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Everything plugwright needs sits under one directory — src/test/e2e unless you point testsDir somewhere else. It is an npm project, so package.json and node_modules are there too:
Three of those directories are disposable: node_modules, dist and generated. Delete any of them and the next plugwrightTest recreates it. plugwrightInit writes a .gitignore covering all three; if you already have one, it appends the lines it needs and leaves the rest alone. So is the .npmrc, when there is one — it is generated from the npm { } block before every install and may hold a registry token, which is why it is gitignored too. See Configuration.

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tests

plugwrightCompileTests compiles tests/**/*.ts into dist/tests, keeping subdirectories, and the runner scans the result for .spec.js. Group specs into folders however you like — tests/economy/shop.spec.ts is fine. A workspace of plain JavaScript needs no compile step. Without a tsconfig.json the runner reads tests/ directly.

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plugins

Runner plugins — hooks, fixtures, matchers, inherited tests — go in plugins/, one file each, and compile into dist/plugins. A plugin is loaded by name:
local(file(...)) still takes a path, for a plugin that lives somewhere else entirely. See Runner Plugins.

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generated

Each environment gets its own directory under generated/, named after it. The local environment puts its Paper server in generated/<environment>/run: the jar, the worlds, the logs, the plugins it downloaded. Two local environments in one matrix therefore never share a server directory. You can still choose the directory yourself, and an explicit value always wins:
The stand in the example project shows why the default is convenient: an external environment can point at the very server the local one left behind, because there is only one place it could be.

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Moving the whole thing

testsDir is the root of all of this:
Then the specs are in e2e/tests, the server in e2e/generated/local/run, and so on.

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Migrating from the old layout

Before this layout, specs sat directly in testsDir and the local server went to a run/ directory next to build.gradle.kts. The move is mostly automatic — the first plugwrightCompileTests after upgrading moves every spec it finds into tests/, subdirectories intact, and rewrites tsconfig.json so include points at the new place. It logs both. Four things are worth checking by hand afterwards:
  1. Your .gitignore. run/ no longer needs an entry. generated/ inside the workspace does — run plugwrightInit again to have the lines appended, or add them yourself.
  2. runDir. A build script that sets it keeps that exact directory. Drop the line to get generated/<environment>/run instead, and move the server there if you want to keep the downloaded jar and the worlds.
  3. Local plugins. local(file("src/test/e2e/dist/plugins/x.js")) becomes local("x") once the source is in plugins/.
  4. A tsconfig.json with comments. JSON with comments is legal in a tsconfig and unparseable as JSON, so plugwright leaves such a file untouched and says so. Point include at tests/**/*.ts and plugins/**/*.ts yourself.
If you would rather do the move by hand, git mv the specs into tests/ before upgrading. The migration only runs while there is no tests/ directory at all.