diff --git a/src/gradient.ts b/src/gradient.ts
index a39ae59..6afda2c 100644
--- a/src/gradient.ts
+++ b/src/gradient.ts
@@ -341,6 +341,145 @@ function toolStripAnnotation(toolName: string, output: string): string {
   return annotation;
 }
 
+// ---------------------------------------------------------------------------
+// Content-aware deduplication
+// ---------------------------------------------------------------------------
+// Inspired by Dirac's ContextManager file-read deduplication: detects when the
+// same content appears multiple times in the conversation (e.g., the same file
+// read multiple times, or the same command output repeated) and replaces earlier
+// occurrences with compact annotations. This reduces token pressure before layer
+// selection, potentially keeping sessions at lower (less lossy) gradient layers.
+
+// Minimum output size (chars) to consider for dedup — annotations for smaller
+// outputs would cost more tokens than the original content.
+const DEDUP_MIN_CHARS = 600;
+
+/** Fast FNV-1a hash for content comparison. */
+function simpleHash(str: string): number {
+  let hash = 0x811c9dc5;
+  for (let i = 0; i < str.length; i++) {
+    hash ^= str.charCodeAt(i);
+    hash = (hash * 0x01000193) >>> 0;
+  }
+  return hash;
+}
+
+/** Extract file path from a tool's input JSON.
+ *  Handles common formats: {"path": "/foo.ts"}, {"filePath": "/foo.ts"},
+ *  and plain text fallback. */
+function extractFilePath(input: string): string | undefined {
+  try {
+    const parsed = JSON.parse(input);
+    return parsed.path || parsed.filePath || parsed.file;
+  } catch {
+    // Plain text — try to extract a path-like string
+    const match = input.match(/(?:[\w.-]+\/)+[\w.-]+\.\w{1,5}/);
+    return match?.[0];
+  }
+}
+
+/** Annotation for deduplicated tool output — follows the toolStripAnnotation() pattern. */
+function dedupAnnotation(toolName: string, filePath?: string): string {
+  if (filePath) {
+    return `[earlier version of ${filePath} — see latest read below for current content]`;
+  }
+  return `[duplicate output — same content as later ${toolName} in this session — use recall for details]`;
+}
+
+/**
+ * Replace duplicate tool outputs with compact back-references, keeping only
+ * the latest occurrence of each unique output. Reduces context token usage
+ * without information loss — the model sees the most recent content intact.
+ *
+ * Deduplicates by:
+ * 1. Exact content hash: identical tool outputs (same file read twice, same command output)
+ * 2. Same-file reads: read_file outputs for the same path (content may differ due to edits)
+ *
+ * The current turn (from currentTurnIdx onward) is never touched — the model
+ * needs full context for its active work. Tool parts are never removed entirely;
+ * only state.output is replaced with a compact annotation.
+ *
+ * Returns the original array reference (not a copy) when no duplicates exist.
+ */
+export function deduplicateToolOutputs(
+  messages: MessageWithParts[],
+  currentTurnIdx: number,
+): MessageWithParts[] {
+  // Track latest occurrence: contentKey → latest message index
+  const contentLatest = new Map<string, number>();
+  // Track latest read by file path: "read:path" → latest message index
+  const fileLatest = new Map<string, number>();
+
+  // Also include current-turn reads in the "latest" tracking so we properly
+  // recognize earlier reads as duplicates of current-turn content.
+  for (let i = 0; i < messages.length; i++) {
+    for (const part of messages[i].parts) {
+      if (part.type !== "tool" || part.state.status !== "completed") continue;
+      const output = part.state.output;
+      if (!output || output.length < DEDUP_MIN_CHARS) continue;
+
+      const key = `${part.tool}:${simpleHash(output)}`;
+      contentLatest.set(key, i);
+
+      // For read-type tools, also track by file path
+      if (part.tool === "read_file" || part.tool === "read") {
+        const inputStr = typeof part.state.input === "string"
+          ? part.state.input
+          : JSON.stringify(part.state.input);
+        const fp = extractFilePath(inputStr);
+        if (fp) fileLatest.set(`read:${fp}`, i);
+      }
+    }
+  }
+
+  // Second pass: replace earlier occurrences (but never touch the current turn)
+  let changed = false;
+  const result = messages.map((msg, msgIdx) => {
+    if (msgIdx >= currentTurnIdx) return msg; // sacred boundary
+
+    let partsChanged = false;
+    const parts = msg.parts.map((part) => {
+      if (part.type !== "tool" || part.state.status !== "completed") return part;
+      const output = part.state.output;
+      if (!output || output.length < DEDUP_MIN_CHARS) return part;
+
+      // Check exact-match dedup: is this the latest occurrence of this content?
+      const contentKey = `${part.tool}:${simpleHash(output)}`;
+      const isLatestContent = contentLatest.get(contentKey) === msgIdx;
+
+      // Check file-path dedup for read tools: is this the latest read of this file?
+      let filePath: string | undefined;
+      let isLatestFile = true;
+      if (part.tool === "read_file" || part.tool === "read") {
+        const inputStr = typeof part.state.input === "string"
+          ? part.state.input
+          : JSON.stringify(part.state.input);
+        filePath = extractFilePath(inputStr);
+        if (filePath) isLatestFile = fileLatest.get(`read:${filePath}`) === msgIdx;
+      }
+
+      // Keep if this is both the latest content AND latest file read (or not a read tool)
+      if (isLatestContent && isLatestFile) return part;
+
+      // This is a duplicate — replace with compact annotation
+      partsChanged = true;
+      return {
+        ...part,
+        state: {
+          ...part.state,
+          output: dedupAnnotation(part.tool, filePath),
+        },
+      } as Part;
+    });
+
+    if (!partsChanged) return msg;
+    changed = true;
+    return { ...msg, parts };
+  });
+
+  return changed ? result : messages;
+}
+
 // Ensure every tool part in the window has a terminal state (completed or error).
 // Pending/running tool parts produce tool_use blocks at the API level but have no
 // output to generate a matching tool_result — causing Anthropic to reject the request
@@ -993,6 +1132,13 @@ function transformInner(input: {
 
   // --- Gradient mode: context exhausted (or force-escalated), compress older messages ---
 
+  // Pre-pass: deduplicate repeated tool outputs before layer selection.
+  // Keeps only the latest occurrence of each unique output, replacing earlier
+  // ones with compact annotations. This can save thousands of tokens for sessions
+  // with repeated file reads, potentially avoiding escalation to higher layers.
+  const turnStart = currentTurnStart(input.messages);
+  const dedupMessages = deduplicateToolOutputs(input.messages, turnStart);
+
   const distillations = sid ? loadDistillations(input.projectPath, sid) : [];
 
   // Layer 1 uses the append-only cached prefix (Approach C) to keep the
@@ -1014,7 +1160,7 @@ function transformInner(input: {
   if (effectiveMinLayer <= 1) {
     const layer1 = sid
       ? tryFitStable({
-          messages: input.messages,
+          messages: dedupMessages,
           prefix: cached.messages,
           prefixTokens: cached.tokens,
           distilledBudget,
@@ -1023,7 +1169,7 @@ function transformInner(input: {
           sessState,
         })
       : tryFit({
-          messages: input.messages,
+          messages: dedupMessages,
           prefix: cached.messages,
           prefixTokens: cached.tokens,
           distilledBudget,
@@ -1041,7 +1187,7 @@ function transformInner(input: {
   // Skipped when force-escalated to layer 3+.
   if (effectiveMinLayer <= 2) {
     const layer2 = tryFit({
-      messages: input.messages,
+      messages: dedupMessages,
       prefix: cached.messages,
       prefixTokens: cached.tokens,
       distilledBudget,
@@ -1063,7 +1209,7 @@ function transformInner(input: {
     0,
   );
   const layer3 = tryFit({
-    messages: input.messages,
+    messages: dedupMessages,
     prefix: trimmedPrefix,
     prefixTokens: trimmedPrefixTokens,
     distilledBudget: Math.floor(usable * 0.15),
diff --git a/test/gradient.test.ts b/test/gradient.test.ts
index 21c5905..5db12e1 100644
--- a/test/gradient.test.ts
+++ b/test/gradient.test.ts
@@ -13,6 +13,7 @@ import {
   setForceMinLayer,
   getLastLayer,
   estimateMessages,
+  deduplicateToolOutputs,
 } from "../src/gradient";
 import type { Message, Part } from "@opencode-ai/sdk";
 
@@ -1333,3 +1334,184 @@ describe("gradient — calibration oscillation fix", () => {
     expect(r2.layer).toBeGreaterThanOrEqual(1);
   });
 });
+
+// ---------------------------------------------------------------------------
+// Content-aware deduplication tests
+// ---------------------------------------------------------------------------
+
+function makeMsgWithTool(
+  id: string,
+  role: "user" | "assistant",
+  toolName: string,
+  input: string,
+  output: string,
+  sessionID = "dedup-sess",
+): { info: Message; parts: Part[] } {
+  const base = makeMsg(id, role, "", sessionID);
+  return {
+    info: base.info,
+    parts: [
+      {
+        id: `tool-${id}`,
+        sessionID,
+        messageID: id,
+        type: "tool",
+        tool: toolName,
+        callID: `call-${id}`,
+        title: toolName,
+        state: {
+          status: "completed" as const,
+          input: JSON.parse(input) as { [key: string]: unknown },
+          output,
+          title: toolName,
+          metadata: {},
+          time: { start: Date.now(), end: Date.now() },
+        },
+        time: { start: Date.now(), end: Date.now() },
+      } as Part,
+    ],
+  };
+}
+
+/** Helper to extract output from a completed tool part. */
+function getToolOutput(part: Part): string | undefined {
+  if (part.type === "tool" && part.state.status === "completed") {
+    return part.state.output;
+  }
+  return undefined;
+}
+
+describe("deduplicateToolOutputs", () => {
+  const LARGE_CONTENT = "x".repeat(800); // above DEDUP_MIN_CHARS (600)
+
+  test("deduplicates identical tool outputs, keeps latest", () => {
+    const msgs = [
+      makeMsg("u1", "user", "read file A"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"src/foo.ts"}', LARGE_CONTENT),
+      makeMsg("u2", "user", "now edit"),
+      makeMsg("a2", "assistant", "done editing"),
+      makeMsg("u3", "user", "read file A again"),
+      makeMsgWithTool("a3", "assistant", "read_file", '{"path":"src/foo.ts"}', LARGE_CONTENT),
+      makeMsg("u4", "user", "looks good"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 6);
+
+    // First read (index 1) should be deduplicated
+    expect(getToolOutput(result[1].parts[0])).toContain("earlier version of src/foo.ts");
+
+    // Latest read (index 5) should be intact
+    expect(getToolOutput(result[5].parts[0])).toBe(LARGE_CONTENT);
+  });
+
+  test("deduplicates same-file reads with different content", () => {
+    const oldContent = "old version " + "y".repeat(800);
+    const newContent = "new version " + "z".repeat(800);
+    const msgs = [
+      makeMsg("u1", "user", "read file"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"src/bar.ts"}', oldContent),
+      makeMsg("u2", "user", "edit it"),
+      makeMsg("a2", "assistant", "edited"),
+      makeMsg("u3", "user", "read it again"),
+      makeMsgWithTool("a3", "assistant", "read_file", '{"path":"src/bar.ts"}', newContent),
+      makeMsg("u4", "user", "verify"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 6);
+
+    // First read (old content) should be replaced — same file, not latest
+    expect(getToolOutput(result[1].parts[0])).toContain("earlier version of src/bar.ts");
+
+    // Latest read (new content) should be intact
+    expect(getToolOutput(result[5].parts[0])).toBe(newContent);
+  });
+
+  test("does not touch current turn messages", () => {
+    const msgs = [
+      makeMsg("u1", "user", "first"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"src/foo.ts"}', LARGE_CONTENT),
+      makeMsg("u2", "user", "read again"), // current turn starts here (index 2)
+      makeMsgWithTool("a2", "assistant", "read_file", '{"path":"src/foo.ts"}', LARGE_CONTENT),
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 2);
+
+    // Earlier read (index 1) should be deduped since latest is in current turn
+    expect(getToolOutput(result[1].parts[0])).toContain("earlier version");
+
+    // Current-turn read (index 3) should NOT be touched
+    expect(getToolOutput(result[3].parts[0])).toBe(LARGE_CONTENT);
+  });
+
+  test("skips small outputs (below threshold)", () => {
+    const smallContent = "short"; // well below DEDUP_MIN_CHARS
+    const msgs = [
+      makeMsg("u1", "user", "read"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"small.txt"}', smallContent),
+      makeMsg("u2", "user", "read again"),
+      makeMsgWithTool("a2", "assistant", "read_file", '{"path":"small.txt"}', smallContent),
+      makeMsg("u3", "user", "done"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 4);
+
+    // Both small outputs should be untouched
+    expect(getToolOutput(result[1].parts[0])).toBe(smallContent);
+    expect(getToolOutput(result[3].parts[0])).toBe(smallContent);
+  });
+
+  test("returns same array reference when no duplicates", () => {
+    const msgs = [
+      makeMsg("u1", "user", "hello"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"a.ts"}', LARGE_CONTENT),
+      makeMsg("u2", "user", "read different"),
+      makeMsgWithTool("a2", "assistant", "read_file", '{"path":"b.ts"}', "different " + LARGE_CONTENT),
+      makeMsg("u3", "user", "done"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 4);
+    expect(result).toBe(msgs); // same reference — no copy
+  });
+
+  test("deduplicates non-read tools by exact content hash", () => {
+    const bashOutput = "npm test\n" + "PASS ".repeat(200); // large enough
+    const msgs = [
+      makeMsg("u1", "user", "run tests"),
+      makeMsgWithTool("a1", "assistant", "bash", '{"command":"npm test"}', bashOutput),
+      makeMsg("u2", "user", "run tests again"),
+      makeMsgWithTool("a2", "assistant", "bash", '{"command":"npm test"}', bashOutput),
+      makeMsg("u3", "user", "ok"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 4);
+
+    // First bash (index 1) should be deduped — exact same output
+    const firstOut = getToolOutput(result[1].parts[0])!;
+    expect(firstOut).toContain("duplicate output");
+    expect(firstOut).toContain("bash");
+
+    // Latest bash (index 3) should be intact
+    expect(getToolOutput(result[3].parts[0])).toBe(bashOutput);
+  });
+
+  test("handles three reads of the same file — only latest survives", () => {
+    const msgs = [
+      makeMsg("u1", "user", "read"),
+      makeMsgWithTool("a1", "assistant", "read_file", '{"path":"src/x.ts"}', LARGE_CONTENT),
+      makeMsg("u2", "user", "read again"),
+      makeMsgWithTool("a2", "assistant", "read_file", '{"path":"src/x.ts"}', LARGE_CONTENT),
+      makeMsg("u3", "user", "read third time"),
+      makeMsgWithTool("a3", "assistant", "read_file", '{"path":"src/x.ts"}', LARGE_CONTENT),
+      makeMsg("u4", "user", "done"), // current turn
+    ];
+
+    const result = deduplicateToolOutputs(msgs, 6);
+
+    // First two reads should be deduped
+    expect(getToolOutput(result[1].parts[0])).toContain("earlier version");
+    expect(getToolOutput(result[3].parts[0])).toContain("earlier version");
+
+    // Third (latest) should be intact
+    expect(getToolOutput(result[5].parts[0])).toBe(LARGE_CONTENT);
+  });
+});