diff --git a/sytest-whitelist b/sytest-whitelist
index f4311d33..bb4f0a27 100644
--- a/sytest-whitelist
+++ b/sytest-whitelist
@@ -758,4 +758,7 @@ Can get rooms/{roomId}/members at a given point
 Can filter rooms/{roomId}/members
 Current state appears in timeline in private history with many messages after
 AS can publish rooms in their own list
-AS and main public room lists are separate
\ No newline at end of file
+AS and main public room lists are separate
+/upgrade preserves direct room state
+local user has tags copied to the new room
+remote user has tags copied to the new room
\ No newline at end of file
diff --git a/userapi/consumers/roomserver.go b/userapi/consumers/roomserver.go
index 97c17e18..b6b30a09 100644
--- a/userapi/consumers/roomserver.go
+++ b/userapi/consumers/roomserver.go
@@ -2,12 +2,16 @@ package consumers
 
 import (
 	"context"
+	"database/sql"
 	"encoding/json"
+	"errors"
 	"fmt"
 	"strings"
 	"sync"
 	"time"
 
+	"github.com/tidwall/gjson"
+
 	"github.com/matrix-org/gomatrixserverlib"
 	"github.com/nats-io/nats.go"
 	log "github.com/sirupsen/logrus"
@@ -185,13 +189,115 @@ func (s *OutputRoomEventConsumer) storeMessageStats(ctx context.Context, eventTy
 	}
 }
 
+func (s *OutputRoomEventConsumer) handleRoomUpgrade(ctx context.Context, oldRoomID, newRoomID string, localMembers []*localMembership, roomSize int) error {
+	for _, membership := range localMembers {
+		// Copy any existing push rules from old -> new room
+		if err := s.copyPushrules(ctx, oldRoomID, newRoomID, membership.Localpart); err != nil {
+			return err
+		}
+
+		// preserve m.direct room state
+		if err := s.updateMDirect(ctx, oldRoomID, newRoomID, membership.Localpart, roomSize); err != nil {
+			return err
+		}
+
+		// copy existing m.tag entries, if any
+		if err := s.copyTags(ctx, oldRoomID, newRoomID, membership.Localpart); err != nil {
+			return err
+		}
+	}
+	return nil
+}
+
+func (s *OutputRoomEventConsumer) copyPushrules(ctx context.Context, oldRoomID, newRoomID string, localpart string) error {
+	pushRules, err := s.db.QueryPushRules(ctx, localpart)
+	if err != nil {
+		return fmt.Errorf("failed to query pushrules for user: %w", err)
+	}
+	if pushRules == nil {
+		return nil
+	}
+
+	for _, roomRule := range pushRules.Global.Room {
+		if roomRule.RuleID != oldRoomID {
+			continue
+		}
+		cpRool := *roomRule
+		cpRool.RuleID = newRoomID
+		pushRules.Global.Room = append(pushRules.Global.Room, &cpRool)
+		rules, err := json.Marshal(pushRules)
+		if err != nil {
+			return err
+		}
+		if err = s.db.SaveAccountData(ctx, localpart, "", "m.push_rules", rules); err != nil {
+			return fmt.Errorf("failed to update pushrules: %w", err)
+		}
+	}
+	return nil
+}
+
+// updateMDirect copies the "is_direct" flag from oldRoomID to newROomID
+func (s *OutputRoomEventConsumer) updateMDirect(ctx context.Context, oldRoomID, newRoomID, localpart string, roomSize int) error {
+	// this is most likely not a DM, so skip updating m.direct state
+	if roomSize > 2 {
+		return nil
+	}
+	// Get direct message state
+	directChatsRaw, err := s.db.GetAccountDataByType(ctx, localpart, "", "m.direct")
+	if err != nil {
+		return fmt.Errorf("failed to get m.direct from database: %w", err)
+	}
+	directChats := gjson.ParseBytes(directChatsRaw)
+	newDirectChats := make(map[string][]string)
+	// iterate over all userID -> roomIDs
+	directChats.ForEach(func(userID, roomIDs gjson.Result) bool {
+		var found bool
+		for _, roomID := range roomIDs.Array() {
+			newDirectChats[userID.Str] = append(newDirectChats[userID.Str], roomID.Str)
+			// add the new roomID to m.direct
+			if roomID.Str == oldRoomID {
+				found = true
+				newDirectChats[userID.Str] = append(newDirectChats[userID.Str], newRoomID)
+			}
+		}
+		// Only hit the database if we found the old room as a DM for this user
+		if found {
+			var data []byte
+			data, err = json.Marshal(newDirectChats)
+			if err != nil {
+				return true
+			}
+			if err = s.db.SaveAccountData(ctx, localpart, "", "m.direct", data); err != nil {
+				return true
+			}
+		}
+		return true
+	})
+	if err != nil {
+		return fmt.Errorf("failed to update m.direct state")
+	}
+	return nil
+}
+
+func (s *OutputRoomEventConsumer) copyTags(ctx context.Context, oldRoomID, newRoomID, localpart string) error {
+	tag, err := s.db.GetAccountDataByType(ctx, localpart, oldRoomID, "m.tag")
+	if err != nil && !errors.Is(err, sql.ErrNoRows) {
+		return err
+	}
+	if tag == nil {
+		return nil
+	}
+	return s.db.SaveAccountData(ctx, localpart, newRoomID, "m.tag", tag)
+}
+
 func (s *OutputRoomEventConsumer) processMessage(ctx context.Context, event *gomatrixserverlib.HeaderedEvent, streamPos uint64) error {
 	members, roomSize, err := s.localRoomMembers(ctx, event.RoomID())
 	if err != nil {
 		return fmt.Errorf("s.localRoomMembers: %w", err)
 	}
 
-	if event.Type() == gomatrixserverlib.MRoomMember {
+	switch {
+	case event.Type() == gomatrixserverlib.MRoomMember:
 		cevent := gomatrixserverlib.HeaderedToClientEvent(event, gomatrixserverlib.FormatAll)
 		var member *localMembership
 		member, err = newLocalMembership(&cevent)
@@ -203,6 +309,15 @@ func (s *OutputRoomEventConsumer) processMessage(ctx context.Context, event *gom
 			// should also be pushed to the target user.
 			members = append(members, member)
 		}
+	case event.Type() == "m.room.tombstone" && event.StateKeyEquals(""):
+		// Handle room upgrades
+		oldRoomID := event.RoomID()
+		newRoomID := gjson.GetBytes(event.Content(), "replacement_room").Str
+		if err = s.handleRoomUpgrade(ctx, oldRoomID, newRoomID, members, roomSize); err != nil {
+			// while inconvenient, this shouldn't stop us from sending push notifications
+			log.WithError(err).Errorf("UserAPI: failed to handle room upgrade for users")
+		}
+
 	}
 
 	// TODO: run in parallel with localRoomMembers.