diff --git a/src/core/CodeActionProvider.ts b/src/core/CodeActionProvider.ts
new file mode 100644
index 0000000..11bafdb
--- /dev/null
+++ b/src/core/CodeActionProvider.ts
@@ -0,0 +1,181 @@
+import * as vscode from 'vscode';
+import * as path from 'path';
+
+const ACTION_NAMES = {
+    EXPLAIN: 'Roo Cline: Explain Code',
+    FIX: 'Roo Cline: Fix Code',
+    IMPROVE: 'Roo Cline: Improve Code'
+} as const;
+
+const COMMAND_IDS = {
+    EXPLAIN: 'roo-cline.explainCode',
+    FIX: 'roo-cline.fixCode',
+    IMPROVE: 'roo-cline.improveCode'
+} as const;
+
+interface DiagnosticData {
+    message: string;
+    severity: vscode.DiagnosticSeverity;
+    code?: string | number | { value: string | number; target: vscode.Uri };
+    source?: string;
+    range: vscode.Range;
+}
+
+interface EffectiveRange {
+    range: vscode.Range;
+    text: string;
+}
+
+export class CodeActionProvider implements vscode.CodeActionProvider {
+    public static readonly providedCodeActionKinds = [
+        vscode.CodeActionKind.QuickFix,
+        vscode.CodeActionKind.RefactorRewrite,
+    ];
+
+    // Cache file paths for performance
+    private readonly filePathCache = new WeakMap<vscode.TextDocument, string>();
+
+    private getEffectiveRange(
+        document: vscode.TextDocument,
+        range: vscode.Range | vscode.Selection
+    ): EffectiveRange | null {
+        try {
+            const selectedText = document.getText(range);
+            if (selectedText) {
+                return { range, text: selectedText };
+            }
+
+            const currentLine = document.lineAt(range.start.line);
+            if (!currentLine.text.trim()) {
+                return null;
+            }
+
+            // Optimize range creation by checking bounds first
+            const startLine = Math.max(0, currentLine.lineNumber - 1);
+            const endLine = Math.min(document.lineCount - 1, currentLine.lineNumber + 1);
+            
+            // Only create new positions if needed
+            const effectiveRange = new vscode.Range(
+                startLine === currentLine.lineNumber ? range.start : new vscode.Position(startLine, 0),
+                endLine === currentLine.lineNumber ? range.end : new vscode.Position(endLine, document.lineAt(endLine).text.length)
+            );
+
+            return {
+                range: effectiveRange,
+                text: document.getText(effectiveRange)
+            };
+        } catch (error) {
+            console.error('Error getting effective range:', error);
+            return null;
+        }
+    }
+
+    private getFilePath(document: vscode.TextDocument): string {
+        // Check cache first
+        let filePath = this.filePathCache.get(document);
+        if (filePath) {
+            return filePath;
+        }
+
+        try {
+            const workspaceFolder = vscode.workspace.getWorkspaceFolder(document.uri);
+            if (!workspaceFolder) {
+                filePath = document.uri.fsPath;
+            } else {
+                const relativePath = path.relative(workspaceFolder.uri.fsPath, document.uri.fsPath);
+                filePath = (!relativePath || relativePath.startsWith('..')) ? document.uri.fsPath : relativePath;
+            }
+
+            // Cache the result
+            this.filePathCache.set(document, filePath);
+            return filePath;
+        } catch (error) {
+            console.error('Error getting file path:', error);
+            return document.uri.fsPath;
+        }
+    }
+
+    private createDiagnosticData(diagnostic: vscode.Diagnostic): DiagnosticData {
+        return {
+            message: diagnostic.message,
+            severity: diagnostic.severity,
+            code: diagnostic.code,
+            source: diagnostic.source,
+            range: diagnostic.range // Reuse the range object
+        };
+    }
+
+    private createAction(
+        title: string,
+        kind: vscode.CodeActionKind,
+        command: string,
+        args: any[]
+    ): vscode.CodeAction {
+        const action = new vscode.CodeAction(title, kind);
+        action.command = { command, title, arguments: args };
+        return action;
+    }
+
+    private hasIntersectingRange(range1: vscode.Range, range2: vscode.Range): boolean {
+        // Optimize range intersection check
+        return !(
+            range2.end.line < range1.start.line ||
+            range2.start.line > range1.end.line ||
+            (range2.end.line === range1.start.line && range2.end.character < range1.start.character) ||
+            (range2.start.line === range1.end.line && range2.start.character > range1.end.character)
+        );
+    }
+
+    public provideCodeActions(
+        document: vscode.TextDocument,
+        range: vscode.Range | vscode.Selection,
+        context: vscode.CodeActionContext
+    ): vscode.ProviderResult<(vscode.CodeAction | vscode.Command)[]> {
+        try {
+            const effectiveRange = this.getEffectiveRange(document, range);
+            if (!effectiveRange) {
+                return [];
+            }
+
+            const filePath = this.getFilePath(document);
+            const actions: vscode.CodeAction[] = [];
+
+            // Create actions using helper method
+            actions.push(this.createAction(
+                ACTION_NAMES.EXPLAIN,
+                vscode.CodeActionKind.QuickFix,
+                COMMAND_IDS.EXPLAIN,
+                [filePath, effectiveRange.text]
+            ));
+
+            // Only process diagnostics if they exist
+            if (context.diagnostics.length > 0) {
+                const relevantDiagnostics = context.diagnostics.filter(d =>
+                    this.hasIntersectingRange(effectiveRange.range, d.range)
+                );
+
+                if (relevantDiagnostics.length > 0) {
+                    const diagnosticMessages = relevantDiagnostics.map(this.createDiagnosticData);
+                    actions.push(this.createAction(
+                        ACTION_NAMES.FIX,
+                        vscode.CodeActionKind.QuickFix,
+                        COMMAND_IDS.FIX,
+                        [filePath, effectiveRange.text, diagnosticMessages]
+                    ));
+                }
+            }
+
+            actions.push(this.createAction(
+                ACTION_NAMES.IMPROVE,
+                vscode.CodeActionKind.RefactorRewrite,
+                COMMAND_IDS.IMPROVE,
+                [filePath, effectiveRange.text]
+            ));
+
+            return actions;
+        } catch (error) {
+            console.error('Error providing code actions:', error);
+            return [];
+        }
+    }
+}
\ No newline at end of file
diff --git a/src/core/__tests__/CodeActionProvider.test.ts b/src/core/__tests__/CodeActionProvider.test.ts
new file mode 100644
index 0000000..cdc1acf
--- /dev/null
+++ b/src/core/__tests__/CodeActionProvider.test.ts
@@ -0,0 +1,145 @@
+import * as vscode from 'vscode';
+import { CodeActionProvider } from '../CodeActionProvider';
+
+// Mock VSCode API
+jest.mock('vscode', () => ({
+    CodeAction: jest.fn().mockImplementation((title, kind) => ({
+        title,
+        kind,
+        command: undefined
+    })),
+    CodeActionKind: {
+        QuickFix: { value: 'quickfix' },
+        RefactorRewrite: { value: 'refactor.rewrite' }
+    },
+    Range: jest.fn().mockImplementation((startLine, startChar, endLine, endChar) => ({
+        start: { line: startLine, character: startChar },
+        end: { line: endLine, character: endChar }
+    })),
+    Position: jest.fn().mockImplementation((line, character) => ({
+        line,
+        character
+    })),
+    workspace: {
+        getWorkspaceFolder: jest.fn()
+    },
+    DiagnosticSeverity: {
+        Error: 0,
+        Warning: 1,
+        Information: 2,
+        Hint: 3
+    }
+}));
+
+describe('CodeActionProvider', () => {
+    let provider: CodeActionProvider;
+    let mockDocument: any;
+    let mockRange: any;
+    let mockContext: any;
+
+    beforeEach(() => {
+        provider = new CodeActionProvider();
+        
+        // Mock document
+        mockDocument = {
+            getText: jest.fn(),
+            lineAt: jest.fn(),
+            lineCount: 10,
+            uri: { fsPath: '/test/file.ts' }
+        };
+
+        // Mock range
+        mockRange = new vscode.Range(0, 0, 0, 10);
+
+        // Mock context
+        mockContext = {
+            diagnostics: []
+        };
+    });
+
+    describe('getEffectiveRange', () => {
+        it('should return selected text when available', () => {
+            mockDocument.getText.mockReturnValue('selected text');
+            
+            const result = (provider as any).getEffectiveRange(mockDocument, mockRange);
+            
+            expect(result).toEqual({
+                range: mockRange,
+                text: 'selected text'
+            });
+        });
+
+        it('should return null for empty line', () => {
+            mockDocument.getText.mockReturnValue('');
+            mockDocument.lineAt.mockReturnValue({ text: '', lineNumber: 0 });
+            
+            const result = (provider as any).getEffectiveRange(mockDocument, mockRange);
+            
+            expect(result).toBeNull();
+        });
+    });
+
+    describe('getFilePath', () => {
+        it('should return relative path when in workspace', () => {
+            const mockWorkspaceFolder = {
+                uri: { fsPath: '/test' }
+            };
+            (vscode.workspace.getWorkspaceFolder as jest.Mock).mockReturnValue(mockWorkspaceFolder);
+            
+            const result = (provider as any).getFilePath(mockDocument);
+            
+            expect(result).toBe('file.ts');
+        });
+
+        it('should return absolute path when not in workspace', () => {
+            (vscode.workspace.getWorkspaceFolder as jest.Mock).mockReturnValue(null);
+            
+            const result = (provider as any).getFilePath(mockDocument);
+            
+            expect(result).toBe('/test/file.ts');
+        });
+    });
+
+    describe('provideCodeActions', () => {
+        beforeEach(() => {
+            mockDocument.getText.mockReturnValue('test code');
+            mockDocument.lineAt.mockReturnValue({ text: 'test code', lineNumber: 0 });
+        });
+
+        it('should provide explain and improve actions by default', () => {
+            const actions = provider.provideCodeActions(mockDocument, mockRange, mockContext);
+            
+            expect(actions).toHaveLength(2);
+            expect((actions as any)[0].title).toBe('Roo Cline: Explain Code');
+            expect((actions as any)[1].title).toBe('Roo Cline: Improve Code');
+        });
+
+        it('should provide fix action when diagnostics exist', () => {
+            mockContext.diagnostics = [{
+                message: 'test error',
+                severity: vscode.DiagnosticSeverity.Error,
+                range: mockRange
+            }];
+            
+            const actions = provider.provideCodeActions(mockDocument, mockRange, mockContext);
+            
+            expect(actions).toHaveLength(3);
+            expect((actions as any).some((a: any) => a.title === 'Roo Cline: Fix Code')).toBe(true);
+        });
+
+        it('should handle errors gracefully', () => {
+            const consoleErrorSpy = jest.spyOn(console, 'error').mockImplementation(() => {});
+            mockDocument.getText.mockImplementation(() => {
+                throw new Error('Test error');
+            });
+            mockDocument.lineAt.mockReturnValue({ text: 'test', lineNumber: 0 });
+            
+            const actions = provider.provideCodeActions(mockDocument, mockRange, mockContext);
+            
+            expect(actions).toEqual([]);
+            expect(consoleErrorSpy).toHaveBeenCalledWith('Error getting effective range:', expect.any(Error));
+            
+            consoleErrorSpy.mockRestore();
+        });
+    });
+});
\ No newline at end of file