diff --git a/packages/server/src/server/daemon-e2e/workspace-setup-status-restart.e2e.test.ts b/packages/server/src/server/daemon-e2e/workspace-setup-status-restart.e2e.test.ts
new file mode 100644
index 0000000000..442d337f22
--- /dev/null
+++ b/packages/server/src/server/daemon-e2e/workspace-setup-status-restart.e2e.test.ts
@@ -0,0 +1,81 @@
+import { afterEach, expect, test } from "vitest";
+import { execFileSync } from "node:child_process";
+import { mkdtempSync, rmSync, writeFileSync } from "node:fs";
+import { tmpdir } from "node:os";
+import path from "node:path";
+
+import {
+  createDaemonTestContext,
+  type DaemonTestContext,
+} from "../test-utils/index.js";
+
+const contexts: DaemonTestContext[] = [];
+const dirs: string[] = [];
+
+afterEach(async () => {
+  for (const ctx of contexts.splice(0)) await ctx.cleanup();
+  for (const dir of dirs.splice(0))
+    rmSync(dir, { recursive: true, force: true });
+}, 60_000);
+
+function createRepoWithFailingSetup(): string {
+  const repo = mkdtempSync(path.join(tmpdir(), "setup-restart-repo-"));
+  dirs.push(repo);
+  const git = (...args: string[]) =>
+    execFileSync("git", args, { cwd: repo, stdio: "ignore" });
+  git("init", "-b", "main");
+  git("config", "user.email", "test@example.com");
+  git("config", "user.name", "Test");
+  writeFileSync(
+    path.join(repo, "paseo.json"),
+    JSON.stringify({ worktree: { setup: ["echo before-fail", "exit 3"] } })
+  );
+  git("add", ".");
+  git("commit", "-m", "init");
+  return repo;
+}
+
+async function startDaemon(paseoHomeRoot: string): Promise<DaemonTestContext> {
+  const ctx = await createDaemonTestContext({ paseoHomeRoot, cleanup: false });
+  contexts.push(ctx);
+  return ctx;
+}
+
+test("a failed worktree setup is still reported after the daemon restarts", async () => {
+  const repo = createRepoWithFailingSetup();
+  const paseoHomeRoot = mkdtempSync(path.join(tmpdir(), "setup-restart-home-"));
+  dirs.push(paseoHomeRoot);
+
+  const first = await startDaemon(paseoHomeRoot);
+  await first.client.addProject(repo);
+  const created = await first.client.createPaseoWorktree({
+    cwd: repo,
+    worktreeSlug: "failing-setup",
+  });
+  const workspaceId = created.workspace?.id;
+  expect(workspaceId).toBeTruthy();
+
+  await expect
+    .poll(
+      async () =>
+        (
+          await first.client.fetchWorkspaceSetupStatus(workspaceId!)
+        ).snapshot?.status,
+      {
+        timeout: 20_000,
+      }
+    )
+    .toBe("failed");
+
+  await first.cleanup();
+  contexts.splice(contexts.indexOf(first), 1);
+  const second = await startDaemon(paseoHomeRoot);
+
+  const workspaces = await second.client.fetchWorkspaces();
+  expect(workspaces.entries.map((entry) => entry.id)).toContain(workspaceId);
+
+  const afterRestart = await second.client.fetchWorkspaceSetupStatus(
+    workspaceId!
+  );
+  expect(afterRestart.snapshot?.status).toBe("failed");
+}, 60_000);