diff --git a/Doc/distutils/apiref.rst b/Doc/distutils/apiref.rst
index 4c849a9..e3d41cc 100644
--- a/Doc/distutils/apiref.rst
+++ b/Doc/distutils/apiref.rst
@@ -1204,9 +1204,9 @@
 .. function:: byte_compile(py_files[, optimize=0, force=0, prefix=None, base_dir=None, verbose=1, dry_run=0, direct=None])
 
    Byte-compile a collection of Python source files to either :file:`.pyc` or
-   :file:`.pyo` files in the same directory.  *py_files* is a list of files to
-   compile; any files that don't end in :file:`.py` are silently skipped.
-   *optimize* must be one of the following:
+   :file:`.pyo` files in a :file:`__pycache__` subdirectory (see :pep:`3147`).
+   *py_files* is a list of files to compile; any files that don't end in
+   :file:`.py` are silently skipped.  *optimize* must be one of the following:
 
    * ``0`` - don't optimize (generate :file:`.pyc`)
    * ``1`` - normal optimization (like ``python -O``)
@@ -1231,6 +1231,11 @@
    is used by the script generated in indirect mode; unless you know what you're
    doing, leave it set to ``None``.
 
+   .. versionchanged:: 3.2.3
+      Create ``.pyc`` or ``.pyo`` files with an :func:`import magic tag
+      <imp.get_tag>` in their name, in a :file:`__pycache__` subdirectory
+      instead of files without tag in the current directory.
+
 
 .. function:: rfc822_escape(header)
 
diff --git a/Lib/distutils/tests/test_build_py.py b/Lib/distutils/tests/test_build_py.py
index 4e46339..80316ad 100644
--- a/Lib/distutils/tests/test_build_py.py
+++ b/Lib/distutils/tests/test_build_py.py
@@ -3,6 +3,7 @@
 import os
 import sys
 import io
+import imp
 import unittest
 
 from distutils.command.build_py import build_py
@@ -57,13 +58,15 @@
         self.assertEqual(len(cmd.get_outputs()), 3)
         pkgdest = os.path.join(destination, "pkg")
         files = os.listdir(pkgdest)
+        pycache_dir = os.path.join(pkgdest, "__pycache__")
         self.assertIn("__init__.py", files)
         self.assertIn("README.txt", files)
-        # XXX even with -O, distutils writes pyc, not pyo; bug?
         if sys.dont_write_bytecode:
-            self.assertNotIn("__init__.pyc", files)
+            self.assertFalse(os.path.exists(pycache_dir))
         else:
-            self.assertIn("__init__.pyc", files)
+            # XXX even with -O, distutils writes pyc, not pyo; bug?
+            pyc_files = os.listdir(pycache_dir)
+            self.assertIn("__init__.%s.pyc" % imp.get_tag(), pyc_files)
 
     def test_empty_package_dir(self):
         # See SF 1668596/1720897.
diff --git a/Lib/distutils/tests/test_install_lib.py b/Lib/distutils/tests/test_install_lib.py
index fddaabe..b42b03b 100644
--- a/Lib/distutils/tests/test_install_lib.py
+++ b/Lib/distutils/tests/test_install_lib.py
@@ -1,6 +1,7 @@
 """Tests for distutils.command.install_data."""
 import sys
 import os
+import imp
 import unittest
 
 from distutils.command.install_lib import install_lib
@@ -32,18 +33,20 @@
         cmd.finalize_options()
         self.assertEqual(cmd.optimize, 2)
 
-    @unittest.skipUnless(not sys.dont_write_bytecode,
-                         'byte-compile not supported')
+    @unittest.skipIf(sys.dont_write_bytecode, 'byte-compile disabled')
     def test_byte_compile(self):
         pkg_dir, dist = self.create_dist()
+        os.chdir(pkg_dir)
         cmd = install_lib(dist)
         cmd.compile = cmd.optimize = 1
 
         f = os.path.join(pkg_dir, 'foo.py')
         self.write_file(f, '# python file')
         cmd.byte_compile([f])
-        self.assertTrue(os.path.exists(os.path.join(pkg_dir, 'foo.pyc')))
-        self.assertTrue(os.path.exists(os.path.join(pkg_dir, 'foo.pyo')))
+        pyc_file = imp.cache_from_source('foo.py')
+        pyo_file = imp.cache_from_source('foo.py', debug_override=False)
+        self.assertTrue(os.path.exists(pyc_file))
+        self.assertTrue(os.path.exists(pyo_file))
 
     def test_get_outputs(self):
         pkg_dir, dist = self.create_dist()
diff --git a/Lib/distutils/util.py b/Lib/distutils/util.py
index 023ddff..631f5df 100644
--- a/Lib/distutils/util.py
+++ b/Lib/distutils/util.py
@@ -4,7 +4,11 @@
 one of the other *util.py modules.
 """
 
-import sys, os, string, re
+import os
+import re
+import imp
+import sys
+import string
 from distutils.errors import DistutilsPlatformError
 from distutils.dep_util import newer
 from distutils.spawn import spawn
@@ -529,7 +533,10 @@
             # Terminology from the py_compile module:
             #   cfile - byte-compiled file
             #   dfile - purported source filename (same as 'file' by default)
-            cfile = file + (__debug__ and "c" or "o")
+            if optimize >= 0:
+                cfile = imp.cache_from_source(file, debug_override=not optimize)
+            else:
+                cfile = imp.cache_from_source(file)
             dfile = file
             if prefix:
                 if file[:len(prefix)] != prefix:
diff --git a/Misc/ACKS b/Misc/ACKS
index 3dc3de1..0fd2192 100644
--- a/Misc/ACKS
+++ b/Misc/ACKS
@@ -722,6 +722,7 @@
 Brian Quinlan
 Anders Qvist
 Burton Radons
+Jeff Ramnani
 Brodie Rao
 Antti Rasinen
 Sridhar Ratnakumar
diff --git a/Misc/NEWS b/Misc/NEWS
index e9555b3..a55fcb3 100644
--- a/Misc/NEWS
+++ b/Misc/NEWS
@@ -43,6 +43,9 @@
 Library
 -------
 
+- Issue #11254: Teach distutils to compile .pyc and .pyo files in
+  PEP 3147-compliant __pycache__ directories.
+
 - Issue #7367: Fix pkgutil.walk_paths to skip directories whose
   contents cannot be read.