diff --git a/build.ps1 b/build.ps1
index ebe922238..a83db83c4 100755
--- a/build.ps1
+++ b/build.ps1
@@ -63,6 +63,8 @@ $filesForWindowsPackage = @(
     'NOTICE.txt',
     'osinfo.exe',
     'osinfo.dsc.resource.json',
+    'powershell.discover.ps1',
+    'powershell.dsc.extension.json',
     'powershell.dsc.resource.json',
     'psDscAdapter/',
     'psscript.ps1',
@@ -101,6 +103,8 @@ $filesForLinuxPackage = @(
     'NOTICE.txt',
     'osinfo',
     'osinfo.dsc.resource.json',
+    'powershell.discover.ps1',
+    'powershell.dsc.extension.json',
     'powershell.dsc.resource.json',
     'psDscAdapter/',
     'psscript.ps1',
@@ -126,6 +130,8 @@ $filesForMacPackage = @(
     'NOTICE.txt',
     'osinfo',
     'osinfo.dsc.resource.json',
+    'powershell.discover.ps1',
+    'powershell.dsc.extension.json',
     'powershell.dsc.resource.json',
     'psDscAdapter/',
     'psscript.ps1',
@@ -347,9 +353,9 @@ if (!$SkipBuild) {
     New-Item -ItemType Directory $target -ErrorAction Ignore > $null
 
     # make sure dependencies are built first so clippy runs correctly
-    $windows_projects = @("lib/dsc-lib-pal", "lib/dsc-lib-registry", "resources/registry", "resources/reboot_pending", "adapters/wmi", "configurations/windows", 'extensions/appx')
-    $macOS_projects = @("resources/brew")
-    $linux_projects = @("resources/apt")
+    $windows_projects = @("lib/dsc-lib-pal", "lib/dsc-lib-registry", "resources/registry", "resources/reboot_pending", "adapters/wmi", "configurations/windows", "extensions/appx", "extensions/powershell")
+    $macOS_projects = @("resources/brew", "extensions/powershell")
+    $linux_projects = @("resources/apt", "extensions/powershell")
 
     # projects are in dependency order
     $projects = @(
diff --git a/docs/reference/schemas/extension/stdout/discover.md b/docs/reference/schemas/extension/stdout/discover.md
index fc33b89d6..07744f919 100644
--- a/docs/reference/schemas/extension/stdout/discover.md
+++ b/docs/reference/schemas/extension/stdout/discover.md
@@ -22,13 +22,16 @@ Type:          object
 
 ## Description
 
-Represents the actual state of a resource instance in DSCpath to a discovered DSC resource or
+Represents the actual state of a resource instance in DSC path to a discovered DSC resource or
 extension manifest on the system. DSC expects every JSON Line emitted to stdout for the
 **Discover** operation to adhere to this schema.
 
 The output must be a JSON object. The object must define the full path to the discovered manifest.
 If an extension returns JSON that is invalid against this schema, DSC raises an error.
 
+If the extension doesn't discover any manifests, it must return nothing to stdout. An empty output
+indicates no resources were found.
+
 ## Required Properties
 
 The output for the `discover` operation must include these properties:
@@ -43,6 +46,9 @@ The value for this property must be the absolute path to a manifest file on the
 manifest can be for a DSC resource or extension. If the returned path doesn't exist, DSC raises an
 error.
 
+Each discovered manifest must be emitted as a separate JSON Line to stdout. If no manifests are
+discovered, the extension must not emit any output to stdout.
+
 ```yaml
 Type:     string
 Required: true
diff --git a/dsc/tests/dsc_extension_discover.tests.ps1 b/dsc/tests/dsc_extension_discover.tests.ps1
index 043713536..51fde8e13 100644
--- a/dsc/tests/dsc_extension_discover.tests.ps1
+++ b/dsc/tests/dsc_extension_discover.tests.ps1
@@ -23,30 +23,29 @@ Describe 'Discover extension tests' {
     It 'Discover extensions' {
         $out = dsc extension list | ConvertFrom-Json
         $LASTEXITCODE | Should -Be 0
-        if ($IsWindows) {
-            $out.Count | Should -Be 3 -Because ($out | Out-String)
-            $out[0].type | Should -Be 'Microsoft.DSC.Extension/Bicep'
-            $out[0].version | Should -Be '0.1.0'
-            $out[0].capabilities | Should -BeExactly @('import')
-            $out[0].manifest | Should -Not -BeNullOrEmpty
-            $out[1].type | Should -Be 'Microsoft.Windows.Appx/Discover'
-            $out[1].version | Should -Be '0.1.0'
-            $out[1].capabilities | Should -BeExactly @('discover')
-            $out[1].manifest | Should -Not -BeNullOrEmpty
-            $out[2].type | Should -BeExactly 'Test/Discover'
-            $out[2].version | Should -BeExactly '0.1.0'
-            $out[2].capabilities | Should -BeExactly @('discover')
-            $out[2].manifest | Should -Not -BeNullOrEmpty
+        $expectedExtensions = if ($IsWindows) {
+            @(
+            @{ type = 'Microsoft.DSC.Extension/Bicep'; version = '0.1.0'; capabilities = @('import') }
+            @{ type = 'Microsoft.Windows.Appx/Discover'; version = '0.1.0'; capabilities = @('discover') }
+            @{ type = 'Microsoft.PowerShell/Discover'; version = '0.1.0'; capabilities = @('discover') }
+            @{ type = 'Test/Discover'; version = '0.1.0'; capabilities = @('discover') }
+            )
         } else {
-            $out.Count | Should -Be 2 -Because ($out | Out-String)
-            $out[0].type | Should -Be 'Microsoft.DSC.Extension/Bicep'
-            $out[0].version | Should -Be '0.1.0'
-            $out[0].capabilities | Should -BeExactly @('import')
-            $out[0].manifest | Should -Not -BeNullOrEmpty
-            $out[1].type | Should -BeExactly 'Test/Discover'
-            $out[1].version | Should -BeExactly '0.1.0'
-            $out[1].capabilities | Should -BeExactly @('discover')
-            $out[1].manifest | Should -Not -BeNullOrEmpty
+            @(
+            @{ type = 'Microsoft.DSC.Extension/Bicep'; version = '0.1.0'; capabilities = @('import') }
+            @{ type = 'Microsoft.PowerShell/Discover'; version = '0.1.0'; capabilities = @('discover') }
+            @{ type = 'Test/Discover'; version = '0.1.0'; capabilities = @('discover') }
+            )
+        }
+
+        $out.Count | Should -Be $expectedExtensions.Count -Because ($out | Out-String)
+        
+        foreach ($expected in $expectedExtensions) {
+            $extension = $out | Where-Object { $_.type -eq $expected.type }
+            $extension | Should -Not -BeNullOrEmpty -Because "Extension $($expected.type) should exist"
+            $extension.version | Should -BeExactly $expected.version
+            $extension.capabilities | Should -BeExactly $expected.capabilities
+            $extension.manifest | Should -Not -BeNullOrEmpty
         }
     }
 
diff --git a/extensions/powershell/copy_files.txt b/extensions/powershell/copy_files.txt
new file mode 100644
index 000000000..e3b12dc13
--- /dev/null
+++ b/extensions/powershell/copy_files.txt
@@ -0,0 +1,2 @@
+powershell.discover.ps1
+powershell.dsc.extension.json
diff --git a/extensions/powershell/powershell.discover.ps1 b/extensions/powershell/powershell.discover.ps1
new file mode 100644
index 000000000..e94678c8e
--- /dev/null
+++ b/extensions/powershell/powershell.discover.ps1
@@ -0,0 +1,113 @@
+# Copyright (c) Microsoft Corporation.
+# Licensed under the MIT License.
+
+[CmdletBinding()]
+param ()
+
+function Get-CacheFilePath {
+    if ($IsWindows) {
+        Join-Path $env:LocalAppData "dsc\PowerShellDiscoverCache.json"
+    } else {
+        Join-Path $env:HOME ".dsc" "PowerShellDiscoverCache.json"
+    }
+}
+
+function Test-CacheValid {
+    param([string]$CacheFilePath, [string[]]$PSPaths)
+    
+    if (-not (Test-Path $CacheFilePath)) {
+        return $false
+    }
+    
+    try {
+        $cache = Get-Content -Raw $CacheFilePath | ConvertFrom-Json
+        
+        foreach ($entry in $cache.PathInfo.PSObject.Properties) {
+            $path = $entry.Name
+            if (-not (Test-Path $path)) {
+                return $false
+            }
+            
+            $currentLastWrite = (Get-Item $path).LastWriteTimeUtc
+            $cachedLastWrite = [DateTime]$entry.Value
+            
+            if ($currentLastWrite -ne $cachedLastWrite) {
+                return $false
+            }
+        }
+        
+        $cachedPaths = [string[]]$cache.PSModulePaths
+        if ($cachedPaths.Count -ne $PSPaths.Count) {
+            return $false
+        }
+        
+        $diff = Compare-Object $cachedPaths $PSPaths
+        if ($null -ne $diff) {
+            return $false
+        }
+        
+        return $true
+    } catch {
+        return $false
+    }
+}
+
+function Invoke-DscResourceDiscovery {
+    [CmdletBinding()]
+    param()
+    
+    begin {
+        $psPaths = $env:PSModulePath -split [System.IO.Path]::PathSeparator | Where-Object { $_ -notmatch 'WindowsPowerShell' }
+        
+        $cacheFilePath = Get-CacheFilePath
+        $useCache = Test-CacheValid -CacheFilePath $cacheFilePath -PSPaths $psPaths
+    }
+    process {
+        if ($useCache) {
+            $cache = Get-Content -Raw $cacheFilePath | ConvertFrom-Json
+            $manifests = $cache.Manifests
+        } else {
+            $manifests = $psPaths | ForEach-Object -Parallel {
+                $searchPatterns = @('*.dsc.resource.json', '*.dsc.resource.yaml', '*.dsc.resource.yml')
+                $enumOptions = [System.IO.EnumerationOptions]@{ IgnoreInaccessible = $false; RecurseSubdirectories = $true }
+                foreach ($pattern in $searchPatterns) {
+                    try {
+                        [System.IO.Directory]::EnumerateFiles($_, $pattern, $enumOptions) | ForEach-Object {
+                            @{ manifestPath = $_ }
+                        }
+                    } catch { }
+                }
+            } -ThrottleLimit 10
+            
+            $pathInfo = @{}
+            foreach ($path in $psPaths) {
+                if (Test-Path $path) {
+                    $pathInfo[$path] = (Get-Item $path).LastWriteTimeUtc
+                }
+            }
+            
+            $cacheObject = @{
+                PSModulePaths = $psPaths
+                PathInfo      = $pathInfo
+                Manifests     = $manifests
+            }
+            
+            $cacheDir = Split-Path $cacheFilePath -Parent
+            if (-not (Test-Path $cacheDir)) {
+                New-Item -ItemType Directory -Path $cacheDir -Force | Out-Null
+            }
+
+            $cacheObject | ConvertTo-Json -Depth 10 | Set-Content -Path $cacheFilePath -Force
+        }
+    }
+    end {
+        if ($null -eq $manifests -or [string]::IsNullOrEmpty($manifests)) {
+            # Return nothing
+        } else {
+            $manifests | ForEach-Object { $_ | ConvertTo-Json -Compress }
+        }
+    }
+}
+
+Invoke-DscResourceDiscovery
+
diff --git a/extensions/powershell/powershell.discover.tests.ps1 b/extensions/powershell/powershell.discover.tests.ps1
new file mode 100644
index 000000000..66203e8fb
--- /dev/null
+++ b/extensions/powershell/powershell.discover.tests.ps1
@@ -0,0 +1,125 @@
+# Copyright (c) Microsoft Corporation.
+# Licensed under the MIT License.
+
+BeforeAll {
+    $fakeManifest = @{
+        '$schema' = "https://aka.ms/dsc/schemas/v3/bundled/resource/manifest.json"
+        type      = "Test/FakeResource"
+        version   = "0.1.0"
+        get       = @{
+            executable = "fakeResource"
+            args       = @(
+                "get",
+                @{
+                    jsonInputArg = "--input"
+                    mandatory    = $true
+                }
+            )
+        }
+    }
+    
+    $manifestPath = Join-Path $TestDrive "fake.dsc.resource.json"
+    $fakeManifest | ConvertTo-Json -Depth 10 | Set-Content -Path $manifestPath
+    $env:PSModulePath += [System.IO.Path]::PathSeparator + $TestDrive
+    
+    $script:discoverScript = Join-Path $PSScriptRoot "powershell.discover.ps1"
+    
+    $cacheFilePath = if ($IsWindows) {
+        Join-Path $env:LocalAppData "dsc\PowerShellDiscoverCache.json"
+    } else {
+        Join-Path $env:HOME ".dsc" "PowerShellDiscoverCache.json"
+    }
+    $script:cacheFilePath = $cacheFilePath
+
+    Remove-Item -Force -ErrorAction SilentlyContinue -Path $script:cacheFilePath
+}
+
+Describe 'Tests for PowerShell resource discovery' {    
+    It 'Should create cache file on first run' {
+        $script:cacheFilePath | Should -Not -Exist
+        $null = & $script:discoverScript 2>&1
+        $script:cacheFilePath | Should -Exist
+        
+        $cache = Get-Content -Raw $script:cacheFilePath | ConvertFrom-Json
+        $cache.PSModulePaths | Should -Not -BeNullOrEmpty
+        $cache.PathInfo | Should -Not -BeNullOrEmpty
+        $cache.Manifests | Should -Not -BeNullOrEmpty
+    }
+
+    It 'Should find DSC PowerShell resources' {
+        $out = dsc resource list | ConvertFrom-Json
+        $LASTEXITCODE | Should -Be 0
+        $out.manifest.type | Should -Contain 'Test/FakeResource'
+    }
+    
+    It 'Should use cache on subsequent runs' {
+        $null = & $script:discoverScript 2>&1
+        $script:cacheFilePath | Should -Exist
+        
+        $cacheLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+        
+        Start-Sleep -Milliseconds 100
+        
+        $null = & $script:discoverScript 2>&1
+        
+        $newLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+        $newLastWriteTime | Should -Be $cacheLastWriteTime
+    }
+    
+    It 'Should invalidate cache when PSModulePath changes' {
+        $null = & $script:discoverScript 2>&1
+        $script:cacheFilePath | Should -Exist
+        
+        $cache = Get-Content -Raw $script:cacheFilePath | ConvertFrom-Json
+        $originalPaths = $cache.PSModulePaths
+        $cache.PSModulePaths = @($originalPaths[0])  # Remove some paths
+        $cache | ConvertTo-Json -Depth 10 | Set-Content -Path $script:cacheFilePath -Force
+        
+        $cacheLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+        Start-Sleep -Milliseconds 100
+        
+        $null = & $script:discoverScript 2>&1
+        
+        $newLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+        $newLastWriteTime | Should -Not -Be $cacheLastWriteTime
+    }
+    
+    It 'Should invalidate cache when module directory is modified' {
+        $null = & $script:discoverScript 2>&1
+        $script:cacheFilePath | Should -Exist
+        
+        $cache = Get-Content -Raw $script:cacheFilePath | ConvertFrom-Json
+        
+        $firstPath = $cache.PathInfo.PSObject.Properties | Select-Object -First 1
+        if ($firstPath) {
+            $oldTimestamp = [DateTime]$firstPath.Value
+            $newTimestamp = $oldTimestamp.AddDays(-1)
+            $cache.PathInfo.($firstPath.Name) = $newTimestamp
+            $cache | ConvertTo-Json -Depth 10 | Set-Content -Path $script:cacheFilePath -Force
+            
+            $cacheLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+            Start-Sleep -Milliseconds 100
+            
+            $null = & $script:discoverScript 2>&1
+            
+            $newLastWriteTime = (Get-Item $script:cacheFilePath).LastWriteTimeUtc
+            $newLastWriteTime | Should -Not -Be $cacheLastWriteTime
+        }
+    }
+    
+    It 'Should rebuild cache if cache file is corrupted' {
+        "{ invalid json }" | Set-Content -Path $script:cacheFilePath -Force
+        $script:cacheFilePath | Should -Exist
+        
+        $null = & $script:discoverScript 2>&1
+        
+        $cache = Get-Content -Raw $script:cacheFilePath | ConvertFrom-Json
+        $cache.PSModulePaths | Should -Not -BeNullOrEmpty
+        $cache.PathInfo | Should -Not -BeNullOrEmpty
+    }
+    
+    It 'Should include test manifest in discovery results' {
+        $out = & $script:discoverScript | ConvertFrom-Json
+        $out.manifestPath | Should -Contain $manifestPath
+    }
+}
diff --git a/extensions/powershell/powershell.dsc.extension.json b/extensions/powershell/powershell.dsc.extension.json
new file mode 100644
index 000000000..9096e4fa1
--- /dev/null
+++ b/extensions/powershell/powershell.dsc.extension.json
@@ -0,0 +1,18 @@
+{
+  "$schema": "https://aka.ms/dsc/schemas/v3/bundled/resource/manifest.json",
+  "type": "Microsoft.PowerShell/Discover",
+  "version": "0.1.0",
+  "description": "Discovers DSC resources packaged in PowerShell 7 modules.",
+  "discover": {
+    "executable": "pwsh",
+    "args": [
+      "-NoLogo",
+      "-NonInteractive",
+      "-ExecutionPolicy",
+      "Bypass",
+      "-NoProfile",
+      "-Command",
+      "./powershell.discover.ps1"
+    ]
+  }
+}