diff --git a/cli/src/commands/router/commands/plugin/commands/init.ts b/cli/src/commands/router/commands/plugin/commands/init.ts
index 0a7f75868c..7a64763e12 100644
--- a/cli/src/commands/router/commands/plugin/commands/init.ts
+++ b/cli/src/commands/router/commands/plugin/commands/init.ts
@@ -26,7 +26,9 @@ export default (opts: BaseCommandOptions) => {
     const cwd = process.cwd();
 
     const projectDir = resolve(cwd, options.directory, options.project);
-    const pluginDir = resolve(cwd, projectDir, name);
+
+    const pluginDir = options.project ? resolve(cwd, projectDir, 'plugins', name) : resolve(cwd, projectDir, name);
+
     const originalPluginName = name;
 
     name = upperFirst(camelCase(name));
@@ -97,6 +99,7 @@ export default (opts: BaseCommandOptions) => {
 
         // Create a project directory structure
         await mkdir(projectDir, { recursive: true });
+        await mkdir(resolve(projectDir, 'plugins'), { recursive: true });
 
         // Write router config to the project root
         await writeFile(resolve(projectDir, 'config.yaml'), ProjectTemplates.routerConfig);
diff --git a/cli/src/commands/router/commands/plugin/templates/plugin.ts b/cli/src/commands/router/commands/plugin/templates/plugin.ts
index 2d987191f6..5cd556161c 100644
--- a/cli/src/commands/router/commands/plugin/templates/plugin.ts
+++ b/cli/src/commands/router/commands/plugin/templates/plugin.ts
@@ -10,7 +10,7 @@ go 1.24.1
 
 require (
   github.com/stretchr/testify v1.10.0
-  github.com/wundergraph/cosmo/router-plugin v0.0.0-20250519204649-84818397f974 // v0.1.0
+  github.com/wundergraph/cosmo/router-plugin v0.0.0-20250824152218-8eebc34c4995 // v0.4.1
   google.golang.org/grpc v1.68.1
   google.golang.org/protobuf v1.36.5
 )
@@ -55,7 +55,7 @@ func main() {
     s.RegisterService(&service.{serviceName}_ServiceDesc, &{serviceName}{
       nextID: 1,
     })
-  })
+  }, routerplugin.WithTracing())
 
   if err != nil {
     log.Fatalf("failed to create router plugin: %v", err)