diff --git a/lib/rubygems/config_file.rb b/lib/rubygems/config_file.rb
index a2bcb6dfbc24..2bbab6b2f5e4 100644
--- a/lib/rubygems/config_file.rb
+++ b/lib/rubygems/config_file.rb
@@ -47,8 +47,8 @@ class Gem::ConfigFile
   DEFAULT_CONCURRENT_DOWNLOADS = 8
   DEFAULT_CERT_EXPIRATION_LENGTH_DAYS = 365
   DEFAULT_IPV4_FALLBACK_ENABLED = false
-  # TODO: Use false as default value for this option in RubyGems 4.0
-  DEFAULT_INSTALL_EXTENSION_IN_LIB = true
+  # Changed from true to false in RubyGems 4.0 for better gem organization
+  DEFAULT_INSTALL_EXTENSION_IN_LIB = false
 
   ##
   # For Ruby packagers to set configuration defaults.  Set in
@@ -229,6 +229,13 @@ def initialize(args)
     # TODO: We should handle concurrent_downloads same as other options
     @cert_expiration_length_days = @hash[:cert_expiration_length_days] if @hash.key? :cert_expiration_length_days
     @install_extension_in_lib    = @hash[:install_extension_in_lib]    if @hash.key? :install_extension_in_lib
+    # Issue deprecation warning if install_extension_in_lib is set to true
+    if @hash.key?(:install_extension_in_lib) && @hash[:install_extension_in_lib] == true
+      warn "Setting install_extension_in_lib to true is deprecated in RubyGems 4.0. " \
+           "Native extensions should be installed in /ext directory by default for better organization. " \
+           "If your gem requires /lib placement, consider updating your gem structure. " \
+           "This setting will be removed in a future RubyGems version."
+    end
     @ipv4_fallback_enabled       = @hash[:ipv4_fallback_enabled]       if @hash.key? :ipv4_fallback_enabled
 
     @home                        = @hash[:gemhome]                     if @hash.key? :gemhome
diff --git a/lib/rubygems/ext/cargo_builder.rb b/lib/rubygems/ext/cargo_builder.rb
index 21b50f394d55..104d603512c8 100644
--- a/lib/rubygems/ext/cargo_builder.rb
+++ b/lib/rubygems/ext/cargo_builder.rb
@@ -51,6 +51,14 @@ def build(extension, dest_path, results, args = [], lib_dir = nil, cargo_dir = D
       nesting = extension_nesting(extension)
 
       if Gem.install_extension_in_lib && lib_dir
+        # Warn about using the deprecated /lib placement
+        gem_name = detect_gem_name_from_path(cargo_dir)
+        if gem_name
+          warn "Gem '#{gem_name}' is installing native extensions in /lib directory. " \
+               "Consider moving extensions to /ext directory for better organization. " \
+               "Set install_extension_in_lib: true in your .gemrc to maintain current behavior."
+        end
+        
         nested_lib_dir = File.join(lib_dir, nesting)
         FileUtils.mkdir_p nested_lib_dir
         FileUtils.cp_r dlext_path, nested_lib_dir, remove_destination: true
@@ -347,4 +355,19 @@ def initialize(dir)
       MSG
     end
   end
+
+  def self.detect_gem_name_from_path(cargo_dir)
+    # Try to detect gem name from the cargo directory path
+    # Look for patterns like /path/to/gem_name/ext/extension_name
+    path_parts = cargo_dir.split(File::SEPARATOR)
+    
+    # Find the gem name by looking for the parent of 'ext' directory
+    ext_index = path_parts.rindex('ext')
+    return nil unless ext_index && ext_index > 0
+    
+    gem_name = path_parts[ext_index - 1]
+    return nil if gem_name.nil? || gem_name.empty?
+    
+    gem_name
+  end
 end
diff --git a/lib/rubygems/ext/ext_conf_builder.rb b/lib/rubygems/ext/ext_conf_builder.rb
index e652a221f83b..021ff7cca01b 100644
--- a/lib/rubygems/ext/ext_conf_builder.rb
+++ b/lib/rubygems/ext/ext_conf_builder.rb
@@ -49,6 +49,14 @@ def self.build(extension, dest_path, results, args=[], lib_dir=nil, extension_di
       # Do not copy extension libraries by default when cross-compiling
       # not to conflict with the one already built for the host platform.
       if Gem.install_extension_in_lib && lib_dir && !is_cross_compiling
+        # Warn about using the deprecated /lib placement
+        gem_name = detect_gem_name_from_path(extension_dir)
+        if gem_name
+          warn "Gem '#{gem_name}' is installing native extensions in /lib directory. " \
+               "Consider moving extensions to /ext directory for better organization. " \
+               "Set install_extension_in_lib: true in your .gemrc to maintain current behavior."
+        end
+        
         FileUtils.mkdir_p lib_dir
         entries = Dir.entries(full_tmp_dest) - %w[. ..]
         entries = entries.map {|entry| File.join full_tmp_dest, entry }
@@ -74,4 +82,19 @@ def self.get_relative_path(path, base)
     path[0..base.length - 1] = "." if path.start_with?(base)
     path
   end
+
+  def self.detect_gem_name_from_path(extension_dir)
+    # Try to detect gem name from the extension directory path
+    # Look for patterns like /path/to/gem_name/ext/extension_name
+    path_parts = extension_dir.split(File::SEPARATOR)
+    
+    # Find the gem name by looking for the parent of 'ext' directory
+    ext_index = path_parts.rindex('ext')
+    return nil unless ext_index && ext_index > 0
+    
+    gem_name = path_parts[ext_index - 1]
+    return nil if gem_name.nil? || gem_name.empty?
+    
+    gem_name
+  end
 end
diff --git a/test/rubygems/test_gem_config_file.rb b/test/rubygems/test_gem_config_file.rb
index 4230eda4d399..bef21cd87b59 100644
--- a/test/rubygems/test_gem_config_file.rb
+++ b/test/rubygems/test_gem_config_file.rb
@@ -529,6 +529,28 @@ def test_load_install_extension_in_lib_from_config
     assert_equal(false, @cfg.install_extension_in_lib)
   end
 
+  def test_install_extension_in_lib_deprecation_warning
+    File.open @temp_conf, "w" do |fp|
+      fp.puts ":install_extension_in_lib: true"
+    end
+    
+    # Capture the warning using stderr
+    require "stringio"
+    stderr = StringIO.new
+    $stderr = stderr
+    
+    util_config_file
+    
+    # Restore stderr
+    $stderr = STDERR
+
+    assert_equal(true, @cfg.install_extension_in_lib)
+    warning_output = stderr.string
+    assert_includes warning_output, "Setting install_extension_in_lib to true is deprecated in RubyGems 4.0"
+    assert_includes warning_output, "Native extensions should be installed in /ext directory by default"
+    assert_includes warning_output, "This setting will be removed in a future RubyGems version"
+  end
+
   def test_disable_default_gem_server
     File.open @temp_conf, "w" do |fp|
       fp.puts ":disable_default_gem_server: true"
diff --git a/test/rubygems/test_gem_ext_cargo_builder.rb b/test/rubygems/test_gem_ext_cargo_builder.rb
index b970e442c250..bbbc2b6ff495 100644
--- a/test/rubygems/test_gem_ext_cargo_builder.rb
+++ b/test/rubygems/test_gem_ext_cargo_builder.rb
@@ -226,4 +226,108 @@ def replace_in_rust_file(name, from, to)
     content = @fixture_dir.join(name).read.gsub(from, to)
     File.write(File.join(@ext, name), content)
   end
+
+  def test_build_with_lib_placement_warning
+    skip_unsupported_platforms!
+    setup_rust_gem "rust_ruby_example"
+
+    # Set up lib directory for the gem
+    gem_dir = File.join @tempdir, "rust_ruby_example"
+    lib_dir = File.join gem_dir, "lib"
+    FileUtils.mkdir_p lib_dir
+
+    # Mock the install_extension_in_lib setting to true
+    original_setting = Gem.install_extension_in_lib
+    Gem.configuration.install_extension_in_lib = true
+
+    # Capture stderr for warning
+    require "stringio"
+    stderr = StringIO.new
+    original_stderr = $stderr
+    $stderr = stderr
+
+    output = []
+
+    begin
+      Dir.chdir @ext do
+        ENV.update(@rust_envs)
+        builder = Gem::Ext::CargoBuilder.new
+        builder.build "Cargo.toml", @dest_path, output, [], lib_dir, @ext
+      end
+
+      # Restore stderr
+      $stderr = original_stderr
+
+      warning_output = stderr.string
+      assert_includes warning_output, "Gem 'rust_ruby_example' is installing native extensions in /lib directory"
+      assert_includes warning_output, "Consider moving extensions to /ext directory for better organization"
+      assert_includes warning_output, "Set install_extension_in_lib: true in your .gemrc to maintain current behavior"
+    ensure
+      # Restore original setting
+      Gem.configuration.install_extension_in_lib = original_setting
+      $stderr = original_stderr
+    end
+  end
+
+  def test_build_without_lib_placement_warning_when_false
+    skip_unsupported_platforms!
+    setup_rust_gem "rust_ruby_example"
+
+    # Set up lib directory for the gem
+    gem_dir = File.join @tempdir, "rust_ruby_example"
+    lib_dir = File.join gem_dir, "lib"
+    FileUtils.mkdir_p lib_dir
+
+    # Mock the install_extension_in_lib setting to false
+    original_setting = Gem.install_extension_in_lib
+    Gem.configuration.install_extension_in_lib = false
+
+    # Capture stderr for warning
+    require "stringio"
+    stderr = StringIO.new
+    original_stderr = $stderr
+    $stderr = stderr
+
+    output = []
+
+    begin
+      Dir.chdir @ext do
+        ENV.update(@rust_envs)
+        builder = Gem::Ext::CargoBuilder.new
+        builder.build "Cargo.toml", @dest_path, output, [], lib_dir, @ext
+      end
+
+      # Restore stderr
+      $stderr = original_stderr
+
+      warning_output = stderr.string
+      refute_includes warning_output, "Gem 'rust_ruby_example' is installing native extensions in /lib directory"
+    ensure
+      # Restore original setting
+      Gem.configuration.install_extension_in_lib = original_setting
+      $stderr = original_stderr
+    end
+  end
+
+  def test_detect_gem_name_from_path
+    # Test with standard gem structure
+    path = "/path/to/test_gem/ext/extension"
+    gem_name = Gem::Ext::CargoBuilder.detect_gem_name_from_path(path)
+    assert_equal "test_gem", gem_name
+
+    # Test with no ext directory
+    path = "/path/to/test_gem/lib"
+    gem_name = Gem::Ext::CargoBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+
+    # Test with ext at root path
+    path = "/ext/extension"
+    gem_name = Gem::Ext::CargoBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+
+    # Test with empty path
+    path = ""
+    gem_name = Gem::Ext::CargoBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+  end
 end
diff --git a/test/rubygems/test_gem_ext_ext_conf_builder.rb b/test/rubygems/test_gem_ext_ext_conf_builder.rb
index 218c6f3d5e36..84c9737787e0 100644
--- a/test/rubygems/test_gem_ext_ext_conf_builder.rb
+++ b/test/rubygems/test_gem_ext_ext_conf_builder.rb
@@ -225,4 +225,129 @@ def configure_args(args = nil)
       RbConfig::CONFIG.delete "configure_args"
     end
   end
+
+  def test_class_build_with_lib_placement_warning
+    if Gem.java_platform?
+      pend("failing on jruby")
+    end
+
+    if vc_windows? && !nmake_found?
+      pend("test_class_build_with_lib_placement_warning skipped - nmake not found")
+    end
+
+    # Set up a gem-like directory structure
+    gem_dir = File.join @tempdir, "test_gem"
+    ext_dir = File.join gem_dir, "ext", "extension"
+    lib_dir = File.join gem_dir, "lib"
+
+    FileUtils.mkdir_p ext_dir
+    FileUtils.mkdir_p lib_dir
+
+    File.open File.join(ext_dir, "extconf.rb"), "w" do |extconf|
+      extconf.puts "require 'mkmf'\ncreate_makefile 'foo'"
+    end
+
+    # Mock the install_extension_in_lib setting to true
+    original_setting = Gem.install_extension_in_lib
+    Gem.configuration.install_extension_in_lib = true
+
+    # Capture stderr for warning
+    require "stringio"
+    stderr = StringIO.new
+    original_stderr = $stderr
+    $stderr = stderr
+
+    output = []
+
+    begin
+      result = Gem::Ext::ExtConfBuilder.build "extconf.rb", @dest_path, output, [], lib_dir, ext_dir
+
+      # Restore stderr
+      $stderr = original_stderr
+
+      warning_output = stderr.string
+      assert_includes warning_output, "Gem 'test_gem' is installing native extensions in /lib directory"
+      assert_includes warning_output, "Consider moving extensions to /ext directory for better organization"
+      assert_includes warning_output, "Set install_extension_in_lib: true in your .gemrc to maintain current behavior"
+    ensure
+      # Restore original setting
+      Gem.configuration.install_extension_in_lib = original_setting
+      $stderr = original_stderr
+    end
+  end
+
+  def test_class_build_without_lib_placement_warning_when_false
+    if Gem.java_platform?
+      pend("failing on jruby")
+    end
+
+    if vc_windows? && !nmake_found?
+      pend("test_class_build_without_lib_placement_warning_when_false skipped - nmake not found")
+    end
+
+    # Set up a gem-like directory structure
+    gem_dir = File.join @tempdir, "test_gem"
+    ext_dir = File.join gem_dir, "ext", "extension"
+    lib_dir = File.join gem_dir, "lib"
+
+    FileUtils.mkdir_p ext_dir
+    FileUtils.mkdir_p lib_dir
+
+    File.open File.join(ext_dir, "extconf.rb"), "w" do |extconf|
+      extconf.puts "require 'mkmf'\ncreate_makefile 'foo'"
+    end
+
+    # Mock the install_extension_in_lib setting to false
+    original_setting = Gem.install_extension_in_lib
+    Gem.configuration.install_extension_in_lib = false
+
+    # Capture stderr for warning
+    require "stringio"
+    stderr = StringIO.new
+    original_stderr = $stderr
+    $stderr = stderr
+
+    output = []
+
+    begin
+      result = Gem::Ext::ExtConfBuilder.build "extconf.rb", @dest_path, output, [], lib_dir, ext_dir
+
+      # Restore stderr
+      $stderr = original_stderr
+
+      warning_output = stderr.string
+      refute_includes warning_output, "Gem 'test_gem' is installing native extensions in /lib directory"
+    ensure
+      # Restore original setting
+      Gem.configuration.install_extension_in_lib = original_setting
+      $stderr = original_stderr
+    end
+  end
+
+  def test_detect_gem_name_from_path
+    # Test with standard gem structure
+    path = "/path/to/test_gem/ext/extension"
+    gem_name = Gem::Ext::ExtConfBuilder.detect_gem_name_from_path(path)
+    assert_equal "test_gem", gem_name
+
+    # Test with nested structure
+    path = "/path/to/nested/test_gem/ext/extension"
+    gem_name = Gem::Ext::ExtConfBuilder.detect_gem_name_from_path(path)
+    assert_equal "test_gem", gem_name
+
+    # Test with no ext directory
+    path = "/path/to/test_gem/lib"
+    gem_name = Gem::Ext::ExtConfBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+
+    # Test with ext at root
+    path = "/ext/extension"
+    gem_name = Gem::Ext::ExtConfBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+
+    # Test with empty path
+    path = ""
+    gem_name = Gem::Ext::ExtConfBuilder.detect_gem_name_from_path(path)
+    assert_nil gem_name
+  end
 end
diff --git a/test/rubygems/test_require.rb b/test/rubygems/test_require.rb
index f63c23c3159d..e4ccf0c3d920 100644
--- a/test/rubygems/test_require.rb
+++ b/test/rubygems/test_require.rb
@@ -248,8 +248,8 @@ def test_activate_via_require_respects_loaded_files
     lib_dir = File.expand_path("../lib", __dir__)
     rubylibdir = File.realdirpath(RbConfig::CONFIG["rubylibdir"])
     if rubylibdir == lib_dir
-      # testing in the ruby repository where RubyGems' lib/ == stdlib lib/
-      # In that case we want to move the stdlib lib/ to still be after b-2 in $LOAD_PATH
+      # testing in the ruby repository where RubyGems' /lib == stdlib lib/
+      # In that case we want to move the stdlib /lib to still be after b-2 in $LOAD_PATH
       lp = $LOAD_PATH.dup
       $LOAD_PATH.delete lib_dir
       $LOAD_PATH.push lib_dir
@@ -283,7 +283,7 @@ def test_activate_via_require_respects_loaded_files
     assert_includes $LOAD_PATH, b2.full_require_paths[0]
     assert_includes $LOAD_PATH, rubylibdir
     message = proc {
-      "this test relies on the b-2 gem lib/ to be before stdlib to make sense\n" +
+      "this test relies on the b-2 gem /lib to be before stdlib to make sense\n" +
         $LOAD_PATH.pretty_inspect
     }
     assert_operator $LOAD_PATH.index(b2.full_require_paths[0]), :<, $LOAD_PATH.index(rubylibdir), message