diff --git a/Cargo.lock b/Cargo.lock
index ae1452961bd8..11b369fb16d5 100644
--- a/Cargo.lock
+++ b/Cargo.lock
@@ -3466,6 +3466,7 @@ dependencies = [
  "tempfile",
  "thiserror 1.0.69",
  "tokio",
+ "tokio-stream",
  "tracing",
  "tracing-appender",
  "tracing-subscriber",
diff --git a/crates/goose-mcp/Cargo.toml b/crates/goose-mcp/Cargo.toml
index 6bcf1e716f12..e469b952ea3e 100644
--- a/crates/goose-mcp/Cargo.toml
+++ b/crates/goose-mcp/Cargo.toml
@@ -16,6 +16,7 @@ mcp-server = { path = "../mcp-server" }
 rmcp = { workspace = true }
 anyhow = "1.0.94"
 tokio = { version = "1", features = ["full"] }
+tokio-stream = { version = "0.1", features = ["io-util"] }
 tracing = "0.1"
 tracing-subscriber = { version = "0.3", features = ["env-filter"] }
 tracing-appender = "0.2"
diff --git a/crates/goose-mcp/src/developer/mod.rs b/crates/goose-mcp/src/developer/mod.rs
index 7bea5c5a045c..817f372ffe20 100644
--- a/crates/goose-mcp/src/developer/mod.rs
+++ b/crates/goose-mcp/src/developer/mod.rs
@@ -21,6 +21,7 @@ use tokio::{
     process::Command,
     sync::mpsc,
 };
+use tokio_stream::{wrappers::SplitStream, StreamExt as _};
 use url::Url;
 
 use include_dir::{include_dir, Dir};
@@ -641,83 +642,44 @@ impl DeveloperRouter {
             .spawn()
             .map_err(|e| ToolError::ExecutionError(e.to_string()))?;
 
-        let stdout = child.stdout.take().unwrap();
-        let stderr = child.stderr.take().unwrap();
-
-        let mut stdout_reader = BufReader::new(stdout);
-        let mut stderr_reader = BufReader::new(stderr);
+        let stdout = BufReader::new(child.stdout.take().unwrap());
+        let stderr = BufReader::new(child.stderr.take().unwrap());
 
         let output_task = tokio::spawn(async move {
             let mut combined_output = String::new();
 
-            let mut stdout_buf = Vec::new();
-            let mut stderr_buf = Vec::new();
-
-            let mut stdout_done = false;
-            let mut stderr_done = false;
-
-            loop {
-                tokio::select! {
-                    n = stdout_reader.read_until(b'\n', &mut stdout_buf), if !stdout_done => {
-                        if n? == 0 {
-                            stdout_done = true;
-                        } else {
-                            let line = String::from_utf8_lossy(&stdout_buf);
-
-                            notifier.try_send(JsonRpcMessage::Notification(JsonRpcNotification {
-                                jsonrpc: JsonRpcVersion2_0,
-                                notification: Notification {
-                                    method: "notifications/message".to_string(),
-                                    params: object!({
-                                        "level": "info",
-                                        "data": {
-                                            "type": "shell",
-                                            "stream": "stdout",
-                                            "output": line.to_string(),
-                                        }
-                                    }),
-                                    extensions: Default::default(),
+            // We have the individual two streams above, now merge them into one unified stream of
+            // an enum. ref https://blog.yoshuawuyts.com/futures-concurrency-3
+            let stdout = SplitStream::new(stdout.split(b'\n')).map(|v| ("stdout", v));
+            let stderr = SplitStream::new(stderr.split(b'\n')).map(|v| ("stderr", v));
+            let mut merged = stdout.merge(stderr);
+
+            while let Some((key, line)) = merged.next().await {
+                let mut line = line?;
+                // Re-add this as clients expect it
+                line.push(b'\n');
+                // Here we always convert to UTF-8 so agents don't have to deal with corrupted output
+                let line = String::from_utf8_lossy(&line);
+
+                combined_output.push_str(&line);
+
+                notifier
+                    .try_send(JsonRpcMessage::Notification(JsonRpcNotification {
+                        jsonrpc: JsonRpcVersion2_0,
+                        notification: Notification {
+                            method: "notifications/message".to_string(),
+                            params: object!({
+                                "level": "info",
+                                "data": {
+                                    "type": "shell",
+                                    "stream": key,
+                                    "output": line,
                                 }
-                            })).ok();
-
-                            combined_output.push_str(&line);
-                            stdout_buf.clear();
-                        }
-                    }
-
-                    n = stderr_reader.read_until(b'\n', &mut stderr_buf), if !stderr_done => {
-                        if n? == 0 {
-                            stderr_done = true;
-                        } else {
-                            let line = String::from_utf8_lossy(&stderr_buf);
-
-                            notifier.try_send(JsonRpcMessage::Notification(JsonRpcNotification {
-                                jsonrpc: JsonRpcVersion2_0,
-                                notification: Notification {
-                                    method: "notifications/message".to_string(),
-                                    params: object!({
-                                        "level": "info",
-                                        "data": {
-                                            "type": "shell",
-                                            "stream": "stderr",
-                                            "output": line.to_string(),
-                                        }
-                                    }),
-                                    extensions: Default::default(),
-                                }
-                            })).ok();
-
-                            combined_output.push_str(&line);
-                            stderr_buf.clear();
-                        }
-                    }
-
-                    else => break,
-                }
-
-                if stdout_done && stderr_done {
-                    break;
-                }
+                            }),
+                            extensions: Default::default(),
+                        },
+                    }))
+                    .ok();
             }
             Ok::<_, std::io::Error>(combined_output)
         });
@@ -3472,4 +3434,45 @@ mod tests {
         assert_eq!(result.0, "");
         assert_eq!(result.1, "");
     }
+
+    #[tokio::test]
+    #[serial]
+    async fn test_shell_output_without_trailing_newline() {
+        let temp_dir = tempfile::tempdir().unwrap();
+        std::env::set_current_dir(&temp_dir).unwrap();
+
+        let router = get_router().await;
+
+        // Test command that outputs content without a trailing newline
+        let command = if cfg!(windows) {
+            "echo|set /p=\"Content without newline\""
+        } else {
+            "printf 'Content without newline'"
+        };
+
+        let result = router
+            .call_tool("shell", json!({ "command": command }), dummy_sender())
+            .await
+            .unwrap();
+
+        // Find the assistant content (which contains the full output)
+        let assistant_content = result
+            .iter()
+            .find(|c| {
+                c.audience()
+                    .is_some_and(|roles| roles.contains(&Role::Assistant))
+            })
+            .unwrap()
+            .as_text()
+            .unwrap();
+
+        // The output should contain the content even without a trailing newline
+        assert!(
+            assistant_content.text.contains("Content without newline"),
+            "Output should contain content even without trailing newline, but got: {}",
+            assistant_content.text
+        );
+
+        temp_dir.close().unwrap();
+    }
 }