diff --git a/packages/server/src/server/daemon-e2e/project-becomes-git.e2e.test.ts b/packages/server/src/server/daemon-e2e/project-becomes-git.e2e.test.ts
index a4db7ce7bf..16dae500f4 100644
--- a/packages/server/src/server/daemon-e2e/project-becomes-git.e2e.test.ts
+++ b/packages/server/src/server/daemon-e2e/project-becomes-git.e2e.test.ts
@@ -1,6 +1,6 @@
 import { execFile as execFileCallback } from "node:child_process";
 import { mkdtempSync, realpathSync } from "node:fs";
-import { readFile, rm } from "node:fs/promises";
+import { readFile, rm, writeFile } from "node:fs/promises";
 import os from "node:os";
 import path from "node:path";
 import { promisify } from "node:util";
@@ -63,10 +63,12 @@ test("an empty project becomes Git without changing its identity or creating a w
   cleanupClients.add(client);
   await client.connect();
   await client.fetchAgents({ subscribe: {} });
+  const projectEvents = client.observeEvents(["project.update"]);
+  await projectEvents.ready;
 
   const added = await client.addProject(projectRoot);
 
-  expect(added).toEqual({
+  expect(added).toMatchObject({
     requestId: expect.any(String),
     project: {
       projectId: expect.stringMatching(/^prj_[0-9a-f]{16}$/),
@@ -77,7 +79,11 @@ test("an empty project becomes Git without changing its identity or creating a w
     },
     error: null,
   });
-  const project = added.project!;
+  const {
+    projectIconRevision: _icon,
+    projectCustomIconRevision: _customIcon,
+    ...project
+  } = added.project!;
   const beforeGitInit = await client.fetchWorkspaces({ filter: { projectId: project.projectId } });
   expect(beforeGitInit).toMatchObject({ entries: [], emptyProjects: [project] });
 
@@ -96,15 +102,15 @@ test("an empty project becomes Git without changing its identity or creating a w
     label: "project.update after git init",
   });
 
-  expect(update).toEqual({
+  expect(update).toMatchObject({
     kind: "upsert",
-    project: { ...project, projectKind: "git" },
+    project: { ...project, projectKind: "git", projectKey: expect.any(String) },
   });
 
   const afterGitInit = await client.fetchWorkspaces({ filter: { projectId: project.projectId } });
   expect(afterGitInit).toMatchObject({
     entries: [],
-    emptyProjects: [{ ...project, projectKind: "git" }],
+    emptyProjects: [{ ...project, projectKind: "git", projectKey: expect.any(String) }],
   });
 
   const persistedProjects = JSON.parse(
@@ -119,5 +125,72 @@ test("an empty project becomes Git without changing its identity or creating a w
     createdAt: expect.any(String),
     updatedAt: expect.any(String),
     archivedAt: null,
+    projectKey: expect.any(String),
+    customIconRevision: null,
   });
 }, 30_000);
+
+test("a failed worktree attempt before git init does not prevent creation afterward", async () => {
+  const projectRoot = realpathSync(mkdtempSync(path.join(os.tmpdir(), "paseo-init-worktree-")));
+  const paseoHomeRoot = realpathSync(mkdtempSync(path.join(os.tmpdir(), "paseo-init-home-")));
+  cleanupPaths.add(projectRoot);
+  cleanupPaths.add(paseoHomeRoot);
+  await writeFile(path.join(projectRoot, "README.md"), "hi\n");
+
+  const daemon = await createTestPaseoDaemon({ paseoHomeRoot, cleanup: false });
+  cleanupDaemons.add(daemon);
+  const client = new DaemonClient({ url: `ws://127.0.0.1:${daemon.port}/ws` });
+  cleanupClients.add(client);
+  await client.connect();
+  await client.fetchAgents({ subscribe: {} });
+  const projectEvents = client.observeEvents(["project.update"]);
+  await projectEvents.ready;
+  const added = await client.addProject(projectRoot);
+  expect(added.project?.projectKind).toBe("non_git");
+  const source = {
+    kind: "worktree" as const,
+    cwd: projectRoot,
+    projectId: added.project!.projectId,
+    action: "branch-off" as const,
+    refName: "main",
+    branchName: "after-init",
+    worktreeSlug: "after-init",
+  };
+  const before = await client.createWorkspace({ source });
+  expect(before.error).toBe("Create worktree requires a git repository");
+
+  const gitProjectUpdate = waitForProjectUpdate(
+    client,
+    (payload) =>
+      payload.kind === "upsert" &&
+      payload.project.projectId === added.project!.projectId &&
+      payload.project.projectKind === "git",
+  );
+  await execFile("git", ["init", "-b", "main"], { cwd: projectRoot });
+  await execFile("git", ["add", "README.md"], { cwd: projectRoot });
+  await execFile(
+    "git",
+    [
+      "-c",
+      "user.name=Paseo Test",
+      "-c",
+      "user.email=test@getpaseo.dev",
+      "-c",
+      "commit.gpgSign=false",
+      "commit",
+      "-m",
+      "initial",
+    ],
+    { cwd: projectRoot },
+  );
+  await withTimeout({ promise: gitProjectUpdate, timeoutMs: 10_000, label: "project becomes Git" });
+  const projects = await client.fetchWorkspaces({
+    filter: { projectId: added.project!.projectId },
+  });
+  expect(projects.emptyProjects[0]?.projectKind).toBe("git");
+
+  const created = await client.createWorkspace({ source });
+  expect(created.error).toBeNull();
+  expect(created.workspace?.workspaceKind).toBe("worktree");
+  expect(created.workspace?.projectId).toBe(added.project!.projectId);
+}, 30_000);
diff --git a/packages/server/src/server/file-observer/index.test.ts b/packages/server/src/server/file-observer/index.test.ts
index 711b826348..95fe416c54 100644
--- a/packages/server/src/server/file-observer/index.test.ts
+++ b/packages/server/src/server/file-observer/index.test.ts
@@ -236,7 +236,8 @@ test("observes a thousand concurrent writes and remains healthy after delete and
   const deletions = expectFileChanges(removedPaths, "delete");
   const movedFiles = expectFileChanges(movedPaths);
   const recovery = expectFileChanges([sentinel]);
-  const subscription = await subscribeToFileChanges(root, (error, events) => {
+  const observer = createObserver();
+  const subscription = await observer.subscribe(root, (error, events) => {
     expect(error).toBeNull();
     for (const event of events) {
       population.record(event);
@@ -254,9 +255,18 @@ test("observes a thousand concurrent writes and remains healthy after delete and
   await Promise.all(paths.map((path, index) => writeFile(path, `${index}`)));
   await writes.complete;
 
-  // A native watcher may recover coalesced paths through its safety audit.
-  // Completion comes from the delivered deletions, not an idle diagnostic or
-  // a deadline shorter than that recovery cycle.
+  // The first notice for each write can arrive before its remaining
+  // classifications. Drain those deliveries before starting a separate deletion
+  // phase, so a late create cannot coalesce with the expected delete as update.
+  await expect
+    .poll(() => observer.getDiagnostics(), { timeout: 10_000 })
+    .toMatchObject({
+      pendingEventCount: 0,
+      pendingClassificationCount: 0,
+      reconciliationInFlightCount: 0,
+    });
+
+  // Completion still requires the delivered deletion notices.
   await Promise.all(removedPaths.map((path) => rm(path)));
   await deletions.complete;
 
diff --git a/packages/server/src/server/workspace-git-service.observation.integration.test.ts b/packages/server/src/server/workspace-git-service.observation.integration.test.ts
index a98dcda0fd..8ac1ef0018 100644
--- a/packages/server/src/server/workspace-git-service.observation.integration.test.ts
+++ b/packages/server/src/server/workspace-git-service.observation.integration.test.ts
@@ -63,6 +63,27 @@ afterEach(async () => {
   }
 });
 
+test("a fresh checkout read makes a newly initialized repository available to cached readers", async () => {
+  const root = realpathSync(mkdtempSync(path.join(tmpdir(), "paseo-checkout-init-")));
+  const repo = path.join(root, "repo");
+  mkdirSync(repo);
+  const service = new WorkspaceGitServiceImpl({
+    logger: pino({ enabled: false }),
+    paseoHome: path.join(root, "home"),
+  });
+  cleanup.push(async () => {
+    await service.dispose();
+    rmSync(root, { recursive: true, force: true });
+  });
+
+  expect((await service.getSnapshot(repo, { includeForge: false })).git.isGit).toBe(false);
+  execFileSync("git", ["init", "-b", "main"], { cwd: repo, stdio: "pipe" });
+
+  expect((await service.getCheckout(repo)).isGit).toBe(true);
+  const repoRoot = await service.resolveRepoRoot(repo);
+  expect(realpathSync.native(repoRoot)).toBe(realpathSync.native(repo));
+}, 30_000);
+
 test("recursive observation updates tracked state and prunes ignored storms", async () => {
   const tempDir = realpathSync(mkdtempSync(path.join(tmpdir(), "paseo-git-observation-")));
   const repoDir = path.join(tempDir, "repo");
diff --git a/packages/server/src/server/workspace-git-service.ts b/packages/server/src/server/workspace-git-service.ts
index 2f3483cb6f..a2b89bed39 100644
--- a/packages/server/src/server/workspace-git-service.ts
+++ b/packages/server/src/server/workspace-git-service.ts
@@ -765,6 +765,16 @@ export class WorkspaceGitServiceImpl implements WorkspaceGitService {
       worktreesRoot: this.worktreesRoot,
       logger: this.logger,
     });
+    const cached = this.peekSnapshot(normalizedCwd);
+    if (cached && cached.git.isGit !== status.isGit) {
+      // A fresh checkout read discovered a repository transition. Keep the
+      // shared snapshot current before exposing the new project capability.
+      await this.getSnapshot(normalizedCwd, {
+        force: true,
+        includeForge: false,
+        reason: "checkout-classification-changed",
+      });
+    }
     if (!status.isGit) {
       return checkoutLiteFromGitSnapshot(normalizedCwd, {
         isGit: false,