diff --git a/cmd/root.go b/cmd/root.go
index 411106e4..a1c3f4f6 100644
--- a/cmd/root.go
+++ b/cmd/root.go
@@ -1065,11 +1065,13 @@ func runInteractiveModeBubbleTea(_ context.Context, appInstance *app.App, modelN
 		termHeight = 24
 	}
 
+	cwd, _ := os.Getwd()
 	appModel := ui.NewAppModel(appInstance, ui.AppModelOptions{
 		CompactMode:             viper.GetBool("compact"),
 		ModelName:               modelName,
 		ProviderName:            providerName,
 		LoadingMessage:          loadingMessage,
+		Cwd:                     cwd,
 		Width:                   termWidth,
 		Height:                  termHeight,
 		ServerNames:             serverNames,
diff --git a/internal/ui/file_processor.go b/internal/ui/file_processor.go
new file mode 100644
index 00000000..5181142f
--- /dev/null
+++ b/internal/ui/file_processor.go
@@ -0,0 +1,129 @@
+package ui
+
+import (
+	"fmt"
+	"os"
+	"path/filepath"
+	"regexp"
+	"strings"
+)
+
+// fileTokenPattern matches @file references in user text. Supports:
+//   - @"path with spaces.txt" (quoted)
+//   - @path/to/file.txt      (unquoted, no spaces)
+var fileTokenPattern = regexp.MustCompile(`@"[^"]+"|@[^\s]+`)
+
+// ProcessFileAttachments scans the user's input text for @file references,
+// reads each referenced file, and returns the text with @tokens replaced by
+// XML-wrapped file content. Non-file @ tokens (like email addresses) are left
+// unchanged.
+//
+// Returns the original text unchanged if no valid @file references are found.
+func ProcessFileAttachments(text string, cwd string) string {
+	tokens := fileTokenPattern.FindAllString(text, -1)
+	if len(tokens) == 0 {
+		return text
+	}
+
+	result := text
+	for _, token := range tokens {
+		path := tokenToPath(token)
+		if path == "" {
+			continue
+		}
+
+		absPath, err := resolvePath(path, cwd)
+		if err != nil {
+			// Not a valid file reference — leave the token as-is.
+			// This handles cases like email addresses (@user) gracefully.
+			continue
+		}
+
+		info, err := os.Stat(absPath)
+		if err != nil {
+			continue
+		}
+
+		// Skip directories — we only attach file content.
+		if info.IsDir() {
+			continue
+		}
+
+		// Skip empty files.
+		if info.Size() == 0 {
+			continue
+		}
+
+		content, err := os.ReadFile(absPath)
+		if err != nil {
+			continue
+		}
+
+		// Build the XML-wrapped replacement.
+		wrapped := wrapFileContent(absPath, content)
+		result = strings.Replace(result, token, wrapped, 1)
+	}
+
+	return result
+}
+
+// tokenToPath strips the @ prefix and optional quotes from a token,
+// returning the raw file path. Returns "" for invalid tokens.
+func tokenToPath(token string) string {
+	if !strings.HasPrefix(token, "@") {
+		return ""
+	}
+	path := token[1:]
+
+	// Strip quotes.
+	if strings.HasPrefix(path, `"`) && strings.HasSuffix(path, `"`) {
+		path = path[1 : len(path)-1]
+	}
+
+	// Reject obviously non-file tokens (e.g. bare @ or @-flags).
+	if path == "" || strings.HasPrefix(path, "-") {
+		return ""
+	}
+
+	return path
+}
+
+// resolvePath resolves a potentially relative file path to an absolute path.
+// Supports ~/ expansion and relative paths. No CWD restriction — the user
+// can reference any file they have read access to.
+func resolvePath(path string, cwd string) (string, error) {
+	// Expand ~/
+	if strings.HasPrefix(path, "~/") {
+		home, err := os.UserHomeDir()
+		if err != nil {
+			return "", fmt.Errorf("cannot expand ~: %w", err)
+		}
+		path = filepath.Join(home, path[2:])
+	}
+
+	// Resolve relative to cwd.
+	if !filepath.IsAbs(path) {
+		path = filepath.Join(cwd, path)
+	}
+
+	// Clean and resolve symlinks for consistent paths.
+	absPath, err := filepath.Abs(path)
+	if err != nil {
+		return "", fmt.Errorf("invalid path: %w", err)
+	}
+
+	// Resolve symlinks so the displayed path is canonical.
+	resolved, err := filepath.EvalSymlinks(absPath)
+	if err != nil {
+		// EvalSymlinks fails if the file doesn't exist — fall back to
+		// the cleaned absolute path and let the caller's Stat handle it.
+		return absPath, nil
+	}
+
+	return resolved, nil
+}
+
+// wrapFileContent wraps file content in XML tags for LLM consumption.
+func wrapFileContent(absPath string, content []byte) string {
+	return fmt.Sprintf("<file path=\"%s\">\n%s\n</file>", absPath, string(content))
+}
diff --git a/internal/ui/file_suggestions.go b/internal/ui/file_suggestions.go
new file mode 100644
index 00000000..69c2d5a4
--- /dev/null
+++ b/internal/ui/file_suggestions.go
@@ -0,0 +1,389 @@
+package ui
+
+import (
+	"os"
+	"os/exec"
+	"path/filepath"
+	"sort"
+	"strings"
+	"unicode/utf8"
+)
+
+// FileSuggestion represents a single file or directory suggestion for the @
+// autocomplete popup.
+type FileSuggestion struct {
+	// RelPath is the path relative to the search base (e.g. "cmd/kit/main.go").
+	RelPath string
+	// IsDir is true when the entry is a directory.
+	IsDir bool
+	// Score is the fuzzy match score (higher is better).
+	Score int
+}
+
+// maxFileSuggestions is the maximum number of file suggestions returned.
+const maxFileSuggestions = 20
+
+// ExtractAtPrefix checks the current line for an @-file trigger at cursorCol.
+// It returns:
+//   - hasAt: true if a valid @ trigger was found
+//   - prefix: the text after @ (possibly empty) that the user has typed so far
+//   - startIdx: byte offset of the @ character in the line
+//
+// The @ must appear at the start of the line or after whitespace. Quoted paths
+// are supported: @"path with spaces" — the returned prefix strips quotes.
+func ExtractAtPrefix(line string, cursorCol int) (hasAt bool, prefix string, startIdx int) {
+	if cursorCol > len(line) {
+		cursorCol = len(line)
+	}
+
+	// Walk backwards from cursorCol to find the @ character.
+	text := line[:cursorCol]
+
+	// Find the last @ that is preceded by whitespace or is at position 0.
+	atIdx := -1
+	for i := len(text) - 1; i >= 0; i-- {
+		if text[i] == '@' {
+			// Must be at start of line or preceded by whitespace.
+			if i == 0 || text[i-1] == ' ' || text[i-1] == '\t' {
+				atIdx = i
+				break
+			}
+		}
+		// Stop scanning if we hit a space — the @ we want must be in the
+		// current "word".
+		if text[i] == ' ' || text[i] == '\t' {
+			break
+		}
+	}
+
+	if atIdx < 0 {
+		return false, "", 0
+	}
+
+	raw := text[atIdx+1:]
+
+	// Handle quoted paths: @"some path" — strip leading quote.
+	if strings.HasPrefix(raw, `"`) {
+		raw = strings.TrimPrefix(raw, `"`)
+		raw = strings.TrimSuffix(raw, `"`)
+	}
+
+	return true, raw, atIdx
+}
+
+// GetFileSuggestions returns file/directory suggestions matching the given
+// prefix. It tries `git ls-files` first (fast, respects .gitignore), then
+// falls back to a simple directory walk.
+//
+// If prefix contains a path separator the search is scoped to that
+// subdirectory. For example, prefix "cmd/k" searches inside "cmd/" for
+// entries matching "k".
+func GetFileSuggestions(prefix string, cwd string) []FileSuggestion {
+	// Resolve the base directory and filter query from the prefix.
+	baseDir, query := splitPrefixPath(prefix)
+
+	searchDir := cwd
+	if baseDir != "" {
+		candidate := resolveSearchDir(baseDir, cwd)
+		if info, err := os.Stat(candidate); err == nil && info.IsDir() {
+			searchDir = candidate
+		} else {
+			return nil // invalid base directory
+		}
+	}
+
+	files := listFiles(searchDir, cwd)
+	if len(files) == 0 {
+		return nil
+	}
+
+	// Prepend baseDir so results display as "cmd/main.go" not just "main.go".
+	if baseDir != "" {
+		for i := range files {
+			files[i].RelPath = baseDir + files[i].RelPath
+		}
+	}
+
+	return fuzzyFilterFiles(files, prefix, query)
+}
+
+// splitPrefixPath separates a prefix like "cmd/kit/m" into
+// baseDir="cmd/kit/" and query="m". If there is no separator the
+// baseDir is empty and query is the full prefix.
+func splitPrefixPath(prefix string) (baseDir, query string) {
+	// Handle ~ expansion display (we keep it in the prefix for display
+	// but resolve it when actually searching).
+	idx := strings.LastIndex(prefix, "/")
+	if idx < 0 {
+		return "", prefix
+	}
+	return prefix[:idx+1], prefix[idx+1:]
+}
+
+// resolveSearchDir converts a baseDir from the prefix into an absolute path.
+// Supports ~/, ../, and absolute paths.
+func resolveSearchDir(baseDir, cwd string) string {
+	// Expand ~/
+	if strings.HasPrefix(baseDir, "~/") {
+		if home, err := os.UserHomeDir(); err == nil {
+			return filepath.Join(home, baseDir[2:])
+		}
+	}
+
+	// Absolute paths
+	if filepath.IsAbs(baseDir) {
+		return filepath.Clean(baseDir)
+	}
+
+	// Relative to cwd
+	return filepath.Join(cwd, baseDir)
+}
+
+// listFiles returns files and directories within searchDir, relative to that
+// directory. Uses `git ls-files` when inside a git repo for speed and
+// .gitignore awareness, otherwise falls back to os.ReadDir.
+func listFiles(searchDir, cwd string) []FileSuggestion {
+	// Try git ls-files first (fast, respects .gitignore).
+	if files := listFilesGit(searchDir, cwd); files != nil {
+		return files
+	}
+	return listFilesReadDir(searchDir)
+}
+
+// listFilesGit uses `git ls-files` and `git ls-files --others --exclude-standard`
+// to list tracked and untracked-but-not-ignored files.
+func listFilesGit(searchDir, cwd string) []FileSuggestion {
+	// Check if we're in a git repo.
+	check := exec.Command("git", "rev-parse", "--show-toplevel")
+	check.Dir = cwd
+	if err := check.Run(); err != nil {
+		return nil
+	}
+
+	seen := make(map[string]bool)
+	var results []FileSuggestion
+
+	// Tracked files.
+	cmd := exec.Command("git", "ls-files")
+	cmd.Dir = searchDir
+	out, err := cmd.Output()
+	if err == nil {
+		for _, line := range strings.Split(strings.TrimSpace(string(out)), "\n") {
+			if line == "" {
+				continue
+			}
+			// Normalize separators.
+			line = filepath.ToSlash(line)
+			addFileEntries(&results, seen, line, searchDir)
+		}
+	}
+
+	// Untracked, non-ignored files.
+	cmd2 := exec.Command("git", "ls-files", "--others", "--exclude-standard")
+	cmd2.Dir = searchDir
+	out2, err := cmd2.Output()
+	if err == nil {
+		for _, line := range strings.Split(strings.TrimSpace(string(out2)), "\n") {
+			if line == "" {
+				continue
+			}
+			line = filepath.ToSlash(line)
+			addFileEntries(&results, seen, line, searchDir)
+		}
+	}
+
+	if len(results) == 0 {
+		return nil
+	}
+	return results
+}
+
+// addFileEntries adds the file and any intermediate directory entries to
+// results if not already seen. Paths are stored with forward slashes.
+func addFileEntries(results *[]FileSuggestion, seen map[string]bool, relPath string, searchDir string) {
+	// Add intermediate directories as suggestions (first component only).
+	parts := strings.SplitN(relPath, "/", 2)
+	if len(parts) > 1 {
+		dir := parts[0] + "/"
+		if !seen[dir] {
+			seen[dir] = true
+			*results = append(*results, FileSuggestion{RelPath: dir, IsDir: true})
+		}
+	}
+
+	// Add the file itself.
+	if !seen[relPath] {
+		seen[relPath] = true
+		*results = append(*results, FileSuggestion{RelPath: relPath, IsDir: false})
+	}
+}
+
+// listFilesReadDir is the fallback when git is not available. Lists immediate
+// children of dir via os.ReadDir, skipping hidden dirs and common noise.
+func listFilesReadDir(dir string) []FileSuggestion {
+	entries, err := os.ReadDir(dir)
+	if err != nil {
+		return nil
+	}
+
+	skip := map[string]bool{
+		".git": true, "node_modules": true, ".kit": true,
+		"__pycache__": true, ".venv": true, "vendor": true,
+	}
+
+	var results []FileSuggestion
+	for _, e := range entries {
+		name := e.Name()
+		if skip[name] {
+			continue
+		}
+		// Skip hidden files/dirs (except common config files).
+		if strings.HasPrefix(name, ".") && name != ".env" && name != ".gitignore" {
+			continue
+		}
+		if e.IsDir() {
+			results = append(results, FileSuggestion{RelPath: name + "/", IsDir: true})
+		} else {
+			results = append(results, FileSuggestion{RelPath: name, IsDir: false})
+		}
+	}
+	return results
+}
+
+// fuzzyFilterFiles scores and filters file suggestions against the query,
+// returning the top maxFileSuggestions results sorted by score descending.
+// Directories are boosted slightly so they appear near the top.
+func fuzzyFilterFiles(files []FileSuggestion, fullPrefix, query string) []FileSuggestion {
+	if query == "" && fullPrefix == "" {
+		// No filter — return all (capped).
+		if len(files) > maxFileSuggestions {
+			files = files[:maxFileSuggestions]
+		}
+		return files
+	}
+
+	// When there's a base dir but no query (e.g. "cmd/"), show everything
+	// in that directory.
+	if query == "" {
+		var filtered []FileSuggestion
+		for i := range files {
+			if strings.HasPrefix(files[i].RelPath, fullPrefix) {
+				// Only show direct children of the base directory.
+				rest := files[i].RelPath[len(fullPrefix):]
+				if rest == "" {
+					continue
+				}
+				filtered = append(filtered, files[i])
+			}
+		}
+		if len(filtered) > maxFileSuggestions {
+			filtered = filtered[:maxFileSuggestions]
+		}
+		return filtered
+	}
+
+	var scored []FileSuggestion
+	queryLower := strings.ToLower(query)
+
+	for i := range files {
+		path := files[i].RelPath
+		// When we have a fullPrefix with a dir component, only consider
+		// files under that directory.
+		if fullPrefix != query && !strings.HasPrefix(path, fullPrefix[:len(fullPrefix)-len(query)]) {
+			continue
+		}
+
+		score := scoreFilePath(queryLower, path)
+		if score <= 0 {
+			continue
+		}
+
+		// Boost directories so they appear near the top for navigation.
+		if files[i].IsDir {
+			score += 10
+		}
+
+		files[i].Score = score
+		scored = append(scored, files[i])
+	}
+
+	// Sort by score descending.
+	sort.Slice(scored, func(i, j int) bool {
+		return scored[i].Score > scored[j].Score
+	})
+
+	if len(scored) > maxFileSuggestions {
+		scored = scored[:maxFileSuggestions]
+	}
+	return scored
+}
+
+// scoreFilePath scores a file path against a fuzzy query. Higher is better.
+// Returns 0 if there is no match.
+func scoreFilePath(query, path string) int {
+	pathLower := strings.ToLower(path)
+	baseName := filepath.Base(strings.TrimSuffix(path, "/"))
+	baseNameLower := strings.ToLower(baseName)
+
+	// Exact basename match.
+	if baseNameLower == query {
+		return 1000
+	}
+
+	// Basename starts with query.
+	if strings.HasPrefix(baseNameLower, query) {
+		return 800 - len(baseName) + len(query)
+	}
+
+	// Basename contains query as substring.
+	if strings.Contains(baseNameLower, query) {
+		return 500 - len(baseName) + len(query)
+	}
+
+	// Full path contains query as substring.
+	if strings.Contains(pathLower, query) {
+		return 300 - len(path) + len(query)
+	}
+
+	// Fuzzy character match on basename.
+	if score := fuzzyCharMatch(query, baseNameLower); score > 0 {
+		return score
+	}
+
+	// Fuzzy character match on full path.
+	if score := fuzzyCharMatch(query, pathLower); score > 0 {
+		return score - 50
+	}
+
+	return 0
+}
+
+// fuzzyCharMatch performs character-by-character fuzzy matching. Returns a
+// positive score if all query characters appear in order in the target.
+func fuzzyCharMatch(query, target string) int {
+	if utf8.RuneCountInString(query) > utf8.RuneCountInString(target) {
+		return 0
+	}
+
+	qRunes := []rune(query)
+	tRunes := []rune(target)
+	qi := 0
+	score := 100
+	consecutive := 0
+
+	for ti := 0; ti < len(tRunes) && qi < len(qRunes); ti++ {
+		if tRunes[ti] == qRunes[qi] {
+			qi++
+			consecutive++
+			score += consecutive * 5
+		} else {
+			consecutive = 0
+			score -= 2
+		}
+	}
+
+	if qi < len(qRunes) {
+		return 0
+	}
+	return score
+}
diff --git a/internal/ui/input.go b/internal/ui/input.go
index f108e51f..c2aa3b4a 100644
--- a/internal/ui/input.go
+++ b/internal/ui/input.go
@@ -43,6 +43,18 @@ type InputComponent struct {
 	argCommand   string         // command prefix for arg mode (e.g. "/bookmark")
 	argSynthCmds []SlashCommand // backing storage for synthetic arg entries
 
+	// File completion state. When the user types @ followed by a partial
+	// file path, the popup shows file/directory suggestions from the cwd.
+	fileMode        bool             // true when showing @file completions
+	filePrefix      string           // current text after @ being matched
+	fileAtStartIdx  int              // byte offset of @ in the textarea value
+	fileSuggestions []FileSuggestion // backing storage for file entries
+	fileSynthCmds   []SlashCommand   // synthetic SlashCommands wrapping file entries
+
+	// cwd is the working directory used for @file path resolution and
+	// autocomplete suggestions. Set by the parent via SetCwd.
+	cwd string
+
 	// appCtrl is used for slash commands that mutate app state.
 	// May be nil in tests; nil-safe.
 	appCtrl AppController
@@ -90,6 +102,12 @@ func NewInputComponent(width int, title string, appCtrl AppController) *InputCom
 	}
 }
 
+// SetCwd sets the working directory used for @file autocomplete suggestions
+// and path resolution. Should be called by the parent after construction.
+func (s *InputComponent) SetCwd(cwd string) {
+	s.cwd = cwd
+}
+
 // Init implements tea.Model. Starts the cursor blink animation.
 func (s *InputComponent) Init() tea.Cmd {
 	return textarea.Blink
@@ -148,19 +166,29 @@ func (s *InputComponent) Update(msg tea.Msg) (tea.Model, tea.Cmd) {
 
 			case key.Matches(msg, key.NewBinding(key.WithKeys("tab"))):
 				if s.selected < len(s.filtered) {
-					if s.argMode {
+					if s.fileMode {
+						s.applyFileCompletion(s.selected)
+					} else if s.argMode {
 						s.textarea.SetValue(s.argCommand + " " + s.filtered[s.selected].Command.Name)
+						s.showPopup = false
+						s.selected = 0
 					} else {
 						s.textarea.SetValue(s.filtered[s.selected].Command.Name)
+						s.showPopup = false
+						s.selected = 0
 					}
-					s.showPopup = false
-					s.selected = 0
 					s.textarea.CursorEnd()
 				}
 				return s, nil
 
 			case key.Matches(msg, key.NewBinding(key.WithKeys("enter"))):
 				if s.selected < len(s.filtered) {
+					if s.fileMode {
+						// Apply file completion but don't submit.
+						s.applyFileCompletion(s.selected)
+						s.textarea.CursorEnd()
+						return s, nil
+					}
 					// Populate textarea with selected item and submit on next tick.
 					if s.argMode {
 						s.textarea.SetValue(s.argCommand + " " + s.filtered[s.selected].Command.Name)
@@ -190,7 +218,37 @@ func (s *InputComponent) Update(msg tea.Msg) (tea.Model, tea.Cmd) {
 		if value != s.lastValue {
 			s.lastValue = value
 			lines := strings.Split(value, "\n")
-			if len(lines) == 1 && strings.HasPrefix(lines[0], "/") {
+			line := lines[len(lines)-1] // current line (last line for multi-line)
+
+			// Check for @file trigger first.
+			cursorCol := len(line) // approximate: cursor is at end after typing
+			if hasAt, prefix, atIdx := ExtractAtPrefix(line, cursorCol); hasAt && s.cwd != "" {
+				suggestions := GetFileSuggestions(prefix, s.cwd)
+				if len(suggestions) > 0 {
+					s.showPopup = true
+					s.fileMode = true
+					s.argMode = false
+					s.filePrefix = prefix
+					s.fileAtStartIdx = atIdx
+					s.fileSuggestions = suggestions
+					s.fileSynthCmds = make([]SlashCommand, len(suggestions))
+					s.filtered = make([]FuzzyMatch, len(suggestions))
+					for i, fs := range suggestions {
+						name := fs.RelPath
+						desc := ""
+						if fs.IsDir {
+							desc = "directory"
+						}
+						s.fileSynthCmds[i] = SlashCommand{Name: name, Description: desc}
+						s.filtered[i] = FuzzyMatch{Command: &s.fileSynthCmds[i], Score: fs.Score}
+					}
+					s.selected = 0
+				} else {
+					s.showPopup = false
+					s.fileMode = false
+				}
+			} else if len(lines) == 1 && strings.HasPrefix(lines[0], "/") {
+				s.fileMode = false
 				if !strings.Contains(lines[0], " ") {
 					// Command name completion.
 					s.showPopup = true
@@ -210,6 +268,7 @@ func (s *InputComponent) Update(msg tea.Msg) (tea.Model, tea.Cmd) {
 			} else {
 				s.showPopup = false
 				s.argMode = false
+				s.fileMode = false
 			}
 		}
 		return s, cmd
@@ -335,16 +394,32 @@ func (s *InputComponent) renderPopup() string {
 			descStyle = descStyle.Foreground(lipgloss.Color("250"))
 		}
 
-		nameWidth := 15
-		name := nameStyle.Width(nameWidth - 2).Render(sc.Name)
+		if s.fileMode {
+			// File mode: use full width for the path, show description
+			// (e.g. "directory") inline after a gap.
+			maxNameLen := s.width - 24
+			displayName := sc.Name
+			if len(displayName) > maxNameLen && maxNameLen > 3 {
+				displayName = displayName[:maxNameLen-3] + "..."
+			}
+			name := nameStyle.Render(displayName)
+			if sc.Description != "" {
+				items = append(items, indicator+name+"  "+descStyle.Render(sc.Description))
+			} else {
+				items = append(items, indicator+name)
+			}
+		} else {
+			nameWidth := 15
+			name := nameStyle.Width(nameWidth - 2).Render(sc.Name)
 
-		desc := sc.Description
-		maxDescLen := s.width - nameWidth - 14
-		if len(desc) > maxDescLen && maxDescLen > 3 {
-			desc = desc[:maxDescLen-3] + "..."
+			desc := sc.Description
+			maxDescLen := s.width - nameWidth - 14
+			if len(desc) > maxDescLen && maxDescLen > 3 {
+				desc = desc[:maxDescLen-3] + "..."
+			}
+
+			items = append(items, indicator+name+descStyle.Render(desc))
 		}
-
-		items = append(items, indicator+name+descStyle.Render(desc))
 	}
 
 	if startIdx > 0 {
@@ -404,3 +479,56 @@ func (s *InputComponent) findCommandWithComplete(name string) *SlashCommand {
 	}
 	return nil
 }
+
+// applyFileCompletion replaces the @prefix in the textarea with the selected
+// file suggestion. For directories, it keeps the popup open for further
+// drilling. For files, it closes the popup and adds a trailing space.
+func (s *InputComponent) applyFileCompletion(idx int) {
+	if idx >= len(s.fileSuggestions) {
+		return
+	}
+
+	suggestion := s.fileSuggestions[idx]
+	value := s.textarea.Value()
+
+	// Build the replacement text. The @ and everything after it up to the
+	// cursor should be replaced with @<selected path>.
+	// Find the current line's contribution.
+	lines := strings.Split(value, "\n")
+	lastLine := lines[len(lines)-1]
+
+	// Reconstruct: everything before the @ on the last line + @<path>
+	beforeAt := lastLine[:s.fileAtStartIdx]
+	needsQuote := strings.Contains(suggestion.RelPath, " ")
+
+	var replacement string
+	if needsQuote {
+		replacement = `@"` + suggestion.RelPath + `"`
+	} else {
+		replacement = "@" + suggestion.RelPath
+	}
+
+	// For files, add a trailing space. For directories, don't — allow
+	// continued drilling into the directory.
+	if !suggestion.IsDir {
+		replacement += " "
+	}
+
+	newLastLine := beforeAt + replacement
+
+	// Reconstruct the full value with the updated last line.
+	lines[len(lines)-1] = newLastLine
+	newValue := strings.Join(lines, "\n")
+
+	s.textarea.SetValue(newValue)
+	s.textarea.CursorEnd()
+
+	if suggestion.IsDir {
+		// Keep popup open — trigger a refresh for the new directory.
+		s.lastValue = "" // force re-evaluation on next update tick
+	} else {
+		s.showPopup = false
+		s.fileMode = false
+		s.selected = 0
+	}
+}
diff --git a/internal/ui/model.go b/internal/ui/model.go
index 281da467..f047c4fe 100644
--- a/internal/ui/model.go
+++ b/internal/ui/model.go
@@ -201,6 +201,10 @@ type AppModelOptions struct {
 	// (e.g. GPU fallback info). Displayed at startup when non-empty.
 	LoadingMessage string
 
+	// Cwd is the working directory for @file autocomplete and path resolution.
+	// If empty, @file features are disabled.
+	Cwd string
+
 	// Width is the initial terminal width in columns.
 	Width int
 
@@ -449,6 +453,9 @@ type AppModel struct {
 	// so the model can return to it when the overlay completes.
 	preOverlayState appState
 
+	// cwd is the working directory for @file path resolution.
+	cwd string
+
 	// width and height track the terminal dimensions.
 	width  int
 	height int
@@ -526,6 +533,7 @@ func NewAppModel(appCtrl AppController, opts AppModelOptions) *AppModel {
 		serverNames:    opts.ServerNames,
 		toolNames:      opts.ToolNames,
 		usageTracker:   opts.UsageTracker,
+		cwd:            opts.Cwd,
 		width:          width,
 		height:         height,
 	}
@@ -552,6 +560,11 @@ func NewAppModel(appCtrl AppController, opts AppModelOptions) *AppModel {
 	// Wire up child components now that we have the concrete implementations.
 	m.input = NewInputComponent(width, "Enter your prompt (Type /help for commands, Ctrl+C to quit)", appCtrl)
 
+	// Wire up cwd for @file autocomplete.
+	if ic, ok := m.input.(*InputComponent); ok && opts.Cwd != "" {
+		ic.SetCwd(opts.Cwd)
+	}
+
 	// Merge extension commands into the InputComponent's autocomplete source.
 	if ic, ok := m.input.(*InputComponent); ok && len(opts.ExtensionCommands) > 0 {
 		for _, ec := range opts.ExtensionCommands {
@@ -898,12 +911,20 @@ func (m *AppModel) Update(msg tea.Msg) (tea.Model, tea.Cmd) {
 		}
 
 		// Regular prompt — forward to the app layer.
+		// Preprocess @file references: expand them into XML-wrapped file
+		// content before sending to the agent. The display text (shown in
+		// scrollback) uses the original user text so the UI stays clean.
+		processedText := msg.Text
+		if m.cwd != "" {
+			processedText = ProcessFileAttachments(msg.Text, m.cwd)
+		}
+
 		if m.appCtrl != nil {
 			// Run returns the queue depth: >0 means the prompt was queued
 			// (agent is busy). We update queuedMessages directly here
 			// instead of relying on an event from prog.Send(), which would
 			// deadlock when called synchronously from within Update().
-			if qLen := m.appCtrl.Run(msg.Text); qLen > 0 {
+			if qLen := m.appCtrl.Run(processedText); qLen > 0 {
 				// Queued: anchor the message text above the input with a
 				// "queued" badge. It will be printed to scrollback when
 				// the agent picks it up (on QueueUpdatedEvent).