diff --git a/tests/net/lib/lwm2m/engine/CMakeLists.txt b/tests/net/lib/lwm2m/observation/CMakeLists.txt
similarity index 100%
rename from tests/net/lib/lwm2m/engine/CMakeLists.txt
rename to tests/net/lib/lwm2m/observation/CMakeLists.txt
diff --git a/tests/net/lib/lwm2m/engine/prj.conf b/tests/net/lib/lwm2m/observation/prj.conf
similarity index 100%
rename from tests/net/lib/lwm2m/engine/prj.conf
rename to tests/net/lib/lwm2m/observation/prj.conf
diff --git a/tests/net/lib/lwm2m/engine/src/lwm2m_observation.c b/tests/net/lib/lwm2m/observation/src/lwm2m_observation.c
similarity index 100%
rename from tests/net/lib/lwm2m/engine/src/lwm2m_observation.c
rename to tests/net/lib/lwm2m/observation/src/lwm2m_observation.c
diff --git a/tests/net/lib/lwm2m/engine/testcase.yaml b/tests/net/lib/lwm2m/observation/testcase.yaml
similarity index 83%
rename from tests/net/lib/lwm2m/engine/testcase.yaml
rename to tests/net/lib/lwm2m/observation/testcase.yaml
index b13ecef4753..cacebf227a6 100644
--- a/tests/net/lib/lwm2m/engine/testcase.yaml
+++ b/tests/net/lib/lwm2m/observation/testcase.yaml
@@ -1,5 +1,5 @@
 tests:
-  net.lwm2m.engine:
+  net.lwm2m.observation:
     platform_key:
       - simulation
     tags: