diff --git a/com.microsoft.copilot.eclipse.core.test/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManagerTests.java b/com.microsoft.copilot.eclipse.core.test/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManagerTests.java
index 977fb9d2..ff213bcc 100644
--- a/com.microsoft.copilot.eclipse.core.test/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManagerTests.java
+++ b/com.microsoft.copilot.eclipse.core.test/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManagerTests.java
@@ -38,11 +38,13 @@
 import com.microsoft.copilot.eclipse.core.logger.CopilotForEclipseLogger;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.AgentRound;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.ChatProgressValue;
+import com.microsoft.copilot.eclipse.core.lsp.protocol.ChatStepStatus;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.CopilotModel;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.Thinking;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.Turn;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.EditAgentRoundData;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ReplyData;
+import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ToolCallData;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ThinkingBlockData;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ThinkingBlockState;
 import com.microsoft.copilot.eclipse.core.persistence.UserTurnData.MessageData;
@@ -311,6 +313,48 @@ void testPersistConversationProgress_Success() throws Exception {
     verify(mockPersistenceService).saveConversation(any(ConversationData.class));
   }
 
+  @Test
+  void testMarkRunningToolCallsCancelledAndPersist_UpdatesOnlyRunningToolCalls() throws Exception {
+    String conversationId = "00000000-0000-0000-0000-000000000000";
+    ConversationData conversationData = createTestConversationData(conversationId);
+    CopilotTurnData copilotTurnData = (CopilotTurnData) conversationData.getTurns().get(1);
+    ToolCallData runningToolCall = createTestToolCallData("tool-1", ChatStepStatus.RUNNING);
+    ToolCallData completedToolCall = createTestToolCallData("tool-2", ChatStepStatus.COMPLETED);
+    EditAgentRoundData roundData = new EditAgentRoundData();
+    roundData.setRoundId(1);
+    roundData.setToolCalls(List.of(runningToolCall, completedToolCall));
+    copilotTurnData.getReply().setEditAgentRounds(List.of(roundData));
+
+    Map<String, ConversationData> cache = getConversationCache();
+    cache.put(conversationId, conversationData);
+
+    persistenceManager.markRunningToolCallsCancelledAndPersist(conversationId).get();
+
+    assertEquals(ChatStepStatus.CANCELLED, runningToolCall.getStatus());
+    assertEquals(ChatStepStatus.COMPLETED, completedToolCall.getStatus());
+    verify(mockPersistenceService).saveConversation(conversationData);
+  }
+
+  @Test
+  void testMarkRunningToolCallsCancelledAndPersist_PersistsWhenNoRunningToolCalls() throws Exception {
+    String conversationId = "00000000-0000-0000-0000-000000000000";
+    ConversationData conversationData = createTestConversationData(conversationId);
+    CopilotTurnData copilotTurnData = (CopilotTurnData) conversationData.getTurns().get(1);
+    ToolCallData completedToolCall = createTestToolCallData("tool-1", ChatStepStatus.COMPLETED);
+    EditAgentRoundData roundData = new EditAgentRoundData();
+    roundData.setRoundId(1);
+    roundData.setToolCalls(List.of(completedToolCall));
+    copilotTurnData.getReply().setEditAgentRounds(List.of(roundData));
+
+    Map<String, ConversationData> cache = getConversationCache();
+    cache.put(conversationId, conversationData);
+
+    persistenceManager.markRunningToolCallsCancelledAndPersist(conversationId).get();
+
+    assertEquals(ChatStepStatus.COMPLETED, completedToolCall.getStatus());
+    verify(mockPersistenceService).saveConversation(conversationData);
+  }
+
   @Test
   void testUpdateConversationProgress_NewConversation() throws Exception {
     String conversationId = "00000000-0000-0000-0000-000000000001";
@@ -438,4 +482,19 @@ private void setPrivateField(Object target, String fieldName, Object value) thro
     field.setAccessible(true);
     field.set(target, value);
   }
+
+  private ToolCallData createTestToolCallData(String id, String status) {
+    ToolCallData toolCallData = new ToolCallData();
+    toolCallData.setId(id);
+    toolCallData.setName("run_in_terminal");
+    toolCallData.setProgressMessage("Running command");
+    toolCallData.setStatus(status);
+    return toolCallData;
+  }
+
+  private Map<String, ConversationData> getConversationCache() throws Exception {
+    var cacheField = ConversationPersistenceManager.class.getDeclaredField("conversationCache");
+    cacheField.setAccessible(true);
+    return (Map<String, ConversationData>) cacheField.get(persistenceManager);
+  }
 }
\ No newline at end of file
diff --git a/com.microsoft.copilot.eclipse.core/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManager.java b/com.microsoft.copilot.eclipse.core/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManager.java
index 5e4d14c2..6916e15c 100644
--- a/com.microsoft.copilot.eclipse.core/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManager.java
+++ b/com.microsoft.copilot.eclipse.core/src/com/microsoft/copilot/eclipse/core/persistence/ConversationPersistenceManager.java
@@ -20,6 +20,7 @@
 import com.microsoft.copilot.eclipse.core.AuthStatusManager;
 import com.microsoft.copilot.eclipse.core.CopilotCore;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.ChatProgressValue;
+import com.microsoft.copilot.eclipse.core.lsp.protocol.ChatStepStatus;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.CopilotModel;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.TodoItem;
 import com.microsoft.copilot.eclipse.core.lsp.protocol.Turn;
@@ -28,6 +29,7 @@
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ReplyData;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ThinkingBlockData;
 import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ThinkingBlockState;
+import com.microsoft.copilot.eclipse.core.persistence.CopilotTurnData.ToolCallData;
 import com.microsoft.copilot.eclipse.core.persistence.UserTurnData.MessageData;
 
 /**
@@ -270,6 +272,41 @@ public CompletableFuture<Void> persistCachedConversation(String conversationId)
     });
   }
 
+  /**
+   * Marks cached running tool calls as cancelled, then persists the cached conversation to disk.
+   *
+   * @param conversationId the ID of the cached conversation to persist
+   * @return a future that completes when the cached conversation has been persisted
+   */
+  public CompletableFuture<Void> markRunningToolCallsCancelledAndPersist(String conversationId) {
+    if (StringUtils.isBlank(conversationId)) {
+      return CompletableFuture.completedFuture(null);
+    }
+
+    ConversationData conversationData;
+    lock.writeLock().lock();
+    try {
+      conversationData = conversationCache.get(conversationId);
+      if (conversationData == null) {
+        return CompletableFuture.completedFuture(null);
+      }
+      markRunningToolCallsCancelled(conversationData);
+    } finally {
+      lock.writeLock().unlock();
+    }
+
+    return CompletableFuture.runAsync(() -> {
+      lock.writeLock().lock();
+      try {
+        persistAndCacheConversation(conversationData);
+      } catch (IOException e) {
+        CopilotCore.LOGGER.error("Failed to persist cancelled tool calls for conversation: " + conversationId, e);
+      } finally {
+        lock.writeLock().unlock();
+      }
+    });
+  }
+
   /**
    * Updates a conversation with progress data. This method is synchronous and handles all IO operations internally.
    */
@@ -498,6 +535,28 @@ private void persistAndCacheConversation(ConversationData conversation) throws I
     conversationCache.put(conversation.getConversationId(), conversation);
   }
 
+  private void markRunningToolCallsCancelled(ConversationData conversationData) {
+    if (conversationData.getTurns() == null) {
+      return;
+    }
+    for (AbstractTurnData turn : conversationData.getTurns()) {
+      if (!(turn instanceof CopilotTurnData copilotTurnData) || copilotTurnData.getReply() == null
+          || copilotTurnData.getReply().getEditAgentRounds() == null) {
+        continue;
+      }
+      for (EditAgentRoundData round : copilotTurnData.getReply().getEditAgentRounds()) {
+        if (round.getToolCalls() == null) {
+          continue;
+        }
+        for (ToolCallData toolCall : round.getToolCalls()) {
+          if (toolCall != null && ChatStepStatus.RUNNING.equalsIgnoreCase(toolCall.getStatus())) {
+            toolCall.setStatus(ChatStepStatus.CANCELLED);
+          }
+        }
+      }
+    }
+  }
+
   /**
    * Removes a conversation by ID from both disk and in-memory cache.
    *
diff --git a/com.microsoft.copilot.eclipse.ui/src/com/microsoft/copilot/eclipse/ui/chat/ChatView.java b/com.microsoft.copilot.eclipse.ui/src/com/microsoft/copilot/eclipse/ui/chat/ChatView.java
index 49f5bb31..65cf0a74 100644
--- a/com.microsoft.copilot.eclipse.ui/src/com/microsoft/copilot/eclipse/ui/chat/ChatView.java
+++ b/com.microsoft.copilot.eclipse.ui/src/com/microsoft/copilot/eclipse/ui/chat/ChatView.java
@@ -1281,7 +1281,7 @@ public void onCancel() {
     this.lastRunSubagentToolCallId = null;
 
     if (persistenceManager != null && StringUtils.isNotBlank(this.conversationId)) {
-      persistenceManager.persistCachedConversation(this.conversationId);
+      persistenceManager.markRunningToolCallsCancelledAndPersist(this.conversationId);
     }
     conversationFutures.forEach(future -> {
       future.cancel(false);