diff --git a/src/host/reconcile.ts b/src/host/reconcile.ts
index a740448..2266441 100644
--- a/src/host/reconcile.ts
+++ b/src/host/reconcile.ts
@@ -2,7 +2,7 @@ import { effect } from "@preact/signals-core";
 import type { Fiber, Effect } from "./fiber.js";
 import type { HostConfig } from "./config.js";
 import type { UNode, UElement } from "../core/schema.js";
-import { isUPrimitive, isURoot } from "../core/schema.js";
+import { isUPrimitive, isURoot, isUElement } from "../core/schema.js";
 
 interface PendingUpdate {
   fiber: Fiber<unknown>;
@@ -154,4 +154,118 @@ export function wireSignalToFiber<I>(
 export function resetUpdateQueue(): void {
   pendingUpdates = [];
   flushScheduled = false;
+}
+
+export interface MatchedChild<I> {
+  oldFiber: Fiber<I>;
+  newChild: UElement;
+  index: number;
+}
+
+export interface ChildClassification<I> {
+  matched: MatchedChild<I>[];
+  added: { newChild: UElement; index: number }[];
+  removed: Fiber<I>[];
+}
+
+export function reconcileChildren<I>(
+  oldFibers: Fiber<I>[],
+  newChildren: UNode[],
+): ChildClassification<I> {
+  const matched: MatchedChild<I>[] = [];
+  const added: { newChild: UElement; index: number }[] = [];
+  const removed: Fiber<I>[] = [];
+
+  const oldKeyMap = new Map<string, Fiber<I>>();
+  const displacedOldFibers: Fiber<I>[] = [];
+  for (const fiber of oldFibers) {
+    if (fiber.key !== undefined) {
+      if (oldKeyMap.has(fiber.key)) {
+        console.warn(`Duplicate key "${fiber.key}" among old children; last-wins`);
+        displacedOldFibers.push(oldKeyMap.get(fiber.key)!);
+      }
+      oldKeyMap.set(fiber.key, fiber);
+    }
+  }
+
+  const matchedOldKeys = new Set<string>();
+  const unkeyedOldUsed = new Set<number>();
+  let unkeyedOldCursor = 0;
+
+  const seenNewKeys = new Map<string, number>();
+
+  for (let i = 0; i < newChildren.length; i++) {
+    const child = newChildren[i]!;
+    if (!isUElement(child)) continue;
+
+    if (child.key !== undefined) {
+      const prevIdx = seenNewKeys.get(child.key);
+      if (prevIdx !== undefined) {
+        console.warn(`Duplicate key "${child.key}" among new children; last-wins`);
+        const prevMatch = matched.findIndex((m) => m.newChild.key === child.key && m.index === prevIdx);
+        if (prevMatch !== -1) {
+          const oldFiber = matched[prevMatch]!.oldFiber;
+          removed.push(oldFiber);
+          matched.splice(prevMatch, 1);
+        }
+      }
+      seenNewKeys.set(child.key, i);
+
+      const oldFiber = oldKeyMap.get(child.key);
+      if (oldFiber !== undefined) {
+        matchedOldKeys.add(child.key);
+        if (oldFiber.tag === child.type) {
+          matched.push({ oldFiber, newChild: child, index: i });
+        } else {
+          removed.push(oldFiber);
+          added.push({ newChild: child, index: i });
+        }
+      } else {
+        added.push({ newChild: child, index: i });
+      }
+    } else {
+      let matchedOld: Fiber<I> | null = null;
+      let matchedOldIdx = -1;
+      for (let j = unkeyedOldCursor; j < oldFibers.length; j++) {
+        if (!unkeyedOldUsed.has(j) && oldFibers[j]!.key === undefined) {
+          matchedOld = oldFibers[j]!;
+          matchedOldIdx = j;
+          break;
+        }
+      }
+      if (matchedOld !== null) {
+        unkeyedOldUsed.add(matchedOldIdx);
+        unkeyedOldCursor = matchedOldIdx + 1;
+        if (matchedOld.tag === child.type) {
+          matched.push({ oldFiber: matchedOld, newChild: child, index: i });
+        } else {
+          removed.push(matchedOld);
+          added.push({ newChild: child, index: i });
+        }
+      } else {
+        added.push({ newChild: child, index: i });
+      }
+    }
+  }
+
+  for (let i = 0; i < oldFibers.length; i++) {
+    const fiber = oldFibers[i]!;
+    if (fiber.key !== undefined) {
+      if (!matchedOldKeys.has(fiber.key)) {
+        removed.push(fiber);
+      }
+    } else {
+      if (!unkeyedOldUsed.has(i)) {
+        removed.push(fiber);
+      }
+    }
+  }
+
+  for (const displaced of displacedOldFibers) {
+    if (matchedOldKeys.has(displaced.key!)) {
+      removed.push(displaced);
+    }
+  }
+
+  return { matched, added, removed };
 }
\ No newline at end of file
diff --git a/src/mod.ts b/src/mod.ts
index 748ba33..24334cc 100644
--- a/src/mod.ts
+++ b/src/mod.ts
@@ -21,7 +21,8 @@ export type { HostConfig, Root } from "./host/config.js";
 
 export type { Fiber, Effect } from "./host/fiber.js";
 
-export { scheduleUpdate, flushUpdates, reconcileProps, commitEffects, wireSignalToFiber, resetUpdateQueue } from "./host/reconcile.js";
+export { scheduleUpdate, flushUpdates, reconcileProps, commitEffects, wireSignalToFiber, resetUpdateQueue, reconcileChildren } from "./host/reconcile.js";
+export type { MatchedChild, ChildClassification } from "./host/reconcile.js";
 
 export { TransformRegistry, childCtx, matchesSchema, ctx as transformCtx } from "./transform/registry.js";
 export type { TransformContext, TransformFn, TransformRule } from "./transform/registry.js";
\ No newline at end of file
diff --git a/test/key-matching-algorithm.test.ts b/test/key-matching-algorithm.test.ts
new file mode 100644
index 0000000..b5c110c
--- /dev/null
+++ b/test/key-matching-algorithm.test.ts
@@ -0,0 +1,226 @@
+import { describe, it, expect, vi } from "vitest";
+import type { Fiber } from "../src/host/fiber.js";
+import type { UNode } from "../src/core/schema.js";
+import { reconcileChildren } from "../src/host/reconcile.js";
+
+function makeFiber(key: string | undefined, tag: string): Fiber<string> {
+  return {
+    instance: `inst-${tag}-${key ?? "nokey"}`,
+    tag,
+    props: {},
+    key,
+    children: [],
+    parent: null,
+    effect: null,
+    signalDisposers: [],
+    prevProps: null,
+  };
+}
+
+function makeElement(type: string, key?: string): UNode {
+  return { type, props: {}, children: [], ...(key !== undefined ? { key } : {}) };
+}
+
+describe("reconcileChildren", () => {
+  it("keyed children reordered → matched correctly by key", () => {
+    const oldFibers = [
+      makeFiber("a", "div"),
+      makeFiber("b", "span"),
+      makeFiber("c", "p"),
+    ];
+    const newChildren = [
+      makeElement("p", "c"),
+      makeElement("div", "a"),
+      makeElement("span", "b"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(3);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(0);
+
+    expect(result.matched[0]!.oldFiber.key).toBe("c");
+    expect(result.matched[1]!.oldFiber.key).toBe("a");
+    expect(result.matched[2]!.oldFiber.key).toBe("b");
+  });
+
+  it("keyed child added at start → old children matched, new child added", () => {
+    const oldFibers = [
+      makeFiber("b", "span"),
+      makeFiber("c", "p"),
+    ];
+    const newChildren = [
+      makeElement("div", "a"),
+      makeElement("span", "b"),
+      makeElement("p", "c"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(2);
+    expect(result.added).toHaveLength(1);
+    expect(result.removed).toHaveLength(0);
+
+    expect(result.added[0]!.newChild.key).toBe("a");
+    expect(result.matched[0]!.oldFiber.key).toBe("b");
+    expect(result.matched[1]!.oldFiber.key).toBe("c");
+  });
+
+  it("keyed child removed → classified as removed", () => {
+    const oldFibers = [
+      makeFiber("a", "div"),
+      makeFiber("b", "span"),
+      makeFiber("c", "p"),
+    ];
+    const newChildren = [
+      makeElement("div", "a"),
+      makeElement("p", "c"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(2);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(1);
+
+    expect(result.removed[0]!.key).toBe("b");
+  });
+
+  it("mixed keyed and unkeyed children → key-based for keyed, positional for unkeyed", () => {
+    const oldFibers = [
+      makeFiber("a", "div"),
+      makeFiber(undefined, "span"),
+      makeFiber(undefined, "p"),
+      makeFiber("b", "section"),
+    ];
+    const newChildren = [
+      makeElement("span"),
+      makeElement("section", "b"),
+      makeElement("p"),
+      makeElement("div", "a"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(4);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(0);
+
+    const matchedKeys = result.matched.map((m) => m.oldFiber.key);
+    expect(matchedKeys).toContain("a");
+    expect(matchedKeys).toContain("b");
+    expect(matchedKeys).toContain(undefined);
+    expect(result.matched.filter((m) => m.oldFiber.key === undefined)).toHaveLength(2);
+  });
+
+  it("duplicate key → last-wins, no crash", () => {
+    const warnSpy = vi.spyOn(console, "warn").mockImplementation(() => {});
+    const oldFibers = [
+      makeFiber("a", "div"),
+      makeFiber("a", "span"),
+    ];
+    const newChildren = [
+      makeElement("span", "a"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(1);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(1);
+
+    expect(result.matched[0]!.oldFiber.tag).toBe("span");
+    expect(result.removed[0]!.tag).toBe("div");
+    expect(warnSpy).toHaveBeenCalled();
+    warnSpy.mockRestore();
+  });
+
+  it("duplicate key among new children → last-wins", () => {
+    const warnSpy = vi.spyOn(console, "warn").mockImplementation(() => {});
+    const oldFibers = [
+      makeFiber("a", "div"),
+    ];
+    const newChildren = [
+      makeElement("div", "a"),
+      makeElement("div", "a"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(1);
+    expect(result.matched[0]!.newChild.key).toBe("a");
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(1);
+    expect(warnSpy).toHaveBeenCalled();
+    warnSpy.mockRestore();
+  });
+
+  it("matched with different type → old removed, new added", () => {
+    const oldFibers = [
+      makeFiber("a", "div"),
+    ];
+    const newChildren = [
+      makeElement("span", "a"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(0);
+    expect(result.added).toHaveLength(1);
+    expect(result.removed).toHaveLength(1);
+
+    expect(result.added[0]!.newChild.type).toBe("span");
+    expect(result.removed[0]!.tag).toBe("div");
+  });
+
+  it("unkeyed children with type change → old removed, new added", () => {
+    const oldFibers = [
+      makeFiber(undefined, "div"),
+    ];
+    const newChildren = [
+      makeElement("span"),
+    ];
+    const result = reconcileChildren(oldFibers, newChildren);
+
+    expect(result.matched).toHaveLength(0);
+    expect(result.added).toHaveLength(1);
+    expect(result.removed).toHaveLength(1);
+  });
+
+  it("returns empty classification for empty inputs", () => {
+    const result = reconcileChildren([], []);
+    expect(result.matched).toHaveLength(0);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(0);
+  });
+
+  it("all old children removed when new children is empty", () => {
+    const oldFibers = [makeFiber("a", "div"), makeFiber("b", "span")];
+    const result = reconcileChildren(oldFibers, []);
+    expect(result.matched).toHaveLength(0);
+    expect(result.added).toHaveLength(0);
+    expect(result.removed).toHaveLength(2);
+  });
+
+  it("all new children added when old children is empty", () => {
+    const newChildren = [makeElement("div", "a"), makeElement("span", "b")];
+    const result = reconcileChildren([], newChildren);
+    expect(result.matched).toHaveLength(0);
+    expect(result.added).toHaveLength(2);
+    expect(result.removed).toHaveLength(0);
+  });
+
+  it("skips non-UElement children (primitives/roots) in matching", () => {
+    const oldFibers = [makeFiber("a", "div")];
+    const newChildren: UNode[] = ["text", makeElement("div", "a")];
+    const result = reconcileChildren(oldFibers, newChildren);
+    expect(result.matched).toHaveLength(1);
+    expect(result.matched[0]!.oldFiber.key).toBe("a");
+  });
+
+  it("pure function — does not mutate old fibers", () => {
+    const oldFibers = [makeFiber("a", "div"), makeFiber("b", "span")];
+    const snapshots = oldFibers.map((f) => ({ ...f }));
+    const newChildren = [makeElement("span", "b"), makeElement("div", "a")];
+    reconcileChildren(oldFibers, newChildren);
+    for (let i = 0; i < oldFibers.length; i++) {
+      expect(oldFibers[i]!.instance).toBe(snapshots[i]!.instance);
+      expect(oldFibers[i]!.tag).toBe(snapshots[i]!.tag);
+      expect(oldFibers[i]!.key).toBe(snapshots[i]!.key);
+    }
+  });
+});
\ No newline at end of file