diff --git a/docs/ad-hoc-daemon-testing.md b/docs/ad-hoc-daemon-testing.md
index 758ee3f6d..4a2d1bef9 100644
--- a/docs/ad-hoc-daemon-testing.md
+++ b/docs/ad-hoc-daemon-testing.md
@@ -1,6 +1,10 @@
 # Ad-hoc daemon testing
 
-Spin up an isolated daemon programmatically without touching the main daemon on port 6767.
+Spin up an isolated in-process daemon test harness without touching the main daemon on port 6767.
+
+This is for test code only. Executable daemon processes must start through
+`scripts/supervisor-entrypoint.ts` or `dist/scripts/supervisor-entrypoint.js`;
+do not use `createPaseoDaemon` as a product launch path.
 
 ## Quick start
 
@@ -85,7 +89,7 @@ await client.close();
 await daemon.close(); // stops daemon + cleans up temp dirs
 ```
 
-The test helper does **not** expose `providerOverrides`. Use `createPaseoDaemon` directly when you need it (see quick start above).
+The test helper does **not** expose `providerOverrides`. In test harnesses, use `createPaseoDaemon` directly when you need it (see quick start above).
 
 ## Common client methods
 
diff --git a/nix/package.nix b/nix/package.nix
index b3c2bc07f..d0343c119 100644
--- a/nix/package.nix
+++ b/nix/package.nix
@@ -123,7 +123,7 @@ buildNpmPackage rec {
     # Create wrapper for the server entry point (for systemd / direct use)
     mkdir -p $out/bin
     makeWrapper ${nodejs}/bin/node $out/bin/paseo-server \
-      --add-flags "$out/lib/paseo/packages/server/dist/server/server/index.js" \
+      --add-flags "$out/lib/paseo/packages/server/dist/scripts/supervisor-entrypoint.js" \
       --set NODE_ENV production
 
     # Create wrapper for the CLI
diff --git a/packages/app/e2e/global-setup.ts b/packages/app/e2e/global-setup.ts
index ca192fbba..22a8fdba6 100644
--- a/packages/app/e2e/global-setup.ts
+++ b/packages/app/e2e/global-setup.ts
@@ -573,7 +573,7 @@ function startDaemon(args: DaemonSpawnArgs): ChildProcess {
   const tsxBin = execSync("which tsx").toString().trim();
   const { openAiUsable, localModelsDir } = args.dictation;
 
-  const child = spawn(tsxBin, ["src/server/index.ts"], {
+  const child = spawn(tsxBin, ["scripts/supervisor-entrypoint.ts", "--dev"], {
     cwd: serverDir,
     env: {
       ...process.env,
diff --git a/packages/cli/src/commands/daemon/local-daemon.supervision.test.ts b/packages/cli/src/commands/daemon/local-daemon.supervision.test.ts
new file mode 100644
index 000000000..f6da53c79
--- /dev/null
+++ b/packages/cli/src/commands/daemon/local-daemon.supervision.test.ts
@@ -0,0 +1,80 @@
+import { EventEmitter } from "node:events";
+import { beforeEach, describe, expect, test, vi } from "vitest";
+
+const mocks = vi.hoisted(() => ({
+  spawnSync: vi.fn(),
+  spawnProcess: vi.fn(),
+}));
+
+vi.mock("node:child_process", async () => {
+  const actual = await vi.importActual<typeof import("node:child_process")>("node:child_process");
+  return {
+    ...actual,
+    spawnSync: mocks.spawnSync,
+  };
+});
+
+vi.mock("@getpaseo/server", async () => {
+  const actual = await vi.importActual<typeof import("@getpaseo/server")>("@getpaseo/server");
+  return {
+    ...actual,
+    loadConfig: () => ({ listen: "127.0.0.1:6767" }),
+    resolvePaseoHome: (env: NodeJS.ProcessEnv) => env.PASEO_HOME ?? "/tmp/paseo",
+    spawnProcess: mocks.spawnProcess,
+  };
+});
+
+class FakeChildProcess extends EventEmitter {
+  pid = 4242;
+  unref = vi.fn();
+}
+
+function expectSupervisorLaunch(argv: string[]): void {
+  const joined = argv.join(" ");
+  expect(joined).toContain("supervisor-entrypoint");
+  expect(joined).not.toContain("src/server/index.ts");
+  expect(joined).not.toContain("dist/server/server/index.js");
+  expect(joined).not.toContain("src/server/daemon-worker.ts");
+  expect(joined).not.toContain("dist/server/server/daemon-worker.js");
+}
+
+describe("local daemon launch supervision", () => {
+  beforeEach(() => {
+    vi.useRealTimers();
+    mocks.spawnSync.mockReset();
+    mocks.spawnProcess.mockReset();
+  });
+
+  test("foreground start spawns supervisor-entrypoint instead of server/index", async () => {
+    mocks.spawnSync.mockReturnValue({ status: 0, error: undefined });
+
+    const { startLocalDaemonForeground } = await import("./local-daemon.js");
+    const status = startLocalDaemonForeground({ home: "/tmp/paseo-test", relay: false });
+
+    expect(status).toBe(0);
+    expect(mocks.spawnSync).toHaveBeenCalledOnce();
+    const [command, argv] = mocks.spawnSync.mock.calls[0] as [string, string[]];
+    expect(command).toBe(process.execPath);
+    expectSupervisorLaunch(argv);
+    expect(argv).toContain("--no-relay");
+  });
+
+  test("detached start spawns supervisor-entrypoint instead of server/index", async () => {
+    vi.useFakeTimers();
+    const child = new FakeChildProcess();
+    mocks.spawnProcess.mockReturnValue(child);
+
+    const { startLocalDaemonDetached } = await import("./local-daemon.js");
+    const resultPromise = startLocalDaemonDetached({ home: "/tmp/paseo-test", mcp: false });
+    await vi.advanceTimersByTimeAsync(1200);
+    const result = await resultPromise;
+
+    expect(result).toEqual({ pid: 4242, logPath: "/tmp/paseo-test/daemon.log" });
+    expect(child.unref).toHaveBeenCalledOnce();
+    expect(mocks.spawnProcess).toHaveBeenCalledOnce();
+    const [command, argv] = mocks.spawnProcess.mock.calls[0] as [string, string[]];
+    expect(command).toBe(process.execPath);
+    expectSupervisorLaunch(argv);
+    expect(argv).toContain("--no-mcp");
+  });
+});
diff --git a/packages/cli/tests/26-daemon-launch-supervision.test.ts b/packages/cli/tests/26-daemon-launch-supervision.test.ts
new file mode 100644
index 000000000..e0e00bd00
--- /dev/null
+++ b/packages/cli/tests/26-daemon-launch-supervision.test.ts
@@ -0,0 +1,105 @@
+#!/usr/bin/env npx tsx
+
+/**
+ * Regression: executable daemon launch commands must enter the supervisor.
+ * The worker entry remains an implementation detail of supervisor-entrypoint.
+ */
+
+import assert from "node:assert";
+import { readFile } from "node:fs/promises";
+import { join } from "node:path";
+
+const repoRoot = join(import.meta.dirname, "../../..");
+const serverPackagePath = join(repoRoot, "packages/server/package.json");
+const appGlobalSetupPath = join(repoRoot, "packages/app/e2e/global-setup.ts");
+const serverConnectionOfferE2ePath = join(
+  repoRoot,
+  "packages/server/src/server/daemon-e2e/connection-offer.e2e.test.ts",
+);
+const desktopRuntimePathsPath = join(repoRoot, "packages/desktop/src/daemon/runtime-paths.ts");
+const nixPackagePath = join(repoRoot, "nix/package.nix");
+
+function assertNoDirectWorkerLaunch(label: string, command: string): void {
+  assert(
+    !command.includes("src/server/index.ts"),
+    `${label} must not launch src/server/index.ts directly: ${command}`,
+  );
+  assert(
+    !command.includes("dist/server/server/index.js"),
+    `${label} must not launch dist/server/server/index.js directly: ${command}`,
+  );
+  assert(
+    !command.includes("src/server/daemon-worker.ts"),
+    `${label} must not launch src/server/daemon-worker.ts directly: ${command}`,
+  );
+  assert(
+    !command.includes("dist/server/server/daemon-worker.js"),
+    `${label} must not launch dist/server/server/daemon-worker.js directly: ${command}`,
+  );
+}
+
+function assertNoSpawnedWorkerEntrypoint(label: string, source: string): void {
+  assertNoDirectWorkerLaunch(label, source);
+  assert(
+    !/spawn\([^)]*["'`][^"'`]*\.\.\/index\.ts["'`]/s.test(source),
+    `${label} must not spawn ../index.ts directly`,
+  );
+}
+
+console.log("=== Daemon Launch Supervision Regression ===\n");
+
+console.log("Test 1: server package scripts launch supervisor-entrypoint");
+const serverPackage = JSON.parse(await readFile(serverPackagePath, "utf-8")) as {
+  scripts?: Record<string, string>;
+};
+const startScript = serverPackage.scripts?.start ?? "";
+const devScript = serverPackage.scripts?.dev ?? "";
+const devTsxScript = serverPackage.scripts?.["dev:tsx"] ?? "";
+
+assert(startScript.includes("dist/scripts/supervisor-entrypoint.js"), startScript);
+assertNoDirectWorkerLaunch("server start script", startScript);
+assert(devScript.includes("scripts/dev-runner.ts"), devScript);
+assertNoDirectWorkerLaunch("server dev script", devScript);
+assert(devTsxScript.includes("scripts/dev-runner.ts"), devTsxScript);
+assertNoDirectWorkerLaunch("server dev:tsx script", devTsxScript);
+console.log("✓ server package scripts enter supervisor\n");
+
+console.log("Test 2: app e2e global setup launches supervisor-entrypoint in dev mode");
+const appGlobalSetup = await readFile(appGlobalSetupPath, "utf-8");
+assert(
+  appGlobalSetup.includes('spawn(tsxBin, ["scripts/supervisor-entrypoint.ts", "--dev"]'),
+  "app e2e setup should spawn supervisor-entrypoint.ts with --dev",
+);
+assertNoSpawnedWorkerEntrypoint("app e2e global setup", appGlobalSetup);
+console.log("✓ app e2e setup enters supervisor\n");
+
+console.log("Test 3: server daemon e2e process launch enters supervisor");
+const serverConnectionOfferE2e = await readFile(serverConnectionOfferE2ePath, "utf-8");
+assert(
+  serverConnectionOfferE2e.includes("scripts/supervisor-entrypoint.ts"),
+  "server daemon e2e process launch should use supervisor-entrypoint.ts",
+);
+assertNoSpawnedWorkerEntrypoint("server daemon e2e process launch", serverConnectionOfferE2e);
+console.log("✓ server daemon e2e process launch enters supervisor\n");
+
+console.log("Test 4: desktop runtime and Nix wrapper point at supervisor-entrypoint");
+const desktopRuntimePaths = await readFile(desktopRuntimePathsPath, "utf-8");
+assert(
+  desktopRuntimePaths.includes('"dist", "scripts", "supervisor-entrypoint.js"'),
+  "desktop packaged daemon runner should resolve dist/scripts/supervisor-entrypoint.js",
+);
+assert(
+  desktopRuntimePaths.includes('"scripts", "supervisor-entrypoint.ts"'),
+  "desktop dev daemon runner should resolve scripts/supervisor-entrypoint.ts",
+);
+assertNoDirectWorkerLaunch("desktop runtime paths", desktopRuntimePaths);
+
+const nixPackage = await readFile(nixPackagePath, "utf-8");
+assert(
+  nixPackage.includes("dist/scripts/supervisor-entrypoint.js"),
+  "Nix paseo-server wrapper should use dist/scripts/supervisor-entrypoint.js",
+);
+assertNoDirectWorkerLaunch("Nix package wrapper", nixPackage);
+console.log("✓ desktop runtime and Nix wrapper enter supervisor\n");
+
+console.log("=== Daemon launch supervision regression test passed ===");
diff --git a/packages/cli/tests/26-daemon-restart-unsupervised.test.ts b/packages/cli/tests/26-daemon-restart-unsupervised.test.ts
deleted file mode 100644
index 9cc2e847c..000000000
--- a/packages/cli/tests/26-daemon-restart-unsupervised.test.ts
+++ /dev/null
@@ -1,198 +0,0 @@
-#!/usr/bin/env npx tsx
-
-/**
- * Regression: unsupervised restart request should gracefully stop and exit 0,
- * so an external owner can decide whether to respawn.
- */
-
-import assert from "node:assert";
-import { spawn, type ChildProcess } from "node:child_process";
-import { mkdtemp, readFile, rm } from "node:fs/promises";
-import { tmpdir } from "node:os";
-import { join } from "node:path";
-import { tryConnectToDaemon } from "../src/utils/client.ts";
-import { getAvailablePort } from "./helpers/network.ts";
-
-const pollIntervalMs = 100;
-const testEnv = {
-  PASEO_LOCAL_SPEECH_AUTO_DOWNLOAD: process.env.PASEO_LOCAL_SPEECH_AUTO_DOWNLOAD ?? "0",
-  PASEO_DICTATION_ENABLED: process.env.PASEO_DICTATION_ENABLED ?? "0",
-  PASEO_VOICE_MODE_ENABLED: process.env.PASEO_VOICE_MODE_ENABLED ?? "0",
-};
-
-function sleep(ms: number): Promise<void> {
-  return new Promise((resolve) => setTimeout(resolve, ms));
-}
-
-function isProcessRunning(pid: number): boolean {
-  if (!Number.isInteger(pid) || pid <= 0) {
-    return false;
-  }
-
-  try {
-    process.kill(pid, 0);
-    return true;
-  } catch {
-    return false;
-  }
-}
-
-async function waitFor(
-  check: () => Promise<boolean> | boolean,
-  timeoutMs: number,
-  message: string,
-): Promise<void> {
-  const deadline = Date.now() + timeoutMs;
-
-  async function poll(): Promise<void> {
-    if (await check()) return;
-    if (Date.now() >= deadline) throw new Error(message);
-    await sleep(pollIntervalMs);
-    return poll();
-  }
-
-  return poll();
-}
-
-interface ExitResult {
-  code: number | null;
-  signal: NodeJS.Signals | null;
-}
-
-function waitForProcessExit(processRef: ChildProcess, timeoutMs: number): Promise<ExitResult> {
-  return new Promise((resolve, reject) => {
-    const timeout = setTimeout(() => {
-      reject(new Error("timed out waiting for process exit"));
-    }, timeoutMs);
-
-    processRef.once("exit", (code, signal) => {
-      clearTimeout(timeout);
-      resolve({ code, signal });
-    });
-  });
-}
-
-async function canConnectToDaemon(host: string, timeoutMs: number): Promise<boolean> {
-  const deadline = Date.now() + timeoutMs;
-
-  async function poll(): Promise<boolean> {
-    const client = await tryConnectToDaemon({ host, timeout: 500 }).catch(() => null);
-    if (client) {
-      await client.close().catch(() => undefined);
-      return true;
-    }
-    if (Date.now() >= deadline) return false;
-    await sleep(pollIntervalMs);
-    return poll();
-  }
-
-  return poll();
-}
-
-async function readPidLockPid(paseoHome: string): Promise<number | null> {
-  const pidPath = join(paseoHome, "paseo.pid");
-  try {
-    const content = await readFile(pidPath, "utf-8");
-    const parsed = JSON.parse(content) as { pid?: unknown };
-    if (typeof parsed.pid !== "number" || !Number.isInteger(parsed.pid) || parsed.pid <= 0) {
-      return null;
-    }
-    return parsed.pid;
-  } catch {
-    return null;
-  }
-}
-
-console.log("=== Daemon Restart (unsupervised regression) ===\n");
-
-const port = await getAvailablePort();
-const paseoHome = await mkdtemp(join(tmpdir(), "paseo-restart-unsupervised-"));
-const cliRoot = join(import.meta.dirname, "..");
-const host = `127.0.0.1:${port}`;
-
-let daemonProcess: ChildProcess | null = null;
-let recentDaemonLogs = "";
-
-try {
-  console.log("Test 1: start unsupervised daemon worker directly");
-
-  daemonProcess = spawn(process.execPath, ["--import", "tsx", "../server/src/server/index.ts"], {
-    cwd: cliRoot,
-    env: {
-      ...process.env,
-      ...testEnv,
-      PASEO_HOME: paseoHome,
-      PASEO_LISTEN: host,
-      PASEO_RELAY_ENABLED: "false",
-      CI: "true",
-    },
-    stdio: ["ignore", "pipe", "pipe"],
-  });
-
-  daemonProcess.stdout?.on("data", (chunk) => {
-    recentDaemonLogs = (recentDaemonLogs + chunk.toString()).slice(-8000);
-  });
-  daemonProcess.stderr?.on("data", (chunk) => {
-    recentDaemonLogs = (recentDaemonLogs + chunk.toString()).slice(-8000);
-  });
-
-  await waitFor(
-    async () =>
-      Boolean(daemonProcess?.pid && isProcessRunning(daemonProcess.pid)) &&
-      (await canConnectToDaemon(host, 1000)),
-    120000,
-    "daemon did not become running in time",
-  );
-
-  assert(daemonProcess.pid, "unsupervised daemon process pid should exist");
-  const lockPid = await readPidLockPid(paseoHome);
-  assert.strictEqual(lockPid, daemonProcess.pid, "unsupervised worker should own pid lock");
-  console.log(`✓ unsupervised daemon started with pid ${daemonProcess.pid}\n`);
-
-  console.log("Test 2: restart request should gracefully stop and exit code 0");
-  const client = await tryConnectToDaemon({ host, timeout: 5000 });
-  assert(client, "daemon client should connect");
-
-  const exitPromise = waitForProcessExit(daemonProcess, 30000);
-  try {
-    const restartAck = await client.restartServer("settings_update");
-    assert.strictEqual(
-      restartAck.status,
-      "restart_requested",
-      "restart request should be acknowledged",
-    );
-  } finally {
-    await client?.close().catch(() => undefined);
-  }
-
-  const exit = await exitPromise;
-  assert.strictEqual(exit.signal, null, `daemon should exit cleanly, got signal=${exit.signal}`);
-  assert.strictEqual(
-    exit.code,
-    0,
-    `daemon should exit with status 0, got code=${exit.code}\nRecent daemon logs:\n${recentDaemonLogs}`,
-  );
-
-  await waitFor(
-    async () => (await readPidLockPid(paseoHome)) === null,
-    15000,
-    "pid lock was not released after unsupervised restart request",
-  );
-
-  console.log("✓ unsupervised restart exited cleanly with code 0\n");
-} finally {
-  if (daemonProcess?.pid && isProcessRunning(daemonProcess.pid)) {
-    daemonProcess.kill("SIGTERM");
-    await waitFor(
-      () => !isProcessRunning(daemonProcess!.pid ?? -1),
-      5000,
-      "daemon cleanup timed out",
-    ).catch(() => {
-      daemonProcess?.kill("SIGKILL");
-    });
-  }
-
-  await rm(paseoHome, { recursive: true, force: true });
-}
-
-console.log("=== Unsupervised restart regression test passed ===");
diff --git a/packages/server/package.json b/packages/server/package.json
index a215881ca..0cc1068f8 100644
--- a/packages/server/package.json
+++ b/packages/server/package.json
@@ -29,12 +29,12 @@
   },
   "scripts": {
     "dev": "cross-env PASEO_NODE_ENV=development node --import tsx scripts/dev-runner.ts",
-    "dev:tsx": "cross-env PASEO_NODE_ENV=development tsx watch --ignore '**/*.timestamp-*' src/server/index.ts",
+    "dev:tsx": "cross-env PASEO_NODE_ENV=development tsx watch --ignore '**/*.timestamp-*' scripts/dev-runner.ts",
     "build": "node -e \"require('node:fs').rmSync('dist',{ recursive: true, force: true })\" && npm run build:lib && npm run build:scripts",
     "build:lib": "tsc -p tsconfig.server.json --incremental false && node -e \"const fs=require('node:fs'); fs.mkdirSync('dist/server/server/speech/providers/local/sherpa/assets',{recursive:true}); fs.copyFileSync('src/server/speech/providers/local/sherpa/assets/silero_vad.onnx','dist/server/server/speech/providers/local/sherpa/assets/silero_vad.onnx'); fs.cpSync('src/terminal/shell-integration','dist/server/terminal/shell-integration',{recursive:true}); fs.cpSync('src/terminal/shell-integration','dist/src/terminal/shell-integration',{recursive:true}); fs.copyFileSync('src/terminal/terminal-ts-loader.mjs','dist/server/terminal/terminal-ts-loader.mjs');\"",
     "build:scripts": "tsc -p tsconfig.scripts.json --incremental false && node -e \"const fs=require('node:fs'); fs.mkdirSync('dist/scripts',{recursive:true}); fs.copyFileSync('scripts/mcp-stdio-socket-bridge-cli.mjs','dist/scripts/mcp-stdio-socket-bridge-cli.mjs');\"",
     "prepack": "npm run build",
-    "start": "node dist/server/server/index.js",
+    "start": "node dist/scripts/supervisor-entrypoint.js",
     "typecheck": "tsgo -p tsconfig.server.typecheck.json --noEmit",
     "generate:config-schema": "tsx scripts/generate-config-schema.ts",
     "speech:models": "tsx scripts/list-speech-models.ts",
diff --git a/packages/server/scripts/dev-runner.ts b/packages/server/scripts/dev-runner.ts
index e47462e18..6cef37140 100644
--- a/packages/server/scripts/dev-runner.ts
+++ b/packages/server/scripts/dev-runner.ts
@@ -26,7 +26,10 @@ const supervisorArgs = [
 
 const supervisor = spawn(process.execPath, supervisorArgs, {
   stdio: "inherit",
-  env: process.env,
+  env: {
+    ...process.env,
+    PASEO_LOG_FORMAT: process.env.PASEO_LOG_FORMAT ?? "pretty",
+  },
 });
 
 function exitCodeForSignal(signal: NodeJS.Signals): number {
diff --git a/packages/server/scripts/supervision-parity.test.ts b/packages/server/scripts/supervision-parity.test.ts
index 5b80aeb4b..960fca1ef 100644
--- a/packages/server/scripts/supervision-parity.test.ts
+++ b/packages/server/scripts/supervision-parity.test.ts
@@ -15,6 +15,17 @@ describe("supervision parity", () => {
     expect(daemonRunnerCalls + devRunnerCalls).toBe(1);
   });
 
+  test("supervisor worker implementation is not server/index", () => {
+    const daemonRunner = readFileSync(
+      new URL("./supervisor-entrypoint.ts", import.meta.url),
+      "utf8",
+    );
+
+    expect(daemonRunner).toContain("daemon-worker");
+    expect(daemonRunner).not.toContain("server/server/index.js");
+    expect(daemonRunner).not.toContain("src/server/index.ts");
+  });
+
   test("dev runner waits asynchronously for supervisor shutdown", () => {
     const devRunner = readFileSync(new URL("./dev-runner.ts", import.meta.url), "utf8");
 
diff --git a/packages/server/scripts/supervisor-entrypoint.ts b/packages/server/scripts/supervisor-entrypoint.ts
index feea4c6fc..23637c476 100644
--- a/packages/server/scripts/supervisor-entrypoint.ts
+++ b/packages/server/scripts/supervisor-entrypoint.ts
@@ -8,9 +8,14 @@ import {
   updatePidLock,
 } from "../src/server/pid-lock.js";
 import { resolvePaseoHome } from "../src/server/paseo-home.js";
+import { loadPersistedConfig } from "../src/server/persisted-config.js";
 import { runSupervisor } from "./supervisor.js";
 import { applySherpaLoaderEnv } from "../src/server/speech/providers/local/sherpa/sherpa-runtime-env.js";
 
+const DEFAULT_DAEMON_LOG_FILENAME = "daemon.log";
+const DEFAULT_LOG_ROTATE_SIZE = "10m";
+const DEFAULT_LOG_ROTATE_MAX_FILES = 2;
+
 interface DaemonRunnerConfig {
   devMode: boolean;
   workerArgs: string[];
@@ -33,10 +38,10 @@ function parseConfig(argv: string[]): DaemonRunnerConfig {
 
 function resolveWorkerEntry(): string {
   const candidates = [
-    fileURLToPath(new URL("../server/server/index.js", import.meta.url)),
-    fileURLToPath(new URL("../dist/server/server/index.js", import.meta.url)),
-    fileURLToPath(new URL("../src/server/index.ts", import.meta.url)),
-    fileURLToPath(new URL("../../src/server/index.ts", import.meta.url)),
+    fileURLToPath(new URL("../server/server/daemon-worker.js", import.meta.url)),
+    fileURLToPath(new URL("../dist/server/server/daemon-worker.js", import.meta.url)),
+    fileURLToPath(new URL("../src/server/daemon-worker.ts", import.meta.url)),
+    fileURLToPath(new URL("../../src/server/daemon-worker.ts", import.meta.url)),
   ];
 
   for (const candidate of candidates) {
@@ -49,7 +54,7 @@ function resolveWorkerEntry(): string {
 }
 
 function resolveDevWorkerEntry(): string {
-  const candidate = fileURLToPath(new URL("../src/server/index.ts", import.meta.url));
+  const candidate = fileURLToPath(new URL("../src/server/daemon-worker.ts", import.meta.url));
   if (!existsSync(candidate)) {
     throw new Error(`Dev worker entry not found: ${candidate}`);
   }
@@ -72,6 +77,28 @@ function resolvePackagedNodeEntrypointRunnerPath(currentScriptPath: string): str
   return existsSync(runnerPath) ? runnerPath : null;
 }
 
+function resolveSupervisorLogFile(
+  paseoHome: string,
+  persistedConfig: ReturnType<typeof loadPersistedConfig>,
+) {
+  const configuredFile = persistedConfig.log?.file;
+  const configuredPath = configuredFile?.path;
+  let logPath = path.join(paseoHome, DEFAULT_DAEMON_LOG_FILENAME);
+  if (configuredPath) {
+    logPath = path.isAbsolute(configuredPath)
+      ? configuredPath
+      : path.resolve(paseoHome, configuredPath);
+  }
+
+  return {
+    path: logPath,
+    rotate: {
+      maxSize: configuredFile?.rotate?.maxSize ?? DEFAULT_LOG_ROTATE_SIZE,
+      maxFiles: configuredFile?.rotate?.maxFiles ?? DEFAULT_LOG_ROTATE_MAX_FILES,
+    },
+  };
+}
+
 async function main(): Promise<void> {
   const config = parseConfig(process.argv.slice(2));
   const workerEntry = config.devMode ? resolveDevWorkerEntry() : resolveWorkerEntry();
@@ -85,6 +112,8 @@ async function main(): Promise<void> {
   applySherpaLoaderEnv(workerEnv);
 
   const paseoHome = resolvePaseoHome(workerEnv);
+  const persistedConfig = loadPersistedConfig(paseoHome);
+  const supervisorLogFile = resolveSupervisorLogFile(paseoHome, persistedConfig);
 
   try {
     await acquirePidLock(paseoHome, null, {
@@ -135,6 +164,7 @@ async function main(): Promise<void> {
         })
       : undefined,
     restartOnCrash: config.devMode,
+    logFile: supervisorLogFile,
     onWorkerReady: async ({ listen }) => {
       await updatePidLock(paseoHome, { listen }, { ownerPid: process.pid });
     },
diff --git a/packages/server/scripts/supervisor.logging.test.ts b/packages/server/scripts/supervisor.logging.test.ts
new file mode 100644
index 000000000..45b3720e4
--- /dev/null
+++ b/packages/server/scripts/supervisor.logging.test.ts
@@ -0,0 +1,132 @@
+import { mkdtemp, readFile, writeFile } from "node:fs/promises";
+import { tmpdir } from "node:os";
+import path from "node:path";
+import { fileURLToPath, pathToFileURL } from "node:url";
+import { spawn } from "node:child_process";
+import { describe, expect, test } from "vitest";
+
+const repoRoot = path.resolve(fileURLToPath(new URL("../../..", import.meta.url)));
+const supervisorPath = fileURLToPath(new URL("./supervisor.ts", import.meta.url));
+
+async function runSupervisorFixture(options: {
+  workerSource: string;
+  restartOnCrash?: boolean;
+}): Promise<{
+  code: number | null;
+  signal: NodeJS.Signals | null;
+  log: string;
+  stdout: string;
+  stderr: string;
+}> {
+  const tempDir = await mkdtemp(path.join(tmpdir(), "paseo-supervisor-log-"));
+  const logPath = path.join(tempDir, "daemon.log");
+  const workerPath = path.join(tempDir, "worker.mjs");
+  const runnerPath = path.join(tempDir, "runner.mjs");
+
+  await writeFile(workerPath, options.workerSource);
+  await writeFile(
+    runnerPath,
+    `
+      import { runSupervisor } from ${JSON.stringify(pathToFileURL(supervisorPath).href)};
+
+      runSupervisor({
+        name: "TestSupervisor",
+        startupMessage: "starting fixture",
+        resolveWorkerEntry: () => ${JSON.stringify(workerPath)},
+        workerArgs: [],
+        workerEnv: process.env,
+        workerExecArgv: [],
+        restartOnCrash: ${JSON.stringify(options.restartOnCrash ?? false)},
+        logFile: {
+          path: ${JSON.stringify(logPath)},
+          rotate: { maxSize: "1m", maxFiles: 2 },
+        },
+      });
+    `,
+  );
+
+  const child = spawn(process.execPath, ["--import", "tsx", runnerPath], {
+    cwd: repoRoot,
+    env: { ...process.env },
+    stdio: ["ignore", "pipe", "pipe"],
+  });
+
+  let stdout = "";
+  let stderr = "";
+  child.stdout.setEncoding("utf8");
+  child.stderr.setEncoding("utf8");
+  child.stdout.on("data", (chunk) => {
+    stdout += chunk;
+  });
+  child.stderr.on("data", (chunk) => {
+    stderr += chunk;
+  });
+
+  const { code, signal } = await new Promise<{
+    code: number | null;
+    signal: NodeJS.Signals | null;
+  }>((resolve, reject) => {
+    const timeout = setTimeout(() => {
+      child.kill("SIGKILL");
+      reject(new Error("supervisor fixture timed out"));
+    }, 10000);
+
+    child.on("error", (error) => {
+      clearTimeout(timeout);
+      reject(error);
+    });
+    child.on("close", (exitCode, exitSignal) => {
+      clearTimeout(timeout);
+      resolve({ code: exitCode, signal: exitSignal });
+    });
+  });
+
+  const log = await readFile(logPath, "utf8");
+  return { code, signal, log, stdout, stderr };
+}
+
+describe("supervisor durable logging", () => {
+  test("writes supervised worker stdout and stderr to daemon.log", async () => {
+    const result = await runSupervisorFixture({
+      workerSource: `
+        process.stdout.write('{"level":30,"msg":"worker-json-stdout"}\\n');
+        process.stderr.write('{"level":50,"msg":"worker-json-stderr"}\\n');
+        process.exit(0);
+      `,
+    });
+
+    expect(result.code).toBe(0);
+    expect(result.signal).toBeNull();
+    expect(result.log).toContain('"worker-json-stdout"');
+    expect(result.log).toContain('"worker-json-stderr"');
+    expect(result.stdout).toContain('"worker-json-stdout"');
+    expect(result.stderr).toContain('"worker-json-stderr"');
+  });
+
+  test("preserves raw non-JSON stdout and stderr lines", async () => {
+    const result = await runSupervisorFixture({
+      workerSource: `
+        process.stdout.write('raw stdout line\\n');
+        process.stderr.write('raw stderr line\\n');
+        process.exit(0);
+      `,
+    });
+
+    expect(result.log).toContain("raw stdout line\n");
+    expect(result.log).toContain("raw stderr line\n");
+  });
+
+  test("logs worker signal exits even when the worker cannot log", async () => {
+    const result = await runSupervisorFixture({
+      workerSource: `
+        process.kill(process.pid, "SIGKILL");
+      `,
+    });
+
+    expect(result.code).toBe(1);
+    expect(result.signal).toBeNull();
+    expect(result.log).toContain('"msg":"Worker exited"');
+    expect(result.log).toContain('"signal":"SIGKILL"');
+    expect(result.log).toContain("Supervisor exiting");
+  });
+});
diff --git a/packages/server/scripts/supervisor.ts b/packages/server/scripts/supervisor.ts
index d37712ff3..a50643e5a 100644
--- a/packages/server/scripts/supervisor.ts
+++ b/packages/server/scripts/supervisor.ts
@@ -1,4 +1,15 @@
 import { fork, spawn, type ChildProcess } from "child_process";
+import { mkdirSync } from "node:fs";
+import path from "node:path";
+import { createStream as createRotatingFileStream } from "rotating-file-stream";
+
+interface SupervisorLogFileOptions {
+  path: string;
+  rotate: {
+    maxSize: string;
+    maxFiles: number;
+  };
+}
 
 type WorkerLifecycleMessage =
   | {
@@ -28,6 +39,7 @@ interface SupervisorOptions {
   onWorkerReady?: (message: { listen: string }) => Promise<void> | void;
   restartOnCrash?: boolean;
   onSupervisorExit?: () => Promise<void> | void;
+  logFile?: SupervisorLogFileOptions;
 }
 
 function describeExit(code: number | null, signal: NodeJS.Signals | null): string {
@@ -59,6 +71,31 @@ function parseLifecycleMessage(msg: unknown): WorkerLifecycleMessage | null {
   return null;
 }
 
+function toRotatingFileStreamSize(size: string): string {
+  const trimmed = size.trim();
+  const match = trimmed.match(/^(\d+)\s*([bBkKmMgG])?$/);
+  if (!match) {
+    return trimmed;
+  }
+
+  const value = match[1];
+  const unit = (match[2] ?? "M").toUpperCase();
+  return `${value}${unit}`;
+}
+
+function createSupervisorLogStream(options: SupervisorLogFileOptions | undefined) {
+  if (!options) {
+    return null;
+  }
+
+  mkdirSync(path.dirname(options.path), { recursive: true });
+  return createRotatingFileStream(path.basename(options.path), {
+    path: path.dirname(options.path),
+    size: toRotatingFileStreamSize(options.rotate.maxSize),
+    maxFiles: options.rotate.maxFiles,
+  });
+}
+
 export function runSupervisor(options: SupervisorOptions): void {
   const restartOnCrash = options.restartOnCrash ?? false;
   const workerArgs = options.workerArgs ?? process.argv.slice(2);
@@ -70,11 +107,39 @@ export function runSupervisor(options: SupervisorOptions): void {
   let restarting = false;
   let shuttingDown = false;
   let exiting = false;
+  const logStream = createSupervisorLogStream(options.logFile);
+
+  const writeDurableChunk = (chunk: string | Buffer): void => {
+    logStream?.write(chunk);
+  };
+
+  const writeLifecycleLog = (message: string, fields: Record<string, unknown> = {}): void => {
+    writeDurableChunk(
+      `${JSON.stringify({
+        level: "info",
+        time: new Date().toISOString(),
+        pid: process.pid,
+        name: options.name,
+        msg: message,
+        ...fields,
+      })}\n`,
+    );
+  };
 
   const log = (message: string): void => {
     process.stderr.write(`[${options.name}] ${message}\n`);
+    writeLifecycleLog(message);
   };
 
+  const closeLogStream = (): Promise<void> =>
+    new Promise((resolve) => {
+      if (!logStream) {
+        resolve();
+        return;
+      }
+      logStream.end(resolve);
+    });
+
   const exitSupervisor = (code: number): void => {
     if (exiting) {
       return;
@@ -85,6 +150,7 @@ export function runSupervisor(options: SupervisorOptions): void {
         const message = error instanceof Error ? error.message : String(error);
         log(`Supervisor exit cleanup failed: ${message}`);
       })
+      .then(closeLogStream)
       .finally(() => {
         process.exit(code);
       });
@@ -103,19 +169,30 @@ export function runSupervisor(options: SupervisorOptions): void {
     }
 
     const spawnSpec = resolveWorkerSpawnSpec?.(workerEntry) ?? null;
+    writeLifecycleLog("Spawning worker", { workerEntry });
     if (spawnSpec) {
       child = spawn(spawnSpec.command, spawnSpec.args, {
-        stdio: ["inherit", "inherit", "inherit", "ipc"],
+        stdio: ["inherit", "pipe", "pipe", "ipc"],
         env: spawnSpec.env ?? workerEnv,
       });
     } else {
       child = fork(workerEntry, workerArgs, {
-        stdio: "inherit",
+        stdio: ["inherit", "pipe", "pipe", "ipc"],
         env: workerEnv,
         execArgv: workerExecArgv,
       });
     }
 
+    child.stdout?.on("data", (chunk: Buffer) => {
+      process.stdout.write(chunk);
+      writeDurableChunk(chunk);
+    });
+
+    child.stderr?.on("data", (chunk: Buffer) => {
+      process.stderr.write(chunk);
+      writeDurableChunk(chunk);
+    });
+
     child.on("message", (msg: unknown) => {
       const lifecycleMessage = parseLifecycleMessage(msg);
       if (!lifecycleMessage) {
@@ -123,6 +200,7 @@ export function runSupervisor(options: SupervisorOptions): void {
       }
 
       if (lifecycleMessage.type === "paseo:ready") {
+        writeLifecycleLog("Worker ready", { listen: lifecycleMessage.listen });
         Promise.resolve(options.onWorkerReady?.({ listen: lifecycleMessage.listen })).catch(
           (error) => {
             const message = error instanceof Error ? error.message : String(error);
@@ -133,15 +211,21 @@ export function runSupervisor(options: SupervisorOptions): void {
       }
 
       if (lifecycleMessage.type === "paseo:shutdown") {
+        writeLifecycleLog("Worker requested shutdown");
         requestShutdown("Shutdown requested by worker");
         return;
       }
 
+      writeLifecycleLog(
+        "Worker requested restart",
+        lifecycleMessage.reason ? { reason: lifecycleMessage.reason } : {},
+      );
       requestRestart("Restart requested by worker");
     });
 
-    child.on("exit", (code, signal) => {
+    child.on("close", (code, signal) => {
       const exitDescriptor = describeExit(code, signal);
+      writeLifecycleLog("Worker exited", { code, signal, exit: exitDescriptor });
 
       if (shuttingDown) {
         log(`Worker exited (${exitDescriptor}). Supervisor shutting down.`);
@@ -151,17 +235,21 @@ export function runSupervisor(options: SupervisorOptions): void {
 
       const crashed =
         restartOnCrash &&
-        ((code !== 0 && code !== null) || (signal !== null && signal === "SIGKILL"));
+        ((code !== 0 && code !== null) || (signal !== null && signal !== "SIGTERM"));
 
       if (restarting || crashed) {
         restarting = false;
-        log(`Worker exited (${exitDescriptor}). Restarting worker...`);
+        log(
+          crashed
+            ? `Worker crashed (${exitDescriptor}). Restarting worker...`
+            : `Worker exited (${exitDescriptor}). Restarting worker...`,
+        );
         spawnWorker();
         return;
       }
 
       log(`Worker exited (${exitDescriptor}). Supervisor exiting.`);
-      exitSupervisor(typeof code === "number" ? code : 0);
+      exitSupervisor(typeof code === "number" ? code : 1);
     });
   };
 
@@ -170,6 +258,7 @@ export function runSupervisor(options: SupervisorOptions): void {
       return;
     }
     restarting = true;
+    writeLifecycleLog("Restart requested", { reason });
     log(`${reason}. Stopping worker for restart...`);
     child.kill("SIGTERM");
   };
@@ -180,6 +269,7 @@ export function runSupervisor(options: SupervisorOptions): void {
     }
     shuttingDown = true;
     restarting = false;
+    writeLifecycleLog("Supervisor shutdown requested", { reason });
     log(`${reason}. Stopping worker...`);
     if (!child) {
       exitSupervisor(0);
@@ -196,5 +286,6 @@ export function runSupervisor(options: SupervisorOptions): void {
   process.on("SIGTERM", () => forwardSignal("SIGTERM"));
 
   process.stdout.write(`[${options.name}] ${options.startupMessage}\n`);
+  writeLifecycleLog(options.startupMessage);
   spawnWorker();
 }
diff --git a/packages/server/src/server/agent/mcp-server.ts b/packages/server/src/server/agent/mcp-server.ts
index 58fbb4647..57d774f3e 100644
--- a/packages/server/src/server/agent/mcp-server.ts
+++ b/packages/server/src/server/agent/mcp-server.ts
@@ -39,7 +39,7 @@ import { scheduleAgentMetadataGeneration } from "./agent-metadata-generator.js";
 import type { VoiceCallerContext, VoiceSpeakHandler } from "../voice-types.js";
 import { expandUserPath, isSameOrDescendantPath, resolvePathFromBase } from "../path-utils.js";
 import type { TerminalManager } from "../../terminal/terminal-manager.js";
-import { captureTerminalLines } from "../../terminal/terminal.js";
+import { captureTerminalLines } from "../../terminal/terminal-capture.js";
 import type {
   AgentWorktreeSetupContinuation,
   CreatePaseoWorktreeSetupContinuationInput,
diff --git a/packages/server/src/server/bootstrap.ts b/packages/server/src/server/bootstrap.ts
index 03fd6282d..021adfcf5 100644
--- a/packages/server/src/server/bootstrap.ts
+++ b/packages/server/src/server/bootstrap.ts
@@ -126,6 +126,7 @@ import type {
   AgentProviderRuntimeSettingsMap,
   ProviderOverride,
 } from "./agent/provider-launch-config.js";
+import type { PersistedConfig } from "./persisted-config.js";
 import {
   ScriptRouteStore,
   createScriptProxyMiddleware,
@@ -201,6 +202,7 @@ export interface PaseoDaemonConfig {
   downloadTokenTtlMs?: number;
   agentProviderSettings?: AgentProviderRuntimeSettingsMap;
   providerOverrides?: Record<string, ProviderOverride>;
+  log?: PersistedConfig["log"];
   onLifecycleIntent?: (intent: DaemonLifecycleIntent) => void;
 }
 
diff --git a/packages/server/src/server/config.ts b/packages/server/src/server/config.ts
index eda33690f..3bd4b52a8 100644
--- a/packages/server/src/server/config.ts
+++ b/packages/server/src/server/config.ts
@@ -3,7 +3,12 @@ import { resolvePaseoNodeEnv } from "./paseo-env.js";
 import { z } from "zod";
 
 import type { PaseoDaemonConfig } from "./bootstrap.js";
-import { loadPersistedConfig } from "./persisted-config.js";
+import {
+  loadPersistedConfig,
+  LogFormatSchema,
+  LogLevelSchema,
+  type PersistedConfig,
+} from "./persisted-config.js";
 import type { AgentProvider } from "./agent/agent-sdk-types.js";
 import type {
   AgentProviderRuntimeSettingsMap,
@@ -35,6 +40,14 @@ function parseBooleanEnv(value: string | undefined): boolean | undefined {
   return undefined;
 }
 
+function normalizeLogEnv(value: string | undefined): string | undefined {
+  if (value === undefined) {
+    return undefined;
+  }
+
+  return value.trim().toLowerCase();
+}
+
 export type CliConfigOverrides = Partial<{
   listen: string;
   relayEnabled: boolean;
@@ -43,6 +56,24 @@ export type CliConfigOverrides = Partial<{
   hostnames: HostnamesConfig;
 }>;
 
+function resolveLogConfigFromEnv(
+  env: NodeJS.ProcessEnv,
+  persisted: ReturnType<typeof loadPersistedConfig>,
+): PersistedConfig["log"] {
+  const envLogLevel = LogLevelSchema.safeParse(normalizeLogEnv(env.PASEO_LOG_LEVEL));
+  const envLogFormat = LogFormatSchema.safeParse(normalizeLogEnv(env.PASEO_LOG_FORMAT));
+
+  if (!envLogLevel.success && !envLogFormat.success) {
+    return persisted.log;
+  }
+
+  return {
+    ...persisted.log,
+    ...(envLogLevel.success ? { level: envLogLevel.data } : {}),
+    ...(envLogFormat.success ? { format: envLogFormat.data } : {}),
+  };
+}
+
 const OptionalVoiceLlmProviderSchema = z
   .union([z.string(), z.null(), z.undefined()])
   .transform((value): string | null =>
@@ -271,5 +302,6 @@ export function loadConfig(
     voiceLlmModel: voiceLlm.model,
     agentProviderSettings: extractAgentProviderSettings(providerOverrides),
     providerOverrides,
+    log: resolveLogConfigFromEnv(env, persisted),
   };
 }
diff --git a/packages/server/src/server/daemon-e2e/connection-offer.e2e.test.ts b/packages/server/src/server/daemon-e2e/connection-offer.e2e.test.ts
index 3ce0aa71d..7e4e3d166 100644
--- a/packages/server/src/server/daemon-e2e/connection-offer.e2e.test.ts
+++ b/packages/server/src/server/daemon-e2e/connection-offer.e2e.test.ts
@@ -6,7 +6,6 @@ import os from "node:os";
 import { mkdtemp, rm } from "node:fs/promises";
 import { Writable } from "node:stream";
 import { spawn } from "node:child_process";
-import { fileURLToPath } from "node:url";
 
 import { generateLocalPairingOffer } from "../pairing-offer.js";
 import { createTestPaseoDaemon } from "../test-utils/paseo-daemon.js";
@@ -202,8 +201,9 @@ describe("ConnectionOfferV2 (daemon E2E)", () => {
     const tempHome = await mkdtemp(path.join(os.tmpdir(), "paseo-offer-e2e-"));
     const port = await getAvailablePort();
 
-    const indexPath = fileURLToPath(new URL("../index.ts", import.meta.url));
-    const tsxBin = path.resolve(process.cwd(), "../../node_modules/.bin/tsx");
+    const serverRoot = path.resolve(import.meta.dirname, "../../..");
+    const supervisorPath = path.join(serverRoot, "scripts/supervisor-entrypoint.ts");
+    const tsxBin = path.resolve(serverRoot, "../../node_modules/.bin/tsx");
 
     const env = {
       ...process.env,
@@ -216,7 +216,7 @@ describe("ConnectionOfferV2 (daemon E2E)", () => {
     };
 
     const stdoutLines: string[] = [];
-    const proc = spawn(tsxBin, [indexPath, "--no-relay"], {
+    const proc = spawn(tsxBin, [supervisorPath, "--dev", "--no-relay"], {
       env,
       stdio: ["ignore", "pipe", "pipe"],
     });
diff --git a/packages/server/src/server/index.ts b/packages/server/src/server/daemon-worker.ts
similarity index 97%
rename from packages/server/src/server/index.ts
rename to packages/server/src/server/daemon-worker.ts
index 5358428ad..5d87ccec2 100644
--- a/packages/server/src/server/index.ts
+++ b/packages/server/src/server/daemon-worker.ts
@@ -2,7 +2,6 @@ import { createPaseoDaemon } from "./bootstrap.js";
 import { loadConfig } from "./config.js";
 import { resolvePaseoHome } from "./paseo-home.js";
 import { createRootLogger } from "./logger.js";
-import { loadPersistedConfig } from "./persisted-config.js";
 import { acquirePidLock, PidLockError, releasePidLock, updatePidLock } from "./pid-lock.js";
 import type { DaemonLifecycleIntent } from "./bootstrap.js";
 
@@ -24,9 +23,8 @@ interface BootstrapResult {
 function bootstrapFromEnvironment(): BootstrapResult {
   try {
     const paseoHome = resolvePaseoHome();
-    const persistedConfig = loadPersistedConfig(paseoHome);
-    const logger = createRootLogger(persistedConfig, { paseoHome });
     const config = loadConfig(paseoHome);
+    const logger = createRootLogger({ log: config.log }, { paseoHome, file: false });
     return { paseoHome, logger, config };
   } catch (err) {
     const message = err instanceof Error ? err.message : String(err);
diff --git a/packages/server/src/server/logger.test.ts b/packages/server/src/server/logger.test.ts
index 2de8ba1a5..1044fda1d 100644
--- a/packages/server/src/server/logger.test.ts
+++ b/packages/server/src/server/logger.test.ts
@@ -1,47 +1,82 @@
+import { existsSync } from "node:fs";
+import { mkdir, mkdtemp, readFile, readdir, writeFile } from "node:fs/promises";
+import { tmpdir } from "node:os";
 import path from "node:path";
-import { describe, it, expect, beforeEach, afterEach } from "vitest";
+import { spawn } from "node:child_process";
+import { fileURLToPath } from "node:url";
+import { describe, expect, it } from "vitest";
 import { resolveLogConfig } from "./logger.js";
+import { loadConfig } from "./config.js";
 import type { PersistedConfig } from "./persisted-config.js";
 
+const repoRoot = path.resolve(fileURLToPath(new URL("../../../..", import.meta.url)));
+const loggerModuleUrl = new URL("./logger.ts", import.meta.url).href;
+
+async function runLoggerFixture(source: string): Promise<{ stdout: string; stderr: string }> {
+  const tempDir = await mkdtemp(path.join(tmpdir(), "paseo-logger-fixture-"));
+  const runnerPath = path.join(tempDir, "runner.mjs");
+  await writeFile(
+    runnerPath,
+    `
+      import { createRootLogger } from ${JSON.stringify(loggerModuleUrl)};
+
+      ${source}
+    `,
+  );
+
+  const child = spawn(process.execPath, ["--import", "tsx", runnerPath], {
+    cwd: repoRoot,
+    stdio: ["ignore", "pipe", "pipe"],
+  });
+
+  let stdout = "";
+  let stderr = "";
+  child.stdout?.setEncoding("utf8");
+  child.stderr?.setEncoding("utf8");
+  child.stdout?.on("data", (chunk) => {
+    stdout += chunk;
+  });
+  child.stderr?.on("data", (chunk) => {
+    stderr += chunk;
+  });
+
+  const code = await new Promise<number | null>((resolve, reject) => {
+    child.on("error", reject);
+    child.on("close", resolve);
+  });
+
+  expect(code, stderr).toBe(0);
+  return { stdout, stderr };
+}
+
 describe("resolveLogConfig", () => {
-  const originalEnv = process.env;
   const paseoHome = "/tmp/paseo-logger-tests";
 
-  beforeEach(() => {
-    process.env = { ...originalEnv };
-    delete process.env.PASEO_LOG;
-    delete process.env.PASEO_LOG_FORMAT;
-    delete process.env.PASEO_LOG_CONSOLE_LEVEL;
-    delete process.env.PASEO_LOG_FILE_LEVEL;
-    delete process.env.PASEO_LOG_FILE_PATH;
-    delete process.env.PASEO_LOG_FILE_ROTATE_SIZE;
-    delete process.env.PASEO_LOG_FILE_ROTATE_COUNT;
-  });
-
-  afterEach(() => {
-    process.env = originalEnv;
-  });
-
-  it("returns dual-sink defaults when no config or env vars", () => {
+  it("defaults to stdout JSON without file logging", () => {
     const result = resolveLogConfig(undefined, { paseoHome });
+
     expect(result).toEqual({
-      level: "debug",
+      level: "info",
       console: {
         level: "info",
-        format: "pretty",
-      },
-      file: {
-        level: "debug",
-        path: path.join(paseoHome, "daemon.log"),
-        rotate: {
-          maxSize: "10m",
-          maxFiles: 2,
-        },
+        format: "json",
       },
     });
   });
 
-  it("uses config.json destination-specific values over defaults", () => {
+  it("keeps legacy level and format as stdout configuration", () => {
+    const result = resolveLogConfig({ level: "warn", format: "pretty" }, { paseoHome });
+
+    expect(result).toEqual({
+      level: "warn",
+      console: {
+        level: "warn",
+        format: "pretty",
+      },
+    });
+  });
+
+  it("enables file output only when log.file is present", () => {
     const config: PersistedConfig = {
       log: {
         console: {
@@ -50,7 +85,7 @@ describe("resolveLogConfig", () => {
         },
         file: {
           level: "debug",
-          path: "/tmp/custom.log",
+          path: "logs/programmatic.log",
           rotate: {
             maxSize: "25m",
             maxFiles: 5,
@@ -58,9 +93,8 @@ describe("resolveLogConfig", () => {
         },
       },
     };
-    const result = resolveLogConfig(config, { paseoHome });
 
-    expect(result).toEqual({
+    expect(resolveLogConfig(config, { paseoHome })).toEqual({
       level: "debug",
       console: {
         level: "warn",
@@ -68,166 +102,98 @@ describe("resolveLogConfig", () => {
       },
       file: {
         level: "debug",
-        path: "/tmp/custom.log",
-        rotate: {
-          maxSize: "25m",
-          maxFiles: 5,
-        },
+        path: path.join(paseoHome, "logs", "programmatic.log"),
       },
     });
   });
-
-  it("uses env vars over config.json values", () => {
-    process.env.PASEO_LOG_CONSOLE_LEVEL = "error";
-    process.env.PASEO_LOG_FILE_LEVEL = "fatal";
-    process.env.PASEO_LOG_FORMAT = "json";
-    process.env.PASEO_LOG_FILE_PATH = "logs/daemon-custom.log";
-    process.env.PASEO_LOG_FILE_ROTATE_SIZE = "15m";
-    process.env.PASEO_LOG_FILE_ROTATE_COUNT = "4";
-
-    const config: PersistedConfig = {
-      log: {
-        console: {
-          level: "info",
-          format: "pretty",
-        },
-        file: {
-          level: "trace",
-          path: "/tmp/will-be-overridden.log",
-          rotate: {
-            maxSize: "30m",
-            maxFiles: 8,
-          },
-        },
-      },
-    };
-
-    const result = resolveLogConfig(config, { paseoHome });
-    expect(result).toEqual({
-      level: "error",
-      console: {
-        level: "error",
-        format: "json",
-      },
-      file: {
-        level: "fatal",
-        path: path.resolve(paseoHome, "logs/daemon-custom.log"),
-        rotate: {
-          maxSize: "15m",
-          maxFiles: 4,
-        },
-      },
-    });
-  });
-
-  it("keeps backwards compatibility for legacy log.level and log.format", () => {
-    const config: PersistedConfig = {
-      log: {
-        level: "warn",
-        format: "json",
-      },
-    };
-
-    const result = resolveLogConfig(config, { paseoHome });
-    expect(result).toEqual({
-      level: "warn",
-      console: {
-        level: "warn",
-        format: "json",
-      },
-      file: {
-        level: "warn",
-        path: path.join(paseoHome, "daemon.log"),
-        rotate: {
-          maxSize: "10m",
-          maxFiles: 2,
-        },
-      },
-    });
-  });
-
-  it("keeps backwards compatibility for legacy env vars", () => {
-    process.env.PASEO_LOG = "error";
-    process.env.PASEO_LOG_FORMAT = "json";
-
-    const result = resolveLogConfig(undefined, { paseoHome });
-    expect(result).toEqual({
-      level: "error",
-      console: {
-        level: "error",
-        format: "json",
-      },
-      file: {
-        level: "error",
-        path: path.join(paseoHome, "daemon.log"),
-        rotate: {
-          maxSize: "10m",
-          maxFiles: 2,
-        },
-      },
-    });
-  });
-
-  it("supports partial destination config and retains defaults", () => {
-    const config: PersistedConfig = {
-      log: {
-        console: {
-          level: "warn",
-        },
-      },
-    };
-
-    const result = resolveLogConfig(config, { paseoHome });
-    expect(result).toEqual({
-      level: "debug",
-      console: {
-        level: "warn",
-        format: "pretty",
-      },
-      file: {
-        level: "debug",
-        path: path.join(paseoHome, "daemon.log"),
-        rotate: {
-          maxSize: "10m",
-          maxFiles: 2,
-        },
-      },
-    });
-  });
-
-  it("ignores invalid rotate count env var and falls back to config value", () => {
-    process.env.PASEO_LOG_FILE_ROTATE_COUNT = "0";
-    const config: PersistedConfig = {
-      log: {
-        file: {
-          rotate: {
-            maxFiles: 7,
-          },
-        },
-      },
-    };
-
-    const result = resolveLogConfig(config, { paseoHome });
-    expect(result.file.rotate.maxFiles).toBe(7);
-  });
-
-  it("supports all log levels for destination-specific env vars", () => {
-    const levels: Array<"trace" | "debug" | "info" | "warn" | "error" | "fatal"> = [
-      "trace",
-      "debug",
-      "info",
-      "warn",
-      "error",
-      "fatal",
-    ];
-
-    for (const level of levels) {
-      process.env.PASEO_LOG_CONSOLE_LEVEL = level;
-      process.env.PASEO_LOG_FILE_LEVEL = level;
-      const result = resolveLogConfig(undefined, { paseoHome });
-      expect(result.console.level).toBe(level);
-      expect(result.file.level).toBe(level);
-      expect(result.level).toBe(level);
-    }
-  });
+});
+
+describe("loadConfig logger config", () => {
+  it("applies log format env at the config boundary", async () => {
+    const root = await mkdtemp(path.join(tmpdir(), "paseo-logger-config-"));
+    const paseoHome = path.join(root, ".paseo");
+    await mkdir(paseoHome, { recursive: true });
+    await writeFile(
+      path.join(paseoHome, "config.json"),
+      JSON.stringify({ version: 1, log: { format: "json" } }),
+    );
+
+    const config = loadConfig(paseoHome, {
+      env: { PASEO_LOG_FORMAT: "pretty" },
+    });
+
+    expect(config.log?.format).toBe("pretty");
+    expect(resolveLogConfig(config, { paseoHome }).console.format).toBe("pretty");
+  });
+});
+
+describe("createRootLogger", () => {
+  it("writes JSON to stdout by default and does not initialize file logging", async () => {
+    const paseoHome = await mkdtemp(path.join(tmpdir(), "paseo-logger-default-"));
+    const missingLogDir = path.join(paseoHome, "logs");
+
+    const { stdout } = await runLoggerFixture(`
+      const logger = createRootLogger(undefined, { paseoHome: ${JSON.stringify(paseoHome)} });
+      logger.info({ proof: "stdout-default" }, "default logger");
+      logger.flush();
+    `);
+
+    expect(stdout).toContain('"proof":"stdout-default"');
+    expect(stdout).toContain('"msg":"default logger"');
+    expect(existsSync(path.join(paseoHome, "daemon.log"))).toBe(false);
+    expect(existsSync(missingLogDir)).toBe(false);
+  });
+
+  it("writes to an explicit file target without creating rotation files", async () => {
+    const paseoHome = await mkdtemp(path.join(tmpdir(), "paseo-logger-file-"));
+    const logPath = path.join(paseoHome, "logs", "programmatic.log");
+
+    await runLoggerFixture(`
+      const logger = createRootLogger(
+        { log: { file: { path: ${JSON.stringify(logPath)} } } },
+        { paseoHome: ${JSON.stringify(paseoHome)} },
+      );
+      logger.info({ proof: "file-explicit" }, "explicit file logger");
+      logger.flush();
+    `);
+
+    const logText = await readFile(logPath, "utf8");
+    const files = await readdir(path.dirname(logPath));
+
+    expect(logText).toContain('"proof":"file-explicit"');
+    expect(logText).toContain('"msg":"explicit file logger"');
+    expect(files).toEqual(["programmatic.log"]);
+  });
+
+  it("can disable file output for supervised workers", async () => {
+    const paseoHome = await mkdtemp(path.join(tmpdir(), "paseo-logger-no-worker-file-"));
+    const logPath = path.join(paseoHome, "daemon.log");
+
+    const { stdout } = await runLoggerFixture(`
+      const logger = createRootLogger(
+        { log: { file: { path: ${JSON.stringify(logPath)} } } },
+        { paseoHome: ${JSON.stringify(paseoHome)}, file: false },
+      );
+      logger.info({ proof: "stdout-only" }, "worker logger");
+      logger.flush();
+    `);
+
+    expect(stdout).toContain('"proof":"stdout-only"');
+    expect(stdout).toContain('"msg":"worker logger"');
+    expect(existsSync(logPath)).toBe(false);
+  });
+
+  it("keeps pretty output available as a format choice", async () => {
+    const paseoHome = await mkdtemp(path.join(tmpdir(), "paseo-logger-pretty-"));
+
+    const { stdout } = await runLoggerFixture(`
+      const logger = createRootLogger({ level: "info", format: "pretty" }, {
+        paseoHome: ${JSON.stringify(paseoHome)},
+      });
+      logger.info("pretty logger");
+      logger.flush();
+    `);
+
+    expect(stdout).toContain("pretty logger");
+  });
 });
diff --git a/packages/server/src/server/logger.ts b/packages/server/src/server/logger.ts
index 2c303ca4a..024aa5280 100644
--- a/packages/server/src/server/logger.ts
+++ b/packages/server/src/server/logger.ts
@@ -1,8 +1,7 @@
-import { existsSync, mkdirSync, readdirSync, renameSync, unlinkSync } from "node:fs";
+import { mkdirSync } from "node:fs";
 import path from "node:path";
 import pino from "pino";
 import pretty from "pino-pretty";
-import { createStream as createRotatingFileStream } from "rotating-file-stream";
 import type { PersistedConfig } from "./persisted-config.js";
 import { resolvePaseoHome } from "./paseo-home.js";
 
@@ -15,13 +14,9 @@ export interface ResolvedLogConfig {
     level: LogLevel;
     format: LogFormat;
   };
-  file: {
+  file?: {
     level: LogLevel;
     path: string;
-    rotate: {
-      maxSize: string;
-      maxFiles: number;
-    };
   };
 }
 
@@ -34,11 +29,9 @@ type LoggerConfigInput = PersistedConfig | LegacyLogConfig | undefined;
 
 interface ResolveLogConfigOptions {
   paseoHome?: string;
-  env?: NodeJS.ProcessEnv;
+  file?: boolean;
 }
 
-const LOG_LEVELS: Set<LogLevel> = new Set(["trace", "debug", "info", "warn", "error", "fatal"]);
-const LOG_FORMATS: Set<LogFormat> = new Set(["pretty", "json"]);
 const LOG_LEVEL_PRIORITIES: Record<LogLevel, number> = {
   trace: 10,
   debug: 20,
@@ -49,10 +42,8 @@ const LOG_LEVEL_PRIORITIES: Record<LogLevel, number> = {
 };
 
 const DEFAULT_CONSOLE_LEVEL: LogLevel = "info";
-const DEFAULT_CONSOLE_FORMAT: LogFormat = "pretty";
+const DEFAULT_CONSOLE_FORMAT: LogFormat = "json";
 const DEFAULT_FILE_LEVEL: LogLevel = "debug";
-const DEFAULT_FILE_ROTATE_SIZE = "10m";
-const DEFAULT_FILE_ROTATE_MAX_FILES = 2;
 const DEFAULT_DAEMON_LOG_FILENAME = "daemon.log";
 const REDACT_PATHS = [
   "authorization",
@@ -69,33 +60,6 @@ const REDACT_PATHS = [
   "req.headers.Sec-WebSocket-Protocol",
 ];
 
-function parseLogLevel(value: string | undefined): LogLevel | undefined {
-  if (!value || !LOG_LEVELS.has(value as LogLevel)) {
-    return undefined;
-  }
-  return value as LogLevel;
-}
-
-function parseLogFormat(value: string | undefined): LogFormat | undefined {
-  if (!value || !LOG_FORMATS.has(value as LogFormat)) {
-    return undefined;
-  }
-  return value as LogFormat;
-}
-
-function parsePositiveInteger(value: string | undefined): number | undefined {
-  if (!value || value.trim().length === 0) {
-    return undefined;
-  }
-
-  const parsed = Number.parseInt(value, 10);
-  if (!Number.isInteger(parsed) || parsed <= 0) {
-    return undefined;
-  }
-
-  return parsed;
-}
-
 function resolveFilePath(paseoHome: string, configuredPath: string | undefined): string {
   const fallback = path.join(paseoHome, DEFAULT_DAEMON_LOG_FILENAME);
   if (!configuredPath) {
@@ -125,7 +89,7 @@ function resolveConfiguredPaseoHome(options: ResolveLogConfigOptions | undefined
   if (options?.paseoHome) {
     return options.paseoHome;
   }
-  return resolvePaseoHome(options?.env ?? process.env);
+  return resolvePaseoHome();
 }
 
 function normalizeLoggerConfigInput(config: LoggerConfigInput): PersistedConfig | undefined {
@@ -150,126 +114,50 @@ function normalizeLoggerConfigInput(config: LoggerConfigInput): PersistedConfig
   return config as PersistedConfig;
 }
 
-function rotateOnRestart(filePath: string, maxFiles: number): void {
-  if (!existsSync(filePath)) return;
-
-  const dir = path.dirname(filePath);
-  const base = path.basename(filePath);
-  const now = new Date();
-  const pad = (n: number) => String(n).padStart(2, "0");
-  const ts = `${now.getFullYear()}${pad(now.getMonth() + 1)}${pad(now.getDate())}-${pad(now.getHours())}${pad(now.getMinutes())}`;
-
-  try {
-    renameSync(filePath, path.join(dir, `${ts}-00-${base}`));
-  } catch {
-    return;
-  }
-
-  // Clean up old rotated logs beyond maxFiles.
-  // Both our restart-rotated files (YYYYMMDD-HHMM-00-daemon.log) and
-  // rotating-file-stream's size-rotated files (YYYYMMDD-HHMM-NN-daemon.log)
-  // end with -${base} and sort chronologically by name.
-  const rotatedFiles = readdirSync(dir)
-    .filter((f) => f.endsWith(`-${base}`) && f !== base)
-    .sort()
-    .toReversed();
-
-  for (const file of rotatedFiles.slice(maxFiles)) {
-    try {
-      unlinkSync(path.join(dir, file));
-    } catch {}
-  }
-}
-
-function toRotatingFileStreamSize(size: string): string {
-  const trimmed = size.trim();
-  const match = trimmed.match(/^(\d+)\s*([bBkKmMgG])?$/);
-  if (!match) {
-    return trimmed;
-  }
-
-  const value = match[1];
-  const unit = (match[2] ?? "M").toUpperCase();
-  return `${value}${unit}`;
-}
-
 interface LogLevelResolution {
   consoleLevel: LogLevel;
-  fileLevel: LogLevel;
+  fileLevel?: LogLevel;
   consoleFormat: LogFormat;
 }
 
 function resolveLogLevelsAndFormat(
-  env: NodeJS.ProcessEnv,
   persistedLog: NonNullable<ReturnType<typeof normalizeLoggerConfigInput>>["log"] | undefined,
 ): LogLevelResolution {
-  const envGlobalLevel = parseLogLevel(env.PASEO_LOG);
   const persistedGlobalLevel = persistedLog?.level;
   const consoleLevel: LogLevel =
-    parseLogLevel(env.PASEO_LOG_CONSOLE_LEVEL) ??
-    envGlobalLevel ??
-    persistedLog?.console?.level ??
-    persistedGlobalLevel ??
-    DEFAULT_CONSOLE_LEVEL;
-  const fileLevel: LogLevel =
-    parseLogLevel(env.PASEO_LOG_FILE_LEVEL) ??
-    envGlobalLevel ??
-    persistedLog?.file?.level ??
-    persistedGlobalLevel ??
-    DEFAULT_FILE_LEVEL;
+    persistedLog?.console?.level ?? persistedGlobalLevel ?? DEFAULT_CONSOLE_LEVEL;
+  const fileLevel = persistedLog?.file
+    ? (persistedLog.file.level ?? persistedGlobalLevel ?? DEFAULT_FILE_LEVEL)
+    : undefined;
   const consoleFormat: LogFormat =
-    parseLogFormat(env.PASEO_LOG_FORMAT) ??
-    persistedLog?.console?.format ??
-    persistedLog?.format ??
-    DEFAULT_CONSOLE_FORMAT;
+    persistedLog?.console?.format ?? persistedLog?.format ?? DEFAULT_CONSOLE_FORMAT;
   return { consoleLevel, fileLevel, consoleFormat };
 }
 
-interface RotateResolution {
-  maxSize: string;
-  maxFiles: number;
-}
-
-function resolveRotateConfig(
-  env: NodeJS.ProcessEnv,
-  persistedLog: NonNullable<ReturnType<typeof normalizeLoggerConfigInput>>["log"] | undefined,
-): RotateResolution {
-  return {
-    maxSize:
-      env.PASEO_LOG_FILE_ROTATE_SIZE?.trim() ||
-      persistedLog?.file?.rotate?.maxSize ||
-      DEFAULT_FILE_ROTATE_SIZE,
-    maxFiles:
-      parsePositiveInteger(env.PASEO_LOG_FILE_ROTATE_COUNT) ??
-      persistedLog?.file?.rotate?.maxFiles ??
-      DEFAULT_FILE_ROTATE_MAX_FILES,
-  };
-}
-
 export function resolveLogConfig(
   configInput: LoggerConfigInput,
   options?: ResolveLogConfigOptions,
 ): ResolvedLogConfig {
   const persistedConfig = normalizeLoggerConfigInput(configInput);
-  const env = options?.env ?? process.env;
   const paseoHome = resolveConfiguredPaseoHome(options);
   const persistedLog = persistedConfig?.log;
 
-  const { consoleLevel, fileLevel, consoleFormat } = resolveLogLevelsAndFormat(env, persistedLog);
-  const filePath = resolveFilePath(paseoHome, env.PASEO_LOG_FILE_PATH ?? persistedLog?.file?.path);
-  const rotate = resolveRotateConfig(env, persistedLog);
+  const { consoleLevel, fileLevel, consoleFormat } = resolveLogLevelsAndFormat(persistedLog);
+  const file =
+    options?.file !== false && persistedLog?.file
+      ? {
+          level: fileLevel ?? DEFAULT_FILE_LEVEL,
+          path: resolveFilePath(paseoHome, persistedLog.file.path),
+        }
+      : undefined;
 
   return {
-    level: minLogLevel([consoleLevel, fileLevel]),
+    level: minLogLevel(file ? [consoleLevel, file.level] : [consoleLevel]),
     console: {
       level: consoleLevel,
       format: consoleFormat,
     },
-    file: {
-      level: fileLevel,
-      path: filePath,
-      rotate,
-    },
+    ...(file ? { file } : {}),
   };
 }
 
@@ -278,32 +166,26 @@ export function createRootLogger(
   options?: ResolveLogConfigOptions,
 ): pino.Logger {
   const config = resolveLogConfig(configInput, options);
+  if (config.file) {
+    mkdirSync(path.dirname(config.file.path), { recursive: true });
+  }
 
-  mkdirSync(path.dirname(config.file.path), { recursive: true });
-
-  const consoleStream =
+  const stream =
     config.console.format === "pretty"
       ? pretty({
           colorize: true,
           singleLine: true,
           ignore: "pid,hostname",
+          destination: config.file?.path ?? 1,
         })
-      : pino.destination({ dest: 1, sync: false });
-
-  rotateOnRestart(config.file.path, config.file.rotate.maxFiles);
-
-  const fileStream = createRotatingFileStream(path.basename(config.file.path), {
-    path: path.dirname(config.file.path),
-    size: toRotatingFileStreamSize(config.file.rotate.maxSize),
-    maxFiles: config.file.rotate.maxFiles,
-  });
+      : pino.destination({ dest: config.file?.path ?? 1, sync: false });
 
   return pino(
-    { level: config.level, redact: { paths: REDACT_PATHS, remove: true } },
-    pino.multistream([
-      { level: config.console.level, stream: consoleStream },
-      { level: config.file.level, stream: fileStream },
-    ]),
+    {
+      level: config.file?.level ?? config.console.level,
+      redact: { paths: REDACT_PATHS, remove: true },
+    },
+    stream,
   );
 }
 
diff --git a/packages/server/src/server/persisted-config.ts b/packages/server/src/server/persisted-config.ts
index ecc00a843..d825dfe8a 100644
--- a/packages/server/src/server/persisted-config.ts
+++ b/packages/server/src/server/persisted-config.ts
@@ -9,8 +9,8 @@ import {
 } from "./agent/provider-launch-config.js";
 import type { AgentProviderRuntimeSettingsMap } from "./agent/provider-launch-config.js";
 
-const LogLevelSchema = z.enum(["trace", "debug", "info", "warn", "error", "fatal"]);
-const LogFormatSchema = z.enum(["pretty", "json"]);
+export const LogLevelSchema = z.enum(["trace", "debug", "info", "warn", "error", "fatal"]);
+export const LogFormatSchema = z.enum(["pretty", "json"]);
 
 const LogConfigSchema = z
   .object({
diff --git a/packages/server/src/terminal/terminal-capture.ts b/packages/server/src/terminal/terminal-capture.ts
new file mode 100644
index 000000000..677f54236
--- /dev/null
+++ b/packages/server/src/terminal/terminal-capture.ts
@@ -0,0 +1,71 @@
+import stripAnsi from "strip-ansi";
+import type { TerminalCell } from "../shared/messages.js";
+import type { TerminalSession } from "./terminal.js";
+
+export interface CaptureTerminalLinesOptions {
+  start?: number;
+  end?: number;
+  stripAnsi?: boolean;
+}
+
+export interface CaptureTerminalLinesResult {
+  lines: string[];
+  totalLines: number;
+}
+
+function cellsToPlainText(cells: TerminalCell[], options: { stripAnsi: boolean }): string {
+  const text = cells
+    .map((cell) => cell.char)
+    .join("")
+    .trimEnd();
+  return options.stripAnsi ? stripAnsi(text) : text;
+}
+
+function resolveCaptureLineIndex(
+  lineNumber: number | undefined,
+  totalLines: number,
+  fallback: "start" | "end",
+): number {
+  if (totalLines === 0) {
+    return fallback === "start" ? 0 : -1;
+  }
+
+  const defaultIndex = fallback === "start" ? 0 : totalLines - 1;
+  if (typeof lineNumber !== "number") {
+    return defaultIndex;
+  }
+
+  const resolvedIndex = lineNumber < 0 ? totalLines + lineNumber : lineNumber;
+  if (resolvedIndex < 0) {
+    return 0;
+  }
+  if (resolvedIndex >= totalLines) {
+    return totalLines - 1;
+  }
+  return resolvedIndex;
+}
+
+export function captureTerminalLines(
+  terminal: TerminalSession,
+  options: CaptureTerminalLinesOptions = {},
+): CaptureTerminalLinesResult {
+  const state = terminal.getState();
+  const allLines = [...state.scrollback, ...state.grid].map((cells) =>
+    cellsToPlainText(cells, { stripAnsi: options.stripAnsi ?? true }),
+  );
+  const totalLines = allLines.length;
+  const startIndex = resolveCaptureLineIndex(options.start, totalLines, "start");
+  const endIndex = resolveCaptureLineIndex(options.end, totalLines, "end");
+
+  if (totalLines === 0 || startIndex > endIndex) {
+    return {
+      lines: [],
+      totalLines,
+    };
+  }
+
+  return {
+    lines: allLines.slice(startIndex, endIndex + 1),
+    totalLines,
+  };
+}
diff --git a/packages/server/src/terminal/terminal-manager-factory.test.ts b/packages/server/src/terminal/terminal-manager-factory.test.ts
deleted file mode 100644
index 583718cd8..000000000
--- a/packages/server/src/terminal/terminal-manager-factory.test.ts
+++ /dev/null
@@ -1,10 +0,0 @@
-import { expect, it } from "vitest";
-import { resolveTerminalBackend } from "./terminal-manager-factory.js";
-
-it("uses the worker terminal backend by default", () => {
-  expect(resolveTerminalBackend({})).toBe("worker");
-});
-
-it("allows explicitly opting back into the in-process terminal backend", () => {
-  expect(resolveTerminalBackend({ PASEO_TERMINAL_BACKEND: "in-process" })).toBe("in-process");
-});
diff --git a/packages/server/src/terminal/terminal-manager-factory.ts b/packages/server/src/terminal/terminal-manager-factory.ts
index a2d6a5d26..d0fbd2845 100644
--- a/packages/server/src/terminal/terminal-manager-factory.ts
+++ b/packages/server/src/terminal/terminal-manager-factory.ts
@@ -1,18 +1,6 @@
-import { createTerminalManager, type TerminalManager } from "./terminal-manager.js";
+import type { TerminalManager } from "./terminal-manager.js";
 import { createWorkerTerminalManager } from "./worker-terminal-manager.js";
 
-export type TerminalBackend = "in-process" | "worker";
-
-export function resolveTerminalBackend(env: NodeJS.ProcessEnv = process.env): TerminalBackend {
-  return env.PASEO_TERMINAL_BACKEND === "in-process" ? "in-process" : "worker";
-}
-
-export function createConfiguredTerminalManager(options?: {
-  backend?: TerminalBackend;
-}): TerminalManager {
-  const backend = options?.backend ?? resolveTerminalBackend();
-  if (backend === "worker") {
-    return createWorkerTerminalManager();
-  }
-  return createTerminalManager();
+export function createConfiguredTerminalManager(): TerminalManager {
+  return createWorkerTerminalManager();
 }
diff --git a/packages/server/src/terminal/terminal-worker-process.ts b/packages/server/src/terminal/terminal-worker-process.ts
index 42df3ff89..4bbba1a18 100644
--- a/packages/server/src/terminal/terminal-worker-process.ts
+++ b/packages/server/src/terminal/terminal-worker-process.ts
@@ -1,5 +1,5 @@
 import { createTerminalManager } from "./terminal-manager.js";
-import { captureTerminalLines } from "./terminal.js";
+import { captureTerminalLines } from "./terminal-capture.js";
 import type { TerminalSession } from "./terminal.js";
 import type {
   TerminalWorkerRequest,
diff --git a/packages/server/src/terminal/terminal-worker-protocol.ts b/packages/server/src/terminal/terminal-worker-protocol.ts
index 7a8e8da71..8542384e9 100644
--- a/packages/server/src/terminal/terminal-worker-protocol.ts
+++ b/packages/server/src/terminal/terminal-worker-protocol.ts
@@ -5,7 +5,7 @@ import type {
   TerminalStateSnapshot,
 } from "./terminal.js";
 import type { TerminalState } from "../shared/messages.js";
-import type { CaptureTerminalLinesResult } from "./terminal.js";
+import type { CaptureTerminalLinesResult } from "./terminal-capture.js";
 
 export interface WorkerTerminalInfo {
   id: string;
diff --git a/packages/server/src/terminal/terminal.ts b/packages/server/src/terminal/terminal.ts
index e3906ef57..401758876 100644
--- a/packages/server/src/terminal/terminal.ts
+++ b/packages/server/src/terminal/terminal.ts
@@ -6,9 +6,13 @@ import { tmpdir, userInfo } from "node:os";
 import { basename, dirname, join } from "node:path";
 import { createRequire } from "node:module";
 import { fileURLToPath } from "node:url";
-import stripAnsi from "strip-ansi";
 import { createExternalProcessEnv } from "../server/paseo-env.js";
 import type { TerminalCell, TerminalState } from "../shared/messages.js";
+export {
+  captureTerminalLines,
+  type CaptureTerminalLinesOptions,
+  type CaptureTerminalLinesResult,
+} from "./terminal-capture.js";
 
 const { Terminal } = xterm;
 const require = createRequire(import.meta.url);
@@ -96,17 +100,6 @@ interface BuildTerminalEnvironmentInput {
   zshShellIntegrationDir?: string;
 }
 
-export interface CaptureTerminalLinesOptions {
-  start?: number;
-  end?: number;
-  stripAnsi?: boolean;
-}
-
-export interface CaptureTerminalLinesResult {
-  lines: string[];
-  totalLines: number;
-}
-
 interface EnsureNodePtySpawnHelperExecutableOptions {
   packageRoot?: string;
   platform?: NodeJS.Platform;
@@ -523,63 +516,6 @@ function extractLastOutputLinesFromText(text: string, limit: number): string[] {
   return lines.slice(-limit);
 }
 
-function cellsToPlainText(cells: TerminalCell[], options: { stripAnsi: boolean }): string {
-  const text = cells
-    .map((cell) => cell.char)
-    .join("")
-    .trimEnd();
-  return options.stripAnsi ? stripAnsi(text) : text;
-}
-
-function resolveCaptureLineIndex(
-  lineNumber: number | undefined,
-  totalLines: number,
-  fallback: "start" | "end",
-): number {
-  if (totalLines === 0) {
-    return fallback === "start" ? 0 : -1;
-  }
-
-  const defaultIndex = fallback === "start" ? 0 : totalLines - 1;
-  if (typeof lineNumber !== "number") {
-    return defaultIndex;
-  }
-
-  const resolvedIndex = lineNumber < 0 ? totalLines + lineNumber : lineNumber;
-  if (resolvedIndex < 0) {
-    return 0;
-  }
-  if (resolvedIndex >= totalLines) {
-    return totalLines - 1;
-  }
-  return resolvedIndex;
-}
-
-export function captureTerminalLines(
-  terminal: TerminalSession,
-  options: CaptureTerminalLinesOptions = {},
-): CaptureTerminalLinesResult {
-  const state = terminal.getState();
-  const allLines = [...state.scrollback, ...state.grid].map((cells) =>
-    cellsToPlainText(cells, { stripAnsi: options.stripAnsi ?? true }),
-  );
-  const totalLines = allLines.length;
-  const startIndex = resolveCaptureLineIndex(options.start, totalLines, "start");
-  const endIndex = resolveCaptureLineIndex(options.end, totalLines, "end");
-
-  if (totalLines === 0 || startIndex > endIndex) {
-    return {
-      lines: [],
-      totalLines,
-    };
-  }
-
-  return {
-    lines: allLines.slice(startIndex, endIndex + 1),
-    totalLines,
-  };
-}
-
 export async function createTerminal(options: CreateTerminalOptions): Promise<TerminalSession> {
   const {
     cwd,
diff --git a/packages/server/src/utils/worktree.ts b/packages/server/src/utils/worktree.ts
index cec80ae67..18c69dece 100644
--- a/packages/server/src/utils/worktree.ts
+++ b/packages/server/src/utils/worktree.ts
@@ -5,7 +5,6 @@ import { copyFile, rm, stat } from "fs/promises";
 import { join, basename, dirname, resolve, sep } from "path";
 import net from "node:net";
 import { createHash } from "node:crypto";
-import * as pty from "node-pty";
 import stripAnsi from "strip-ansi";
 import { buildStringCommandShellInvocation } from "./string-command-shell.js";
 import { readPaseoConfigJson, resolvePaseoConfigPath } from "./paseo-config-file.js";
@@ -30,7 +29,6 @@ import { runGitCommand } from "./run-git-command.js";
 import { spawnProcess } from "./spawn.js";
 import { resolvePaseoHome } from "../server/paseo-home.js";
 import { createExternalProcessEnv } from "../server/paseo-env.js";
-import { ensureNodePtySpawnHelperExecutableForCurrentPlatform } from "../terminal/terminal.js";
 import { parseGitRevParsePath, resolveGitRevParsePath } from "./git-rev-parse-path.js";
 
 const execFileAsync = promisify(execFile);
@@ -465,54 +463,29 @@ async function execSetupCommandStreamed(options: {
       cwd: options.cwd,
     });
 
-    const spawnWithPipes = () => {
-      const shellInvocation = buildStringCommandShellInvocation({ command: options.command });
-      const child = spawnProcess(shellInvocation.shell, shellInvocation.args, {
-        cwd: options.cwd,
-        env: options.env,
-        stdio: ["ignore", "pipe", "pipe"],
-      });
+    const shellInvocation = buildStringCommandShellInvocation({ command: options.command });
+    const child = spawnProcess(shellInvocation.shell, shellInvocation.args, {
+      cwd: options.cwd,
+      env: options.env,
+      stdio: ["ignore", "pipe", "pipe"],
+    });
 
-      child.stdout?.on("data", (chunk: Buffer | string) => {
-        emitOutput("stdout", chunk.toString());
-      });
+    child.stdout?.on("data", (chunk: Buffer | string) => {
+      emitOutput("stdout", chunk.toString());
+    });
 
-      child.stderr?.on("data", (chunk: Buffer | string) => {
-        emitOutput("stderr", chunk.toString());
-      });
+    child.stderr?.on("data", (chunk: Buffer | string) => {
+      emitOutput("stderr", chunk.toString());
+    });
 
-      child.on("error", (error) => {
-        emitOutput("stderr", error instanceof Error ? error.message : String(error));
-        finish(null);
-      });
-
-      child.on("close", (code) => {
-        finish(typeof code === "number" ? code : null);
-      });
-    };
-
-    try {
-      ensureNodePtySpawnHelperExecutableForCurrentPlatform();
-      const shellInvocation = buildStringCommandShellInvocation({ command: options.command });
-      const terminal = pty.spawn(shellInvocation.shell, shellInvocation.args, {
-        cwd: options.cwd,
-        env: options.env,
-        name: "xterm-color",
-        cols: 120,
-        rows: 30,
-      });
-
-      terminal.onData((data) => {
-        emitOutput("stdout", data);
-      });
-
-      terminal.onExit(({ exitCode }) => {
-        finish(typeof exitCode === "number" ? exitCode : null);
-      });
-    } catch (error) {
+    child.on("error", (error) => {
       emitOutput("stderr", error instanceof Error ? error.message : String(error));
-      spawnWithPipes();
-    }
+      finish(null);
+    });
+
+    child.on("close", (code) => {
+      finish(typeof code === "number" ? code : null);
+    });
   });
 }