diff --git a/docs/tech-specs/SCHEMA_REFACTORING_PROPOSAL.md b/docs/tech-specs/SCHEMA_REFACTORING_PROPOSAL.md
new file mode 100644
index 00000000..be1f5b41
--- /dev/null
+++ b/docs/tech-specs/SCHEMA_REFACTORING_PROPOSAL.md
@@ -0,0 +1,93 @@
+# Schema Directory Refactoring Proposal
+
+## Current Issues
+
+1. **Flat structure** - All schemas in one directory makes it hard to understand relationships
+2. **Mixed concerns** - Core types, domain objects, and API contracts all mixed together
+3. **Unclear naming** - Files like "object.py", "types.py", "topic.py" don't clearly indicate their purpose
+4. **No clear layering** - Can't easily see what depends on what
+
+## Proposed Structure
+
+```
+trustgraph-base/trustgraph/schema/
+├── __init__.py
+├── core/              # Core primitive types used everywhere
+│   ├── __init__.py
+│   ├── primitives.py  # Error, Value, Triple, Field, RowSchema
+│   ├── metadata.py    # Metadata record
+│   └── topic.py       # Topic utilities
+│
+├── domain/            # Domain-specific data models
+│   ├── __init__.py
+│   ├── graph.py       # EntityContext, EntityEmbeddings, Triples
+│   ├── document.py    # Document, TextDocument, Chunk
+│   ├── knowledge.py   # Knowledge extraction types
+│   └── embeddings.py  # All embedding-related types (moved from multiple files)
+│
+├── api/               # API request/response contracts
+│   ├── __init__.py
+│   ├── llm.py         # TextCompletion, Embeddings, Tool requests/responses
+│   ├── retrieval.py   # GraphRAG, DocumentRAG queries/responses
+│   ├── query.py       # GraphEmbeddingsRequest/Response, DocumentEmbeddingsRequest/Response
+│   ├── agent.py       # Agent requests/responses
+│   ├── flow.py        # Flow requests/responses
+│   ├── config.py      # Configuration API
+│   ├── library.py     # Librarian API
+│   └── lookup.py      # Lookup API
+│
+└── extraction/        # Data extraction schemas
+    ├── __init__.py
+    └── nlp.py         # Definition, Topic, Relationship, Fact, Prompt types
+```
+
+## Key Changes
+
+1. **Hierarchical organization** - Clear separation between core types, domain models, and API contracts
+2. **Better naming**:
+   - `types.py` → `core/primitives.py` (clearer purpose)
+   - `object.py` → Split between appropriate files based on actual content
+   - `documents.py` → `domain/document.py` (singular, consistent)
+   - `models.py` → `api/llm.py` (clearer what kind of models)
+   - `prompt.py` → `extraction/nlp.py` (clearer purpose)
+
+3. **Logical grouping**:
+   - All embedding types consolidated in `domain/embeddings.py`
+   - All LLM-related APIs in `api/llm.py`
+   - Clear separation of request/response pairs in API directory
+
+4. **Dependency clarity**:
+   - Core types have no dependencies
+   - Domain models depend only on core
+   - API contracts can depend on both core and domain
+   - Extraction schemas depend on core
+
+## Migration Benefits
+
+1. **Easier navigation** - Developers can quickly find what they need
+2. **Better modularity** - Clear boundaries between different concerns
+3. **Simpler imports** - More intuitive import paths
+4. **Future-proof** - Easy to add new domains or APIs without cluttering
+
+## Example Import Changes
+
+```python
+# Before
+from trustgraph.schema import Error, Triple, GraphEmbeddings, TextCompletionRequest
+
+# After
+from trustgraph.schema.core import Error, Triple
+from trustgraph.schema.domain import GraphEmbeddings
+from trustgraph.schema.api import TextCompletionRequest
+```
+
+## Implementation Notes
+
+1. Keep backward compatibility by maintaining imports in root `__init__.py`
+2. Move files gradually, updating imports as needed
+3. Consider adding a `legacy.py` that imports everything for transition period
+4. Update documentation to reflect new structure
+
+<function_calls>
+<invoke name="TodoWrite">
+<parameter name="todos">[{"id": "1", "content": "Examine current schema directory structure", "status": "completed", "priority": "high"}, {"id": "2", "content": "Analyze schema files and their purposes", "status": "completed", "priority": "high"}, {"id": "3", "content": "Propose improved naming and structure", "status": "completed", "priority": "high"}]
\ No newline at end of file