diff --git a/apps/desktop/src/app/session/hooks/use-message-stream/agent-init-error.test.tsx b/apps/desktop/src/app/session/hooks/use-message-stream/agent-init-error.test.tsx
new file mode 100644
index 000000000000..98f64ff93bb2
--- /dev/null
+++ b/apps/desktop/src/app/session/hooks/use-message-stream/agent-init-error.test.tsx
@@ -0,0 +1,128 @@
+import { QueryClient } from '@tanstack/react-query'
+import { act, cleanup, render, waitFor } from '@testing-library/react'
+import { useEffect, useRef } from 'react'
+import { afterEach, beforeEach, describe, expect, it, vi } from 'vitest'
+
+import type { ClientSessionState } from '@/app/types'
+import { textPart } from '@/lib/chat-messages'
+import { createClientSessionState } from '@/lib/chat-runtime'
+import { $notifications, clearNotifications } from '@/store/notifications'
+import type { RpcEvent } from '@/types/hermes'
+
+import { useMessageStream } from './index'
+
+const SID = 'rt-new-session'
+
+let handleEvent: ((event: RpcEvent) => void) | null = null
+let sessionStates: Map<string, ClientSessionState> | null = null
+
+function Harness() {
+  const activeSessionIdRef = useRef<string | null>(SID)
+  const sessionStateByRuntimeIdRef = useRef(new Map<string, ClientSessionState>())
+  const queryClientRef = useRef(new QueryClient())
+
+  const stream = useMessageStream({
+    activeSessionIdRef,
+    hydrateFromStoredSession: vi.fn(async () => undefined),
+    queryClient: queryClientRef.current,
+    refreshHermesConfig: vi.fn(async () => undefined),
+    refreshSessions: vi.fn(async () => undefined),
+    sessionStateByRuntimeIdRef,
+    updateSessionState: (sessionId, updater) => {
+      const current = sessionStateByRuntimeIdRef.current.get(sessionId) ?? createClientSessionState()
+      const next = updater(current)
+      sessionStateByRuntimeIdRef.current.set(sessionId, next)
+
+      return next
+    }
+  })
+
+  useEffect(() => {
+    handleEvent = stream.handleGatewayEvent
+    sessionStates = sessionStateByRuntimeIdRef.current
+  }, [stream.handleGatewayEvent])
+
+  return null
+}
+
+async function mountStream() {
+  render(<Harness />)
+  await waitFor(() => expect(handleEvent).not.toBeNull())
+}
+
+/** Seed the session as it looks right after a first-message submit: the
+ *  optimistic user row is present, the turn is awaiting its response. */
+function seedOptimisticFirstMessage() {
+  sessionStates!.set(SID, {
+    ...createClientSessionState('stored-new-session', [
+      { id: 'user-123-abc', role: 'user', parts: [textPart('first message of a new chat')] }
+    ]),
+    busy: true,
+    awaitingResponse: true
+  })
+}
+
+describe('useMessageStream agent-init error surfacing (#63078)', () => {
+  beforeEach(() => {
+    handleEvent = null
+    sessionStates = null
+    clearNotifications()
+  })
+
+  afterEach(() => {
+    cleanup()
+    clearNotifications()
+    vi.restoreAllMocks()
+  })
+
+  it('renders an agent-init failure as a visible in-transcript error and keeps the optimistic first message', async () => {
+    await mountStream()
+    seedOptimisticFirstMessage()
+
+    act(() =>
+      handleEvent!({
+        payload: { message: 'agent initialization timed out after 601s — your message was not sent; retry once the session is ready' },
+        session_id: SID,
+        type: 'error'
+      })
+    )
+
+    const state = sessionStates!.get(SID)!
+
+    // The user's optimistic first message must survive — the failure mode of
+    // #63078 was the message silently vanishing into a blank session.
+    const userRows = state.messages.filter(m => m.role === 'user')
+    expect(userRows).toHaveLength(1)
+    expect(userRows[0]!.id).toBe('user-123-abc')
+
+    // The failure is VISIBLE in the session view: an assistant error bubble...
+    const errorRows = state.messages.filter(m => m.role === 'assistant' && m.error)
+    expect(errorRows).toHaveLength(1)
+    expect(errorRows[0]!.error).toContain('your message was not sent')
+
+    // ...and the composer is released (no forever-spinner on a dead turn).
+    expect(state.busy).toBe(false)
+    expect(state.awaitingResponse).toBe(false)
+
+    // A global toast also fired (turn-ending errors are easy to miss inline).
+    expect($notifications.get().some(n => n.kind === 'error' && n.message?.includes('was not sent'))).toBe(true)
+  })
+
+  it('renders the pre-ready cancel error event (#65567 server emit) visibly', async () => {
+    await mountStream()
+    seedOptimisticFirstMessage()
+
+    act(() =>
+      handleEvent!({
+        payload: { message: 'Turn cancelled before the agent was ready' },
+        session_id: SID,
+        type: 'error'
+      })
+    )
+
+    const state = sessionStates!.get(SID)!
+    expect(state.messages.some(m => m.role === 'assistant' && m.error?.includes('cancelled'))).toBe(true)
+    expect(state.messages.some(m => m.id === 'user-123-abc')).toBe(true)
+    expect(state.busy).toBe(false)
+  })
+})