diff --git a/packages/app/src/desktop/components/desktop-updates-section.tsx b/packages/app/src/desktop/components/desktop-updates-section.tsx
index 04e38e5602..de3dd8e558 100644
--- a/packages/app/src/desktop/components/desktop-updates-section.tsx
+++ b/packages/app/src/desktop/components/desktop-updates-section.tsx
@@ -17,6 +17,7 @@ import {
   startDesktopDaemon,
   stopDesktopDaemon,
 } from "@/desktop/daemon/desktop-daemon";
+import { executeDaemonManagementToggle } from "@/desktop/daemon/daemon-management-toggle";
 import { useDaemonStatus } from "@/desktop/hooks/use-daemon-status";
 import { useDesktopSettings, type DesktopSettings } from "@/desktop/settings/desktop-settings";
 import type { DesktopDaemonStatus } from "@/desktop/daemon/desktop-daemon";
@@ -39,72 +40,42 @@ function useDaemonManagementToggle(args: {
       return;
     }
 
-    if (!settings.manageBuiltInDaemon) {
-      setIsUpdatingDaemonManagement(true);
-      void updateSettings({ manageBuiltInDaemon: true })
-        .then(() => startDesktopDaemon())
-        .then((newStatus) => {
-          setStatus(newStatus);
-          refetch();
-          return;
-        })
-        .catch((error) => {
-          console.error("[Settings] Failed to update built-in daemon management", error);
-          Alert.alert("Error", "Unable to update built-in daemon management.");
-        })
-        .finally(() => {
-          setIsUpdatingDaemonManagement(false);
-        });
-      return;
-    }
-
-    void confirmDialog({
-      title: "Pause built-in daemon",
-      message:
-        "This will stop the built-in daemon immediately. Running agents and terminals connected to the built-in daemon will be stopped.",
-      confirmLabel: "Pause and stop",
-      cancelLabel: "Cancel",
-      destructive: true,
+    setIsUpdatingDaemonManagement(true);
+    void executeDaemonManagementToggle(settings.manageBuiltInDaemon, daemonStatus, {
+      confirm: () =>
+        confirmDialog({
+          title: "Pause built-in daemon",
+          message:
+            "This will stop the built-in daemon immediately. Running agents and terminals connected to the built-in daemon will be stopped.",
+          confirmLabel: "Pause and stop",
+          cancelLabel: "Cancel",
+          destructive: true,
+        }),
+      persistSettings: (next) => updateSettings(next) as Promise<void>,
+      startDaemon: startDesktopDaemon,
+      stopDaemon: stopDesktopDaemon,
     })
-      .then((confirmed) => {
-        if (!confirmed) {
+      .then((result) => {
+        if (result.kind === "cancelled") {
           return;
         }
-
-        setIsUpdatingDaemonManagement(true);
-
-        void updateSettings({ manageBuiltInDaemon: false })
-          .then(() => {
-            if (daemonStatus?.status === "running" && daemonStatus.desktopManaged) {
-              return stopDesktopDaemon();
-            }
-            return daemonStatus ?? null;
-          })
-          .then((newStatus) => {
-            if (newStatus) {
-              setStatus(newStatus);
-            }
-            return;
-          })
-          .then(() => {
-            refetch();
-            return;
-          })
-          .catch((error) => {
-            console.error("[Settings] Failed to stop built-in daemon", error);
-            Alert.alert(
-              "Error",
-              "Built-in daemon management was paused, but Paseo could not stop the daemon.",
-            );
-          })
-          .finally(() => {
-            setIsUpdatingDaemonManagement(false);
-          });
+        if (result.newStatus) {
+          setStatus(result.newStatus);
+        }
+        refetch();
         return;
       })
       .catch((error) => {
-        console.error("[Settings] Failed to open built-in daemon pause confirmation", error);
-        Alert.alert("Error", "Unable to open the daemon confirmation dialog.");
+        console.error("[Settings] Failed to update built-in daemon management", error);
+        Alert.alert(
+          "Error",
+          settings.manageBuiltInDaemon
+            ? "Built-in daemon management was paused, but Paseo could not stop the daemon."
+            : "Unable to update built-in daemon management.",
+        );
+      })
+      .finally(() => {
+        setIsUpdatingDaemonManagement(false);
       });
   }, [
     daemonStatus,
diff --git a/packages/app/src/desktop/daemon/daemon-management-toggle.test.ts b/packages/app/src/desktop/daemon/daemon-management-toggle.test.ts
new file mode 100644
index 0000000000..c63f4e13de
--- /dev/null
+++ b/packages/app/src/desktop/daemon/daemon-management-toggle.test.ts
@@ -0,0 +1,159 @@
+import { describe, expect, it } from "vitest";
+import { executeDaemonManagementToggle } from "./daemon-management-toggle";
+import type { DesktopDaemonStatus } from "./desktop-daemon";
+
+const runningManagedStatus: DesktopDaemonStatus = {
+  serverId: "desktop",
+  status: "running",
+  listen: null,
+  hostname: null,
+  pid: 123,
+  home: "/tmp/paseo",
+  version: "1.0.0",
+  desktopManaged: true,
+  error: null,
+};
+
+const stoppedStatus: DesktopDaemonStatus = { ...runningManagedStatus, status: "stopped" };
+
+function makeDeps(overrides?: {
+  confirm?: () => Promise<boolean>;
+  persistSettings?: (next: { manageBuiltInDaemon: boolean }) => Promise<void>;
+  startDaemon?: () => Promise<DesktopDaemonStatus>;
+  stopDaemon?: () => Promise<DesktopDaemonStatus>;
+}) {
+  const calls: string[] = [];
+  return {
+    deps: {
+      confirm: overrides?.confirm ?? (() => Promise.resolve(true)),
+      persistSettings:
+        overrides?.persistSettings ??
+        (async () => {
+          calls.push("persist");
+        }),
+      startDaemon:
+        overrides?.startDaemon ??
+        (async () => {
+          calls.push("start");
+          return { ...runningManagedStatus, status: "running" as const };
+        }),
+      stopDaemon:
+        overrides?.stopDaemon ??
+        (async () => {
+          calls.push("stop");
+          return stoppedStatus;
+        }),
+    },
+    calls,
+  };
+}
+
+describe("executeDaemonManagementToggle", () => {
+  describe("enable path (currentlyManaging: false)", () => {
+    it("persists the new setting then starts the daemon", async () => {
+      const { deps, calls } = makeDeps();
+
+      const result = await executeDaemonManagementToggle(false, null, deps);
+
+      expect(result).toEqual({ kind: "enabled", newStatus: runningManagedStatus });
+      expect(calls).toEqual(["persist", "start"]);
+    });
+
+    it("persists manageBuiltInDaemon: true", async () => {
+      let persisted: { manageBuiltInDaemon: boolean } | null = null;
+      const { deps } = makeDeps({
+        persistSettings: async (next) => {
+          persisted = next;
+        },
+      });
+
+      await executeDaemonManagementToggle(false, null, deps);
+
+      expect(persisted).toEqual({ manageBuiltInDaemon: true });
+    });
+  });
+
+  describe("disable path (currentlyManaging: true)", () => {
+    it("returns cancelled without changing settings when confirmation is rejected", async () => {
+      const persistedSettings: unknown[] = [];
+      const { deps } = makeDeps({
+        confirm: () => Promise.resolve(false),
+        persistSettings: async (next) => {
+          persistedSettings.push(next);
+        },
+      });
+
+      const result = await executeDaemonManagementToggle(true, runningManagedStatus, deps);
+
+      expect(result).toEqual({ kind: "cancelled" });
+      expect(persistedSettings).toHaveLength(0);
+    });
+
+    it("persists settings BEFORE stopping the daemon", async () => {
+      const callOrder: string[] = [];
+      const { deps } = makeDeps({
+        persistSettings: async () => {
+          callOrder.push("persist");
+        },
+        stopDaemon: async () => {
+          callOrder.push("stop");
+          return stoppedStatus;
+        },
+      });
+
+      await executeDaemonManagementToggle(true, runningManagedStatus, deps);
+
+      expect(callOrder).toEqual(["persist", "stop"]);
+    });
+
+    it("persists manageBuiltInDaemon: false when disabling", async () => {
+      let persisted: { manageBuiltInDaemon: boolean } | null = null;
+      const { deps } = makeDeps({
+        persistSettings: async (next) => {
+          persisted = next;
+        },
+      });
+
+      await executeDaemonManagementToggle(true, runningManagedStatus, deps);
+
+      expect(persisted).toEqual({ manageBuiltInDaemon: false });
+    });
+
+    it("stops the daemon when it is running and desktop-managed", async () => {
+      const { deps, calls } = makeDeps();
+
+      const result = await executeDaemonManagementToggle(true, runningManagedStatus, deps);
+
+      expect(calls).toContain("stop");
+      expect(result).toEqual({ kind: "disabled", newStatus: stoppedStatus });
+    });
+
+    it("skips stop when daemon is running but not desktop-managed", async () => {
+      const { deps, calls } = makeDeps();
+      const manuallyManagedStatus = { ...runningManagedStatus, desktopManaged: false };
+
+      const result = await executeDaemonManagementToggle(true, manuallyManagedStatus, deps);
+
+      expect(calls).not.toContain("stop");
+      expect(result).toEqual({ kind: "disabled", newStatus: null });
+    });
+
+    it("skips stop when daemon is stopped (regardless of desktopManaged)", async () => {
+      const { deps, calls } = makeDeps();
+
+      const result = await executeDaemonManagementToggle(true, stoppedStatus, deps);
+
+      expect(calls).not.toContain("stop");
+      expect(result).toEqual({ kind: "disabled", newStatus: null });
+    });
+
+    it("skips stop when daemonStatus is null", async () => {
+      const { deps, calls } = makeDeps();
+
+      const result = await executeDaemonManagementToggle(true, null, deps);
+
+      expect(calls).not.toContain("stop");
+      expect(result).toEqual({ kind: "disabled", newStatus: null });
+    });
+  });
+});
diff --git a/packages/app/src/desktop/daemon/daemon-management-toggle.ts b/packages/app/src/desktop/daemon/daemon-management-toggle.ts
new file mode 100644
index 0000000000..efec0ad20c
--- /dev/null
+++ b/packages/app/src/desktop/daemon/daemon-management-toggle.ts
@@ -0,0 +1,41 @@
+import type { DesktopDaemonStatus } from "./desktop-daemon";
+
+export interface DaemonManagementToggleDeps {
+  confirm: () => Promise<boolean>;
+  persistSettings: (next: { manageBuiltInDaemon: boolean }) => Promise<void>;
+  startDaemon: () => Promise<DesktopDaemonStatus>;
+  stopDaemon: () => Promise<DesktopDaemonStatus>;
+}
+
+export type DaemonManagementToggleResult =
+  | { kind: "cancelled" }
+  | { kind: "enabled"; newStatus: DesktopDaemonStatus }
+  | { kind: "disabled"; newStatus: DesktopDaemonStatus | null };
+
+export async function executeDaemonManagementToggle(
+  currentlyManaging: boolean,
+  daemonStatus: Pick<DesktopDaemonStatus, "status" | "desktopManaged"> | null,
+  deps: DaemonManagementToggleDeps,
+): Promise<DaemonManagementToggleResult> {
+  if (!currentlyManaging) {
+    await deps.persistSettings({ manageBuiltInDaemon: true });
+    const newStatus = await deps.startDaemon();
+    return { kind: "enabled", newStatus };
+  }
+
+  const confirmed = await deps.confirm();
+  if (!confirmed) {
+    return { kind: "cancelled" };
+  }
+
+  // Settings must persist before the daemon is stopped so the persisted
+  // state reflects what was actually applied if the stop fails.
+  await deps.persistSettings({ manageBuiltInDaemon: false });
+
+  if (daemonStatus?.status === "running" && daemonStatus.desktopManaged) {
+    const newStatus = await deps.stopDaemon();
+    return { kind: "disabled", newStatus };
+  }
+
+  return { kind: "disabled", newStatus: null };
+}