diff --git a/src/agent_loop.py b/src/agent_loop.py
index 052d92c49..4843f28a1 100644
--- a/src/agent_loop.py
+++ b/src/agent_loop.py
@@ -21,7 +21,7 @@ from src.settings import get_setting
 from src.prompt_security import untrusted_context_message
 from src.tool_security import blocked_tools_for_owner, plan_mode_disabled_tools
 from src.tool_policy import GUIDE_ONLY_DIRECTIVE, ToolPolicy
-from src.tool_utils import get_mcp_manager
+from src.tool_utils import _truncate, get_mcp_manager
 from src.agent_tools import (
     parse_tool_blocks,
     strip_tool_blocks,
@@ -2751,18 +2751,20 @@ async def stream_agent_loop(
                 # On a bash/python timeout the result carries error + (often
                 # empty) stdout/stderr; fall back to the error so the "timed
                 # out" reason reaches the UI instead of a blank result.
-                output_text = (result["stdout"] or result["stderr"] or result.get("error", ""))[:2000]
+                raw = result["stdout"] or result["stderr"] or result.get("error", "")
+                output_text = _truncate(raw)
             elif "output" in result:
                 # bash / python canonical result: {"output": ..., "exit_code": ...}
-                output_text = (result["output"] or "")[:2000]
+                raw = result["output"] or ""
+                output_text = _truncate(raw)
             elif "response" in result:
                 # AI interaction tools (chat_with_model, send_to_session)
                 label = result.get("model", result.get("session_name", "AI"))
-                output_text = f"{label}: {result['response']}"[:4000]
+                output_text = _truncate(f"{label}: {result['response']}")
             elif "content" in result:
-                output_text = result["content"][:2000]
+                output_text = _truncate(result["content"])
             elif "results" in result:
-                output_text = result["results"][:4000]
+                output_text = _truncate(result["results"])
             elif "session_id" in result and "name" in result:
                 output_text = f"Session created: {result['name']} (id: {result['session_id']})"
             elif "success" in result:
@@ -2772,7 +2774,7 @@ async def stream_agent_loop(
                     else f"Error: {result.get('error', '')}"
                 )
             elif "error" in result:
-                output_text = result["error"][:2000]
+                output_text = _truncate(result["error"])
 
             # Emit tool_output (include ui_event data if present)
             tool_output_data = {"type": "tool_output", "tool": block.tool_type, "command": cmd_display, "output": output_text, "exit_code": result.get("exit_code")}
diff --git a/tests/test_agent_loop_tool_output_truncation.py b/tests/test_agent_loop_tool_output_truncation.py
new file mode 100644
index 000000000..35e33e88f
--- /dev/null
+++ b/tests/test_agent_loop_tool_output_truncation.py
@@ -0,0 +1,43 @@
+"""Tool-output display truncation uses _truncate with an indicator.
+
+Previously agent_loop sliced tool output to a hard character limit ([:2000]
+or [:4000]) with no signal to the UI that data was lost.  Now it delegates to
+tool_utils._truncate which caps at MAX_OUTPUT_CHARS (10 000) and appends
+a ``... (truncated, N chars total)`` suffix so the frontend can show a
+truncation indicator in the tool bubble.
+"""
+from src.tool_utils import _truncate, MAX_OUTPUT_CHARS
+
+
+def test_short_output_unchanged():
+    """Outputs within the limit pass through verbatim."""
+    text = "hello world"
+    assert _truncate(text) == text
+
+
+def test_long_output_truncated_with_indicator():
+    """Outputs exceeding MAX_OUTPUT_CHARS are truncated with a suffix."""
+    text = "x" * (MAX_OUTPUT_CHARS + 500)
+    result = _truncate(text)
+    assert len(result) > MAX_OUTPUT_CHARS  # includes suffix
+    assert result.startswith("x" * MAX_OUTPUT_CHARS)
+    assert "truncated" in result
+    assert str(len(text)) in result  # original length reported
+
+
+def test_exact_limit_unchanged():
+    """An output exactly at the limit is not truncated."""
+    text = "a" * MAX_OUTPUT_CHARS
+    assert _truncate(text) == text
+
+
+def test_default_limit_matches_constant():
+    """_truncate default limit equals MAX_OUTPUT_CHARS (10 000)."""
+    assert MAX_OUTPUT_CHARS == 10_000
+    text = "y" * 10_001
+    result = _truncate(text)
+    assert "truncated" in result
+
+
+def test_empty_string():
+    assert _truncate("") == ""