diff --git a/src/VisualStudio/Core/Def/Implementation/ProjectSystem/VisualStudioWorkspaceImpl.cs b/src/VisualStudio/Core/Def/Implementation/ProjectSystem/VisualStudioWorkspaceImpl.cs
index 43100069747706e99c167ba15dd3c7feeaa2adbf..2687b3b81cf07c2ad2abe1851b6cd0f6fae4e240 100644
--- a/src/VisualStudio/Core/Def/Implementation/ProjectSystem/VisualStudioWorkspaceImpl.cs
+++ b/src/VisualStudio/Core/Def/Implementation/ProjectSystem/VisualStudioWorkspaceImpl.cs
@@ -1661,6 +1661,12 @@ private bool CanConvertMetadataReferenceToProjectReference_NoLock(ProjectId proj
                 }
             }
 
+            // If this is going to cause a circular reference, also disallow it
+            if (CurrentSolution.GetProjectDependencyGraph().GetProjectsThatThisProjectTransitivelyDependsOn(referencedProjectId).Contains(projectIdWithMetadataReference))
+            {
+                return false;
+            }
+
             return true;
         }
 
diff --git a/src/VisualStudio/Core/Test/ProjectSystemShim/VisualStudioProjectTests/MetadataToProjectReferenceConversionTests.vb b/src/VisualStudio/Core/Test/ProjectSystemShim/VisualStudioProjectTests/MetadataToProjectReferenceConversionTests.vb
index 1be9c7d733cf595c9276364c871187d6c35e84c3..dd922ea8685269622fede18e424ee322aa066614 100644
--- a/src/VisualStudio/Core/Test/ProjectSystemShim/VisualStudioProjectTests/MetadataToProjectReferenceConversionTests.vb
+++ b/src/VisualStudio/Core/Test/ProjectSystemShim/VisualStudioProjectTests/MetadataToProjectReferenceConversionTests.vb
@@ -262,5 +262,49 @@ Namespace Microsoft.VisualStudio.LanguageServices.UnitTests.ProjectSystemShim
                 Assert.Empty(getReferencingProject().MetadataReferences)
             End Using
         End Sub
+
+        <WpfFact>
+        <WorkItem(39904, "https://github.com/dotnet/roslyn/issues/39904")>
+        Public Sub MetadataReferenceCycleDoesNotCreateProjectReferenceCycleWhenAddingReferencesFirst()
+            Using environment = New TestEnvironment()
+                Dim project1 = environment.ProjectFactory.CreateAndAddToWorkspace("project1", LanguageNames.CSharp)
+                Dim project2 = environment.ProjectFactory.CreateAndAddToWorkspace("project2", LanguageNames.CSharp)
+
+                Const ReferencePath1 = "C:\project1.dll"
+                Const ReferencePath2 = "C:\project2.dll"
+
+                project1.AddMetadataReference(ReferencePath2, MetadataReferenceProperties.Assembly)
+                project2.AddMetadataReference(ReferencePath1, MetadataReferenceProperties.Assembly)
+
+                project1.OutputFilePath = ReferencePath1
+                project2.OutputFilePath = ReferencePath2
+
+                ' Remove both from the workspace to ensure we aren't in a corrupted state somehow where removal will break further
+                project1.RemoveFromWorkspace()
+                project2.RemoveFromWorkspace()
+            End Using
+        End Sub
+
+        <WpfFact>
+        <WorkItem(39904, "https://github.com/dotnet/roslyn/issues/39904")>
+        Public Sub MetadataReferenceCycleDoesNotCreateProjectReferenceCycleWhenSettingOutputPathsFirst()
+            Using environment = New TestEnvironment()
+                Dim project1 = environment.ProjectFactory.CreateAndAddToWorkspace("project1", LanguageNames.CSharp)
+                Dim project2 = environment.ProjectFactory.CreateAndAddToWorkspace("project2", LanguageNames.CSharp)
+
+                Const ReferencePath1 = "C:\project1.dll"
+                Const ReferencePath2 = "C:\project2.dll"
+
+                project1.OutputFilePath = ReferencePath1
+                project2.OutputFilePath = ReferencePath2
+
+                project1.AddMetadataReference(ReferencePath2, MetadataReferenceProperties.Assembly)
+                project2.AddMetadataReference(ReferencePath1, MetadataReferenceProperties.Assembly)
+
+                ' Remove both from the workspace to ensure we aren't in a corrupted state somehow where removal will break further
+                project1.RemoveFromWorkspace()
+                project2.RemoveFromWorkspace()
+            End Using
+        End Sub
     End Class
 End Namespace