diff --git a/src/com/facebook/buck/python/PythonLibrary.java b/src/com/facebook/buck/python/PythonLibrary.java
index 8ba084c..b3d08b1 100644
--- a/src/com/facebook/buck/python/PythonLibrary.java
+++ b/src/com/facebook/buck/python/PythonLibrary.java
@@ -32,12 +32,12 @@
 import com.facebook.buck.step.Step;
 import com.facebook.buck.step.fs.CopyStep;
 import com.facebook.buck.step.fs.MakeCleanDirectoryStep;
+import com.facebook.buck.step.fs.MkdirStep;
 import com.facebook.buck.util.BuckConstant;
 import com.google.common.base.Preconditions;
 import com.google.common.collect.ImmutableList;
 import com.google.common.collect.ImmutableSortedSet;
 
-import java.io.File;
 import java.io.IOException;
 import java.nio.file.Path;
 import java.nio.file.Paths;
@@ -106,20 +106,31 @@
     ImmutableList.Builder<Step> commands = ImmutableList.builder();
 
     // Copy all of the sources to a generated directory so that the generated directory can be
-    // included as a $PYTHONPATH element. Symlinks would be more efficient, but we need to include
-    // this structure in the artifact, which is not guaranteed to be zip-friendly.
-    // TODO(mbolin): Do not flatten the directory structure when creating the symlinks, as directory
-    // structure is significant in Python when __init__.py is used.
+    // included as a $PYTHONPATH element. TODO(mbolin): Symlinks would be more efficient, but we
+    // need to include this structure in the artifact, which is not guaranteed to be zip-friendly.
     commands.add(new MakeCleanDirectoryStep(pythonPathDirectory));
-    for (String src : srcs) {
-      String srcName = new File(src).getName();
-      Path target = pythonPathDirectory.resolve(srcName);
-      commands.add(new CopyStep(Paths.get(src), target));
 
-      Path pathToArtifact = Paths.get(getPathUnderGenDirectory(), srcName);
+    ImmutableSortedSet.Builder<Path> directories = ImmutableSortedSet.naturalOrder();
+    ImmutableList.Builder<Step> copySteps = ImmutableList.builder();
+
+    for (String src : srcs) {
+      Path srcPath = Paths.get(src);
+      Path relativeSrc = Paths.get(buildTarget.getBasePath()).relativize(srcPath);
+      Path target = pythonPathDirectory.resolve(relativeSrc);
+
+      directories.add(target.getParent());
+      copySteps.add(new CopyStep(srcPath, target));
+
+      Path pathToArtifact = Paths.get(getPathUnderGenDirectory()).resolve(relativeSrc);
       buildableContext.recordArtifact(pathToArtifact);
     }
 
+    for (Path path : directories.build()) {
+      commands.add(new MkdirStep(path));
+    }
+
+    commands.addAll(copySteps.build());
+
     return commands.build();
   }
 
diff --git a/test/com/facebook/buck/python/BUCK b/test/com/facebook/buck/python/BUCK
index 9b22033..f8cc751 100644
--- a/test/com/facebook/buck/python/BUCK
+++ b/test/com/facebook/buck/python/BUCK
@@ -5,6 +5,7 @@
     '//src/com/facebook/buck/python:rules',
   ],
   deps = [
+    '//lib:easymock',
     '//lib:guava',
     '//lib:junit',
     '//src/com/facebook/buck/java:rules',
@@ -12,8 +13,12 @@
     '//src/com/facebook/buck/python:rules',
     '//src/com/facebook/buck/rules:build_rule',
     '//src/com/facebook/buck/rules:rules',
+    '//src/com/facebook/buck/step:step',
+    '//src/com/facebook/buck/util:constants',
     '//src/com/facebook/buck/util:io',
     '//test/com/facebook/buck/model:BuildTargetFactory',
     '//test/com/facebook/buck/rules:testutil',
+    '//test/com/facebook/buck/step:testutil',
+    '//test/com/facebook/buck/testutil:testutil',
   ],
 )
diff --git a/test/com/facebook/buck/python/PythonLibraryTest.java b/test/com/facebook/buck/python/PythonLibraryTest.java
index 014a58a..1bffd84 100644
--- a/test/com/facebook/buck/python/PythonLibraryTest.java
+++ b/test/com/facebook/buck/python/PythonLibraryTest.java
@@ -17,16 +17,37 @@
 package com.facebook.buck.python;
 
 import static com.facebook.buck.rules.BuildableProperties.Kind.LIBRARY;
+import static org.easymock.EasyMock.createMock;
+import static org.junit.Assert.assertEquals;
 import static org.junit.Assert.assertSame;
 import static org.junit.Assert.assertTrue;
 
 import com.facebook.buck.model.BuildTarget;
+import com.facebook.buck.model.BuildTargetFactory;
+import com.facebook.buck.rules.BuildContext;
 import com.facebook.buck.rules.BuildRuleParams;
+import com.facebook.buck.rules.BuildRuleResolver;
+import com.facebook.buck.rules.FakeAbstractBuildRuleBuilderParams;
+import com.facebook.buck.rules.FakeBuildableContext;
 import com.facebook.buck.rules.FakeBuildRuleParams;
+import com.facebook.buck.step.ExecutionContext;
+import com.facebook.buck.step.Step;
+import com.facebook.buck.step.TestExecutionContext;
+import com.facebook.buck.util.BuckConstant;
+import com.facebook.buck.util.ProjectFilesystem;
+import com.facebook.buck.testutil.MoreAsserts;
+import com.google.common.collect.ImmutableList;
+import com.google.common.collect.ImmutableSet;
 import com.google.common.collect.ImmutableSortedSet;
 
 import org.junit.Test;
 
+import java.io.IOException;
+import java.io.File;
+import java.nio.file.Path;
+import java.nio.file.Paths;
+import java.util.List;
+
 /**
  * Unit test for {@link PythonLibrary}.
  */
@@ -44,4 +65,72 @@
     assertTrue(pythonLibrary.getProperties().is(LIBRARY));
     assertSame(srcs, pythonLibrary.getPythonSrcs());
   }
+
+  @Test
+  public void testFlattening() throws IOException {
+    BuildRuleResolver ruleResolver = new BuildRuleResolver();
+
+    BuildTarget pyLibraryTarget = BuildTargetFactory.newInstance("//:py_library");
+    ruleResolver.buildAndAddToIndex(
+        PythonLibrary.newPythonLibraryBuilder(new FakeAbstractBuildRuleBuilderParams())
+            .addSrc("baz.py")
+            .addSrc("foo/__init__.py")
+            .addSrc("foo/bar.py")
+            .setBuildTarget(pyLibraryTarget));
+    FakeBuildableContext buildableContext = new FakeBuildableContext();
+    BuildContext buildContext = createMock(BuildContext.class);
+    PythonLibrary rule = (PythonLibrary)ruleResolver.get(pyLibraryTarget).getBuildable();
+    List<Step> steps = rule.getBuildSteps(buildContext, buildableContext);
+
+    final String projectRoot = "/";
+    final String pylibpath = "__pylib_py_library";
+
+    ProjectFilesystem projectFilesystem = new ProjectFilesystem(new File(projectRoot));
+    ExecutionContext executionContext = TestExecutionContext.newBuilder()
+      .setProjectFilesystem(projectFilesystem)
+      .build();
+
+    MoreAsserts.assertSteps(
+        "python_library() should ensure each file is copied and has its destination directory made",
+        ImmutableList.of(
+            String.format(
+              "mkdir -p %s%s/%s",
+              projectRoot,
+              BuckConstant.GEN_DIR,
+              pylibpath
+              ),
+            String.format(
+              "mkdir -p %s%s/%s/foo",
+              projectRoot,
+              BuckConstant.GEN_DIR,
+              pylibpath
+              ),
+            String.format(
+              "cp baz.py %s/%s/baz.py",
+              BuckConstant.GEN_DIR,
+              pylibpath
+              ),
+            String.format(
+              "cp foo/__init__.py %s/%s/foo/__init__.py",
+              BuckConstant.GEN_DIR,
+              pylibpath
+              ),
+            String.format(
+              "cp foo/bar.py %s/%s/foo/bar.py",
+              BuckConstant.GEN_DIR,
+              pylibpath
+              )
+        ),
+        steps.subList(1, 6),
+        executionContext);
+
+    ImmutableSet<Path> artifacts = buildableContext.getRecordedArtifacts();
+    assertEquals(
+      ImmutableSet.of(
+        Paths.get(pylibpath, "baz.py"),
+        Paths.get(pylibpath, "foo/__init__.py"),
+        Paths.get(pylibpath, "foo/bar.py")
+      ),
+      artifacts);
+  }
 }
diff --git a/test/com/facebook/buck/rules/FakeBuildableContext.java b/test/com/facebook/buck/rules/FakeBuildableContext.java
index e5f2b4d..1a90c48 100644
--- a/test/com/facebook/buck/rules/FakeBuildableContext.java
+++ b/test/com/facebook/buck/rules/FakeBuildableContext.java
@@ -17,6 +17,7 @@
 package com.facebook.buck.rules;
 
 import com.google.common.collect.ImmutableMap;
+import com.google.common.collect.ImmutableSet;
 import com.google.common.collect.Maps;
 import com.google.common.collect.Sets;
 
@@ -53,4 +54,8 @@
   public ImmutableMap<String, String> getRecordedMetadata() {
     return ImmutableMap.copyOf(metadata);
   }
+
+  public ImmutableSet<Path> getRecordedArtifacts() {
+    return ImmutableSet.copyOf(artifacts);
+  }
 }