diff --git a/packages/app/src/components/markdown/images.ts b/packages/app/src/components/markdown/images.ts
index 0df11589e7..37559fa3e9 100644
--- a/packages/app/src/components/markdown/images.ts
+++ b/packages/app/src/components/markdown/images.ts
@@ -1,3 +1,5 @@
+import { Image } from "react-native";
+import { isWeb } from "@/constants/platform";
 import { useMemo, useEffect, useId } from "react";
 import { useFetchQueries } from "@/data/query";
 import { createAssistantImageFileAcquisition } from "@/assistant-image/file-acquisition";
@@ -35,7 +37,7 @@ export interface MarkdownImageContext {
 export function useMarkdownSource(text: string, context: MarkdownImageContext) {
   const occurrenceKey = useId();
   const prepared = useMemo(
-    () => prepareMarkdownSource(text, context.workspaceRoot),
+    () => prepareMarkdownSource(text, context.workspaceRoot, { supportsSvg: isWeb }),
     [text, context.workspaceRoot],
   );
   const sources = [...new Set(prepared.images.map((image) => image.source))];
@@ -90,10 +92,39 @@ export function useMarkdownSource(text: string, context: MarkdownImageContext) {
   results.forEach((result, index) => {
     if (result.data) resolved.set(sources[index]!, result.data.uri);
   });
+  const displayUrls = sources.map(
+    (source) =>
+      resolved.get(source) ?? (/^(https?:|data:|blob:)/i.test(source) ? source : undefined),
+  );
+  const decoded = useFetchQueries(
+    displayUrls.map((uri, index) => ({
+      queryKey: ["markdownImageDecode", occurrenceKey, uri ?? sources[index]],
+      enabled: uri !== undefined,
+      immutableWhen: () => true,
+      dataShape: "value",
+      gcTime: 0,
+      queryFn: () => (uri ? canDecodeImage(uri) : Promise.resolve(false)),
+    })),
+  );
+  const unavailableImages = new Set(
+    sources.filter(
+      (_source, index) => displayUrls[index] !== undefined && decoded[index]?.data !== true,
+    ),
+  );
   return {
-    markdown: prepared.render(resolved),
+    markdown: prepared.render(resolved, unavailableImages),
     linkRecognition: prepared.linkRecognition,
     linkSource: prepared.linkSource,
     imageSources: Object.fromEntries([...resolved].map(([source, url]) => [url, source])),
   };
 }
+
+function canDecodeImage(uri: string): Promise<boolean> {
+  return new Promise((resolve) => {
+    Image.getSize(
+      uri,
+      (width, height) => resolve(width > 0 && height > 0),
+      () => resolve(false),
+    );
+  });
+}
diff --git a/packages/app/src/components/markdown/renderer.test.ts b/packages/app/src/components/markdown/renderer.test.ts
index e673a5881c..c2d003a067 100644
--- a/packages/app/src/components/markdown/renderer.test.ts
+++ b/packages/app/src/components/markdown/renderer.test.ts
@@ -265,3 +265,30 @@ it("keeps the renderer root and child identity as workspace images resolve", ()
     paseoMarkdownImageSources: JSON.stringify({ "blob:resolved": "/repo/image.png" }),
   });
 });
+
+it.each([false, true])(
+  "caps inline images to the paragraph line height (compact: %s)",
+  (compact) => {
+    const { markdownStyle } = createMarkdownStyles(darkTheme, compact);
+    expect(markdownStyle.inlineImage?.size).toBe(markdownStyle.paragraph?.lineHeight);
+  },
+);
+
+it("shows native SVG badges as alt text without reserving an image box", () => {
+  const source = "![P1](https://example.com/p1.svg?v=9) **Finding**";
+  const prepared = prepareMarkdownSource(source, undefined, { supportsSvg: false });
+  expect(prepared.render()).toBe("P1 **Finding**");
+  expect(prepared.images).toEqual([]);
+});
+
+it("collapses images that fail to load or decode to their alt text", () => {
+  const prepared = prepareMarkdownSource(
+    "![Remote](https://example.com/broken.png) and ![Local](broken.png)",
+  );
+  expect(
+    prepared.render(
+      new Map([["broken.png", "file:///broken.png"]]),
+      new Set(["https://example.com/broken.png", "broken.png"]),
+    ),
+  ).toBe("Remote and Local");
+});
diff --git a/packages/app/src/components/markdown/source.ts b/packages/app/src/components/markdown/source.ts
index cf81511860..d31ad3fa51 100644
--- a/packages/app/src/components/markdown/source.ts
+++ b/packages/app/src/components/markdown/source.ts
@@ -49,7 +49,11 @@ function workspaceHoverTitle(link: Link, markup: string, workspaceRoot?: string)
 }
 
 /** Preserve source spelling; adapt workspace images, spoiler delimiters, and entity text. */
-export function prepareMarkdownSource(source: string, workspaceRoot?: string) {
+export function prepareMarkdownSource(
+  source: string,
+  workspaceRoot?: string,
+  options: { supportsSvg?: boolean } = {},
+) {
   source = normalizeMarkdownHtml(source);
   const images: MarkdownImage[] = [];
   let tree: Root | undefined;
@@ -74,6 +78,29 @@ export function prepareMarkdownSource(source: string, workspaceRoot?: string) {
     if ("children" in node) node.children.forEach(definitionsIn);
   }
   definitionsIn(getTree());
+  function collectImage(
+    node: Extract<Nodes, { type: "image" | "imageReference" }>,
+    start: number,
+    end: number,
+  ) {
+    const target = node.type === "image" ? node : definitions.get(node.identifier);
+    if (
+      target &&
+      options.supportsSvg === false &&
+      /(?:\.svg(?:[?#]|$)|^data:image\/svg\+xml)/i.test(target.url)
+    ) {
+      edits.push({ start, end, text: node.alt ?? "" });
+      return;
+    }
+    if (target)
+      images.push({
+        source: target.url,
+        alt: node.alt ?? "",
+        title: target.title ?? null,
+        start,
+        end,
+      });
+  }
   function visit(node: Nodes) {
     const start = node.position?.start.offset;
     const end = node.position?.end.offset;
@@ -92,15 +119,7 @@ export function prepareMarkdownSource(source: string, workspaceRoot?: string) {
         }
       }
       if (node.type === "image" || node.type === "imageReference") {
-        const target = node.type === "image" ? node : definitions.get(node.identifier);
-        if (target)
-          images.push({
-            source: target.url,
-            alt: node.alt ?? "",
-            title: target.title ?? null,
-            start,
-            end,
-          });
+        collectImage(node, start, end);
         return;
       }
       if (node.type === "text") {
@@ -119,11 +138,15 @@ export function prepareMarkdownSource(source: string, workspaceRoot?: string) {
   return {
     images,
     ...linkMetadata(),
-    render(urls: ReadonlyMap<string, string> = new Map()) {
+    render(
+      urls: ReadonlyMap<string, string> = new Map(),
+      unavailableImages: ReadonlySet<string> = new Set(),
+    ) {
       const replacements = [...edits];
       for (const image of images) {
-        if (/^(https?:|data:|blob:)/i.test(image.source)) continue;
-        const url = urls.get(image.source);
+        const unavailable = unavailableImages.has(image.source);
+        if (!unavailable && /^(https?:|data:|blob:)/i.test(image.source)) continue;
+        const url = unavailable ? undefined : urls.get(image.source);
         replacements.push({
           start: image.start,
           end: image.end,
diff --git a/packages/app/src/components/markdown/styles.ts b/packages/app/src/components/markdown/styles.ts
index 582809340c..5a511cf8d0 100644
--- a/packages/app/src/components/markdown/styles.ts
+++ b/packages/app/src/components/markdown/styles.ts
@@ -93,6 +93,7 @@ export function createMarkdownStyles(
         checkmarkColor: theme.colors.accentForeground,
         borderColor: theme.colors.foregroundMuted,
       },
+      inlineImage: { size: paragraph.lineHeight },
       image: { height: 320, resizeMode: "contain", borderRadius: 8 },
       thematicBreak: { color: theme.colors.border, height: 1, marginTop: 12, marginBottom: 12 },
     },