diff --git a/python/src/com/jetbrains/python/inspections/PyStringFormatParser.java b/python/src/com/jetbrains/python/inspections/PyStringFormatParser.java
index a99705f04f50..82a56b4323f1 100644
--- a/python/src/com/jetbrains/python/inspections/PyStringFormatParser.java
+++ b/python/src/com/jetbrains/python/inspections/PyStringFormatParser.java
@@ -1,12 +1,16 @@
 package com.jetbrains.python.inspections;
 
 import com.intellij.openapi.util.TextRange;
+import com.intellij.psi.PsiElement;
+import com.intellij.util.containers.HashMap;
+import com.jetbrains.python.psi.*;
 import com.jetbrains.python.psi.impl.PyStringLiteralExpressionImpl;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 
 import java.util.ArrayList;
 import java.util.List;
+import java.util.Map;
 import java.util.regex.Matcher;
 
 /**
@@ -221,6 +225,68 @@ public class PyStringFormatParser {
     return result;
   }
 
+  @NotNull
+  public static List<SubstitutionChunk> getPositionalSubstitutions(@NotNull List<SubstitutionChunk> substitutions) {
+    final ArrayList<SubstitutionChunk> result = new ArrayList<SubstitutionChunk>();
+    for (SubstitutionChunk s : substitutions) {
+      if (s.getMappingKey() == null) {
+        result.add(s);
+      }
+    }
+    return result;
+  }
+
+  @NotNull
+  public static Map<String, SubstitutionChunk> getKeywordSubstitutions(@NotNull List<SubstitutionChunk> substitutions) {
+    final Map<String, SubstitutionChunk> result = new HashMap<String, SubstitutionChunk>();
+    for (SubstitutionChunk s : substitutions) {
+      final String key = s.getMappingKey();
+      if (key != null) {
+        result.put(key, s);
+      }
+    }
+    return result;
+  }
+
+  /**
+   * Return the RHS operand of %-based string literal format expression.
+   */
+  @Nullable
+  public static PyExpression getFormatValueExpression(@NotNull PyStringLiteralExpression element) {
+    final PsiElement parent = element.getParent();
+    if (parent instanceof PyBinaryExpression) {
+      final PyBinaryExpression binaryExpr = (PyBinaryExpression)parent;
+      if (binaryExpr.isOperator("%")) {
+        PyExpression expr = binaryExpr.getRightExpression();
+        while (expr instanceof PyParenthesizedExpression) {
+          expr = ((PyParenthesizedExpression)expr).getContainedExpression();
+        }
+        return expr;
+      }
+    }
+    return null;
+  }
+
+  /**
+   * Return the argument list of the str.format() literal format expression.
+   */
+  @Nullable
+  public static PyArgumentList getNewStyleFormatValueExpression(@NotNull PyStringLiteralExpression element) {
+    final PsiElement parent = element.getParent();
+    if (parent instanceof PyQualifiedExpression) {
+      final PyQualifiedExpression qualifiedExpr = (PyQualifiedExpression)parent;
+      final String name = qualifiedExpr.getReferencedName();
+      if ("format".equals(name)) {
+        final PsiElement parent2 = qualifiedExpr.getParent();
+        if (parent2 instanceof PyCallExpression) {
+          final PyCallExpression callExpr = (PyCallExpression)parent2;
+          return callExpr.getArgumentList();
+        }
+      }
+    }
+    return null;
+  }
+
   @NotNull
   public static List<TextRange> getEscapeRanges(@NotNull String s) {
     final List<TextRange> ranges = new ArrayList<TextRange>();
diff --git a/python/src/com/jetbrains/python/refactoring/PyReplaceExpressionUtil.java b/python/src/com/jetbrains/python/refactoring/PyReplaceExpressionUtil.java
index fef68543392d..1cc2147a55b5 100644
--- a/python/src/com/jetbrains/python/refactoring/PyReplaceExpressionUtil.java
+++ b/python/src/com/jetbrains/python/refactoring/PyReplaceExpressionUtil.java
@@ -7,10 +7,13 @@ import com.intellij.psi.PsiElement;
 import com.intellij.psi.tree.IElementType;
 import com.jetbrains.python.PyElementTypes;
 import com.jetbrains.python.PythonStringUtil;
+import com.jetbrains.python.inspections.PyStringFormatParser;
 import com.jetbrains.python.psi.*;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 
+import java.util.List;
+
 import static com.jetbrains.python.PyTokenTypes.*;
 
 /**
@@ -72,34 +75,68 @@ public class PyReplaceExpressionUtil implements PyElementTypes {
                                                             @NotNull PsiElement newExpression,
                                                             @NotNull TextRange textRange) {
     final String fullText = oldExpression.getText();
-    final PyElementGenerator generator = PyElementGenerator.getInstance(oldExpression.getProject());
-    final LanguageLevel languageLevel = LanguageLevel.forElement(oldExpression);
     final String prefix = fullText.substring(0, textRange.getStartOffset());
     final String suffix = fullText.substring(textRange.getEndOffset(), oldExpression.getTextLength());
-    final Pair<String, String> detectedQuotes = PythonStringUtil.getQuotes(fullText);
-    final Pair<String, String> quotes = detectedQuotes != null ? detectedQuotes : Pair.create("'", "'");
-    final PsiElement parent = oldExpression.getParent();
-    final boolean parensNeeded = parent instanceof PyExpression && !(parent instanceof PyParenthesizedExpression);
-    final String leftQuote = quotes.getFirst();
-    final String rightQuote = quotes.getSecond();
-    final StringBuilder builder = new StringBuilder();
-    if (parensNeeded) {
-      builder.append("(");
+    final PyExpression valueExpression = PyStringFormatParser.getFormatValueExpression(oldExpression);
+
+    final PyElementGenerator generator = PyElementGenerator.getInstance(oldExpression.getProject());
+    final LanguageLevel languageLevel = LanguageLevel.forElement(oldExpression);
+    final List<PyStringFormatParser.SubstitutionChunk> substitutions = new PyStringFormatParser(fullText).parseSubstitutions();
+
+    // TODO: Handle %-formatted strings
+
+    if (isConcatFormatting(oldExpression) || substitutions.size() > 0) {
+      // 'foobar' + 'baz' -> s + 'bar' + 'baz'
+      // 'foobar%s' -> s + 'bar%s'
+      final Pair<String, String> detectedQuotes = PythonStringUtil.getQuotes(fullText);
+      final Pair<String, String> quotes = detectedQuotes != null ? detectedQuotes : Pair.create("'", "'");
+      final String leftQuote = quotes.getFirst();
+      final String rightQuote = quotes.getSecond();
+      final StringBuilder builder = new StringBuilder();
+      if (valueExpression != null) {
+        builder.append("(");
+      }
+      if (!leftQuote.endsWith(prefix)) {
+        builder.append(prefix + rightQuote + " + ");
+      }
+      final int pos = builder.toString().length();
+      builder.append(newExpression.getText());
+      if (!rightQuote.startsWith(suffix)) {
+        builder.append(" + " + leftQuote + suffix);
+      }
+      if (valueExpression != null) {
+        builder.append(")");
+      }
+      final PsiElement expression = generator.createExpressionFromText(languageLevel, builder.toString());
+      final PsiElement newElement = oldExpression.replace(expression);
+      return newElement.findElementAt(pos);
     }
-    if (!leftQuote.endsWith(prefix)) {
-      builder.append(prefix + rightQuote + " + ");
+    else {
+      // 'foobar' -> '%sbar' % s
+      final PsiElement parent = oldExpression.getParent();
+      final boolean parensNeeded = parent instanceof PyExpression && !(parent instanceof PyParenthesizedExpression);
+      final StringBuilder builder = new StringBuilder();
+      if (parensNeeded) {
+        builder.append("(");
+      }
+      builder.append(prefix);
+      builder.append("%s");
+      builder.append(suffix);
+      builder.append(" % ");
+      final int pos = builder.toString().length();
+      builder.append(newExpression.getText());
+      if (parensNeeded) {
+        builder.append(")");
+      }
+      final PyExpression expression = generator.createExpressionFromText(languageLevel, builder.toString());
+      final PsiElement newElement = oldExpression.replace(expression);
+      return newElement.findElementAt(pos);
     }
-    final int pos = builder.toString().length();
-    builder.append(newExpression.getText());
-    if (!rightQuote.startsWith(suffix)) {
-      builder.append(" + " + leftQuote + suffix);
-    }
-    if (parensNeeded) {
-      builder.append(")");
-    }
-    final PsiElement expression = generator.createExpressionFromText(languageLevel, builder.toString());
-    final PsiElement newElement = oldExpression.replace(expression);
-    return newElement.findElementAt(pos);
+  }
+
+  private static boolean isConcatFormatting(PyStringLiteralExpression element) {
+    final PsiElement parent = element.getParent();
+    return parent instanceof PyBinaryExpression && ((PyBinaryExpression)parent).isOperator("+");
   }
 
   private static boolean isNotAssociative(@NotNull final PyBinaryExpression binaryExpression) {
diff --git a/python/testData/refactoring/introduceVariable/bytesSubstring.after.py b/python/testData/refactoring/introduceVariable/bytesSubstring.after.py
index 67a86c8749cf..1c0407336d2c 100644
--- a/python/testData/refactoring/introduceVariable/bytesSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/bytesSubstring.after.py
@@ -1,2 +1,2 @@
 a = b'bar'
-b'foo' + a + b'baz'
\ No newline at end of file
+b'foo' + a + b'baz' + suffix
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/bytesSubstring.py b/python/testData/refactoring/introduceVariable/bytesSubstring.py
index 6f98337f4121..c42b25b2bc0a 100644
--- a/python/testData/refactoring/introduceVariable/bytesSubstring.py
+++ b/python/testData/refactoring/introduceVariable/bytesSubstring.py
@@ -1 +1 @@
-b'foo<selection>bar</selection>baz'
\ No newline at end of file
+b'foo<selection>bar</selection>baz' + suffix
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/leftQuoteSubstring.after.py b/python/testData/refactoring/introduceVariable/leftQuoteSubstring.after.py
index 66921e9c1aa1..f7f8e40e478f 100644
--- a/python/testData/refactoring/introduceVariable/leftQuoteSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/leftQuoteSubstring.after.py
@@ -1,2 +1,2 @@
 a = "hello"
-print(a + " world")
+print(a + " world" + "!")
diff --git a/python/testData/refactoring/introduceVariable/leftQuoteSubstring.py b/python/testData/refactoring/introduceVariable/leftQuoteSubstring.py
index 4c4486bf7ccd..eb9ce68da4cc 100644
--- a/python/testData/refactoring/introduceVariable/leftQuoteSubstring.py
+++ b/python/testData/refactoring/introduceVariable/leftQuoteSubstring.py
@@ -1 +1 @@
-print(<selection>"hello</selection> world")
+print(<selection>"hello</selection> world" + "!")
diff --git a/python/testData/refactoring/introduceVariable/leftSubstring.after.py b/python/testData/refactoring/introduceVariable/leftSubstring.after.py
index d21668605427..3856fe992a4d 100644
--- a/python/testData/refactoring/introduceVariable/leftSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/leftSubstring.after.py
@@ -1,2 +1,2 @@
 a = "hello"
-print(a + " world")
\ No newline at end of file
+print(a + " world" + "!")
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/leftSubstring.py b/python/testData/refactoring/introduceVariable/leftSubstring.py
index e981bd05c293..eefe21e9632c 100644
--- a/python/testData/refactoring/introduceVariable/leftSubstring.py
+++ b/python/testData/refactoring/introduceVariable/leftSubstring.py
@@ -1 +1 @@
-print("<selection>hello</selection> world")
\ No newline at end of file
+print("<selection>hello</selection> world" + "!")
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/middleSubstring.after.py b/python/testData/refactoring/introduceVariable/middleSubstring.after.py
index 148c9c774e8e..eebdb6e73937 100644
--- a/python/testData/refactoring/introduceVariable/middleSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/middleSubstring.after.py
@@ -1,2 +1,2 @@
 a = "lo wor"
-print("hel" + a + "ld")
\ No newline at end of file
+print(prefix + "hel" + a + "ld")
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/middleSubstring.py b/python/testData/refactoring/introduceVariable/middleSubstring.py
index 938db7bd1c1e..e6aad1276d2b 100644
--- a/python/testData/refactoring/introduceVariable/middleSubstring.py
+++ b/python/testData/refactoring/introduceVariable/middleSubstring.py
@@ -1 +1 @@
-print("hel<selection>lo wor</selection>ld")
\ No newline at end of file
+print(prefix + "hel<selection>lo wor</selection>ld")
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/rightSubstring.after.py b/python/testData/refactoring/introduceVariable/rightSubstring.after.py
index fa468b6341c7..13d798896fef 100644
--- a/python/testData/refactoring/introduceVariable/rightSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/rightSubstring.after.py
@@ -1,2 +1,2 @@
 a = "world"
-print("hello " + a)
\ No newline at end of file
+print("hello " + a + suffix)
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/rightSubstring.py b/python/testData/refactoring/introduceVariable/rightSubstring.py
index faaede5b7ddb..c748cbdcc8eb 100644
--- a/python/testData/refactoring/introduceVariable/rightSubstring.py
+++ b/python/testData/refactoring/introduceVariable/rightSubstring.py
@@ -1 +1 @@
-print("hello <selection>world</selection>")
\ No newline at end of file
+print("hello <selection>world</selection>" + suffix)
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/simpleSubstring.after.py b/python/testData/refactoring/introduceVariable/simpleSubstring.after.py
new file mode 100644
index 000000000000..5b9c0805f1e5
--- /dev/null
+++ b/python/testData/refactoring/introduceVariable/simpleSubstring.after.py
@@ -0,0 +1,2 @@
+a = "hello"
+print("%s world" % a)
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/simpleSubstring.py b/python/testData/refactoring/introduceVariable/simpleSubstring.py
new file mode 100644
index 000000000000..e981bd05c293
--- /dev/null
+++ b/python/testData/refactoring/introduceVariable/simpleSubstring.py
@@ -0,0 +1 @@
+print("<selection>hello</selection> world")
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/substringContainsEscapes.after.py b/python/testData/refactoring/introduceVariable/substringContainsEscapes.after.py
index b264edbf0264..b882c8770bc1 100644
--- a/python/testData/refactoring/introduceVariable/substringContainsEscapes.after.py
+++ b/python/testData/refactoring/introduceVariable/substringContainsEscapes.after.py
@@ -1,2 +1,2 @@
 a = u"lo \u00d6sterreich\\!\n"
-print(u"Hel" + a + u"\n")
\ No newline at end of file
+print(u"Hel%s\n" % a)
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/substringInExpression.after.py b/python/testData/refactoring/introduceVariable/substringInExpression.after.py
index 3420cf9bf534..1788ab2e4dd5 100644
--- a/python/testData/refactoring/introduceVariable/substringInExpression.after.py
+++ b/python/testData/refactoring/introduceVariable/substringInExpression.after.py
@@ -1,2 +1,2 @@
 a = 'foo'
-print((a + 'bar').upper())
\ No newline at end of file
+print(('%sbar' % a).upper())
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/substringInExpressionStatement.after.py b/python/testData/refactoring/introduceVariable/substringInExpressionStatement.after.py
index c4b048f0ab3d..b49832ddc431 100644
--- a/python/testData/refactoring/introduceVariable/substringInExpressionStatement.after.py
+++ b/python/testData/refactoring/introduceVariable/substringInExpressionStatement.after.py
@@ -1,2 +1,2 @@
 a = "two"
-"one " + a + " three"
\ No newline at end of file
+"one %s three" % a
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/substringInStatement.after.py b/python/testData/refactoring/introduceVariable/substringInStatement.after.py
index 4027559cab28..86e613e3190e 100644
--- a/python/testData/refactoring/introduceVariable/substringInStatement.after.py
+++ b/python/testData/refactoring/introduceVariable/substringInStatement.after.py
@@ -1,2 +1,2 @@
 a = 'foo'
-x = a + 'bar'
\ No newline at end of file
+x = '%sbar' % a
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.after.py b/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.after.py
index 5389de87a910..7234834dec3c 100644
--- a/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.after.py
+++ b/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.after.py
@@ -3,4 +3,4 @@ print(""""One two
 
 * """ + a + """
 * Four
-* Five""")
\ No newline at end of file
+* Five""" + suffix)
\ No newline at end of file
diff --git a/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.py b/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.py
index 5972d20c474c..7406944ab5d2 100644
--- a/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.py
+++ b/python/testData/refactoring/introduceVariable/tripleQuotedSubstring.py
@@ -2,4 +2,4 @@ print(""""One two
 
 * <selection>Three</selection>
 * Four
-* Five""")
\ No newline at end of file
+* Five""" + suffix)
\ No newline at end of file
diff --git a/python/testSrc/com/jetbrains/python/refactoring/PyIntroduceVariableTest.java b/python/testSrc/com/jetbrains/python/refactoring/PyIntroduceVariableTest.java
index 269877156204..7dce38b1fb63 100644
--- a/python/testSrc/com/jetbrains/python/refactoring/PyIntroduceVariableTest.java
+++ b/python/testSrc/com/jetbrains/python/refactoring/PyIntroduceVariableTest.java
@@ -88,6 +88,11 @@ public class PyIntroduceVariableTest extends PyIntroduceTestCase {
     doTest();
   }
 
+  // PY-3654
+  public void testSimpleSubstring() {
+    doTest();
+  }
+
   // PY-3654
   public void testLeftSubstring() {
     doTest();