Fixes #3854

src/_pytest/python.py

@@ -590,18 +590,23 @@ class Package(Module):
                 self.session.config.pluginmanager._duplicatepaths.remove(path)
 
         this_path = self.fspath.dirpath()
-        pkg_prefix = None
+        pkg_prefixes = set()
-        yield Module(this_path.join("__init__.py"), self)
         for path in this_path.visit(rec=self._recurse, bf=True, sort=True):
             # we will visit our own __init__.py file, in which case we skip it
+            skip = False
             if path.basename == "__init__.py" and path.dirpath() == this_path:
                 continue
-            if pkg_prefix and pkg_prefix in path.parts():
+
+            if path.isdir() and path.join('__init__.py').check(file=1):
+                pkg_prefixes.add(path)
+
+            for pkg_prefix in pkg_prefixes:
+                if pkg_prefix in path.parts() and pkg_prefix.join('__init__.py') == path:
+                    skip = True
+            if skip:
                 continue
             for x in self._collectfile(path):
                 yield x
-                if isinstance(x, Package):
-                    pkg_prefix = path.dirpath()
 
 
 def _get_xunit_setup_teardown(holder, attr_name, param_obj=None):

testing/python/collect.py

@@ -1623,3 +1623,40 @@ def test_package_with_modules(testdir):
     root.chdir()
     result = testdir.runpytest("-v", "-s")
     result.assert_outcomes(passed=2)
+
+
+def test_package_ordering(testdir):
+    """
+    .
+    └── root
+        ├── TestRoot.py
+        ├── __init__.py
+        ├── sub1
+        │   ├── TestSub1.py
+        │   └── __init__.py
+        └── sub2
+            └── test
+                ├── TestSub2.py
+                └── test_in_sub2.py
+
+    """
+    testdir.makeini(
+        """
+        [pytest]
+        python_files=Test*.py
+    """
+    )
+    root = testdir.mkpydir("root")
+    sub1 = root.mkdir("sub1")
+    sub1.ensure("__init__.py")
+    sub2 = root.mkdir("sub2")
+    sub2_test = sub2.mkdir("sub2")
+
+    root.join("TestRoot.py").write("def test_1(): pass")
+    sub1.join("TestSub1.py").write("def test_2(): pass")
+    sub2_test.join("TestSub2.py").write("def test_3(): pass")
+    sub2_test.join("test_in_sub2.py").write("def test_4(): pass")
+
+    # Execute from .
+    result = testdir.runpytest("-v", "-s")
+    result.assert_outcomes(passed=3)