diff --git a/cmd/tools/vcreate/tests/init_in_dir_with_invalid_mod_name.expect b/cmd/tools/vcreate/tests/init_in_dir_with_invalid_mod_name.expect
new file mode 100755
index 0000000000..60851901f5
--- /dev/null
+++ b/cmd/tools/vcreate/tests/init_in_dir_with_invalid_mod_name.expect
@@ -0,0 +1,16 @@
+#!/usr/bin/env expect
+
+set timeout 3
+
+# Pass v_root as arg, since we chdir into a temp directory during testing and create a project there.
+set v_root [lindex $argv 0]
+set project_dir_name [lindex $argv 1]
+set corrected_mod_name [lindex $argv 2]
+
+spawn $v_root/v init
+
+expect "The directory name `$project_dir_name` is invalid as a module name. The module name in `v.mod` was set to `$corrected_mod_name`" {} timeout { exit 1 }
+expect "Change the description of your project in `v.mod`" {} timeout { exit 1 }
+expect "Complete!" {} timeout {} timeout { exit 1 }
+
+expect eof
diff --git a/cmd/tools/vcreate/tests/new_with_model_arg.expect b/cmd/tools/vcreate/tests/new_with_model_arg.expect
index 96d1280ae4..67c06c72ab 100755
--- a/cmd/tools/vcreate/tests/new_with_model_arg.expect
+++ b/cmd/tools/vcreate/tests/new_with_model_arg.expect
@@ -13,6 +13,6 @@ expect "Input your project description: " { send "My Awesome V Project.\r" } tim
 expect "Input your project version: (0.0.0) " { send "0.0.1\r" } timeout { exit 1 }
 expect "Input your project license: (MIT) " { send "\r" } timeout { exit 1 }
 expect "Initialising ..." {} timeout { exit 1 }
-expect  "Complete!" {} timeout { exit 1 }
+expect "Complete!" {} timeout { exit 1 }
 
 expect eof
diff --git a/cmd/tools/vcreate/tests/new_with_name_arg.expect b/cmd/tools/vcreate/tests/new_with_name_arg.expect
index f033f04a46..09fa0cdec4 100755
--- a/cmd/tools/vcreate/tests/new_with_name_arg.expect
+++ b/cmd/tools/vcreate/tests/new_with_name_arg.expect
@@ -12,6 +12,6 @@ expect "Input your project description: " { send "\r" } timeout { exit 1 }
 expect "Input your project version: (0.0.0) " { send "\r" } timeout { exit 1 }
 expect "Input your project license: (MIT) " { send "\r" } timeout { exit 1 }
 expect "Initialising ..." {} timeout { exit 1 }
-expect  "Complete!" {} timeout { exit 1 }
+expect "Complete!" {} timeout { exit 1 }
 
 expect eof
diff --git a/cmd/tools/vcreate/tests/new_with_no_arg.expect b/cmd/tools/vcreate/tests/new_with_no_arg.expect
index c975229ded..61c4b0f506 100755
--- a/cmd/tools/vcreate/tests/new_with_no_arg.expect
+++ b/cmd/tools/vcreate/tests/new_with_no_arg.expect
@@ -13,6 +13,6 @@ expect "Input your project description: " { send "My Awesome V Project.\r" } tim
 expect "Input your project version: (0.0.0) " { send "0.1.0\r" } timeout { exit 1 }
 expect "Input your project license: (MIT) " { send "GPL\r" } timeout { exit 1 }
 expect "Initialising ..." {} timeout { exit 1 }
-expect  "Complete!" {} timeout { exit 1 }
+expect "Complete!" {} timeout { exit 1 }
 
 expect eof
diff --git a/cmd/tools/vcreate/vcreate.v b/cmd/tools/vcreate/vcreate.v
index f31c68ab3f..b324d78899 100644
--- a/cmd/tools/vcreate/vcreate.v
+++ b/cmd/tools/vcreate/vcreate.v
@@ -129,10 +129,15 @@ fn new_project(args []string) {
 
 fn init_project() {
 	mut c := Create{}
-	c.name = check_name(os.file_name(os.getwd()))
+	dir_name := check_name(os.file_name(os.getwd()))
 	if !os.exists('v.mod') {
 		c.description = ''
+		mod_dir_has_hyphens := dir_name.contains('-')
+		c.name = if mod_dir_has_hyphens { dir_name.replace('-', '_') } else { dir_name }
 		c.write_vmod(false)
+		if mod_dir_has_hyphens {
+			println('The directory name `${dir_name}` is invalid as a module name. The module name in `v.mod` was set to `${c.name}`')
+		}
 		println('Change the description of your project in `v.mod`')
 	}
 	if !os.exists('src/main.v') {
diff --git a/cmd/tools/vcreate/vcreate_input_test.v b/cmd/tools/vcreate/vcreate_input_test.v
index 5be6fc3f61..23fd9e3bbb 100644
--- a/cmd/tools/vcreate/vcreate_input_test.v
+++ b/cmd/tools/vcreate/vcreate_input_test.v
@@ -6,10 +6,10 @@ import v.vmod
 // avoid clashes with the postfix `_test.v`, that V uses for its own test files.
 const (
 	// Expect has to be installed for the test.
-	expect_exe = os.find_abs_path_of_executable('expect') or {
+	expect_exe        = os.quoted_path(os.find_abs_path_of_executable('expect') or {
 		eprintln('skipping test, since expect is missing')
 		exit(0)
-	}
+	})
 	// Directory where the Expect scripts will create projects.
 	test_module_path  = os.join_path(os.vtmp_dir(), 'v', 'test_vcreate_input')
 	// Directory that contains the Expect scripts used in the test.
@@ -31,8 +31,7 @@ fn prepare_test_path() ! {
 fn test_new_with_no_arg_input() {
 	prepare_test_path()!
 	project_name := 'my_project'
-	res := os.execute('${os.quoted_path(expect_exe)} ${os.join_path(expect_tests_path,
-		'new_with_no_arg.expect')} ${@VMODROOT} ${project_name}')
+	res := os.execute('${expect_exe} ${os.join_path(expect_tests_path, 'new_with_no_arg.expect')} ${@VMODROOT} ${project_name}')
 	if res.exit_code != 0 {
 		assert false, res.output
 	}
@@ -53,8 +52,7 @@ fn test_new_with_no_arg_input() {
 fn test_new_with_name_arg_input() {
 	prepare_test_path()!
 	project_name := 'my_other_project'
-	res := os.execute('${os.quoted_path(expect_exe)} ${os.join_path(expect_tests_path,
-		'new_with_name_arg.expect')} ${@VMODROOT} ${project_name}')
+	res := os.execute('${expect_exe} ${os.join_path(expect_tests_path, 'new_with_name_arg.expect')} ${@VMODROOT} ${project_name}')
 	if res.exit_code != 0 {
 		assert false, res.output
 	}
@@ -76,8 +74,7 @@ fn test_new_with_model_arg_input() {
 	prepare_test_path()!
 	project_name := 'my_lib'
 	model := 'lib'
-	res := os.execute('${os.quoted_path(expect_exe)} ${os.join_path(expect_tests_path,
-		'new_with_model_arg.expect')} ${@VMODROOT} ${project_name} ${model}')
+	res := os.execute('${expect_exe} ${os.join_path(expect_tests_path, 'new_with_model_arg.expect')} ${@VMODROOT} ${project_name} ${model}')
 	if res.exit_code != 0 {
 		assert false, res.output
 	}
@@ -95,6 +92,29 @@ fn test_new_with_model_arg_input() {
 	assert mod.license == 'MIT'
 }
 
+fn test_v_init_in_dir_with_invalid_mod_name() {
+	// A project with a directory name with hyphens, which is invalid for a module name.
+	dir_name_with_invalid_mod_name := 'my-proj'
+	corrected_mod_name := 'my_proj'
+	proj_path := os.join_path(os.vtmp_dir(), 'v', dir_name_with_invalid_mod_name)
+	os.mkdir_all(proj_path) or {}
+	os.chdir(proj_path)!
+	res := os.execute('${expect_exe} ${os.join_path(expect_tests_path, 'init_in_dir_with_invalid_mod_name.expect')} ${@VMODROOT} ${dir_name_with_invalid_mod_name} ${corrected_mod_name}')
+	if res.exit_code != 0 {
+		assert false, res.output
+	}
+	// Assert mod data set in `new_with_model_arg.expect`.
+	mod := vmod.decode(os.read_file(os.join_path(proj_path, 'v.mod')) or {
+		assert false, 'Failed reading v.mod of ${proj_path}'
+		return
+	}) or {
+		assert false, err.str()
+		return
+	}
+	assert mod.name == corrected_mod_name
+	os.rmdir_all(proj_path) or {}
+}
+
 fn testsuite_end() {
 	os.rmdir_all(test_module_path) or {}
 }
diff --git a/cmd/tools/vcreate/vcreate_test.v b/cmd/tools/vcreate/vcreate_test.v
index dc3e3557e4..132cd38ae3 100644
--- a/cmd/tools/vcreate/vcreate_test.v
+++ b/cmd/tools/vcreate/vcreate_test.v
@@ -1,4 +1,5 @@
 import os
+import v.vmod
 
 // Note: the following uses `test_vcreate` and NOT `vcreate_test` deliberately,
 // to both avoid confusions with the name of the current test itself, and to