diff --git a/packages/reactivity/README.md b/packages/reactivity/README.md
index eec656ac..d633eb6f 100644
--- a/packages/reactivity/README.md
+++ b/packages/reactivity/README.md
@@ -1,4 +1,4 @@
-# @vue/observer
+# @vue/reactivity
 
 ## Usage Note
 
@@ -9,10 +9,9 @@ This package is inlined into Global & Browser ESM builds of user-facing renderer
 The implementation of this module is inspired by the following prior art in the JavaScript ecosystem:
 
 - [Meteor Tracker](https://docs.meteor.com/api/tracker.html)
-- [nx-js/observer-util](https://github.com/nx-js/observer-util)
+- [nx-js/reactivity-util](https://github.com/nx-js/reactivity-util)
 - [salesforce/observable-membrane](https://github.com/salesforce/observable-membrane)
 
-
 ## Caveats
 
 - Built-in objects are not observed except for `Map`, `WeakMap`, `Set` and `WeakSet`.
diff --git a/packages/reactivity/__tests__/collections/Map.spec.ts b/packages/reactivity/__tests__/collections/Map.spec.ts
index 14558270..bb5f4f6b 100644
--- a/packages/reactivity/__tests__/collections/Map.spec.ts
+++ b/packages/reactivity/__tests__/collections/Map.spec.ts
@@ -1,6 +1,6 @@
 import { reactive, effect, toRaw, isReactive } from '../../src'
 
-describe('observer/collections', () => {
+describe('reactivity/collections', () => {
   describe('Map', () => {
     test('instanceof', () => {
       const original = new Map()
diff --git a/packages/reactivity/__tests__/collections/Set.spec.ts b/packages/reactivity/__tests__/collections/Set.spec.ts
index 1fc4bfda..3efa1825 100644
--- a/packages/reactivity/__tests__/collections/Set.spec.ts
+++ b/packages/reactivity/__tests__/collections/Set.spec.ts
@@ -1,6 +1,6 @@
 import { reactive, effect, isReactive, toRaw } from '../../src'
 
-describe('observer/collections', () => {
+describe('reactivity/collections', () => {
   describe('Set', () => {
     it('instanceof', () => {
       const original = new Set()
diff --git a/packages/reactivity/__tests__/collections/WeakMap.spec.ts b/packages/reactivity/__tests__/collections/WeakMap.spec.ts
index 0ad7b93a..ddf7db59 100644
--- a/packages/reactivity/__tests__/collections/WeakMap.spec.ts
+++ b/packages/reactivity/__tests__/collections/WeakMap.spec.ts
@@ -1,6 +1,6 @@
 import { reactive, effect, toRaw, isReactive } from '../../src'
 
-describe('observer/collections', () => {
+describe('reactivity/collections', () => {
   describe('WeakMap', () => {
     test('instanceof', () => {
       const original = new WeakMap()
diff --git a/packages/reactivity/__tests__/collections/WeakSet.spec.ts b/packages/reactivity/__tests__/collections/WeakSet.spec.ts
index e26d4029..3dc2cc83 100644
--- a/packages/reactivity/__tests__/collections/WeakSet.spec.ts
+++ b/packages/reactivity/__tests__/collections/WeakSet.spec.ts
@@ -1,6 +1,6 @@
 import { reactive, isReactive, effect, toRaw } from '../../src'
 
-describe('observer/collections', () => {
+describe('reactivity/collections', () => {
   describe('WeakSet', () => {
     it('instanceof', () => {
       const original = new Set()
diff --git a/packages/reactivity/__tests__/computed.spec.ts b/packages/reactivity/__tests__/computed.spec.ts
index abde4e08..585f7abb 100644
--- a/packages/reactivity/__tests__/computed.spec.ts
+++ b/packages/reactivity/__tests__/computed.spec.ts
@@ -1,6 +1,6 @@
 import { computed, reactive, effect, stop } from '../src'
 
-describe('observer/computed', () => {
+describe('reactivity/computed', () => {
   it('should return updated value', () => {
     const value: any = reactive({})
     const cValue = computed(() => value.foo)
diff --git a/packages/reactivity/__tests__/effect.spec.ts b/packages/reactivity/__tests__/effect.spec.ts
index a99e9a40..650eda9c 100644
--- a/packages/reactivity/__tests__/effect.spec.ts
+++ b/packages/reactivity/__tests__/effect.spec.ts
@@ -9,7 +9,7 @@ import {
 } from '../src/index'
 import { ITERATE_KEY } from '../src/effect'
 
-describe('observer/effect', () => {
+describe('reactivity/effect', () => {
   it('should run the passed function once (wrapped by a effect)', () => {
     const fnSpy = jest.fn(() => {})
     effect(fnSpy)
@@ -269,7 +269,7 @@ describe('observer/effect', () => {
 
   it('should not observe raw mutations', () => {
     let dummy
-    const obj: any = reactive()
+    const obj: any = reactive({})
     effect(() => (dummy = toRaw(obj).prop))
 
     expect(dummy).toBe(undefined)
@@ -279,7 +279,7 @@ describe('observer/effect', () => {
 
   it('should not be triggered by raw mutations', () => {
     let dummy
-    const obj: any = reactive()
+    const obj: any = reactive({})
     effect(() => (dummy = obj.prop))
 
     expect(dummy).toBe(undefined)
@@ -437,7 +437,7 @@ describe('observer/effect', () => {
 
   it('should not run multiple times for a single mutation', () => {
     let dummy
-    const obj: any = reactive()
+    const obj: any = reactive({})
     const fnSpy = jest.fn(() => {
       for (const key in obj) {
         dummy = obj[key]
diff --git a/packages/reactivity/__tests__/immutableState.spec.ts b/packages/reactivity/__tests__/immutable.spec.ts
similarity index 97%
rename from packages/reactivity/__tests__/immutableState.spec.ts
rename to packages/reactivity/__tests__/immutable.spec.ts
index e30d027a..83d4de75 100644
--- a/packages/reactivity/__tests__/immutableState.spec.ts
+++ b/packages/reactivity/__tests__/immutable.spec.ts
@@ -11,7 +11,7 @@ import {
   effect
 } from '../src'
 
-describe('observer/immutable', () => {
+describe('reactivity/immutable', () => {
   let warn: any
 
   beforeEach(() => {
@@ -341,16 +341,16 @@ describe('observer/immutable', () => {
     })
   })
 
-  test('calling observable on an immutable should return immutable', () => {
-    const a = immutable()
+  test('calling reactive on an immutable should return immutable', () => {
+    const a = immutable({})
     const b = reactive(a)
     expect(isImmutable(b)).toBe(true)
     // should point to same original
     expect(toRaw(a)).toBe(toRaw(b))
   })
 
-  test('calling immutable on an observable should return immutable', () => {
-    const a = reactive()
+  test('calling immutable on a reactive object should return immutable', () => {
+    const a = reactive({})
     const b = immutable(a)
     expect(isImmutable(b)).toBe(true)
     // should point to same original
diff --git a/packages/reactivity/__tests__/reactive.spec.ts b/packages/reactivity/__tests__/reactive.spec.ts
index 0fe68e73..8888aaed 100644
--- a/packages/reactivity/__tests__/reactive.spec.ts
+++ b/packages/reactivity/__tests__/reactive.spec.ts
@@ -1,6 +1,6 @@
 import { reactive, isReactive, toRaw, markNonReactive } from '../src/reactive'
 
-describe('observer/observable', () => {
+describe('reactivity/reactive', () => {
   test('Object', () => {
     const original = { foo: 1 }
     const observed = reactive(original)
@@ -30,7 +30,7 @@ describe('observer/observable', () => {
     expect(Object.keys(observed)).toEqual(['0'])
   })
 
-  test('cloned observable Array should point to observed values', () => {
+  test('cloned reactive Array should point to observed values', () => {
     const original = [{ foo: 1 }]
     const observed = reactive(original)
     const clone = observed.slice()
@@ -39,7 +39,7 @@ describe('observer/observable', () => {
     expect(clone[0]).toBe(observed[0])
   })
 
-  test('nested observables', () => {
+  test('nested reactives', () => {
     const original = {
       nested: {
         foo: 1
@@ -70,9 +70,9 @@ describe('observer/observable', () => {
     const observed = reactive(original)
     // set
     const value = { baz: 3 }
-    const observableValue = reactive(value)
+    const reactiveValue = reactive(value)
     observed[0] = value
-    expect(observed[0]).toBe(observableValue)
+    expect(observed[0]).toBe(reactiveValue)
     expect(original[0]).toBe(value)
     // delete
     delete observed[0]
@@ -80,11 +80,11 @@ describe('observer/observable', () => {
     expect(original[0]).toBeUndefined()
     // mutating methods
     observed.push(value)
-    expect(observed[2]).toBe(observableValue)
+    expect(observed[2]).toBe(reactiveValue)
     expect(original[2]).toBe(value)
   })
 
-  test('setting a property with an unobserved value should wrap with observable', () => {
+  test('setting a property with an unobserved value should wrap with reactive', () => {
     const observed: any = reactive({})
     const raw = {}
     observed.foo = raw
@@ -123,14 +123,15 @@ describe('observer/observable', () => {
     expect(toRaw(original)).toBe(original)
   })
 
-  test('unobservable values', () => {
+  test('non-observable values', () => {
     const warn = jest.spyOn(console, 'warn')
     let lastMsg: string
     warn.mockImplementation(msg => {
       lastMsg = msg
     })
 
-    const getMsg = (value: any) => `value is not observable: ${String(value)}`
+    const getMsg = (value: any) =>
+      `value cannot be made reactive: ${String(value)}`
     const assertValue = (value: any) => {
       reactive(value)
       expect(lastMsg).toMatch(getMsg(value))
@@ -144,10 +145,8 @@ describe('observer/observable', () => {
     assertValue(false)
     // null
     assertValue(null)
-    // undefined should work because it returns empty object observable
-    lastMsg = ''
-    reactive(undefined)
-    expect(lastMsg).toBe('')
+    // undefined
+    assertValue(undefined)
     // symbol
     const s = Symbol()
     assertValue(s)
diff --git a/packages/reactivity/__tests__/ref.spec.ts b/packages/reactivity/__tests__/ref.spec.ts
index e5cff502..2d26c933 100644
--- a/packages/reactivity/__tests__/ref.spec.ts
+++ b/packages/reactivity/__tests__/ref.spec.ts
@@ -1,6 +1,6 @@
 import { ref, effect, reactive } from '../src/index'
 
-describe('observer/value', () => {
+describe('reactivity/value', () => {
   it('should hold a value', () => {
     const a = ref(1)
     expect(a.value).toBe(1)
diff --git a/packages/reactivity/src/reactive.ts b/packages/reactivity/src/reactive.ts
index e09882bb..c88ac28b 100644
--- a/packages/reactivity/src/reactive.ts
+++ b/packages/reactivity/src/reactive.ts
@@ -51,7 +51,7 @@ export const reactive = ((target: unknown): any => {
   if (immutableValues.has(target)) {
     return immutable(target)
   }
-  return createObservable(
+  return createReactiveObject(
     target,
     rawToObserved,
     observedToRaw,
@@ -66,7 +66,7 @@ export const immutable = ((target: unknown): any => {
   if (observedToRaw.has(target)) {
     target = observedToRaw.get(target)
   }
-  return createObservable(
+  return createReactiveObject(
     target,
     rawToImmutable,
     immutableToRaw,
@@ -75,7 +75,7 @@ export const immutable = ((target: unknown): any => {
   )
 }) as ObservableFactory
 
-function createObservable(
+function createReactiveObject(
   target: any,
   toProxy: WeakMap<any, any>,
   toRaw: WeakMap<any, any>,
@@ -84,7 +84,7 @@ function createObservable(
 ) {
   if (!isObject(target)) {
     if (__DEV__) {
-      console.warn(`value is not observable: ${String(target)}`)
+      console.warn(`value cannot be made reactive: ${String(target)}`)
     }
     return target
   }
diff --git a/packages/runtime-core/package.json b/packages/runtime-core/package.json
index 81356f1c..14d2cb5c 100644
--- a/packages/runtime-core/package.json
+++ b/packages/runtime-core/package.json
@@ -20,6 +20,6 @@
   },
   "homepage": "https://github.com/vuejs/vue/tree/dev/packages/runtime-core#readme",
   "dependencies": {
-    "@vue/observer": "3.0.0-alpha.1"
+    "@vue/reactivity": "3.0.0-alpha.1"
   }
 }
diff --git a/packages/runtime-core/src/component.ts b/packages/runtime-core/src/component.ts
index 117f4b47..25c2f6b7 100644
--- a/packages/runtime-core/src/component.ts
+++ b/packages/runtime-core/src/component.ts
@@ -242,7 +242,7 @@ export function setupStatefulComponent(instance: ComponentInstance) {
     } else {
       // setup returned bindings.
       // assuming a render function compiled from template is present.
-      instance.data = reactive(setupResult)
+      instance.data = reactive(setupResult || {})
       if (__DEV__ && !Component.render) {
         // TODO warn missing render fn
       }
diff --git a/packages/runtime-dom/src/index.ts b/packages/runtime-dom/src/index.ts
index e687f1da..019999ff 100644
--- a/packages/runtime-dom/src/index.ts
+++ b/packages/runtime-dom/src/index.ts
@@ -8,5 +8,5 @@ export const render = createRenderer({
 }) as (vnode: VNode | null, container: HTMLElement) => VNode
 
 // re-export everything from core
-// h, Component, observer API, nextTick, flags & types
+// h, Component, reactivity API, nextTick, flags & types
 export * from '@vue/runtime-core'