diff --git a/src/ModularPipelines/Engine/Execution/ModuleRunner.cs b/src/ModularPipelines/Engine/Execution/ModuleRunner.cs
index 00c920f17e..a33b51471b 100644
--- a/src/ModularPipelines/Engine/Execution/ModuleRunner.cs
+++ b/src/ModularPipelines/Engine/Execution/ModuleRunner.cs
@@ -1,3 +1,4 @@
+using System.Diagnostics;
 using System.Reflection;
 using Mediator;
 using Microsoft.Extensions.DependencyInjection;
@@ -10,6 +11,7 @@
 using ModularPipelines.Models;
 using ModularPipelines.Modules;
 using ModularPipelines.Options;
+using ModularPipelines.Tracing;
 
 namespace ModularPipelines.Engine.Execution;
 
@@ -147,6 +149,9 @@ private async Task ExecuteModuleWithPipeline(ModuleState moduleState, IServicePr
         var logger = GetOrCreateLogger(moduleType, scopedServiceProvider);
         var moduleContext = new ModuleContext(pipelineContext, module, executionContext, logger);
 
+        // Start Activity for distributed tracing (Phase 1: alongside AsyncLocal for compatibility)
+        using var activity = ModuleActivityTracing.StartModuleActivity(moduleType);
+
         // Set up logging and module type context - use try/finally to ensure cleanup of AsyncLocal context
         // Assignments MUST be inside try block to guarantee cleanup even if an exception
         // occurs immediately after assignment
@@ -155,6 +160,22 @@ private async Task ExecuteModuleWithPipeline(ModuleState moduleState, IServicePr
             ModuleLogger.Values.Value = logger;
             ModuleLogger.CurrentModuleType.Value = moduleType;
             await ExecuteModuleLifecycle(moduleState, scopedServiceProvider, pipelineContext, executionContext, moduleContext, cancellationToken).ConfigureAwait(false);
+
+            // Record success or skip status on the Activity
+            if (executionContext.Status == Enums.Status.Skipped)
+            {
+                ModuleActivityTracing.RecordSkipped(activity);
+            }
+            else
+            {
+                ModuleActivityTracing.RecordSuccess(activity);
+            }
+        }
+        catch (Exception ex)
+        {
+            // Record failure on the Activity before re-throwing
+            ModuleActivityTracing.RecordFailure(activity, ex);
+            throw;
         }
         finally
         {
diff --git a/src/ModularPipelines/Tracing/ModuleActivityTracing.cs b/src/ModularPipelines/Tracing/ModuleActivityTracing.cs
new file mode 100644
index 0000000000..c53ff6f250
--- /dev/null
+++ b/src/ModularPipelines/Tracing/ModuleActivityTracing.cs
@@ -0,0 +1,112 @@
+using System.Diagnostics;
+
+namespace ModularPipelines.Tracing;
+
+/// <summary>
+/// Provides Activity-based tracing for module execution.
+/// </summary>
+/// <remarks>
+/// This class provides distributed tracing support using System.Diagnostics.Activity,
+/// enabling integration with OpenTelemetry and other APM tools.
+///
+/// Phase 1 (current): Foundation - provides ActivitySource for module execution tracing
+/// alongside existing AsyncLocal pattern for backward compatibility.
+///
+/// Future phases will gradually transition ambient context from AsyncLocal to Activity.
+/// </remarks>
+public static class ModuleActivityTracing
+{
+    /// <summary>
+    /// Tag key for the module type name.
+    /// </summary>
+    public const string ModuleTypeTag = "modular_pipelines.module.type";
+
+    /// <summary>
+    /// Tag key for the module type's full name (including namespace).
+    /// </summary>
+    public const string ModuleTypeFullNameTag = "modular_pipelines.module.type_full";
+
+    /// <summary>
+    /// Tag key for the module execution status.
+    /// </summary>
+    public const string ModuleStatusTag = "modular_pipelines.module.status";
+
+    /// <summary>
+    /// Tag key for exception type when a module fails.
+    /// </summary>
+    public const string ExceptionTypeTag = "exception.type";
+
+    /// <summary>
+    /// Tag key for exception message when a module fails.
+    /// </summary>
+    public const string ExceptionMessageTag = "exception.message";
+
+    /// <summary>
+    /// The ActivitySource for ModularPipelines module execution.
+    /// </summary>
+    /// <remarks>
+    /// Listeners can subscribe to this source to receive module execution spans.
+    /// The source name follows the recommended namespace-based naming convention.
+    /// </remarks>
+    public static readonly ActivitySource Source = new(
+        name: "ModularPipelines.Modules",
+        version: "1.0.0");
+
+    /// <summary>
+    /// Starts a new Activity for module execution.
+    /// </summary>
+    /// <param name="moduleType">The type of the module being executed.</param>
+    /// <returns>The started Activity, or null if no listeners are registered.</returns>
+    public static Activity? StartModuleActivity(Type moduleType)
+    {
+        var activity = Source.StartActivity(
+            name: $"Module.{moduleType.Name}",
+            kind: ActivityKind.Internal);
+
+        if (activity is not null)
+        {
+            activity.SetTag(ModuleTypeTag, moduleType.Name);
+            activity.SetTag(ModuleTypeFullNameTag, moduleType.FullName);
+        }
+
+        return activity;
+    }
+
+    /// <summary>
+    /// Records a successful module completion on the activity.
+    /// </summary>
+    /// <param name="activity">The activity to update.</param>
+    public static void RecordSuccess(Activity? activity)
+    {
+        activity?.SetTag(ModuleStatusTag, "Successful");
+        activity?.SetStatus(ActivityStatusCode.Ok);
+    }
+
+    /// <summary>
+    /// Records a skipped module on the activity.
+    /// </summary>
+    /// <param name="activity">The activity to update.</param>
+    public static void RecordSkipped(Activity? activity)
+    {
+        activity?.SetTag(ModuleStatusTag, "Skipped");
+        activity?.SetStatus(ActivityStatusCode.Ok, "Module was skipped");
+    }
+
+    /// <summary>
+    /// Records a failed module execution on the activity.
+    /// </summary>
+    /// <param name="activity">The activity to update.</param>
+    /// <param name="exception">The exception that caused the failure.</param>
+    public static void RecordFailure(Activity? activity, Exception exception)
+    {
+        if (activity is null)
+        {
+            return;
+        }
+
+        activity.SetTag(ModuleStatusTag, "Failed");
+        activity.SetTag(ExceptionTypeTag, exception.GetType().FullName);
+        activity.SetTag(ExceptionMessageTag, exception.Message);
+        activity.SetStatus(ActivityStatusCode.Error, exception.Message);
+    }
+}