send_request::<CodeActionRequest>(json!({
+            "textDocument": { "uri": uri },
+            "range": {
+                "start": { "line": 0, "character": 0 },
+                "end": { "line": 0, "character": 0 }
+            },
+            "context": { "diagnostics": [] }
+        }))
+        .expect_response_with(|response| {
+            let Some(actions) = response else {
+                return false;
+            };
+            actions.iter().any(|action| {
+                let CodeActionOrCommand::CodeAction(code_action) = action else {
+                    return false;
+                };
+                if code_action.title != "Convert package to module" {
+                    return false;
+                }
+                let Some(edit) = &code_action.edit else {
+                    return false;
+                };
+                let Some(DocumentChanges::Operations(ops)) = &edit.document_changes else {
+                    return false;
+                };
+                if ops.len() != 2 {
+                    return false;
+                }
+                let rename_ok = match &ops[0] {
+                    DocumentChangeOperation::Op(ResourceOp::Rename(rename)) => {
+                        rename.old_uri == expected_old && rename.new_uri == expected_new
+                    }
+                    _ => false,
+                };
+                let delete_ok = match &ops[1] {
+                    DocumentChangeOperation::Op(ResourceOp::Delete(delete)) => {
+                        delete.uri == expected_delete
+                    }
+                    _ => false,
+                };
+                rename_ok && delete_ok
+            })
+        })
+        .unwrap();
+
+    interaction.shutdown().unwrap();
+}
diff --git a/pyrefly/lib/test/lsp/lsp_interaction/mod.rs b/pyrefly/lib/test/lsp/lsp_interaction/mod.rs
index 0112605f2f..8961f0834c 100644
--- a/pyrefly/lib/test/lsp/lsp_interaction/mod.rs
+++ b/pyrefly/lib/test/lsp/lsp_interaction/mod.rs
@@ -11,6 +11,7 @@ mod basic;
 mod call_hierarchy;
 mod completion;
 mod configuration;
+mod convert_module_package;
 mod definition;
 mod diagnostic;
 mod did_change;
diff --git a/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/empty_pkg/__init__.py b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/empty_pkg/__init__.py
new file mode 100644
index 0000000000..b15b1b0797
--- /dev/null
+++ b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/empty_pkg/__init__.py
@@ -0,0 +1 @@
+VALUE = 1
diff --git a/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/foo.py b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/foo.py
new file mode 100644
index 0000000000..67f8b2c108
--- /dev/null
+++ b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/foo.py
@@ -0,0 +1 @@
+value = 42
diff --git a/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/pyrefly.toml b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/pyrefly.toml
new file mode 100644
index 0000000000..54029c46ff
--- /dev/null
+++ b/pyrefly/lib/test/lsp/lsp_interaction/test_files/convert_module_package/pyrefly.toml
@@ -0,0 +1 @@
+search_path = ["."]