diff --git a/.github/workflows/pr-smoke-test.yml b/.github/workflows/pr-smoke-test.yml
index e301804b0390..2640db00868c 100644
--- a/.github/workflows/pr-smoke-test.yml
+++ b/.github/workflows/pr-smoke-test.yml
@@ -153,3 +153,14 @@ jobs:
           SKIP_BUILD: 1
         run: |
           bash scripts/test_subrecipes.sh
+
+      - name: Run Compaction Tests
+        env:
+          ANTHROPIC_API_KEY: ${{ secrets.ANTHROPIC_API_KEY }}
+          GOOSE_PROVIDER: anthropic
+          GOOSE_MODEL: claude-sonnet-4-5-20250929
+          HOME: /tmp/goose-home
+          GOOSE_DISABLE_KEYRING: 1
+          SKIP_BUILD: 1
+        run: |
+          bash scripts/test_compaction.sh
diff --git a/Cargo.lock b/Cargo.lock
index b84c46478ed8..0733cd279d40 100644
--- a/Cargo.lock
+++ b/Cargo.lock
@@ -2610,7 +2610,7 @@ dependencies = [
 
 [[package]]
 name = "goose"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "ahash",
  "anyhow",
@@ -2691,7 +2691,7 @@ dependencies = [
 
 [[package]]
 name = "goose-bench"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "anyhow",
  "async-trait",
@@ -2714,7 +2714,7 @@ dependencies = [
 
 [[package]]
 name = "goose-cli"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "agent-client-protocol",
  "anstream",
@@ -2766,7 +2766,7 @@ dependencies = [
 
 [[package]]
 name = "goose-mcp"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "anyhow",
  "async-trait",
@@ -2832,7 +2832,7 @@ dependencies = [
 
 [[package]]
 name = "goose-server"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "anyhow",
  "async-trait",
@@ -2869,7 +2869,7 @@ dependencies = [
 
 [[package]]
 name = "goose-test"
-version = "1.12.0"
+version = "1.13.0"
 dependencies = [
  "clap",
  "serde_json",
diff --git a/Cargo.toml b/Cargo.toml
index ca71b1eceae0..15a55c891629 100644
--- a/Cargo.toml
+++ b/Cargo.toml
@@ -4,7 +4,7 @@ resolver = "2"
 
 [workspace.package]
 edition = "2021"
-version = "1.12.0"
+version = "1.13.0"
 authors = ["Block <ai-oss-tools@block.xyz>"]
 license = "Apache-2.0"
 repository = "https://github.com/block/goose"
diff --git a/crates/goose-server/src/routes/reply.rs b/crates/goose-server/src/routes/reply.rs
index 6c5425d9a04e..5a340fa3d947 100644
--- a/crates/goose-server/src/routes/reply.rs
+++ b/crates/goose-server/src/routes/reply.rs
@@ -133,6 +133,7 @@ pub enum MessageEvent {
     },
     Finish {
         reason: String,
+        token_state: TokenState,
     },
     ModelChange {
         model: String,
@@ -149,6 +150,27 @@ pub enum MessageEvent {
     Ping,
 }
 
+async fn get_token_state(session_id: &str) -> TokenState {
+    SessionManager::get_session(session_id, false)
+        .await
+        .map(|session| TokenState {
+            input_tokens: session.input_tokens.unwrap_or(0),
+            output_tokens: session.output_tokens.unwrap_or(0),
+            total_tokens: session.total_tokens.unwrap_or(0),
+            accumulated_input_tokens: session.accumulated_input_tokens.unwrap_or(0),
+            accumulated_output_tokens: session.accumulated_output_tokens.unwrap_or(0),
+            accumulated_total_tokens: session.accumulated_total_tokens.unwrap_or(0),
+        })
+        .inspect_err(|e| {
+            tracing::warn!(
+                "Failed to fetch session token state for {}: {}",
+                session_id,
+                e
+            );
+        })
+        .unwrap_or_default()
+}
+
 async fn stream_event(
     event: MessageEvent,
     tx: &mpsc::Sender<String>,
@@ -321,29 +343,7 @@ pub async fn reply(
 
                             all_messages.push(message.clone());
 
-                            let token_state = match SessionManager::get_session(&session_id, false).await {
-                                Ok(session) => {
-                                    TokenState {
-                                        input_tokens: session.input_tokens.unwrap_or(0),
-                                        output_tokens: session.output_tokens.unwrap_or(0),
-                                        total_tokens: session.total_tokens.unwrap_or(0),
-                                        accumulated_input_tokens: session.accumulated_input_tokens.unwrap_or(0),
-                                        accumulated_output_tokens: session.accumulated_output_tokens.unwrap_or(0),
-                                        accumulated_total_tokens: session.accumulated_total_tokens.unwrap_or(0),
-                                    }
-                                },
-                                Err(e) => {
-                                    tracing::warn!("Failed to fetch session for token state: {}", e);
-                                    TokenState {
-                                        input_tokens: 0,
-                                        output_tokens: 0,
-                                        total_tokens: 0,
-                                        accumulated_input_tokens: 0,
-                                        accumulated_output_tokens: 0,
-                                        accumulated_total_tokens: 0,
-                                    }
-                                }
-                            };
+                            let token_state = get_token_state(&session_id).await;
 
                             stream_event(MessageEvent::Message { message, token_state }, &tx, &cancel_token).await;
                         }
@@ -437,9 +437,12 @@ pub async fn reply(
             );
         }
 
+        let final_token_state = get_token_state(&session_id).await;
+
         let _ = stream_event(
             MessageEvent::Finish {
                 reason: "stop".to_string(),
+                token_state: final_token_state,
             },
             &task_tx,
             &cancel_token,
diff --git a/crates/goose/src/agents/agent.rs b/crates/goose/src/agents/agent.rs
index 61dfa73acd1e..0d28297b0608 100644
--- a/crates/goose/src/agents/agent.rs
+++ b/crates/goose/src/agents/agent.rs
@@ -750,14 +750,14 @@ impl Agent {
             .clone()
             .ok_or_else(|| anyhow::anyhow!("Session {} has no conversation", session_config.id))?;
 
-        let needs_auto_compact =
-            crate::context_mgmt::check_if_compaction_needed(self, &conversation, None, &session)
+        let needs_auto_compact = !is_manual_compact
+            && crate::context_mgmt::check_if_compaction_needed(self, &conversation, None, &session)
                 .await?;
 
         let conversation_to_compact = conversation.clone();
 
         Ok(Box::pin(async_stream::try_stream! {
-            let final_conversation = if !needs_auto_compact {
+            let final_conversation = if !needs_auto_compact && !is_manual_compact {
                 conversation
             } else {
                 if !is_manual_compact {
diff --git a/crates/goose/src/conversation/message.rs b/crates/goose/src/conversation/message.rs
index cc7d161dd841..2f18d038836f 100644
--- a/crates/goose/src/conversation/message.rs
+++ b/crates/goose/src/conversation/message.rs
@@ -711,7 +711,7 @@ impl Message {
     }
 }
 
-#[derive(Debug, Clone, Serialize, Deserialize, ToSchema)]
+#[derive(Debug, Clone, Default, Serialize, Deserialize, ToSchema)]
 #[serde(rename_all = "camelCase")]
 pub struct TokenState {
     pub input_tokens: i32,
diff --git a/crates/goose/src/providers/utils.rs b/crates/goose/src/providers/utils.rs
index f96b2e1a85d2..1839708fb51c 100644
--- a/crates/goose/src/providers/utils.rs
+++ b/crates/goose/src/providers/utils.rs
@@ -553,7 +553,7 @@ impl RequestLog {
     fn finish(&mut self) -> Result<()> {
         if let Some(mut writer) = self.writer.take() {
             writer.flush()?;
-            let logs_dir = crate::logging::prepare_log_directory("llm", true)?;
+            let logs_dir = Paths::in_state_dir("logs");
             let log_path = |i| logs_dir.join(format!("llm_request.{}.jsonl", i));
 
             for i in (0..LOGS_TO_KEEP - 1).rev() {
diff --git a/scripts/test_compaction.sh b/scripts/test_compaction.sh
new file mode 100755
index 000000000000..f3bf6d430c76
--- /dev/null
+++ b/scripts/test_compaction.sh
@@ -0,0 +1,242 @@
+#!/bin/bash
+
+# Compaction smoke test script
+# Tests both manual (trigger prompt) and auto compaction (threshold-based)
+
+if [ -f .env ]; then
+  export $(grep -v '^#' .env | xargs)
+fi
+
+if [ -z "$SKIP_BUILD" ]; then
+  echo "Building goose..."
+  cargo build --release --bin goose
+  echo ""
+else
+  echo "Skipping build (SKIP_BUILD is set)..."
+  echo ""
+fi
+
+SCRIPT_DIR=$(pwd)
+GOOSE_BIN="$SCRIPT_DIR/target/release/goose"
+
+# Validation function to check compaction structure in session JSON
+validate_compaction() {
+  local session_id=$1
+  local test_name=$2
+
+  echo "Validating compaction structure for session: $session_id"
+
+  # Export the session to JSON
+  local session_json=$($GOOSE_BIN session export --format json --session-id "$session_id" 2>&1)
+
+  if [ $? -ne 0 ]; then
+    echo "✗ FAILED: Could not export session JSON"
+    echo "   Error: $session_json"
+    return 1
+  fi
+
+  if ! command -v jq &> /dev/null; then
+    echo "⚠ WARNING: jq not available, cannot validate compaction structure"
+    return 0
+  fi
+
+  # Check basic structure
+  echo "$session_json" | jq -e '.conversation' > /dev/null 2>&1
+  if [ $? -ne 0 ]; then
+    echo "✗ FAILED: Session JSON missing 'conversation' field"
+    return 1
+  fi
+
+  local message_count=$(echo "$session_json" | jq '.conversation | length' 2>/dev/null)
+  echo "   Session has $message_count messages"
+
+  # Look for a summary message (assistant role with userVisible=false, agentVisible=true)
+  local has_summary=$(echo "$session_json" | jq '[.conversation[] | select(.role == "assistant" and .metadata.userVisible == false and .metadata.agentVisible == true)] | length > 0' 2>/dev/null)
+
+  if [ "$has_summary" != "true" ]; then
+    echo "✗ FAILED: No summary message found (expected assistant message with userVisible=false, agentVisible=true)"
+    return 1
+  fi
+  echo "✓ Found summary message with correct visibility flags"
+
+  # Check for original messages with userVisible=true, agentVisible=false
+  local has_hidden_originals=$(echo "$session_json" | jq '[.conversation[] | select(.metadata.userVisible == true and .metadata.agentVisible == false)] | length > 0' 2>/dev/null)
+
+  if [ "$has_hidden_originals" != "true" ]; then
+    echo "⚠ WARNING: No original messages found with userVisible=true, agentVisible=false"
+    echo "   This might be OK if all messages were compacted"
+  else
+    echo "✓ Found original messages hidden from agent (userVisible=true, agentVisible=false)"
+  fi
+
+  # For auto-compaction, check for the preserved user message (userVisible=true, agentVisible=true)
+  local has_preserved_user=$(echo "$session_json" | jq '[.conversation[] | select(.role == "user" and .metadata.userVisible == true and .metadata.agentVisible == true)] | length > 0' 2>/dev/null)
+
+  if [ "$has_preserved_user" == "true" ]; then
+    echo "✓ Found preserved user message (userVisible=true, agentVisible=true)"
+  fi
+
+  echo "✓ SUCCESS: Compaction structure is valid for $test_name"
+  return 0
+}
+
+echo "=================================================="
+echo "COMPACTION SMOKE TESTS"
+echo "=================================================="
+echo ""
+
+# Check if jq is available
+if ! command -v jq &> /dev/null; then
+  echo "⚠ WARNING: jq is not installed. Compaction structure validation will be limited."
+  echo "   Install jq to enable full validation: brew install jq (macOS) or apt-get install jq (Linux)"
+  echo ""
+fi
+
+RESULTS=()
+
+# ==================================================
+# TEST 1: Manual Compaction
+# ==================================================
+echo "---------------------------------------------------"
+echo "TEST 1: Manual Compaction via trigger prompt"
+echo "---------------------------------------------------"
+
+TESTDIR=$(mktemp -d)
+echo "hello world" > "$TESTDIR/hello.txt"
+echo "Test directory: $TESTDIR"
+echo ""
+
+OUTPUT=$(mktemp)
+
+echo "Step 1: Creating session with initial messages..."
+(cd "$TESTDIR" && "$GOOSE_BIN" run --text "list files and read hello.txt" 2>&1) | tee "$OUTPUT"
+
+if ! command -v jq &> /dev/null; then
+  echo "✗ FAILED: jq is required for this test"
+  RESULTS+=("✗ Manual Compaction (jq required)")
+  rm -f "$OUTPUT"
+  rm -rf "$TESTDIR"
+else
+  SESSION_ID=$("$GOOSE_BIN" session list --format json 2>/dev/null | jq -r '.[0].id' 2>/dev/null)
+
+  if [ -z "$SESSION_ID" ] || [ "$SESSION_ID" = "null" ]; then
+    echo "✗ FAILED: Could not create session"
+    RESULTS+=("✗ Manual Compaction (no session)")
+  else
+    echo ""
+    echo "Session created: $SESSION_ID"
+    echo "Step 2: Sending manual compaction trigger..."
+
+    # Send the manual compact trigger prompt
+    (cd "$TESTDIR" && "$GOOSE_BIN" run --resume --session-id "$SESSION_ID" --text "Please compact this conversation" 2>&1) | tee -a "$OUTPUT"
+
+    echo ""
+    echo "Checking for compaction evidence..."
+
+    if grep -qi "compacting\|compacted\|compaction" "$OUTPUT"; then
+      echo "✓ SUCCESS: Manual compaction was triggered"
+
+      if validate_compaction "$SESSION_ID" "manual compaction"; then
+        RESULTS+=("✓ Manual Compaction")
+      else
+        RESULTS+=("✗ Manual Compaction (structure validation failed)")
+      fi
+    else
+      echo "✗ FAILED: Manual compaction was not triggered"
+      RESULTS+=("✗ Manual Compaction")
+    fi
+  fi
+
+  rm -f "$OUTPUT"
+  rm -rf "$TESTDIR"
+fi
+
+echo ""
+echo ""
+
+# ==================================================
+# TEST 2: Auto Compaction
+# ==================================================
+echo "---------------------------------------------------"
+echo "TEST 2: Auto Compaction via threshold (0.01)"
+echo "---------------------------------------------------"
+
+TESTDIR=$(mktemp -d)
+echo "test content" > "$TESTDIR/test.txt"
+echo "Test directory: $TESTDIR"
+echo ""
+
+# Set auto-compact threshold very low (1%) to trigger it quickly
+export GOOSE_AUTO_COMPACT_THRESHOLD=0.01
+
+OUTPUT=$(mktemp)
+
+echo "Step 1: Creating session with first message..."
+(cd "$TESTDIR" && "$GOOSE_BIN" run --text "hello" 2>&1) | tee "$OUTPUT"
+
+if ! command -v jq &> /dev/null; then
+  echo "✗ FAILED: jq is required for this test"
+  RESULTS+=("✗ Auto Compaction (jq required)")
+else
+  SESSION_ID=$("$GOOSE_BIN" session list --format json 2>/dev/null | jq -r '.[0].id' 2>/dev/null)
+
+  if [ -z "$SESSION_ID" ] || [ "$SESSION_ID" = "null" ]; then
+    echo "✗ FAILED: Could not create session"
+    RESULTS+=("✗ Auto Compaction (no session)")
+  else
+    echo ""
+    echo "Session created: $SESSION_ID"
+    echo "Step 2: Sending second message (should trigger auto-compact)..."
+
+    # Send second message - auto-compaction should trigger before processing this
+    (cd "$TESTDIR" && "$GOOSE_BIN" run --resume --session-id "$SESSION_ID" --text "hi again" 2>&1) | tee -a "$OUTPUT"
+
+    echo ""
+    echo "Checking for auto-compaction evidence..."
+
+    if grep -qi "auto.*compact\|exceeded.*auto.*compact.*threshold" "$OUTPUT"; then
+      echo "✓ SUCCESS: Auto compaction was triggered"
+
+      if validate_compaction "$SESSION_ID" "auto compaction"; then
+        RESULTS+=("✓ Auto Compaction")
+      else
+        RESULTS+=("✗ Auto Compaction (structure validation failed)")
+      fi
+    else
+      echo "✗ FAILED: Auto compaction was not triggered"
+      echo "   Expected to see auto-compact messages with threshold of 0.01"
+      RESULTS+=("✗ Auto Compaction")
+    fi
+  fi
+fi
+
+# Unset the env variable
+unset GOOSE_AUTO_COMPACT_THRESHOLD
+
+rm -f "$OUTPUT"
+rm -rf "$TESTDIR"
+
+echo ""
+echo ""
+
+# ==================================================
+# Summary
+# ==================================================
+echo "=================================================="
+echo "TEST SUMMARY"
+echo "=================================================="
+for result in "${RESULTS[@]}"; do
+  echo "$result"
+done
+
+# Count results
+FAILURE_COUNT=$(echo "${RESULTS[@]}" | grep -o "✗" | wc -l | tr -d ' ')
+
+if [ "$FAILURE_COUNT" -gt 0 ]; then
+  echo ""
+  echo "❌ $FAILURE_COUNT test(s) failed!"
+  exit 1
+else
+  echo ""
+  echo "✅ All tests passed!"
+fi
diff --git a/ui/desktop/openapi.json b/ui/desktop/openapi.json
index d7412d5bf626..216aa9f0cd1e 100644
--- a/ui/desktop/openapi.json
+++ b/ui/desktop/openapi.json
@@ -10,7 +10,7 @@
     "license": {
       "name": "Apache-2.0"
     },
-    "version": "1.12.0"
+    "version": "1.13.0"
   },
   "paths": {
     "/agent/add_extension": {
@@ -3321,12 +3321,16 @@
             "type": "object",
             "required": [
               "reason",
+              "token_state",
               "type"
             ],
             "properties": {
               "reason": {
                 "type": "string"
               },
+              "token_state": {
+                "$ref": "#/components/schemas/TokenState"
+              },
               "type": {
                 "type": "string",
                 "enum": [
diff --git a/ui/desktop/package-lock.json b/ui/desktop/package-lock.json
index 224643d1b06b..897a31bdae91 100644
--- a/ui/desktop/package-lock.json
+++ b/ui/desktop/package-lock.json
@@ -1,12 +1,12 @@
 {
   "name": "goose-app",
-  "version": "1.12.0",
+  "version": "1.13.0",
   "lockfileVersion": 3,
   "requires": true,
   "packages": {
     "": {
       "name": "goose-app",
-      "version": "1.12.0",
+      "version": "1.13.0",
       "license": "Apache-2.0",
       "dependencies": {
         "@ai-sdk/openai": "^2.0.52",
diff --git a/ui/desktop/package.json b/ui/desktop/package.json
index 386baae08904..8952fce455a1 100644
--- a/ui/desktop/package.json
+++ b/ui/desktop/package.json
@@ -1,7 +1,7 @@
 {
   "name": "goose-app",
   "productName": "Goose",
-  "version": "1.12.0",
+  "version": "1.13.0",
   "description": "Goose App",
   "engines": {
     "node": "^22.17.1"
diff --git a/ui/desktop/src/api/types.gen.ts b/ui/desktop/src/api/types.gen.ts
index 6468fd3ee3cb..098489445a7b 100644
--- a/ui/desktop/src/api/types.gen.ts
+++ b/ui/desktop/src/api/types.gen.ts
@@ -374,6 +374,7 @@ export type MessageEvent = {
     type: 'Error';
 } | {
     reason: string;
+    token_state: TokenState;
     type: 'Finish';
 } | {
     mode: string;
diff --git a/ui/desktop/src/components/BaseChat.tsx b/ui/desktop/src/components/BaseChat.tsx
index 67090686db2c..fa96740f064c 100644
--- a/ui/desktop/src/components/BaseChat.tsx
+++ b/ui/desktop/src/components/BaseChat.tsx
@@ -443,12 +443,12 @@ function BaseChatContent({
             commandHistory={commandHistory}
             initialValue={input || ''}
             setView={setView}
-            totalTokens={tokenState?.totalTokens ?? sessionTokenCount}
+            totalTokens={tokenState?.totalTokens || sessionTokenCount}
             accumulatedInputTokens={
-              tokenState?.accumulatedInputTokens ?? sessionInputTokens ?? localInputTokens
+              tokenState?.accumulatedInputTokens || sessionInputTokens || localInputTokens
             }
             accumulatedOutputTokens={
-              tokenState?.accumulatedOutputTokens ?? sessionOutputTokens ?? localOutputTokens
+              tokenState?.accumulatedOutputTokens || sessionOutputTokens || localOutputTokens
             }
             droppedFiles={droppedFiles}
             onFilesProcessed={() => setDroppedFiles([])} // Clear dropped files after processing
diff --git a/ui/desktop/src/hooks/useChatEngine.ts b/ui/desktop/src/hooks/useChatEngine.ts
index 7c60038e6316..19a333aefda9 100644
--- a/ui/desktop/src/hooks/useChatEngine.ts
+++ b/ui/desktop/src/hooks/useChatEngine.ts
@@ -213,7 +213,6 @@ export const useChatEngine = ({
 
   // Update token counts when session changes from the message stream
   useEffect(() => {
-    console.log('Session received:', session);
     if (session) {
       setSessionTokenCount(session.total_tokens || 0);
       setSessionInputTokens(session.accumulated_input_tokens || 0);
diff --git a/ui/desktop/src/hooks/useMessageStream.ts b/ui/desktop/src/hooks/useMessageStream.ts
index 2eb98835935b..4e36c7d9ec76 100644
--- a/ui/desktop/src/hooks/useMessageStream.ts
+++ b/ui/desktop/src/hooks/useMessageStream.ts
@@ -37,7 +37,7 @@ export interface NotificationEvent {
 type MessageEvent =
   | { type: 'Message'; message: Message; token_state: TokenState }
   | { type: 'Error'; error: string }
-  | { type: 'Finish'; reason: string }
+  | { type: 'Finish'; reason: string; token_state: TokenState }
   | { type: 'ModelChange'; model: string; mode: string }
   | { type: 'UpdateConversation'; conversation: Conversation }
   | NotificationEvent;
@@ -368,6 +368,8 @@ export function useMessageStream({
                   }
 
                   case 'Finish': {
+                    setTokenState(parsedEvent.token_state);
+
                     if (onFinish && currentMessages.length > 0) {
                       const lastMessage = currentMessages[currentMessages.length - 1];
                       onFinish(lastMessage, parsedEvent.reason);