diff --git a/docs/internal-fs-layout.md b/docs/internal-fs-layout.md
index f63978f3..c0e44778 100644
--- a/docs/internal-fs-layout.md
+++ b/docs/internal-fs-layout.md
@@ -141,7 +141,7 @@ Instead, you should use standard Git workflows like [git worktree] or
     (e.g. a local mirror & a public review server) while avoiding duplicating
     the content.  However, this can run into problems if different remotes use
     the same path on their respective servers.  Best to avoid that.
-*   `subprojects/`: Like `projects/`, but for git submodules.
+*   `modules/`: Like `projects/`, but for git submodules.
 *   `subproject-objects/`: Like `project-objects/`, but for git submodules.
 *   `worktrees/`: Bare checkouts of every project synced by the manifest.  The
     filesystem layout matches the `<project name=...` setting in the manifest
diff --git a/manifest_xml.py b/manifest_xml.py
index cdab31e6..347ae5ef 100644
--- a/manifest_xml.py
+++ b/manifest_xml.py
@@ -2056,7 +2056,12 @@ https://gerrit.googlesource.com/git-repo/+/HEAD/docs/manifest-format.md
         path = path.rstrip("/")
         name = name.rstrip("/")
         relpath = self._JoinRelpath(parent.relpath, path)
-        gitdir = os.path.join(parent.gitdir, "subprojects", "%s.git" % path)
+        subprojects = os.path.join(parent.gitdir, "subprojects", f"{path}.git")
+        modules = os.path.join(parent.gitdir, "modules", path)
+        if platform_utils.isdir(subprojects):
+            gitdir = subprojects
+        else:
+            gitdir = modules
         objdir = os.path.join(
             parent.gitdir, "subproject-objects", "%s.git" % name
         )
diff --git a/project.py b/project.py
index de1ab3c6..b58bd53b 100644
--- a/project.py
+++ b/project.py
@@ -3415,6 +3415,11 @@ class Project:
         """
         dotgit = os.path.join(self.worktree, ".git")
 
+        # If bare checkout of the submodule is stored under the subproject dir,
+        # migrate it.
+        if self.parent:
+            self._MigrateOldSubmoduleDir()
+
         # If using an old layout style (a directory), migrate it.
         if not platform_utils.islink(dotgit) and platform_utils.isdir(dotgit):
             self._MigrateOldWorkTreeGitDir(dotgit, project=self.name)
@@ -3548,6 +3553,28 @@ class Project:
             dotgit,
         )
 
+    def _MigrateOldSubmoduleDir(self):
+        """Move the old bare checkout in 'subprojects' to 'modules'
+        as bare checkouts of submodules are now in 'modules' dir.
+        """
+        subprojects = os.path.join(self.parent.gitdir, "subprojects")
+        if not platform_utils.isdir(subprojects):
+            return
+
+        modules = os.path.join(self.parent.gitdir, "modules")
+        old = self.gitdir
+        new = os.path.splitext(self.gitdir.replace(subprojects, modules))[0]
+
+        if all(map(platform_utils.isdir, [old, new])):
+            platform_utils.rmtree(old, ignore_errors=True)
+        else:
+            os.makedirs(modules, exist_ok=True)
+            platform_utils.rename(old, new)
+        self.gitdir = new
+        self.UpdatePaths(self.relpath, self.worktree, self.gitdir, self.objdir)
+        if platform_utils.isdir(subprojects) and not os.listdir(subprojects):
+            platform_utils.rmtree(subprojects, ignore_errors=True)
+
     def _get_symlink_error_message(self):
         if platform_utils.isWindows():
             return (