diff --git a/packages/vite/src/plugins/__tests__/vite-plugin-rsc-transform.test.mts b/packages/vite/src/plugins/__tests__/vite-plugin-rsc-transform.test.mts
deleted file mode 100644
index c5b83872f09a..000000000000
--- a/packages/vite/src/plugins/__tests__/vite-plugin-rsc-transform.test.mts
+++ /dev/null
@@ -1,83 +0,0 @@
-import * as path from 'node:path'
-
-import { vol } from 'memfs'
-
-import { rscTransformPlugin } from '../vite-plugin-rsc-transform.js'
-import { afterAll, beforeAll, describe, it, expect, vi } from 'vitest'
-
-const clientEntryFiles = {
-  'rsc-AboutCounter.tsx-0':
-    '/Users/tobbe/rw-app/web/src/components/Counter/AboutCounter.tsx',
-  'rsc-Counter.tsx-1':
-    '/Users/tobbe/rw-app/web/src/components/Counter/Counter.tsx',
-  'rsc-NewUserExample.tsx-2':
-    '/Users/tobbe/rw-app/web/src/components/UserExample/NewUserExample/NewUserExample.tsx',
-}
-
-vi.mock('fs', async () => ({ default: (await import('memfs')).fs }))
-
-const RWJS_CWD = process.env.RWJS_CWD
-
-beforeAll(() => {
-  process.env.RWJS_CWD = '/Users/tobbe/rw-app/'
-  vol.fromJSON({ 'redwood.toml': '' }, process.env.RWJS_CWD)
-})
-
-afterAll(() => {
-  process.env.RWJS_CWD = RWJS_CWD
-})
-
-describe('rscTransformPlugin', () => {
-  it('should insert Symbol.for("react.client.reference")', async () => {
-    const plugin = rscTransformPlugin(clientEntryFiles)
-
-    if (typeof plugin.transform !== 'function') {
-      return
-    }
-
-    // Calling `bind` to please TS
-    // See https://stackoverflow.com/a/70463512/88106
-    const output = await plugin.transform.bind({})(
-      `"use client";
-import { jsx, jsxs } from "react/jsx-runtime";
-import React from "react";
-import "client-only";
-import styles from "./Counter.module.css";
-import "./Counter.css";
-export const Counter = () => {
-  const [count, setCount] = React.useState(0);
-  return /* @__PURE__ */ jsxs("div", { style: {
-    border: "3px blue dashed",
-    margin: "1em",
-    padding: "1em"
-  }, children: [
-    /* @__PURE__ */ jsxs("p", { children: [
-      "Count: ",
-      count
-    ] }),
-    /* @__PURE__ */ jsx("button", { onClick: () => setCount((c) => c + 1), children: "Increment" }),
-    /* @__PURE__ */ jsx("h3", { className: styles.header, children: "This is a client component." })
-  ] });
-};`,
-      '/Users/tobbe/rw-app/web/src/components/Counter/Counter.tsx'
-    )
-
-    expect(output).toEqual(
-      `const CLIENT_REFERENCE = Symbol.for('react.client.reference');
-export const Counter = Object.defineProperties(function() {throw new Error("Attempted to call Counter() from the server but Counter is on the client. It's not possible to invoke a client function from the server, it can only be rendered as a Component or passed to props of a Client Component.");},{$$typeof: {value: CLIENT_REFERENCE},$$id: {value: "${(
-        path.sep +
-        path.join(
-          'Users',
-          'tobbe',
-          'rw-app',
-          'web',
-          'dist',
-          'rsc',
-          'assets',
-          'rsc-Counter.tsx-1.mjs'
-        )
-      ).replaceAll('\\', '\\\\')}#Counter"}});
-`
-    )
-  })
-})
diff --git a/packages/vite/src/plugins/vite-plugin-rsc-transform.ts b/packages/vite/src/plugins/vite-plugin-rsc-transform-client.ts
similarity index 62%
rename from packages/vite/src/plugins/vite-plugin-rsc-transform.ts
rename to packages/vite/src/plugins/vite-plugin-rsc-transform-client.ts
index 996713506d01..8ec9ce1fd885 100644
--- a/packages/vite/src/plugins/vite-plugin-rsc-transform.ts
+++ b/packages/vite/src/plugins/vite-plugin-rsc-transform-client.ts
@@ -5,15 +5,15 @@ import type { Plugin } from 'vite'
 
 import { getPaths } from '@redwoodjs/project-config'
 
-export function rscTransformPlugin(
+export function rscTransformUseClientPlugin(
   clientEntryFiles: Record<string, string>,
 ): Plugin {
   return {
-    name: 'rsc-transform-plugin',
+    name: 'rsc-transform-use-client-plugin',
     transform: async function (code, id) {
       // Do a quick check for the exact string. If it doesn't exist, don't
       // bother parsing.
-      if (!code.includes('use client') && !code.includes('use server')) {
+      if (!code.includes('use client')) {
         return code
       }
 
@@ -57,7 +57,7 @@ export function rscTransformPlugin(
         }
       }
 
-      if (!useClient && !useServer) {
+      if (!useClient) {
         return code
       }
 
@@ -67,138 +67,18 @@ export function rscTransformPlugin(
         )
       }
 
-      let transformedCode: string
-
-      if (useClient) {
-        transformedCode = await transformClientModule(
-          code,
-          body,
-          id,
-          clientEntryFiles,
-        )
-      } else {
-        transformedCode = transformServerModule(code, body, id)
-      }
+      const transformedCode = await transformClientModule(
+        code,
+        body,
+        id,
+        clientEntryFiles,
+      )
 
       return transformedCode
     },
   }
 }
 
-function addLocalExportedNames(names: Map<string, string>, node: any) {
-  switch (node.type) {
-    case 'Identifier':
-      names.set(node.name, node.name)
-      return
-
-    case 'ObjectPattern':
-      for (let i = 0; i < node.properties.length; i++) {
-        addLocalExportedNames(names, node.properties[i])
-      }
-
-      return
-
-    case 'ArrayPattern':
-      for (let i = 0; i < node.elements.length; i++) {
-        const element = node.elements[i]
-        if (element) {
-          addLocalExportedNames(names, element)
-        }
-      }
-
-      return
-
-    case 'Property':
-      addLocalExportedNames(names, node.value)
-      return
-
-    case 'AssignmentPattern':
-      addLocalExportedNames(names, node.left)
-      return
-
-    case 'RestElement':
-      addLocalExportedNames(names, node.argument)
-      return
-
-    case 'ParenthesizedExpression':
-      addLocalExportedNames(names, node.expression)
-      return
-  }
-}
-
-function transformServerModule(source: string, body: any, url: string): string {
-  // If the same local name is exported more than once, we only need one of the names.
-  const localNames = new Map()
-  const localTypes = new Map()
-
-  for (let i = 0; i < body.length; i++) {
-    const node = body[i]
-
-    switch (node.type) {
-      case 'ExportAllDeclaration':
-        // If export * is used, the other file needs to explicitly opt into "use server" too.
-        break
-
-      case 'ExportDefaultDeclaration':
-        if (node.declaration.type === 'Identifier') {
-          localNames.set(node.declaration.name, 'default')
-        } else if (node.declaration.type === 'FunctionDeclaration') {
-          if (node.declaration.id) {
-            localNames.set(node.declaration.id.name, 'default')
-            localTypes.set(node.declaration.id.name, 'function')
-          }
-        }
-
-        continue
-
-      case 'ExportNamedDeclaration':
-        if (node.declaration) {
-          if (node.declaration.type === 'VariableDeclaration') {
-            const declarations = node.declaration.declarations
-
-            for (let j = 0; j < declarations.length; j++) {
-              addLocalExportedNames(localNames, declarations[j].id)
-            }
-          } else {
-            const name = node.declaration.id.name
-            localNames.set(name, name)
-
-            if (node.declaration.type === 'FunctionDeclaration') {
-              localTypes.set(name, 'function')
-            }
-          }
-        }
-
-        if (node.specifiers) {
-          const specifiers = node.specifiers
-
-          for (let j = 0; j < specifiers.length; j++) {
-            const specifier = specifiers[j]
-            localNames.set(specifier.local.name, specifier.exported.name)
-          }
-        }
-
-        continue
-    }
-  }
-
-  let newSrc = source + '\n\n;'
-  localNames.forEach(function (exported, local) {
-    if (localTypes.get(local) !== 'function') {
-      // We first check if the export is a function and if so annotate it.
-      newSrc += 'if (typeof ' + local + ' === "function") '
-    }
-
-    newSrc += 'Object.defineProperties(' + local + ',{'
-    newSrc += '$$typeof: {value: Symbol.for("react.server.reference")},'
-    newSrc += '$$id: {value: ' + JSON.stringify(url + '#' + exported) + '},'
-    newSrc += '$$bound: { value: null }'
-    newSrc += '});\n'
-  })
-
-  return newSrc
-}
-
 function addExportNames(names: Array<string>, node: any) {
   switch (node.type) {
     case 'Identifier':
diff --git a/packages/vite/src/plugins/vite-plugin-rsc-transform-server.ts b/packages/vite/src/plugins/vite-plugin-rsc-transform-server.ts
new file mode 100644
index 000000000000..92e683bdb520
--- /dev/null
+++ b/packages/vite/src/plugins/vite-plugin-rsc-transform-server.ts
@@ -0,0 +1,183 @@
+import * as acorn from 'acorn-loose'
+import type { Plugin } from 'vite'
+
+export function rscTransformUseServerPlugin(): Plugin {
+  return {
+    name: 'rsc-transform-use-server-plugin',
+    transform: async function (code, id) {
+      // Do a quick check for the exact string. If it doesn't exist, don't
+      // bother parsing.
+      if (!code.includes('use server')) {
+        return code
+      }
+
+      // TODO (RSC): Bad bad hack. Don't do this.
+      // At least look for something that's guaranteed to be only present in
+      // transformed modules
+      // Ideally don't even try to transform twice
+      if (code.includes('$$id')) {
+        // Already transformed
+        return code
+      }
+
+      let body
+
+      try {
+        body = acorn.parse(code, {
+          ecmaVersion: 2024,
+          sourceType: 'module',
+        }).body
+      } catch (x: any) {
+        console.error('Error parsing %s %s', id, x.message)
+        return code
+      }
+
+      let useClient = false
+      let useServer = false
+
+      for (let i = 0; i < body.length; i++) {
+        const node = body[i]
+
+        if (node.type !== 'ExpressionStatement' || !node.directive) {
+          break
+        }
+
+        if (node.directive === 'use client') {
+          useClient = true
+        }
+
+        if (node.directive === 'use server') {
+          useServer = true
+        }
+      }
+
+      if (!useServer) {
+        return code
+      }
+
+      if (useClient && useServer) {
+        throw new Error(
+          'Cannot have both "use client" and "use server" directives in the same file.',
+        )
+      }
+
+      const transformedCode = transformServerModule(body, id, code)
+
+      return transformedCode
+    },
+  }
+}
+
+function addLocalExportedNames(names: Map<string, string>, node: any) {
+  switch (node.type) {
+    case 'Identifier':
+      names.set(node.name, node.name)
+      return
+
+    case 'ObjectPattern':
+      for (let i = 0; i < node.properties.length; i++) {
+        addLocalExportedNames(names, node.properties[i])
+      }
+
+      return
+
+    case 'ArrayPattern':
+      for (let i = 0; i < node.elements.length; i++) {
+        const element = node.elements[i]
+        if (element) {
+          addLocalExportedNames(names, element)
+        }
+      }
+
+      return
+
+    case 'Property':
+      addLocalExportedNames(names, node.value)
+      return
+
+    case 'AssignmentPattern':
+      addLocalExportedNames(names, node.left)
+      return
+
+    case 'RestElement':
+      addLocalExportedNames(names, node.argument)
+      return
+
+    case 'ParenthesizedExpression':
+      addLocalExportedNames(names, node.expression)
+      return
+  }
+}
+
+function transformServerModule(body: any, url: string, code: string): string {
+  // If the same local name is exported more than once, we only need one of the names.
+  const localNames = new Map()
+  const localTypes = new Map()
+
+  for (let i = 0; i < body.length; i++) {
+    const node = body[i]
+
+    switch (node.type) {
+      case 'ExportAllDeclaration':
+        // If export * is used, the other file needs to explicitly opt into "use server" too.
+        break
+
+      case 'ExportDefaultDeclaration':
+        if (node.declaration.type === 'Identifier') {
+          localNames.set(node.declaration.name, 'default')
+        } else if (node.declaration.type === 'FunctionDeclaration') {
+          if (node.declaration.id) {
+            localNames.set(node.declaration.id.name, 'default')
+            localTypes.set(node.declaration.id.name, 'function')
+          }
+        }
+
+        continue
+
+      case 'ExportNamedDeclaration':
+        if (node.declaration) {
+          if (node.declaration.type === 'VariableDeclaration') {
+            const declarations = node.declaration.declarations
+
+            for (let j = 0; j < declarations.length; j++) {
+              addLocalExportedNames(localNames, declarations[j].id)
+            }
+          } else {
+            const name = node.declaration.id.name
+            localNames.set(name, name)
+
+            if (node.declaration.type === 'FunctionDeclaration') {
+              localTypes.set(name, 'function')
+            }
+          }
+        }
+
+        if (node.specifiers) {
+          const specifiers = node.specifiers
+
+          for (let j = 0; j < specifiers.length; j++) {
+            const specifier = specifiers[j]
+            localNames.set(specifier.local.name, specifier.exported.name)
+          }
+        }
+
+        continue
+    }
+  }
+
+  let newSrc = '"use server"\n' + code + '\n\n'
+  localNames.forEach(function (exported, local) {
+    if (localTypes.get(local) !== 'function') {
+      // We first check if the export is a function and if so annotate it.
+      newSrc += 'if (typeof ' + local + ' === "function") '
+    }
+
+    newSrc += 'Object.defineProperties(' + local + ',{'
+    newSrc += '$$typeof: {value: Symbol.for("react.server.reference")},'
+    newSrc += '$$id: {value: ' + JSON.stringify(url + '#' + exported) + '},'
+    newSrc += '$$bound: { value: null }'
+    newSrc += '});\n\n'
+  })
+
+  return newSrc
+}
diff --git a/packages/vite/src/rsc/rscBuildForServer.ts b/packages/vite/src/rsc/rscBuildForServer.ts
index 3e6c0a633036..053af9819cb7 100644
--- a/packages/vite/src/rsc/rscBuildForServer.ts
+++ b/packages/vite/src/rsc/rscBuildForServer.ts
@@ -5,7 +5,8 @@ import { build as viteBuild } from 'vite'
 import { getPaths } from '@redwoodjs/project-config'
 
 import { onWarn } from '../lib/onWarn.js'
-import { rscTransformPlugin } from '../plugins/vite-plugin-rsc-transform.js'
+import { rscTransformUseClientPlugin } from '../plugins/vite-plugin-rsc-transform-client.js'
+import { rscTransformUseServerPlugin } from '../plugins/vite-plugin-rsc-transform-server.js'
 
 /**
  * RSC build. Step 3.
@@ -83,7 +84,8 @@ export async function rscBuildForServer(
       // /Users/tobbe/.../rw-app/web/dist/server/assets/rsc0.js
       // That's why it needs the `clientEntryFiles` data
       // (It does other things as well, but that's why it needs clientEntryFiles)
-      rscTransformPlugin(clientEntryFiles),
+      rscTransformUseClientPlugin(clientEntryFiles),
+      rscTransformUseServerPlugin(),
     ],
     build: {
       ssr: true,
diff --git a/packages/vite/src/rsc/rscWorker.ts b/packages/vite/src/rsc/rscWorker.ts
index 95900c2eab74..e7d94490f039 100644
--- a/packages/vite/src/rsc/rscWorker.ts
+++ b/packages/vite/src/rsc/rscWorker.ts
@@ -22,7 +22,8 @@ import type { defineEntries, GetEntry } from '../entries.js'
 import { registerFwGlobals } from '../lib/registerGlobals.js'
 import { StatusError } from '../lib/StatusError.js'
 import { rscReloadPlugin } from '../plugins/vite-plugin-rsc-reload.js'
-import { rscTransformPlugin } from '../plugins/vite-plugin-rsc-transform.js'
+import { rscTransformUseClientPlugin } from '../plugins/vite-plugin-rsc-transform-client.js'
+import { rscTransformUseServerPlugin } from '../plugins/vite-plugin-rsc-transform-server.js'
 
 import type {
   RenderInput,
@@ -115,8 +116,9 @@ const handleRender = async ({ id, input }: MessageReq & { type: 'render' }) => {
 // server. So we have to register them here again.
 registerFwGlobals()
 
-// TODO: this was copied from waku; they have a todo to remove it.
-// We need this to fix a WebSocket error in dev, `WebSocket server error: Port is already in use`.
+// TODO (RSC): this was copied from waku; they have a todo to remove it.
+// We need this to fix a WebSocket error in dev, `WebSocket server error: Port
+// is already in use`.
 const dummyServer = new Server()
 
 // TODO (RSC): `createServer` is mostly used to create a dev server. Is it OK
@@ -135,7 +137,8 @@ const vitePromise = createServer({
       const message: MessageRes = { type }
       parentPort.postMessage(message)
     }),
-    rscTransformPlugin({}),
+    rscTransformUseClientPlugin({}),
+    rscTransformUseServerPlugin(),
   ],
   ssr: {
     resolve: {