diff --git a/components/src/dynamo/sglang/args.py b/components/src/dynamo/sglang/args.py
index 0cf64245e4aa..f5d99a65243c 100644
--- a/components/src/dynamo/sglang/args.py
+++ b/components/src/dynamo/sglang/args.py
@@ -491,6 +491,12 @@ async def parse_args(args: list[str]) -> Config:
     # contain code to download a model, it should only parse the args.
     server_args = ServerArgs.from_cli_args(parsed_args)
 
+    # Dynamo's streaming handlers expect disjoint output_ids from SGLang (only new
+    # tokens since last output), not cumulative tokens. When stream_output=True,
+    # SGLang sends disjoint segments which Dynamo passes through directly.
+    # Force stream_output=True for optimal streaming performance.
+    server_args.stream_output = True
+
     if parsed_args.use_sglang_tokenizer:
         logging.info(
             "Using SGLang's built in tokenizer. Setting skip_tokenizer_init to False"
diff --git a/components/src/dynamo/sglang/request_handlers/llm/decode_handler.py b/components/src/dynamo/sglang/request_handlers/llm/decode_handler.py
index ad13e0610534..c932c96502a5 100644
--- a/components/src/dynamo/sglang/request_handlers/llm/decode_handler.py
+++ b/components/src/dynamo/sglang/request_handlers/llm/decode_handler.py
@@ -166,6 +166,9 @@ async def _process_token_stream(
     ) -> AsyncGenerator[Dict[str, Any], None]:
         """Process token-based stream output.
 
+        With stream_output=True (enforced by Dynamo), SGLang sends disjoint segments
+        containing only new tokens since the last output. We pass these through directly.
+
         Args:
             stream_source: Async generator from engine.async_generate.
             context: Context object for cancellation handling.
@@ -173,8 +176,6 @@ async def _process_token_stream(
         Yields:
             Dict with token_ids and optional finish_reason.
         """
-        num_output_tokens_so_far = 0
-
         # Use Future pattern for request ID - will be set when first response arrives
         request_id_future = asyncio.Future()
         async with self._cancellation_monitor(request_id_future, context):
@@ -196,6 +197,7 @@ async def _process_token_stream(
                 if finish_reason:
                     out["finish_reason"] = finish_reason["type"]
 
+                # With stream_output=True, output_ids contains only new tokens (disjoint)
                 output_ids = res.get("output_ids", [])
                 # If request is not finished yet, but there are no outputs, return an error.
                 if not output_ids and not finish_reason:
@@ -203,9 +205,8 @@ async def _process_token_stream(
                         yield {"finish_reason": "error", "token_ids": []}
                     break
 
-                next_total_toks = len(output_ids)
-                out["token_ids"] = output_ids[num_output_tokens_so_far:]
-                num_output_tokens_so_far = next_total_toks
+                # Pass through disjoint token segments directly
+                out["token_ids"] = output_ids
                 if finish_reason:
                     input_tokens = res["meta_info"]["prompt_tokens"]
                     completion_tokens = res["meta_info"]["completion_tokens"]
diff --git a/components/src/dynamo/sglang/request_handlers/multimodal/worker_handler.py b/components/src/dynamo/sglang/request_handlers/multimodal/worker_handler.py
index 3d700a5da175..5a87b95cbefe 100644
--- a/components/src/dynamo/sglang/request_handlers/multimodal/worker_handler.py
+++ b/components/src/dynamo/sglang/request_handlers/multimodal/worker_handler.py
@@ -133,30 +133,26 @@ class StreamProcessor:
 
     @staticmethod
     async def process_sglang_stream(stream_source) -> AsyncIterator[str]:
-        """Process SGLang stream output following backend pattern"""
-        num_output_tokens_so_far = 0
+        """Process SGLang stream output.
 
+        With stream_output=True (enforced by Dynamo), SGLang sends disjoint segments
+        containing only new tokens since the last output. We pass these through directly.
+        """
         try:
             async for res in stream_source:
                 try:
-                    next_total_toks = len(res["output_ids"])
-
-                    # Return incremental tokens
+                    # With stream_output=True, output_ids contains only new tokens (disjoint)
                     output = {
-                        "token_ids": res["output_ids"][num_output_tokens_so_far:],
+                        "token_ids": res["output_ids"],
                         "text": res.get("text", ""),
                         "finished": False,
                     }
-                    num_output_tokens_so_far = next_total_toks
 
                     # Check for finish reason
                     finish_reason = res.get("meta_info", {}).get("finish_reason")
                     if finish_reason:
                         output.update(
                             {
-                                "token_ids": res["output_ids"][
-                                    num_output_tokens_so_far:
-                                ],
                                 "finish_reason": finish_reason.get("type", "stop"),
                                 "finished": True,
                             }