diff --git a/packages/nuxi/src/commands/init.ts b/packages/nuxi/src/commands/init.ts
index 9df9fdc5e..0fdcbcc4a 100644
--- a/packages/nuxi/src/commands/init.ts
+++ b/packages/nuxi/src/commands/init.ts
@@ -10,8 +10,8 @@ import { colors } from 'consola/utils'
 import { downloadTemplate, startShell } from 'giget'
 import { installDependencies } from 'nypm'
 import { $fetch } from 'ofetch'
-import { join, relative, resolve } from 'pathe'
-import { readPackageJSON, writePackageJSON } from 'pkg-types'
+import { basename, join, relative, resolve } from 'pathe'
+import { findFile, readPackageJSON, writePackageJSON } from 'pkg-types'
 import { hasTTY } from 'std-env'
 
 import { x } from 'tinyexec'
@@ -234,6 +234,26 @@ export default defineCommand({
         preferOffline: Boolean(ctx.args.preferOffline),
         registry: process.env.NUXI_INIT_REGISTRY || DEFAULT_REGISTRY,
       })
+
+      if (ctx.args.dir.length > 0) {
+        const path = await findFile('package.json', {
+          startingFrom: join(templateDownloadPath, 'package.json'),
+          reverse: true,
+        })
+        if (path) {
+          const pkg = await readPackageJSON(path, { try: true })
+          if (pkg && pkg.name) {
+            const slug = basename(templateDownloadPath)
+              .replace(/[^\w-]/g, '-')
+              .replace(/-{2,}/g, '-')
+              .replace(/^-|-$/g, '')
+            if (slug) {
+              pkg.name = slug
+              await writePackageJSON(path, pkg)
+            }
+          }
+        }
+      }
     }
     catch (err) {
       if (process.env.DEBUG) {
diff --git a/packages/nuxt-cli/test/e2e/init.spec.ts b/packages/nuxt-cli/test/e2e/init.spec.ts
new file mode 100644
index 000000000..d1f7b61bc
--- /dev/null
+++ b/packages/nuxt-cli/test/e2e/init.spec.ts
@@ -0,0 +1,121 @@
+import { existsSync } from 'node:fs'
+
+import { readFile, rm } from 'node:fs/promises'
+import { tmpdir } from 'node:os'
+import { join } from 'node:path'
+import { fileURLToPath } from 'node:url'
+import { isWindows } from 'std-env'
+import { x } from 'tinyexec'
+import { describe, expect, it } from 'vitest'
+
+const fixtureDir = fileURLToPath(new URL('../../../../playground', import.meta.url))
+const nuxi = fileURLToPath(new URL('../../bin/nuxi.mjs', import.meta.url))
+
+describe('init command package name slugification', () => {
+  it('should slugify directory names with special characters', { timeout: isWindows ? 200000 : 50000 }, async () => {
+    const dir = tmpdir()
+    const specialDirName = 'my@special#project!'
+    const installPath = join(dir, specialDirName)
+
+    await rm(installPath, { recursive: true, force: true })
+    try {
+      await x(nuxi, ['init', installPath, '--packageManager=pnpm', '--gitInit=false', '--preferOffline', '--install=false'], {
+        throwOnError: true,
+        nodeOptions: { stdio: 'inherit', cwd: fixtureDir },
+      })
+
+      // Check that package.json was created
+      const packageJsonPath = join(installPath, 'package.json')
+      expect(existsSync(packageJsonPath)).toBeTruthy()
+
+      // Read package.json and verify the name was slugified
+      const packageJsonContent = await readFile(packageJsonPath, 'utf-8')
+      const packageJson = JSON.parse(packageJsonContent)
+
+      // The name should be slugified: my@special#project! -> my-special-project
+      expect(packageJson.name).toBe('my-special-project')
+    }
+    finally {
+      await rm(installPath, { recursive: true, force: true })
+    }
+  })
+
+  it('should handle consecutive special characters', { timeout: isWindows ? 200000 : 50000 }, async () => {
+    const dir = tmpdir()
+    const specialDirName = 'test___project@@@name!!!'
+    const installPath = join(dir, specialDirName)
+
+    await rm(installPath, { recursive: true, force: true })
+    try {
+      await x(nuxi, ['init', installPath, '--packageManager=pnpm', '--gitInit=false', '--preferOffline', '--install=false'], {
+        throwOnError: true,
+        nodeOptions: { stdio: 'inherit', cwd: fixtureDir },
+      })
+
+      const packageJsonPath = join(installPath, 'package.json')
+      expect(existsSync(packageJsonPath)).toBeTruthy()
+
+      const packageJsonContent = await readFile(packageJsonPath, 'utf-8')
+      const packageJson = JSON.parse(packageJsonContent)
+
+      // Note: underscores are word characters (\w) so they are preserved
+      // Only @@@!!! are replaced with hyphens, then consecutive hyphens are collapsed
+      expect(packageJson.name).toBe('test___project-name')
+    }
+    finally {
+      await rm(installPath, { recursive: true, force: true })
+    }
+  })
+
+  it('should handle leading and trailing special characters', { timeout: isWindows ? 200000 : 50000 }, async () => {
+    const dir = tmpdir()
+    const specialDirName = '---project-name---'
+    const installPath = join(dir, specialDirName)
+
+    await rm(installPath, { recursive: true, force: true })
+    try {
+      await x(nuxi, ['init', installPath, '--packageManager=pnpm', '--gitInit=false', '--preferOffline', '--install=false'], {
+        throwOnError: true,
+        nodeOptions: { stdio: 'inherit', cwd: fixtureDir },
+      })
+
+      const packageJsonPath = join(installPath, 'package.json')
+      expect(existsSync(packageJsonPath)).toBeTruthy()
+
+      const packageJsonContent = await readFile(packageJsonPath, 'utf-8')
+      const packageJson = JSON.parse(packageJsonContent)
+
+      // Should remove leading and trailing hyphens
+      expect(packageJson.name).toBe('project-name')
+    }
+    finally {
+      await rm(installPath, { recursive: true, force: true })
+    }
+  })
+
+  it('should preserve valid package names without modification', { timeout: isWindows ? 200000 : 50000 }, async () => {
+    const dir = tmpdir()
+    const validDirName = 'my-valid-project-name'
+    const installPath = join(dir, validDirName)
+
+    await rm(installPath, { recursive: true, force: true })
+    try {
+      await x(nuxi, ['init', installPath, '--packageManager=pnpm', '--gitInit=false', '--preferOffline', '--install=false'], {
+        throwOnError: true,
+        nodeOptions: { stdio: 'inherit', cwd: fixtureDir },
+      })
+
+      const packageJsonPath = join(installPath, 'package.json')
+      expect(existsSync(packageJsonPath)).toBeTruthy()
+
+      const packageJsonContent = await readFile(packageJsonPath, 'utf-8')
+      const packageJson = JSON.parse(packageJsonContent)
+
+      // Valid names should remain unchanged
+      expect(packageJson.name).toBe('my-valid-project-name')
+    }
+    finally {
+      await rm(installPath, { recursive: true, force: true })
+    }
+  })
+})