diff --git a/packages/sv-utils/package.json b/packages/sv-utils/package.json
index 83a31a026..4eafe637f 100644
--- a/packages/sv-utils/package.json
+++ b/packages/sv-utils/package.json
@@ -38,7 +38,6 @@
 	},
 	"keywords": [
 		"sv",
-		"sv-add",
 		"svelte",
 		"sveltekit"
 	]
diff --git a/packages/sv/src/cli/create.ts b/packages/sv/src/cli/create.ts
index c10e83500..b31804536 100644
--- a/packages/sv/src/cli/create.ts
+++ b/packages/sv/src/cli/create.ts
@@ -263,6 +263,14 @@ async function createProject(cwd: ProjectPath, options: Options) {
 	const parentDirName = path.basename(path.dirname(projectPath));
 	const projectName = parentDirName.startsWith('@') ? `${parentDirName}/${basename}` : basename;
 
+	if (template === 'addon' && !projectName.startsWith('@')) {
+		// At this stage, we don't support un-scoped add-ons
+		// FYI: a demo exists for `npx sv add my-cool-addon`
+		common.errorAndExit(
+			`Community add-ons must be published under an npm org (e.g. ${color.command('@my-org/sv')}). Unscoped package names are not supported at this stage.`
+		);
+	}
+
 	if (template === 'addon' && options.add.length > 0) {
 		common.errorAndExit(
 			`The ${color.command('--add')} flag cannot be used with the ${color.command('addon')} template.`
diff --git a/packages/sv/src/cli/tests/cli.ts b/packages/sv/src/cli/tests/cli.ts
index fe56c126f..fe8e37883 100644
--- a/packages/sv/src/cli/tests/cli.ts
+++ b/packages/sv/src/cli/tests/cli.ts
@@ -123,8 +123,9 @@ describe('cli', () => {
 				// replace sv and sv-utils versions in package.json for tests
 				const packageJsonPath = path.resolve(testOutputPath, 'package.json');
 				const { data: packageJson } = parse.json(fs.readFileSync(packageJsonPath, 'utf-8'));
-				packageJson.dependencies['sv'] = 'file:../../../..';
-				packageJson.dependencies['@sveltejs/sv-utils'] = 'file:../../../../sv-utils';
+				packageJson.peerDependencies['sv'] = 'file:../../../..';
+				packageJson.devDependencies['sv'] = 'file:../../../..';
+				packageJson.devDependencies['@sveltejs/sv-utils'] = 'file:../../../../sv-utils';
 				fs.writeFileSync(
 					packageJsonPath,
 					JSON.stringify(packageJson, null, 3).replaceAll('   ', '\t')
diff --git a/packages/sv/src/cli/tests/snapshots/@my-org/sv/CONTRIBUTING.md b/packages/sv/src/cli/tests/snapshots/@my-org/sv/CONTRIBUTING.md
index 20e629e3c..d5da26c73 100644
--- a/packages/sv/src/cli/tests/snapshots/@my-org/sv/CONTRIBUTING.md
+++ b/packages/sv/src/cli/tests/snapshots/@my-org/sv/CONTRIBUTING.md
@@ -24,15 +24,25 @@ Your `add-on` should:
 - export a function that returns a `defineAddon` object.
 - have a `package.json` with an `exports` field that points to the main entry point of the add-on.
 
-## Sharing your add-on
+## Building
 
-When you're ready to publish your add-on to npm, run:
+Your add-on is bundled with [tsdown](https://tsdown.dev/) into a single file in `dist/`. This bundles everything except `sv` (which is a peer dependency provided at runtime).
 
-```shell
+```sh
+npm run build
+```
+
+## Publishing
+
+When you're ready to publish your add-on to npm:
+
+```sh
 npm login
 npm publish
 ```
 
+> `prepublishOnly` will automatically run the build before publishing.
+
 ## Things to be aware of
 
-Community add-ons are **not permitted** to have any external dependencies outside of `sv`. If the use of a dependency is absolutely necessary, then they can be bundled using a bundler of your choosing (e.g. Rollup, Rolldown, tsup, etc.).
+Community add-ons must have `sv` as a `peerDependency` and should **not** have any `dependencies`. Everything else (including `@sveltejs/sv-utils`) is bundled at build time by tsdown.
diff --git a/packages/sv/src/cli/tests/snapshots/@my-org/sv/package.json b/packages/sv/src/cli/tests/snapshots/@my-org/sv/package.json
index b124bfdca..03ae9cd99 100644
--- a/packages/sv/src/cli/tests/snapshots/@my-org/sv/package.json
+++ b/packages/sv/src/cli/tests/snapshots/@my-org/sv/package.json
@@ -8,30 +8,37 @@
 		"demo-create": "sv create demo --types ts --template minimal --no-add-ons --no-install",
 		"demo-add": "sv add file:../ --cwd demo --no-git-check --no-install",
 		"demo-add:ci": "sv add file:../=who:you --cwd demo --no-git-check --no-download-check --no-install",
+		"build": "tsdown",
+		"prepublishOnly": "npm run build",
 		"test": "vitest run"
 	},
 	"files": [
-		"src",
-		"!src/**/*.test.*"
+		"dist"
 	],
 	"exports": {
 		".": {
 			"default": "./src/index.js"
 		}
 	},
-	"dependencies": {
-		"@sveltejs/sv-utils": "latest",
+	"publishConfig": {
+		"access": "public",
+		"exports": {
+			".": {
+				"default": "./dist/index.js"
+			}
+		}
+	},
+	"peerDependencies": {
 		"sv": "latest"
 	},
 	"devDependencies": {
 		"@playwright/test": "^1.58.2",
+		"@sveltejs/sv-utils": "latest",
+		"sv": "latest",
+		"tsdown": "^0.21.4",
 		"vitest": "^4.1.0"
 	},
 	"keywords": [
 		"sv-add"
-	],
-	"publishConfig": {
-		"directory": "dist",
-		"access": "public"
-	}
+	]
 }
diff --git a/packages/sv/src/cli/tests/snapshots/@my-org/sv/tsdown.config.js b/packages/sv/src/cli/tests/snapshots/@my-org/sv/tsdown.config.js
new file mode 100644
index 000000000..7f45e3cce
--- /dev/null
+++ b/packages/sv/src/cli/tests/snapshots/@my-org/sv/tsdown.config.js
@@ -0,0 +1,6 @@
+import { defineConfig } from 'tsdown';
+
+export default defineConfig({
+	entry: ['src/index.js'],
+	format: 'esm'
+});
diff --git a/packages/sv/src/core/fetch-packages.ts b/packages/sv/src/core/fetch-packages.ts
index 02e240c68..0952a72a8 100644
--- a/packages/sv/src/core/fetch-packages.ts
+++ b/packages/sv/src/core/fetch-packages.ts
@@ -14,22 +14,21 @@ import type { AddonDefinition, AddonReference } from './config.ts';
 const NODE_MODULES = fileURLToPath(new URL('../../node_modules', import.meta.url));
 
 function verifyPackage(addonPkg: Record<string, any>, specifier: string): string | undefined {
-	// We should look only for dependencies, not devDependencies or peerDependencies
+	const peerDeps = { ...addonPkg.peerDependencies };
 	const deps = { ...addonPkg.dependencies };
 
-	// valid addons should always have a dependency on `sv`
-	const addonSvVersion = deps['sv'];
+	// valid addons should always have `sv` as a peerDependency
+	const addonSvVersion = peerDeps['sv'];
 	if (!addonSvVersion) {
 		throw new Error(
-			`Invalid add-on package specified: '${specifier}' is missing a dependency on 'sv' in its 'package.json'`
+			`Invalid add-on package specified: '${specifier}' is missing 'sv' in its 'peerDependencies'`
 		);
 	}
 
-	// addons should never have any external dependencies outside of `sv` and `@sveltejs/sv-utils`
-	for (const dep of Object.keys(deps)) {
-		if (dep === 'sv' || dep === '@sveltejs/sv-utils') continue;
+	// addons should not have any dependencies (everything should be bundled)
+	if (Object.keys(deps).length > 0) {
 		throw new Error(
-			`Invalid add-on package detected: '${specifier}'\nCommunity addons should not have any external 'dependencies' besides 'sv'. Consider bundling your dependencies if they are necessary`
+			`Invalid add-on package detected: '${specifier}'\nCommunity add-ons should not have any 'dependencies'. Use 'peerDependencies' for 'sv' and bundle everything else`
 		);
 	}
 
diff --git a/packages/sv/src/create/shared/+addon/CONTRIBUTING.md b/packages/sv/src/create/shared/+addon/CONTRIBUTING.md
index 20e629e3c..d5da26c73 100644
--- a/packages/sv/src/create/shared/+addon/CONTRIBUTING.md
+++ b/packages/sv/src/create/shared/+addon/CONTRIBUTING.md
@@ -24,15 +24,25 @@ Your `add-on` should:
 - export a function that returns a `defineAddon` object.
 - have a `package.json` with an `exports` field that points to the main entry point of the add-on.
 
-## Sharing your add-on
+## Building
 
-When you're ready to publish your add-on to npm, run:
+Your add-on is bundled with [tsdown](https://tsdown.dev/) into a single file in `dist/`. This bundles everything except `sv` (which is a peer dependency provided at runtime).
 
-```shell
+```sh
+npm run build
+```
+
+## Publishing
+
+When you're ready to publish your add-on to npm:
+
+```sh
 npm login
 npm publish
 ```
 
+> `prepublishOnly` will automatically run the build before publishing.
+
 ## Things to be aware of
 
-Community add-ons are **not permitted** to have any external dependencies outside of `sv`. If the use of a dependency is absolutely necessary, then they can be bundled using a bundler of your choosing (e.g. Rollup, Rolldown, tsup, etc.).
+Community add-ons must have `sv` as a `peerDependency` and should **not** have any `dependencies`. Everything else (including `@sveltejs/sv-utils`) is bundled at build time by tsdown.
diff --git a/packages/sv/src/create/templates/addon/package.template.json b/packages/sv/src/create/templates/addon/package.template.json
index 5e4bcf870..cfb672e72 100644
--- a/packages/sv/src/create/templates/addon/package.template.json
+++ b/packages/sv/src/create/templates/addon/package.template.json
@@ -8,26 +8,34 @@
 		"demo-create": "sv create demo --types ts --template minimal --no-add-ons --no-install",
 		"demo-add": "sv add file:../ --cwd demo --no-git-check --no-install",
 		"demo-add:ci": "sv add file:../=who:you --cwd demo --no-git-check --no-download-check --no-install",
+		"build": "tsdown",
+		"prepublishOnly": "npm run build",
 		"test": "vitest run"
 	},
-	"files": ["src", "!src/**/*.test.*"],
+	"files": ["dist"],
 	"exports": {
 		".": {
 			"default": "./src/index.js"
 		}
 	},
-	"dependencies": {
-		"@sveltejs/sv-utils": "workspace:*",
+	"publishConfig": {
+		"access": "public",
+		"exports": {
+			".": {
+				"default": "./dist/index.js"
+			}
+		}
+	},
+	"peerDependencies": {
 		"sv": "workspace:*"
 	},
 	"devDependencies": {
+		"sv": "workspace:*",
+		"@sveltejs/sv-utils": "workspace:*",
 		"@playwright/test": "^1.58.2",
 		"@types/node": "^25.2.1",
+		"tsdown": "^0.21.4",
 		"vitest": "^4.1.0"
 	},
-	"keywords": ["sv-add"],
-	"publishConfig": {
-		"directory": "dist",
-		"access": "public"
-	}
+	"keywords": ["sv-add"]
 }
diff --git a/packages/sv/src/create/templates/addon/tsdown.config.js b/packages/sv/src/create/templates/addon/tsdown.config.js
new file mode 100644
index 000000000..7f45e3cce
--- /dev/null
+++ b/packages/sv/src/create/templates/addon/tsdown.config.js
@@ -0,0 +1,6 @@
+import { defineConfig } from 'tsdown';
+
+export default defineConfig({
+	entry: ['src/index.js'],
+	format: 'esm'
+});