diff --git a/doc/policy/packages.md b/doc/policy/packages.md
index 7e983221c5f..a220bdd17fa 100644
--- a/doc/policy/packages.md
+++ b/doc/policy/packages.md
@@ -36,10 +36,29 @@ The following rules are enforced for all packages:
 * Packages cannot have conflicting transactions, i.e. no two transactions in a package can spend
    the same inputs. Packages cannot have duplicate transactions. (#20833)
 
-* No transaction in a package can conflict with a mempool transaction. Replace By Fee is
-  currently disabled for packages. (#20833)
+* Only limited package replacements are currently considered. (#28984)
 
-   - Package RBF may be enabled in the future.
+   - All direct conflicts must signal replacement (or have `-mempoolfullrbf=1` set).
+
+   - Packages are 1-parent-1-child, with no in-mempool ancestors of the package.
+
+   - All conflicting clusters(connected components of mempool transactions) must be clusters of up to size 2.
+
+   - No more than MAX_REPLACEMENT_CANDIDATES transactions can be replaced, analogous to
+     regular [replacement rule](./mempool-replacements.md) 5).
+
+   - Replacements must pay more total total fees at the incremental relay fee (analogous to
+     regular [replacement rules](./mempool-replacements.md) 3 and 4).
+
+   - Parent feerate must be lower than package feerate.
+
+   - Must improve [feerate diagram](https://delvingbitcoin.org/t/mempool-incentive-compatibility/553). (#29242)
+
+   - *Rationale*: Basic support for package RBF can be used by wallets
+     by making chains of no longer than two, then directly conflicting
+     those chains when needed. Combined with V3 transactions this can
+     result in more robust fee bumping. More general package RBF may be
+     enabled in the future.
 
 * When packages are evaluated against ancestor/descendant limits, the union of all transactions'
   descendants and ancestors is considered. (#21800)
diff --git a/doc/release-28984.md b/doc/release-28984.md
new file mode 100644
index 00000000000..3da64f65786
--- /dev/null
+++ b/doc/release-28984.md
@@ -0,0 +1,6 @@
+P2P and network changes
+-----------------------
+
+- Limited package RBF is now enabled, where the proposed conflicting package would result in
+  a connected component, aka cluster, of size 2 in the mempool. All clusters being conflicted
+  against must be of size 2 or lower.
diff --git a/src/policy/v3_policy.cpp b/src/policy/v3_policy.cpp
index bcf0b2b2362..6bd043b8e3d 100644
--- a/src/policy/v3_policy.cpp
+++ b/src/policy/v3_policy.cpp
@@ -91,7 +91,6 @@ std::optional<std::string> PackageV3Checks(const CTransactionRef& ptx, int64_t v
             const auto parent_info = [&] {
                 if (mempool_ancestors.size() > 0) {
                     auto& mempool_parent = *mempool_ancestors.begin();
-                    Assume(mempool_parent->GetCountWithDescendants() == 1);
                     return ParentInfo{mempool_parent->GetTx().GetHash(),
                                       mempool_parent->GetTx().GetWitnessHash(),
                                       mempool_parent->GetTx().version,
@@ -135,10 +134,7 @@ std::optional<std::string> PackageV3Checks(const CTransactionRef& ptx, int64_t v
                 }
             }
 
-            // It shouldn't be possible to have any mempool siblings at this point. SingleV3Checks
-            // catches mempool siblings and sibling eviction is not extended to packages. Also, if the package consists of connected transactions,
-            // any tx having a mempool ancestor would mean the package exceeds ancestor limits.
-            if (!Assume(!parent_info.m_has_mempool_descendant)) {
+            if (parent_info.m_has_mempool_descendant) {
                 return strprintf("tx %s (wtxid=%s) would exceed descendant count limit",
                                 parent_info.m_txid.ToString(), parent_info.m_wtxid.ToString());
             }
diff --git a/src/test/fuzz/package_eval.cpp b/src/test/fuzz/package_eval.cpp
index 122543ebade..53aedf23ea6 100644
--- a/src/test/fuzz/package_eval.cpp
+++ b/src/test/fuzz/package_eval.cpp
@@ -314,7 +314,7 @@ FUZZ_TARGET(tx_package_eval, .init = initialize_tx_pool)
             // just use result_package.m_state here. This makes the expect_valid check meaningless, but
             // we can still verify that the contents of m_tx_results are consistent with m_state.
             const bool expect_valid{result_package.m_state.IsValid()};
-            Assert(!CheckPackageMempoolAcceptResult(txs, result_package, expect_valid, nullptr));
+            Assert(!CheckPackageMempoolAcceptResult(txs, result_package, expect_valid, &tx_pool));
         } else {
             // This is empty if it fails early checks, or "full" if transactions are looked at deeper
             Assert(result_package.m_tx_results.size() == txs.size() || result_package.m_tx_results.empty());
diff --git a/src/test/txpackage_tests.cpp b/src/test/txpackage_tests.cpp
index d5f3412aeda..478121cc6f5 100644
--- a/src/test/txpackage_tests.cpp
+++ b/src/test/txpackage_tests.cpp
@@ -6,6 +6,7 @@
 #include <key_io.h>
 #include <policy/packages.h>
 #include <policy/policy.h>
+#include <policy/rbf.h>
 #include <primitives/transaction.h>
 #include <script/script.h>
 #include <serialize.h>
@@ -938,4 +939,147 @@ BOOST_FIXTURE_TEST_CASE(package_cpfp_tests, TestChain100Setup)
         BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
     }
 }
+
+BOOST_FIXTURE_TEST_CASE(package_rbf_tests, TestChain100Setup)
+{
+    mineBlocks(5);
+    LOCK(::cs_main);
+    size_t expected_pool_size = m_node.mempool->size();
+    CKey child_key{GenerateRandomKey()};
+    CScript parent_spk = GetScriptForDestination(WitnessV0KeyHash(child_key.GetPubKey()));
+    CKey grandchild_key{GenerateRandomKey()};
+    CScript child_spk = GetScriptForDestination(WitnessV0KeyHash(grandchild_key.GetPubKey()));
+
+    const CAmount coinbase_value{50 * COIN};
+    // Test that de-duplication works. This is not actually package rbf.
+    {
+        // 1 parent paying 200sat, 1 child paying 300sat
+        Package package1;
+        // 1 parent paying 200sat, 1 child paying 500sat
+        Package package2;
+        // Package1 and package2 have the same parent. The children conflict.
+        auto mtx_parent = CreateValidMempoolTransaction(/*input_transaction=*/m_coinbase_txns[0], /*input_vout=*/0,
+                                                        /*input_height=*/0, /*input_signing_key=*/coinbaseKey,
+                                                        /*output_destination=*/parent_spk,
+                                                        /*output_amount=*/coinbase_value - low_fee_amt, /*submit=*/false);
+        CTransactionRef tx_parent = MakeTransactionRef(mtx_parent);
+        package1.push_back(tx_parent);
+        package2.push_back(tx_parent);
+
+        CTransactionRef tx_child_1 = MakeTransactionRef(CreateValidMempoolTransaction(tx_parent, 0, 101, child_key, child_spk, coinbase_value - low_fee_amt - 300, false));
+        package1.push_back(tx_child_1);
+        CTransactionRef tx_child_2 = MakeTransactionRef(CreateValidMempoolTransaction(tx_parent, 0, 101, child_key, child_spk, coinbase_value - low_fee_amt - 500, false));
+        package2.push_back(tx_child_2);
+
+        LOCK(m_node.mempool->cs);
+        const auto submit1 = ProcessNewPackage(m_node.chainman->ActiveChainstate(), *m_node.mempool, package1, /*test_accept=*/false, std::nullopt);
+        if (auto err_1{CheckPackageMempoolAcceptResult(package1, submit1, /*expect_valid=*/true, m_node.mempool.get())}) {
+            BOOST_ERROR(err_1.value());
+        }
+
+        // Check precise ResultTypes and mempool size. We know it_parent_1 and it_child_1 exist from above call
+        auto it_parent_1 = submit1.m_tx_results.find(tx_parent->GetWitnessHash());
+        auto it_child_1 = submit1.m_tx_results.find(tx_child_1->GetWitnessHash());
+        BOOST_CHECK_EQUAL(it_parent_1->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(it_child_1->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        expected_pool_size += 2;
+        BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
+
+        const auto submit2 = ProcessNewPackage(m_node.chainman->ActiveChainstate(), *m_node.mempool, package2, /*test_accept=*/false, std::nullopt);
+        if (auto err_2{CheckPackageMempoolAcceptResult(package2, submit2, /*expect_valid=*/true, m_node.mempool.get())}) {
+            BOOST_ERROR(err_2.value());
+        }
+
+        // Check precise ResultTypes and mempool size. We know it_parent_2 and it_child_2 exist from above call
+        auto it_parent_2 = submit2.m_tx_results.find(tx_parent->GetWitnessHash());
+        auto it_child_2 = submit2.m_tx_results.find(tx_child_2->GetWitnessHash());
+        BOOST_CHECK_EQUAL(it_parent_2->second.m_result_type, MempoolAcceptResult::ResultType::MEMPOOL_ENTRY);
+        BOOST_CHECK_EQUAL(it_child_2->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
+
+        // child1 has been replaced
+        BOOST_CHECK(!m_node.mempool->exists(GenTxid::Txid(tx_child_1->GetHash())));
+    }
+
+    // Test package rbf.
+    {
+        CTransactionRef tx_parent_1 = MakeTransactionRef(CreateValidMempoolTransaction(
+            m_coinbase_txns[1], /*input_vout=*/0, /*input_height=*/0,
+            coinbaseKey, parent_spk, coinbase_value - 200, /*submit=*/false));
+        CTransactionRef tx_child_1 = MakeTransactionRef(CreateValidMempoolTransaction(
+            tx_parent_1, /*input_vout=*/0, /*input_height=*/101,
+            child_key, child_spk, coinbase_value - 400, /*submit=*/false));
+
+        CTransactionRef tx_parent_2 = MakeTransactionRef(CreateValidMempoolTransaction(
+            m_coinbase_txns[1], /*input_vout=*/0, /*input_height=*/0,
+            coinbaseKey, parent_spk, coinbase_value - 800, /*submit=*/false));
+        CTransactionRef tx_child_2 = MakeTransactionRef(CreateValidMempoolTransaction(
+            tx_parent_2, /*input_vout=*/0, /*input_height=*/101,
+            child_key, child_spk, coinbase_value - 800 - 200, /*submit=*/false));
+
+        CTransactionRef tx_parent_3 = MakeTransactionRef(CreateValidMempoolTransaction(
+            m_coinbase_txns[1], /*input_vout=*/0, /*input_height=*/0,
+            coinbaseKey, parent_spk, coinbase_value - 199, /*submit=*/false));
+        CTransactionRef tx_child_3 = MakeTransactionRef(CreateValidMempoolTransaction(
+            tx_parent_3, /*input_vout=*/0, /*input_height=*/101,
+            child_key, child_spk, coinbase_value - 199 - 1300, /*submit=*/false));
+
+        // In all packages, the parents conflict with each other
+        BOOST_CHECK(tx_parent_1->GetHash() != tx_parent_2->GetHash() && tx_parent_2->GetHash() != tx_parent_3->GetHash());
+
+        // 1 parent paying 200sat, 1 child paying 200sat.
+        Package package1{tx_parent_1, tx_child_1};
+        // 1 parent paying 800sat, 1 child paying 200sat.
+        Package package2{tx_parent_2, tx_child_2};
+        // 1 parent paying 199sat, 1 child paying 1300sat.
+        Package package3{tx_parent_3, tx_child_3};
+
+        const auto submit1 = ProcessNewPackage(m_node.chainman->ActiveChainstate(), *m_node.mempool, package1, false, std::nullopt);
+        if (auto err_1{CheckPackageMempoolAcceptResult(package1, submit1, /*expect_valid=*/true, m_node.mempool.get())}) {
+            BOOST_ERROR(err_1.value());
+        }
+        auto it_parent_1 = submit1.m_tx_results.find(tx_parent_1->GetWitnessHash());
+        auto it_child_1 = submit1.m_tx_results.find(tx_child_1->GetWitnessHash());
+        BOOST_CHECK_EQUAL(it_parent_1->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(it_child_1->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        expected_pool_size += 2;
+        BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
+
+        // This replacement is actually not package rbf; the parent carries enough fees
+        // to replace the entire package on its own.
+        const auto submit2 = ProcessNewPackage(m_node.chainman->ActiveChainstate(), *m_node.mempool, package2, false, std::nullopt);
+        if (auto err_2{CheckPackageMempoolAcceptResult(package2, submit2, /*expect_valid=*/true, m_node.mempool.get())}) {
+            BOOST_ERROR(err_2.value());
+        }
+        auto it_parent_2 = submit2.m_tx_results.find(tx_parent_2->GetWitnessHash());
+        auto it_child_2 = submit2.m_tx_results.find(tx_child_2->GetWitnessHash());
+        BOOST_CHECK_EQUAL(it_parent_2->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(it_child_2->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
+
+        // Package RBF, in which the replacement transaction's child sponsors the fees to meet RBF feerate rules
+        const auto submit3 = ProcessNewPackage(m_node.chainman->ActiveChainstate(), *m_node.mempool, package3, false, std::nullopt);
+        if (auto err_3{CheckPackageMempoolAcceptResult(package3, submit3, /*expect_valid=*/true, m_node.mempool.get())}) {
+            BOOST_ERROR(err_3.value());
+        }
+        auto it_parent_3 = submit3.m_tx_results.find(tx_parent_3->GetWitnessHash());
+        auto it_child_3 = submit3.m_tx_results.find(tx_child_3->GetWitnessHash());
+        BOOST_CHECK_EQUAL(it_parent_3->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+        BOOST_CHECK_EQUAL(it_child_3->second.m_result_type, MempoolAcceptResult::ResultType::VALID);
+
+        // package3 was considered as a package to replace both package2 transactions
+        BOOST_CHECK(it_parent_3->second.m_replaced_transactions.size() == 2);
+        BOOST_CHECK(it_child_3->second.m_replaced_transactions.empty());
+
+        std::vector<Wtxid> expected_package3_wtxids({tx_parent_3->GetWitnessHash(), tx_child_3->GetWitnessHash()});
+        const auto package3_total_vsize{GetVirtualTransactionSize(*tx_parent_3) + GetVirtualTransactionSize(*tx_child_3)};
+        BOOST_CHECK(it_parent_3->second.m_wtxids_fee_calculations.value() == expected_package3_wtxids);
+        BOOST_CHECK(it_child_3->second.m_wtxids_fee_calculations.value() == expected_package3_wtxids);
+        BOOST_CHECK_EQUAL(it_parent_3->second.m_effective_feerate.value().GetFee(package3_total_vsize), 199 + 1300);
+        BOOST_CHECK_EQUAL(it_child_3->second.m_effective_feerate.value().GetFee(package3_total_vsize), 199 + 1300);
+
+        BOOST_CHECK_EQUAL(m_node.mempool->size(), expected_pool_size);
+    }
+
+}
 BOOST_AUTO_TEST_SUITE_END()
diff --git a/src/test/util/txmempool.cpp b/src/test/util/txmempool.cpp
index 249ce9503c3..94d50bba504 100644
--- a/src/test/util/txmempool.cpp
+++ b/src/test/util/txmempool.cpp
@@ -7,6 +7,7 @@
 #include <chainparams.h>
 #include <node/context.h>
 #include <node/mempool_args.h>
+#include <policy/rbf.h>
 #include <policy/v3_policy.h>
 #include <txmempool.h>
 #include <util/check.h>
@@ -68,6 +69,28 @@ std::optional<std::string> CheckPackageMempoolAcceptResult(const Package& txns,
             return strprintf("tx %s unexpectedly failed: %s", wtxid.ToString(), atmp_result.m_state.ToString());
         }
 
+        // Each subpackage is allowed MAX_REPLACEMENT_CANDIDATES replacements (only checking individually here)
+        if (atmp_result.m_replaced_transactions.size() > MAX_REPLACEMENT_CANDIDATES) {
+            return strprintf("tx %s result replaced too many transactions",
+                                wtxid.ToString());
+        }
+
+        // Replacements can't happen for subpackages larger than 2
+        if (!atmp_result.m_replaced_transactions.empty() &&
+            atmp_result.m_wtxids_fee_calculations.has_value() && atmp_result.m_wtxids_fee_calculations.value().size() > 2) {
+             return strprintf("tx %s was part of a too-large package RBF subpackage",
+                                wtxid.ToString());
+        }
+
+        if (!atmp_result.m_replaced_transactions.empty() && mempool) {
+            LOCK(mempool->cs);
+            // If replacements occurred and it used 2 transactions, this is a package RBF and should result in a cluster of size 2
+            if (atmp_result.m_wtxids_fee_calculations.has_value() && atmp_result.m_wtxids_fee_calculations.value().size() == 2) {
+                const auto cluster = mempool->GatherClusters({tx->GetHash()});
+                if (cluster.size() != 2) return strprintf("tx %s has too many ancestors or descendants for a package rbf", wtxid.ToString());
+            }
+        }
+
         // m_vsize and m_base_fees should exist iff the result was VALID or MEMPOOL_ENTRY
         const bool mempool_entry{atmp_result.m_result_type == MempoolAcceptResult::ResultType::MEMPOOL_ENTRY};
         if (atmp_result.m_base_fees.has_value() != (valid || mempool_entry)) {
@@ -108,6 +131,11 @@ std::optional<std::string> CheckPackageMempoolAcceptResult(const Package& txns,
                     return strprintf("wtxid %s should not be in mempool", wtxid.ToString());
                 }
             }
+            for (const auto& tx_ref : atmp_result.m_replaced_transactions) {
+                if (mempool->exists(GenTxid::Txid(tx_ref->GetHash()))) {
+                    return strprintf("tx %s should not be in mempool as it was replaced", tx_ref->GetWitnessHash().ToString());
+                }
+            }
         }
     }
     return std::nullopt;
diff --git a/src/validation.cpp b/src/validation.cpp
index cf9bfe0e2b5..c34d60f1372 100644
--- a/src/validation.cpp
+++ b/src/validation.cpp
@@ -525,7 +525,7 @@ public:
                             /* m_bypass_limits */ false,
                             /* m_coins_to_uncache */ coins_to_uncache,
                             /* m_test_accept */ false,
-                            /* m_allow_replacement */ false,
+                            /* m_allow_replacement */ true,
                             /* m_allow_sibling_eviction */ false,
                             /* m_package_submission */ true,
                             /* m_package_feerates */ true,
@@ -603,8 +603,8 @@ public:
     /**
      * Submission of a subpackage.
      * If subpackage size == 1, calls AcceptSingleTransaction() with adjusted ATMPArgs to avoid
-     * package policy restrictions like no CPFP carve out (PackageMempoolChecks) and disabled RBF
-     * (m_allow_replacement), and creates a PackageMempoolAcceptResult wrapping the result.
+     * package policy restrictions like no CPFP carve out (PackageMempoolChecks)
+     * and creates a PackageMempoolAcceptResult wrapping the result.
      *
      * If subpackage size > 1, calls AcceptMultipleTransactions() with the provided ATMPArgs.
      *
@@ -667,12 +667,13 @@ private:
     // only tests that are fast should be done here (to avoid CPU DoS).
     bool PreChecks(ATMPArgs& args, Workspace& ws) EXCLUSIVE_LOCKS_REQUIRED(cs_main, m_pool.cs);
 
-    // Run checks for mempool replace-by-fee.
+    // Run checks for mempool replace-by-fee, only used in AcceptSingleTransaction.
     bool ReplacementChecks(Workspace& ws) EXCLUSIVE_LOCKS_REQUIRED(cs_main, m_pool.cs);
 
     // Enforce package mempool ancestor/descendant limits (distinct from individual
-    // ancestor/descendant limits done in PreChecks).
+    // ancestor/descendant limits done in PreChecks) and run Package RBF checks.
     bool PackageMempoolChecks(const std::vector<CTransactionRef>& txns,
+                              std::vector<Workspace>& workspaces,
                               int64_t total_vsize,
                               PackageValidationState& package_state) EXCLUSIVE_LOCKS_REQUIRED(cs_main, m_pool.cs);
 
@@ -950,7 +951,7 @@ bool MemPoolAccept::PreChecks(ATMPArgs& args, Workspace& ws)
     ws.m_iters_conflicting = m_pool.GetIterSet(ws.m_conflicts);
 
     // Note that these modifications are only applicable to single transaction scenarios;
-    // carve-outs and package RBF are disabled for multi-transaction evaluations.
+    // carve-outs are disabled for multi-transaction evaluations.
     CTxMemPool::Limits maybe_rbf_limits = m_pool.m_opts.limits;
 
     // Calculate in-mempool ancestors, up to a limit.
@@ -1089,10 +1090,9 @@ bool MemPoolAccept::ReplacementChecks(Workspace& ws)
     //   descendant transaction of a direct conflict to pay a higher feerate than the transaction that
     //   might replace them, under these rules.
     if (const auto err_string{PaysMoreThanConflicts(ws.m_iters_conflicting, newFeeRate, hash)}) {
-        // Even though this is a fee-related failure, this result is TX_MEMPOOL_POLICY, not
-        // TX_RECONSIDERABLE, because it cannot be bypassed using package validation.
-        // This must be changed if package RBF is enabled.
-        return state.Invalid(TxValidationResult::TX_MEMPOOL_POLICY,
+        // This fee-related failure is TX_RECONSIDERABLE because validating in a package may change
+        // the result.
+        return state.Invalid(TxValidationResult::TX_RECONSIDERABLE,
                              strprintf("insufficient fee%s", ws.m_sibling_eviction ? " (including sibling eviction)" : ""), *err_string);
     }
 
@@ -1117,16 +1117,15 @@ bool MemPoolAccept::ReplacementChecks(Workspace& ws)
     }
     if (const auto err_string{PaysForRBF(m_subpackage.m_conflicting_fees, ws.m_modified_fees, ws.m_vsize,
                                          m_pool.m_opts.incremental_relay_feerate, hash)}) {
-        // Even though this is a fee-related failure, this result is TX_MEMPOOL_POLICY, not
-        // TX_RECONSIDERABLE, because it cannot be bypassed using package validation.
-        // This must be changed if package RBF is enabled.
-        return state.Invalid(TxValidationResult::TX_MEMPOOL_POLICY,
+        // Result may change in a package context
+        return state.Invalid(TxValidationResult::TX_RECONSIDERABLE,
                              strprintf("insufficient fee%s", ws.m_sibling_eviction ? " (including sibling eviction)" : ""), *err_string);
     }
     return true;
 }
 
 bool MemPoolAccept::PackageMempoolChecks(const std::vector<CTransactionRef>& txns,
+                                         std::vector<Workspace>& workspaces,
                                          const int64_t total_vsize,
                                          PackageValidationState& package_state)
 {
@@ -1137,12 +1136,88 @@ bool MemPoolAccept::PackageMempoolChecks(const std::vector<CTransactionRef>& txn
     assert(std::all_of(txns.cbegin(), txns.cend(), [this](const auto& tx)
                        { return !m_pool.exists(GenTxid::Txid(tx->GetHash()));}));
 
+    assert(txns.size() == workspaces.size());
+
     auto result = m_pool.CheckPackageLimits(txns, total_vsize);
     if (!result) {
         // This is a package-wide error, separate from an individual transaction error.
         return package_state.Invalid(PackageValidationResult::PCKG_POLICY, "package-mempool-limits", util::ErrorString(result).original);
     }
-   return true;
+
+    // No conflicts means we're finished. Further checks are all RBF-only.
+    if (!m_subpackage.m_rbf) return true;
+
+    // We're in package RBF context; replacement proposal must be size 2
+    if (workspaces.size() != 2 || !Assume(IsChildWithParents(txns))) {
+        return package_state.Invalid(PackageValidationResult::PCKG_POLICY, "package RBF failed: package must be 1-parent-1-child");
+    }
+
+    // If the package has in-mempool ancestors, we won't consider a package RBF
+    // since it would result in a cluster larger than 2.
+    // N.B. To relax this constraint we will need to revisit how CCoinsViewMemPool::PackageAddTransaction
+    // is being used inside AcceptMultipleTransactions to track available inputs while processing a package.
+    for (const auto& ws : workspaces) {
+        if (!ws.m_ancestors.empty()) {
+            return package_state.Invalid(PackageValidationResult::PCKG_POLICY, "package RBF failed: new transaction cannot have mempool ancestors");
+        }
+    }
+
+    // Aggregate all conflicts into one set.
+    CTxMemPool::setEntries direct_conflict_iters;
+    for (Workspace& ws : workspaces) {
+        // Aggregate all conflicts into one set.
+        direct_conflict_iters.merge(ws.m_iters_conflicting);
+    }
+
+    const auto& parent_ws = workspaces[0];
+    const auto& child_ws = workspaces[1];
+
+    // Don't consider replacements that would cause us to remove a large number of mempool entries.
+    // This limit is not increased in a package RBF. Use the aggregate number of transactions.
+    if (const auto err_string{GetEntriesForConflicts(*child_ws.m_ptx, m_pool, direct_conflict_iters,
+                                                     m_subpackage.m_all_conflicts)}) {
+        return package_state.Invalid(PackageValidationResult::PCKG_POLICY,
+                                     "package RBF failed: too many potential replacements", *err_string);
+    }
+
+    for (CTxMemPool::txiter it : m_subpackage.m_all_conflicts) {
+        m_subpackage.m_conflicting_fees += it->GetModifiedFee();
+        m_subpackage.m_conflicting_size += it->GetTxSize();
+    }
+
+    // Use the child as the transaction for attributing errors to.
+    const Txid& child_hash = child_ws.m_ptx->GetHash();
+    if (const auto err_string{PaysForRBF(/*original_fees=*/m_subpackage.m_conflicting_fees,
+                                         /*replacement_fees=*/m_subpackage.m_total_modified_fees,
+                                         /*replacement_vsize=*/m_subpackage.m_total_vsize,
+                                         m_pool.m_opts.incremental_relay_feerate, child_hash)}) {
+        return package_state.Invalid(PackageValidationResult::PCKG_POLICY,
+                                     "package RBF failed: insufficient anti-DoS fees", *err_string);
+    }
+
+    // Ensure this two transaction package is a "chunk" on its own; we don't want the child
+    // to be only paying anti-DoS fees
+    const CFeeRate parent_feerate(parent_ws.m_modified_fees, parent_ws.m_vsize);
+    const CFeeRate package_feerate(m_subpackage.m_total_modified_fees, m_subpackage.m_total_vsize);
+    if (package_feerate <= parent_feerate) {
+        return package_state.Invalid(PackageValidationResult::PCKG_POLICY,
+                                     "package RBF failed: package feerate is less than parent feerate",
+                                     strprintf("package feerate %s <= parent feerate is %s", package_feerate.ToString(), parent_feerate.ToString()));
+    }
+
+    // Check if it's economically rational to mine this package rather than the ones it replaces.
+    // This takes the place of ReplacementChecks()'s PaysMoreThanConflicts() in the package RBF setting.
+    if (const auto err_tup{ImprovesFeerateDiagram(m_pool, direct_conflict_iters, m_subpackage.m_all_conflicts, m_subpackage.m_total_modified_fees, m_subpackage.m_total_vsize)}) {
+        return package_state.Invalid(PackageValidationResult::PCKG_POLICY,
+                                     "package RBF failed: " + err_tup.value().second, "");
+    }
+
+    LogPrint(BCLog::TXPACKAGES, "package RBF checks passed: parent %s (wtxid=%s), child %s (wtxid=%s)\n",
+        txns.front()->GetHash().ToString(), txns.front()->GetWitnessHash().ToString(),
+        txns.back()->GetHash().ToString(), txns.back()->GetWitnessHash().ToString());
+
+
+    return true;
 }
 
 bool MemPoolAccept::PolicyScriptChecks(const ATMPArgs& args, Workspace& ws)
@@ -1216,16 +1291,19 @@ bool MemPoolAccept::Finalize(const ATMPArgs& args, Workspace& ws)
     const bool bypass_limits = args.m_bypass_limits;
     std::unique_ptr<CTxMemPoolEntry>& entry = ws.m_entry;
 
+    if (!m_subpackage.m_all_conflicts.empty()) Assume(args.m_allow_replacement);
     // Remove conflicting transactions from the mempool
     for (CTxMemPool::txiter it : m_subpackage.m_all_conflicts)
     {
-        LogPrint(BCLog::MEMPOOL, "replacing tx %s (wtxid=%s) with %s (wtxid=%s) for %s additional fees, %d delta bytes\n",
+        LogPrint(BCLog::MEMPOOL, "replacing mempool tx %s (wtxid=%s, fees=%s, vsize=%s). New tx %s (wtxid=%s, fees=%s, vsize=%s)\n",
                 it->GetTx().GetHash().ToString(),
                 it->GetTx().GetWitnessHash().ToString(),
+                it->GetFee(),
+                it->GetTxSize(),
                 hash.ToString(),
                 tx.GetWitnessHash().ToString(),
-                FormatMoney(ws.m_modified_fees - m_subpackage.m_conflicting_fees),
-                (int)entry->GetTxSize() - (int)m_subpackage.m_conflicting_size);
+                entry->GetFee(),
+                entry->GetTxSize());
         TRACE7(mempool, replaced,
                 it->GetTx().GetHash().data(),
                 it->GetTxSize(),
@@ -1319,6 +1397,13 @@ bool MemPoolAccept::SubmitPackage(const ATMPArgs& args, std::vector<Workspace>&
     std::transform(workspaces.cbegin(), workspaces.cend(), std::back_inserter(all_package_wtxids),
                    [](const auto& ws) { return ws.m_ptx->GetWitnessHash(); });
 
+    if (!m_subpackage.m_replaced_transactions.empty()) {
+        LogPrint(BCLog::MEMPOOL, "replaced %u mempool transactions with %u new one(s) for %s additional fees, %d delta bytes\n",
+                 m_subpackage.m_replaced_transactions.size(), workspaces.size(),
+                 m_subpackage.m_total_modified_fees - m_subpackage.m_conflicting_fees,
+                 m_subpackage.m_total_vsize - static_cast<int>(m_subpackage.m_conflicting_size));
+    }
+
     // Add successful results. The returned results may change later if LimitMempoolSize() evicts them.
     for (Workspace& ws : workspaces) {
         const auto effective_feerate = args.m_package_feerates ? ws.m_package_feerate :
@@ -1362,7 +1447,13 @@ MempoolAcceptResult MemPoolAccept::AcceptSingleTransaction(const CTransactionRef
         return MempoolAcceptResult::Failure(ws.m_state);
     }
 
-    if (m_subpackage.m_rbf && !ReplacementChecks(ws)) return MempoolAcceptResult::Failure(ws.m_state);
+    if (m_subpackage.m_rbf && !ReplacementChecks(ws)) {
+        if (ws.m_state.GetResult() == TxValidationResult::TX_RECONSIDERABLE) {
+            // Failed for incentives-based fee reasons. Provide the effective feerate and which tx was included.
+            return MempoolAcceptResult::FeeFailure(ws.m_state, CFeeRate(ws.m_modified_fees, ws.m_vsize), single_wtxid);
+        }
+        return MempoolAcceptResult::Failure(ws.m_state);
+    }
 
     // Perform the inexpensive checks first and avoid hashing and signature verification unless
     // those checks pass, to mitigate CPU exhaustion denial-of-service attacks.
@@ -1394,6 +1485,13 @@ MempoolAcceptResult MemPoolAccept::AcceptSingleTransaction(const CTransactionRef
         m_pool.m_opts.signals->TransactionAddedToMempool(tx_info, m_pool.GetAndIncrementSequence());
     }
 
+    if (!m_subpackage.m_replaced_transactions.empty()) {
+        LogPrint(BCLog::MEMPOOL, "replaced %u mempool transactions with 1 new transaction for %s additional fees, %d delta bytes\n",
+                 m_subpackage.m_replaced_transactions.size(),
+                 ws.m_modified_fees - m_subpackage.m_conflicting_fees,
+                 ws.m_vsize - static_cast<int>(m_subpackage.m_conflicting_size));
+    }
+
     return MempoolAcceptResult::Success(std::move(m_subpackage.m_replaced_transactions), ws.m_vsize, ws.m_base_fees,
                                         effective_feerate, single_wtxid);
 }
@@ -1435,11 +1533,14 @@ PackageMempoolAcceptResult MemPoolAccept::AcceptMultipleTransactions(const std::
         }
 
         // Make the coins created by this transaction available for subsequent transactions in the
-        // package to spend. Since we already checked conflicts in the package and we don't allow
-        // replacements, we don't need to track the coins spent. Note that this logic will need to be
-        // updated if package replace-by-fee is allowed in the future.
-        assert(!args.m_allow_replacement);
-        assert(!m_subpackage.m_rbf);
+        // package to spend. If there are no conflicts within the package, no transaction can spend a coin
+        // needed by another transaction in the package. We also need to make sure that no package
+        // tx replaces (or replaces the ancestor of) the parent of another package tx. As long as we
+        // check these two things, we don't need to track the coins spent.
+        // If a package tx conflicts with a mempool tx, PackageMempoolChecks() ensures later that any package RBF attempt
+        // has *no* in-mempool ancestors, so we don't have to worry about subsequent transactions in
+        // same package spending the same in-mempool outpoints. This needs to be revisited for general
+        // package RBF.
         m_viewmempool.PackageAddTransaction(ws.m_ptx);
     }
 
@@ -1480,7 +1581,7 @@ PackageMempoolAcceptResult MemPoolAccept::AcceptMultipleTransactions(const std::
 
     // Apply package mempool ancestor/descendant limits. Skip if there is only one transaction,
     // because it's unnecessary.
-    if (txns.size() > 1 && !PackageMempoolChecks(txns, m_subpackage.m_total_vsize, package_state)) {
+    if (txns.size() > 1 && !PackageMempoolChecks(txns, workspaces, m_subpackage.m_total_vsize, package_state)) {
         return PackageMempoolAcceptResult(package_state, std::move(results));
     }
 
diff --git a/test/functional/mempool_package_rbf.py b/test/functional/mempool_package_rbf.py
new file mode 100755
index 00000000000..ceb95303941
--- /dev/null
+++ b/test/functional/mempool_package_rbf.py
@@ -0,0 +1,587 @@
+#!/usr/bin/env python3
+# Copyright (c) 2021 The Bitcoin Core developers
+# Distributed under the MIT software license, see the accompanying
+# file COPYING or http://www.opensource.org/licenses/mit-license.php.
+
+from decimal import Decimal
+
+from test_framework.messages import (
+    COIN,
+    MAX_BIP125_RBF_SEQUENCE,
+)
+from test_framework.test_framework import BitcoinTestFramework
+from test_framework.mempool_util import fill_mempool
+from test_framework.util import (
+    assert_greater_than_or_equal,
+    assert_equal,
+)
+from test_framework.wallet import (
+    DEFAULT_FEE,
+    MiniWallet,
+)
+
+MAX_REPLACEMENT_CANDIDATES = 100
+
+# Value high enough to cause evictions in each subtest
+# for typical cases
+DEFAULT_CHILD_FEE = DEFAULT_FEE * 4
+
+class PackageRBFTest(BitcoinTestFramework):
+    def set_test_params(self):
+        self.num_nodes = 2
+        self.setup_clean_chain = True
+        # Required for fill_mempool()
+        self.extra_args = [[
+            "-datacarriersize=100000",
+            "-maxmempool=5",
+        ]] * self.num_nodes
+
+    def assert_mempool_contents(self, expected=None):
+        """Assert that all transactions in expected are in the mempool,
+        and no additional ones exist.
+        """
+        if not expected:
+            expected = []
+        mempool = self.nodes[0].getrawmempool(verbose=False)
+        assert_equal(len(mempool), len(expected))
+        for tx in expected:
+            assert tx.rehash() in mempool
+
+    def create_simple_package(self, parent_coin, parent_fee=DEFAULT_FEE, child_fee=DEFAULT_CHILD_FEE, heavy_child=False):
+        """Create a 1 parent 1 child package using the coin passed in as the parent's input. The
+        parent has 1 output, used to fund 1 child transaction.
+        All transactions signal BIP125 replaceability, but nSequence changes based on self.ctr. This
+        prevents identical txids between packages when the parents spend the same coin and have the
+        same fee (i.e. 0sat).
+
+        returns tuple (hex serialized txns, CTransaction objects)
+        """
+        self.ctr += 1
+        # Use fee_rate=0 because create_self_transfer will use the default fee_rate value otherwise.
+        # Passing in fee>0 overrides fee_rate, so this still works for non-zero parent_fee.
+        parent_result = self.wallet.create_self_transfer(
+            fee=parent_fee,
+            utxo_to_spend=parent_coin,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        num_child_outputs = 10 if heavy_child else 1
+        child_result = self.wallet.create_self_transfer_multi(
+            utxos_to_spend=[parent_result["new_utxo"]],
+            num_outputs=num_child_outputs,
+            fee_per_output=int(child_fee * COIN // num_child_outputs),
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+        package_hex = [parent_result["hex"], child_result["hex"]]
+        package_txns = [parent_result["tx"], child_result["tx"]]
+        return package_hex, package_txns
+
+    def run_test(self):
+        # Counter used to count the number of times we constructed packages. Since we're constructing parent transactions with the same
+        # coins (to create conflicts), and perhaps giving them the same fee, we might accidentally just create the same transaction again.
+        # To prevent this, set nSequences to MAX_BIP125_RBF_SEQUENCE - self.ctr.
+        self.ctr = 0
+
+        self.log.info("Generate blocks to create UTXOs")
+        self.wallet = MiniWallet(self.nodes[0])
+
+        # Make more than enough coins for the sum of all tests,
+        # otherwise a wallet rescan is needed later
+        self.generate(self.wallet, 300)
+        self.coins = self.wallet.get_utxos(mark_as_spent=False)
+
+        self.test_package_rbf_basic()
+        self.test_package_rbf_singleton()
+        self.test_package_rbf_additional_fees()
+        self.test_package_rbf_max_conflicts()
+        self.test_too_numerous_ancestors()
+        self.test_package_rbf_with_wrong_pkg_size()
+        self.test_insufficient_feerate()
+        self.test_wrong_conflict_cluster_size_linear()
+        self.test_wrong_conflict_cluster_size_parents_child()
+        self.test_wrong_conflict_cluster_size_parent_children()
+        self.test_0fee_package_rbf()
+        self.test_child_conflicts_parent_mempool_ancestor()
+
+    def test_package_rbf_basic(self):
+        self.log.info("Test that a child can pay to replace its parents' conflicts of cluster size 2")
+        node = self.nodes[0]
+        # Reuse the same coins so that the transactions conflict with one another.
+        parent_coin = self.coins.pop()
+        package_hex1, package_txns1 = self.create_simple_package(parent_coin, DEFAULT_FEE, DEFAULT_FEE)
+        package_hex2, package_txns2 = self.create_simple_package(parent_coin, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        node.submitpackage(package_hex1)
+        self.assert_mempool_contents(expected=package_txns1)
+
+        # Make sure 2nd node gets set up for basic package RBF
+        self.sync_all()
+
+        # Test run rejected because conflicts are not allowed in subpackage evaluation
+        testres = node.testmempoolaccept(package_hex2)
+        assert_equal(testres[0]["reject-reason"], "bip125-replacement-disallowed")
+
+        # But accepted during normal submission
+        submitres = node.submitpackage(package_hex2)
+        assert_equal(set(submitres["replaced-transactions"]), set([tx.rehash() for tx in package_txns1]))
+        self.assert_mempool_contents(expected=package_txns2)
+
+        # Make sure 2nd node gets a basic package RBF over p2p
+        self.sync_all()
+
+        self.generate(node, 1)
+
+    def test_package_rbf_singleton(self):
+        self.log.info("Test child can pay to replace a parent's single conflicted tx")
+        node = self.nodes[0]
+
+        # Make singleton tx to conflict with in next batch
+        singleton_coin = self.coins.pop()
+        singleton_tx = self.wallet.create_self_transfer(utxo_to_spend=singleton_coin)
+        node.sendrawtransaction(singleton_tx["hex"])
+        self.assert_mempool_contents(expected=[singleton_tx["tx"]])
+
+        package_hex, package_txns = self.create_simple_package(singleton_coin, DEFAULT_FEE, singleton_tx["fee"] * 2)
+
+        submitres = node.submitpackage(package_hex)
+        assert_equal(submitres["replaced-transactions"], [singleton_tx["tx"].rehash()])
+        self.assert_mempool_contents(expected=package_txns)
+
+        self.generate(node, 1)
+
+    def test_package_rbf_additional_fees(self):
+        self.log.info("Check Package RBF must increase the absolute fee")
+        node = self.nodes[0]
+        coin = self.coins.pop()
+
+        package_hex1, package_txns1 = self.create_simple_package(coin, parent_fee=DEFAULT_FEE, child_fee=DEFAULT_CHILD_FEE, heavy_child=True)
+        assert_greater_than_or_equal(1000, package_txns1[-1].get_vsize())
+        node.submitpackage(package_hex1)
+        self.assert_mempool_contents(expected=package_txns1)
+
+        PACKAGE_FEE = DEFAULT_FEE + DEFAULT_CHILD_FEE
+        PACKAGE_FEE_MINUS_ONE = PACKAGE_FEE - Decimal("0.00000001")
+
+        # Package 2 has a higher feerate but lower absolute fee
+        package_hex2, package_txns2 = self.create_simple_package(coin, parent_fee=DEFAULT_FEE, child_fee=DEFAULT_CHILD_FEE - Decimal("0.00000001"))
+        pkg_results2 = node.submitpackage(package_hex2)
+        assert_equal(f"package RBF failed: insufficient anti-DoS fees, rejecting replacement {package_txns2[1].rehash()}, less fees than conflicting txs; {PACKAGE_FEE_MINUS_ONE} < {PACKAGE_FEE}", pkg_results2["package_msg"])
+        self.assert_mempool_contents(expected=package_txns1)
+
+        self.log.info("Check replacement pays for incremental bandwidth")
+        package_hex3, package_txns3 = self.create_simple_package(coin, parent_fee=DEFAULT_FEE, child_fee=DEFAULT_CHILD_FEE)
+        pkg_results3 = node.submitpackage(package_hex3)
+        assert_equal(f"package RBF failed: insufficient anti-DoS fees, rejecting replacement {package_txns3[1].rehash()}, not enough additional fees to relay; 0.00 < 0.00000{sum([tx.get_vsize() for tx in package_txns3])}", pkg_results3["package_msg"])
+
+        self.assert_mempool_contents(expected=package_txns1)
+        self.generate(node, 1)
+
+        self.log.info("Check Package RBF must have strict cpfp structure")
+        coin = self.coins.pop()
+        package_hex4, package_txns4 = self.create_simple_package(coin, parent_fee=DEFAULT_FEE, child_fee=DEFAULT_CHILD_FEE)
+        node.submitpackage(package_hex4)
+        self.assert_mempool_contents(expected=package_txns4)
+        package_hex5, package_txns5 = self.create_simple_package(coin, parent_fee=DEFAULT_CHILD_FEE, child_fee=DEFAULT_CHILD_FEE - Decimal("0.00000001"))
+        pkg_results5 = node.submitpackage(package_hex5)
+        assert 'package RBF failed: package feerate is less than parent feerate' in pkg_results5["package_msg"]
+
+        self.assert_mempool_contents(expected=package_txns4)
+        self.generate(node, 1)
+
+    def test_package_rbf_max_conflicts(self):
+        node = self.nodes[0]
+        self.log.info("Check Package RBF cannot replace more than MAX_REPLACEMENT_CANDIDATES transactions")
+        num_coins = 51
+        parent_coins = self.coins[:num_coins]
+        del self.coins[:num_coins]
+
+        # Original transactions: 51 transactions with 1 descendants each -> 102 total transactions
+        size_two_clusters = []
+        for coin in parent_coins:
+            size_two_clusters.append(self.wallet.send_self_transfer_chain(from_node=node, chain_length=2, utxo_to_spend=coin))
+        expected_txns = [txn["tx"] for parent_child_txns in size_two_clusters for txn in parent_child_txns]
+        assert_equal(len(expected_txns), num_coins * 2)
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # parent feeerate needs to be high enough for minrelay
+        # child feerate needs to be large enough to trigger package rbf with a very large parent and
+        # pay for all evicted fees. maxfeerate turned off for all submissions since child feerate
+        # is extremely high
+        parent_fee_per_conflict = 10000
+        child_feerate = 10000 * DEFAULT_FEE
+
+        # Conflict against all transactions by double-spending each parent, causing 102 evictions
+        package_parent = self.wallet.create_self_transfer_multi(utxos_to_spend=parent_coins, fee_per_output=parent_fee_per_conflict)
+        package_child = self.wallet.create_self_transfer(fee_rate=child_feerate, utxo_to_spend=package_parent["new_utxos"][0])
+
+        pkg_results = node.submitpackage([package_parent["hex"], package_child["hex"]], maxfeerate=0)
+        assert_equal(f"package RBF failed: too many potential replacements, rejecting replacement {package_child['tx'].rehash()}; too many potential replacements (102 > 100)\n", pkg_results["package_msg"])
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # Make singleton tx to conflict with in next batch
+        singleton_coin = self.coins.pop()
+        singleton_tx = self.wallet.create_self_transfer(utxo_to_spend=singleton_coin)
+        node.sendrawtransaction(singleton_tx["hex"])
+        expected_txns.append(singleton_tx["tx"])
+
+        # Double-spend same set minus last, and double-spend singleton. This hits 101 evictions; should still fail.
+        # N.B. we can't RBF just a child tx in the clusters, as that would make resulting cluster of size 3.
+        double_spending_coins = parent_coins[:-1] + [singleton_coin]
+        package_parent = self.wallet.create_self_transfer_multi(utxos_to_spend=double_spending_coins, fee_per_output=parent_fee_per_conflict)
+        package_child = self.wallet.create_self_transfer(fee_rate=child_feerate, utxo_to_spend=package_parent["new_utxos"][0])
+        pkg_results = node.submitpackage([package_parent["hex"], package_child["hex"]], maxfeerate=0)
+        assert_equal(f"package RBF failed: too many potential replacements, rejecting replacement {package_child['tx'].rehash()}; too many potential replacements (101 > 100)\n", pkg_results["package_msg"])
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # Finally, evict MAX_REPLACEMENT_CANDIDATES
+        package_parent = self.wallet.create_self_transfer_multi(utxos_to_spend=parent_coins[:-1], fee_per_output=parent_fee_per_conflict)
+        package_child = self.wallet.create_self_transfer(fee_rate=child_feerate, utxo_to_spend=package_parent["new_utxos"][0])
+        pkg_results = node.submitpackage([package_parent["hex"], package_child["hex"]], maxfeerate=0)
+        assert_equal(pkg_results["package_msg"], "success")
+        self.assert_mempool_contents(expected=[singleton_tx["tx"], size_two_clusters[-1][0]["tx"], size_two_clusters[-1][1]["tx"], package_parent["tx"], package_child["tx"]] )
+
+        self.generate(node, 1)
+
+    def test_too_numerous_ancestors(self):
+        self.log.info("Test that package RBF doesn't work with packages larger than 2 due to ancestors")
+        node = self.nodes[0]
+        coin = self.coins.pop()
+
+        package_hex1, package_txns1 = self.create_simple_package(coin, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        node.submitpackage(package_hex1)
+        self.assert_mempool_contents(expected=package_txns1)
+
+        # Double-spends the original package
+        self.ctr += 1
+        parent_result1 = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        coin2 = self.coins.pop()
+
+        # Added to make package too large for package RBF;
+        # it will enter mempool individually
+        self.ctr += 1
+        parent_result2 = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin2,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        # Child that spends both, violating cluster size rule due
+        # to in-mempool ancestry
+        self.ctr += 1
+        child_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_CHILD_FEE * COIN),
+            utxos_to_spend=[parent_result1["new_utxo"], parent_result2["new_utxo"]],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        package_hex2 = [parent_result1["hex"], parent_result2["hex"], child_result["hex"]]
+        package_txns2_succeed = [parent_result2["tx"]]
+
+        pkg_result = node.submitpackage(package_hex2)
+        assert_equal(pkg_result["package_msg"], 'package RBF failed: new transaction cannot have mempool ancestors')
+        self.assert_mempool_contents(expected=package_txns1 + package_txns2_succeed)
+        self.generate(node, 1)
+
+    def test_wrong_conflict_cluster_size_linear(self):
+        self.log.info("Test that conflicting with a cluster not sized two is rejected: linear chain")
+        node = self.nodes[0]
+
+        # Coins we will conflict with
+        coin1 = self.coins.pop()
+        coin2 = self.coins.pop()
+        coin3 = self.coins.pop()
+
+        # Three transactions chained; package RBF against any of these
+        # should be rejected
+        self.ctr += 1
+        parent_result = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin1,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        child_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[parent_result["new_utxo"], coin2],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        grandchild_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[child_result["new_utxos"][0], coin3],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        expected_txns = [parent_result["tx"], child_result["tx"], grandchild_result["tx"]]
+        for tx in expected_txns:
+            node.sendrawtransaction(tx.serialize().hex())
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # Now make conflicting packages for each coin
+        package_hex1, package_txns1 = self.create_simple_package(coin1, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+
+        package_result = node.submitpackage(package_hex1)
+        assert_equal(f"package RBF failed: {parent_result['tx'].rehash()} has 2 descendants, max 1 allowed", package_result["package_msg"])
+
+        package_hex2, package_txns2 = self.create_simple_package(coin2, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex2)
+        assert_equal(f"package RBF failed: {child_result['tx'].rehash()} has both ancestor and descendant, exceeding cluster limit of 2", package_result["package_msg"])
+
+        package_hex3, package_txns3 = self.create_simple_package(coin3, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex3)
+        assert_equal(f"package RBF failed: {grandchild_result['tx'].rehash()} has 2 ancestors, max 1 allowed", package_result["package_msg"])
+
+        # Check that replacements were actually rejected
+        self.assert_mempool_contents(expected=expected_txns)
+        self.generate(node, 1)
+
+    def test_wrong_conflict_cluster_size_parents_child(self):
+        self.log.info("Test that conflicting with a cluster not sized two is rejected: two parents one child")
+        node = self.nodes[0]
+
+        # Coins we will conflict with
+        coin1 = self.coins.pop()
+        coin2 = self.coins.pop()
+        coin3 = self.coins.pop()
+
+        self.ctr += 1
+        parent1_result = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin1,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        parent2_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[coin2],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        child_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[parent1_result["new_utxo"], parent2_result["new_utxos"][0], coin3],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        expected_txns = [parent1_result["tx"], parent2_result["tx"], child_result["tx"]]
+        for tx in expected_txns:
+            node.sendrawtransaction(tx.serialize().hex())
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # Now make conflicting packages for each coin
+        package_hex1, package_txns1 = self.create_simple_package(coin1, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex1)
+        assert_equal(f"package RBF failed: {parent1_result['tx'].rehash()} is not the only parent of child {child_result['tx'].rehash()}", package_result["package_msg"])
+
+        package_hex2, package_txns2 = self.create_simple_package(coin2, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex2)
+        assert_equal(f"package RBF failed: {parent2_result['tx'].rehash()} is not the only parent of child {child_result['tx'].rehash()}", package_result["package_msg"])
+
+        package_hex3, package_txns3 = self.create_simple_package(coin3, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex3)
+        assert_equal(f"package RBF failed: {child_result['tx'].rehash()} has 2 ancestors, max 1 allowed", package_result["package_msg"])
+
+        # Check that replacements were actually rejected
+        self.assert_mempool_contents(expected=expected_txns)
+        self.generate(node, 1)
+
+    def test_wrong_conflict_cluster_size_parent_children(self):
+        self.log.info("Test that conflicting with a cluster not sized two is rejected: one parent two children")
+        node = self.nodes[0]
+
+        # Coins we will conflict with
+        coin1 = self.coins.pop()
+        coin2 = self.coins.pop()
+        coin3 = self.coins.pop()
+
+        self.ctr += 1
+        parent_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            num_outputs=2,
+            utxos_to_spend=[coin1],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        child1_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[parent_result["new_utxos"][0], coin2],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        self.ctr += 1
+        child2_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_FEE * COIN),
+            utxos_to_spend=[parent_result["new_utxos"][1], coin3],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        # Submit them to mempool
+        expected_txns = [parent_result["tx"], child1_result["tx"], child2_result["tx"]]
+        for tx in expected_txns:
+            node.sendrawtransaction(tx.serialize().hex())
+        self.assert_mempool_contents(expected=expected_txns)
+
+        # Now make conflicting packages for each coin
+        package_hex1, package_txns1 = self.create_simple_package(coin1, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex1)
+        assert_equal(f"package RBF failed: {parent_result['tx'].rehash()} has 2 descendants, max 1 allowed", package_result["package_msg"])
+
+        package_hex2, package_txns2 = self.create_simple_package(coin2, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex2)
+        assert_equal(f"package RBF failed: {child1_result['tx'].rehash()} is not the only child of parent {parent_result['tx'].rehash()}", package_result["package_msg"])
+
+        package_hex3, package_txns3 = self.create_simple_package(coin3, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_result = node.submitpackage(package_hex3)
+        assert_equal(f"package RBF failed: {child2_result['tx'].rehash()} is not the only child of parent {parent_result['tx'].rehash()}", package_result["package_msg"])
+
+        # Check that replacements were actually rejected
+        self.assert_mempool_contents(expected=expected_txns)
+        self.generate(node, 1)
+
+    def test_package_rbf_with_wrong_pkg_size(self):
+        self.log.info("Test that package RBF doesn't work with packages larger than 2 due to pkg size")
+        node = self.nodes[0]
+        coin1 = self.coins.pop()
+        coin2 = self.coins.pop()
+
+        # Two packages to require multiple direct conflicts, easier to set up illicit pkg size
+        package_hex1, package_txns1 = self.create_simple_package(coin1, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+        package_hex2, package_txns2 = self.create_simple_package(coin2, DEFAULT_FEE, DEFAULT_CHILD_FEE)
+
+        node.submitpackage(package_hex1)
+        node.submitpackage(package_hex2)
+
+        self.assert_mempool_contents(expected=package_txns1 + package_txns2)
+        assert_equal(len(node.getrawmempool()), 4)
+
+        # Double-spends the first package
+        self.ctr += 1
+        parent_result1 = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin1,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        # Double-spends the second package
+        self.ctr += 1
+        parent_result2 = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin2,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        # Child that spends both, violating cluster size rule due
+        # to pkg size
+        self.ctr += 1
+        child_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_CHILD_FEE * COIN),
+            utxos_to_spend=[parent_result1["new_utxo"], parent_result2["new_utxo"]],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        package_hex3 = [parent_result1["hex"], parent_result2["hex"], child_result["hex"]]
+
+        pkg_result = node.submitpackage(package_hex3)
+        assert_equal(pkg_result["package_msg"], 'package RBF failed: package must be 1-parent-1-child')
+        self.assert_mempool_contents(expected=package_txns1 + package_txns2)
+        self.generate(node, 1)
+
+    def test_insufficient_feerate(self):
+        self.log.info("Check Package RBF must beat feerate of direct conflict")
+        node = self.nodes[0]
+        coin = self.coins.pop()
+
+        # Non-cpfp structure
+        package_hex1, package_txns1 = self.create_simple_package(coin, parent_fee=DEFAULT_CHILD_FEE, child_fee=DEFAULT_FEE)
+        node.submitpackage(package_hex1)
+        self.assert_mempool_contents(expected=package_txns1)
+
+        # Package 2 feerate is below the feerate of directly conflicted parent, so it fails even though
+        # total fees are higher than the original package
+        package_hex2, package_txns2 = self.create_simple_package(coin, parent_fee=DEFAULT_CHILD_FEE - Decimal("0.00000001"), child_fee=DEFAULT_CHILD_FEE)
+        pkg_results2 = node.submitpackage(package_hex2)
+        assert_equal(pkg_results2["package_msg"], 'package RBF failed: insufficient feerate: does not improve feerate diagram')
+        self.assert_mempool_contents(expected=package_txns1)
+        self.generate(node, 1)
+
+    def test_0fee_package_rbf(self):
+        self.log.info("Test package RBF: TRUC 0-fee parent + high-fee child replaces parent's conflicts")
+        node = self.nodes[0]
+        # Reuse the same coins so that the transactions conflict with one another.
+        self.wallet.rescan_utxos()
+        parent_coin = self.wallet.get_utxo(confirmed_only=True)
+
+        # package1 pays default fee on both transactions
+        parent1 = self.wallet.create_self_transfer(utxo_to_spend=parent_coin, version=3)
+        child1 = self.wallet.create_self_transfer(utxo_to_spend=parent1["new_utxo"], version=3)
+        package_hex1 = [parent1["hex"], child1["hex"]]
+        fees_package1 = parent1["fee"] + child1["fee"]
+        submitres1 = node.submitpackage(package_hex1)
+        assert_equal(submitres1["package_msg"], "success")
+        self.assert_mempool_contents([parent1["tx"], child1["tx"]])
+
+        # package2 has a 0-fee parent (conflicting with package1) and very high fee child
+        parent2 = self.wallet.create_self_transfer(utxo_to_spend=parent_coin, fee=0, fee_rate=0, version=3)
+        child2 = self.wallet.create_self_transfer(utxo_to_spend=parent2["new_utxo"], fee=fees_package1*10, version=3)
+        package_hex2 = [parent2["hex"], child2["hex"]]
+
+        submitres2 = node.submitpackage(package_hex2)
+        assert_equal(submitres2["package_msg"], "success")
+        assert_equal(set(submitres2["replaced-transactions"]), set([parent1["txid"], child1["txid"]]))
+        self.assert_mempool_contents([parent2["tx"], child2["tx"]])
+
+        self.generate(node, 1)
+
+    def test_child_conflicts_parent_mempool_ancestor(self):
+        fill_mempool(self, self.nodes[0])
+        # Reset coins since we filled the mempool with current coins
+        self.coins = self.wallet.get_utxos(mark_as_spent=False, confirmed_only=True)
+
+        self.log.info("Test that package RBF doesn't have issues with mempool<->package conflicts via inconsistency")
+        node = self.nodes[0]
+        coin = self.coins.pop()
+
+        self.ctr += 1
+        grandparent_result = self.wallet.create_self_transfer(
+            fee=DEFAULT_FEE,
+            utxo_to_spend=coin,
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        node.sendrawtransaction(grandparent_result["hex"])
+
+        # Now make package of two descendants that looks
+        # like a cpfp where the parent can't get in on its own
+        self.ctr += 1
+        parent_result = self.wallet.create_self_transfer(
+            fee_rate=Decimal('0.00001000'),
+            utxo_to_spend=grandparent_result["new_utxo"],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+        # Last tx double-spends grandparent's coin,
+        # which is not inside the current package
+        self.ctr += 1
+        child_result = self.wallet.create_self_transfer_multi(
+            fee_per_output=int(DEFAULT_CHILD_FEE * COIN),
+            utxos_to_spend=[parent_result["new_utxo"], coin],
+            sequence=MAX_BIP125_RBF_SEQUENCE - self.ctr,
+        )
+
+        pkg_result = node.submitpackage([parent_result["hex"], child_result["hex"]])
+        assert_equal(pkg_result["package_msg"], 'package RBF failed: new transaction cannot have mempool ancestors')
+        mempool_info = node.getrawmempool()
+        assert grandparent_result["txid"] in mempool_info
+        assert parent_result["txid"] not in mempool_info
+        assert child_result["txid"] not in mempool_info
+
+if __name__ == "__main__":
+    PackageRBFTest().main()
diff --git a/test/functional/test_runner.py b/test/functional/test_runner.py
index 1f07a801645..8475dc5faa9 100755
--- a/test/functional/test_runner.py
+++ b/test/functional/test_runner.py
@@ -282,6 +282,7 @@ BASE_SCRIPTS = [
     'mempool_packages.py',
     'mempool_package_onemore.py',
     'mempool_package_limits.py',
+    'mempool_package_rbf.py',
     'feature_versionbits_warning.py',
     'rpc_preciousblock.py',
     'wallet_importprunedfunds.py --legacy-wallet',