diff --git a/tests/tools/test_local_env_file_handle.py b/tests/tools/test_local_env_file_handle.py
new file mode 100644
index 000000000000..57f4e33e975f
--- /dev/null
+++ b/tests/tools/test_local_env_file_handle.py
@@ -0,0 +1,114 @@
+"""Tests for file handle management in LocalEnvironment._update_cwd.
+
+_update_cwd must close the file handle after reading the CWD temp file.
+Using open() without a context manager leaks the file descriptor.
+"""
+
+import tempfile
+import os
+from unittest.mock import MagicMock, patch
+
+import pytest
+
+from tools.environments.local import LocalEnvironment
+
+
+def _make_local_env(cwd_file: str) -> LocalEnvironment:
+    """Create a minimal LocalEnvironment with a given cwd_file path."""
+    env = object.__new__(LocalEnvironment)
+    env._cwd_file = cwd_file
+    env.cwd = "/original"
+    env._cwd_marker = "__HERMES_CWD_test__"
+    return env
+
+
+class TestLocalEnvFileHandle:
+    def test_update_cwd_closes_file_handle(self):
+        """_update_cwd must not leak file handles over repeated calls."""
+        with tempfile.NamedTemporaryFile(mode="w", suffix=".cwd", delete=False) as f:
+            f.write("/test/path")
+            cwd_file = f.name
+
+        try:
+            env = _make_local_env(cwd_file)
+
+            import subprocess
+            pid = os.getpid()
+            fd_before = subprocess.run(
+                ["lsof", "-p", str(pid)],
+                capture_output=True, text=True
+            ).stdout.count("\n")
+
+            for _ in range(50):
+                env._update_cwd({"output": ""})
+
+            fd_after = subprocess.run(
+                ["lsof", "-p", str(pid)],
+                capture_output=True, text=True
+            ).stdout.count("\n")
+
+            # Should not have 50 new fds open
+            assert fd_after - fd_before < 10, (
+                f"File descriptor leak: {fd_after - fd_before} new fds after 50 calls"
+            )
+            assert env.cwd == "/test/path"
+        finally:
+            os.unlink(cwd_file)
+
+    def test_update_cwd_uses_context_manager(self):
+        """_update_cwd should use a context manager for file access."""
+        with tempfile.NamedTemporaryFile(mode="w", suffix=".cwd", delete=False) as f:
+            f.write("/ctx/path")
+            cwd_file = f.name
+
+        try:
+            env = _make_local_env(cwd_file)
+
+            with patch("builtins.open") as mock_open:
+                mock_file = MagicMock()
+                mock_file.__enter__ = MagicMock(return_value=mock_file)
+                mock_file.__exit__ = MagicMock(return_value=False)
+                mock_file.read.return_value = "/ctx/path"
+                mock_open.return_value = mock_file
+
+                env._update_cwd({"output": ""})
+
+                # open() should have been called (with context manager support)
+                mock_open.assert_called_once_with(cwd_file)
+                # __enter__ should have been called (context manager used)
+                mock_file.__enter__.assert_called()
+                # __exit__ should also have been called (context manager cleaned up)
+                mock_file.__exit__.assert_called()
+        finally:
+            os.unlink(cwd_file)
+
+    def test_update_cwd_closes_file_handle_on_read_exception(self):
+        """_update_cwd must close the file descriptor even when read() raises."""
+        with tempfile.NamedTemporaryFile(mode='wb', suffix=".cwd", delete=False) as f:
+            # Write invalid UTF-8 bytes so open(...).read() raises UnicodeDecodeError
+            f.write(b"/test/\xff\xfe/path")
+            cwd_file = f.name
+
+        try:
+            env = _make_local_env(cwd_file)
+
+            captured_fh = []
+            real_open = open
+
+            def tracking_open(path, *args, **kwargs):
+                fh = real_open(path, *args, **kwargs)
+                captured_fh.append(fh)
+                return fh
+
+            with patch("builtins.open", tracking_open):
+                try:
+                    env._update_cwd({"output": ""})
+                except UnicodeDecodeError:
+                    pass  # pre-existing: except clause doesn't catch UnicodeDecodeError
+
+            assert captured_fh, "open() was not called"
+            assert captured_fh[0].closed, (
+                "File descriptor was not closed after UnicodeDecodeError"
+            )
+        finally:
+            os.unlink(cwd_file)
diff --git a/tools/environments/local.py b/tools/environments/local.py
index 4aa6b64e2df0..45d91d7922d2 100644
--- a/tools/environments/local.py
+++ b/tools/environments/local.py
@@ -390,7 +390,8 @@ def _kill_process(self, proc):
     def _update_cwd(self, result: dict):
         """Read CWD from temp file (local-only, no round-trip needed)."""
         try:
-            cwd_path = open(self._cwd_file).read().strip()
+            with open(self._cwd_file) as f:
+                cwd_path = f.read().strip()
             if cwd_path:
                 self.cwd = cwd_path
         except (OSError, FileNotFoundError):