diff --git a/src/build-actions.js b/src/build-actions.js
index e90933d..cbfbf3d 100644
--- a/src/build-actions.js
+++ b/src/build-actions.js
@@ -242,6 +242,17 @@ const prepareToBuildAction = async (action, root, dist) => {
         return resolve(stats)
       })
     })
+
+    // Fix for IOEXT-1726: webpack emits CommonJS (libraryTarget: 'commonjs2'),
+    // but Node walks up the directory tree to find the closest package.json
+    // when deciding the module type for the bundled index.js. If the user's
+    // project sets "type": "module" (ESM), Node parses the CJS bundle as ESM
+    // and aio-cli-plugin-app-dev's require()-based loader fails with
+    // "action not found, or does not export main". Drop a sibling package.json
+    // that pins the bundle output to CommonJS regardless of the project type.
+    fs.writeJsonSync(path.join(tempBuildDir, 'package.json'), {
+      type: 'commonjs'
+    })
   }
 
   return {
diff --git a/test/build.actions.test.js b/test/build.actions.test.js
index 44898f5..7c25d18 100644
--- a/test/build.actions.test.js
+++ b/test/build.actions.test.js
@@ -278,6 +278,30 @@ describe('build by bundling js action file with webpack', () => {
       path.normalize('/dist/actions/sample-app-1.0.0/action.zip'))
   })
 
+  test('should drop a sibling package.json with type: commonjs in the webpack temp dir (IOEXT-1726)', async () => {
+    await buildActions(config)
+
+    const tempDir = path.normalize('/dist/actions/sample-app-1.0.0/action-temp')
+
+    // confirm webpack was asked to emit the bundle to the expected temp dir
+    expect(webpack).toHaveBeenCalledWith(expect.arrayContaining([
+      expect.objectContaining({
+        output: expect.objectContaining({
+          path: tempDir,
+          filename: 'index.js'
+        })
+      })
+    ]))
+
+    // the sibling package.json must scope the bundle as CommonJS so that Node
+    // does not treat it as ESM when the user's project package.json declares
+    // "type": "module".
+    const siblingPath = path.join(tempDir, 'package.json').split(path.sep).join('/')
+    const siblingRaw = global.fakeFileSystem.files()[siblingPath]
+    expect(siblingRaw).toBeDefined()
+    expect(JSON.parse(siblingRaw)).toEqual({ type: 'commonjs' })
+  })
+
   test('should bundle a single action file using webpack and zip it with includes', async () => {
     global.fakeFileSystem.reset()
     global.fakeFileSystem.addJson({