diff --git a/pkg/agent/loop.go b/pkg/agent/loop.go
index ed5c73afc..8b90ed1dd 100644
--- a/pkg/agent/loop.go
+++ b/pkg/agent/loop.go
@@ -1505,9 +1505,79 @@ func (al *AgentLoop) runLLMIteration(
 		})
 	}
 
+	if finalContent == "" && iteration >= agent.MaxIterations && agent.MaxIterations > 0 {
+		logger.WarnCF("agent", "Tool iteration limit reached, attempting direct answer without tools",
+			map[string]any{
+				"agent_id":       agent.ID,
+				"iteration":      iteration,
+				"max_iterations": agent.MaxIterations,
+			})
+
+		llmOpts := map[string]any{
+			"max_tokens":       agent.MaxTokens,
+			"temperature":      agent.Temperature,
+			"prompt_cache_key": agent.ID,
+		}
+		if agent.ThinkingLevel != ThinkingOff {
+			if tc, ok := agent.Provider.(providers.ThinkingCapable); ok && tc.SupportsThinking() {
+				llmOpts["thinking_level"] = string(agent.ThinkingLevel)
+			}
+		}
+
+		directAnswer, recovered, err := al.requestDirectAnswerAfterToolLimit(ctx, agent, messages, activeModel, llmOpts)
+		switch {
+		case err != nil:
+			logger.WarnCF("agent", "Direct-answer fallback after tool limit failed",
+				map[string]any{
+					"agent_id":  agent.ID,
+					"iteration": iteration,
+					"error":     err.Error(),
+				})
+		case recovered:
+			finalContent = directAnswer
+		default:
+			logger.WarnCF("agent", "Direct-answer fallback produced no usable answer",
+				map[string]any{
+					"agent_id":  agent.ID,
+					"iteration": iteration,
+				})
+		}
+	}
+
 	return finalContent, iteration, nil
 }
 
+func (al *AgentLoop) requestDirectAnswerAfterToolLimit(
+	ctx context.Context,
+	agent *AgentInstance,
+	messages []providers.Message,
+	model string,
+	llmOpts map[string]any,
+) (string, bool, error) {
+	directMessages := append([]providers.Message{}, messages...)
+	directMessages = append(directMessages, providers.Message{
+		Role:    "user",
+		Content: "Tool iteration limit reached. Using the available context and tool results already in the conversation, answer the user's latest request directly without calling any more tools.",
+	})
+
+	response, err := agent.Provider.Chat(ctx, directMessages, nil, model, llmOpts)
+	if err != nil {
+		return "", false, err
+	}
+	if len(response.ToolCalls) > 0 {
+		return "", false, nil
+	}
+
+	content := response.Content
+	if content == "" && response.ReasoningContent != "" {
+		content = response.ReasoningContent
+	}
+	if content == "" {
+		return "", false, nil
+	}
+	return content, true, nil
+}
+
 // selectCandidates returns the model candidates and resolved model name to use
 // for a conversation turn. When model routing is configured and the incoming
 // message scores below the complexity threshold, it returns the light model
diff --git a/pkg/agent/loop_test.go b/pkg/agent/loop_test.go
index 28eab03db..a315e678b 100644
--- a/pkg/agent/loop_test.go
+++ b/pkg/agent/loop_test.go
@@ -443,6 +443,45 @@ func (m *toolLimitOnlyProvider) GetDefaultModel() string {
 	return "tool-limit-only-model"
 }
 
+type toolLimitFallbackProvider struct {
+	calls           int
+	toolsPerCall    []int
+	messagesPerCall [][]providers.Message
+}
+
+func (m *toolLimitFallbackProvider) Chat(
+	ctx context.Context,
+	messages []providers.Message,
+	tools []providers.ToolDefinition,
+	model string,
+	opts map[string]any,
+) (*providers.LLMResponse, error) {
+	m.calls++
+	m.toolsPerCall = append(m.toolsPerCall, len(tools))
+	msgCopy := append([]providers.Message(nil), messages...)
+	m.messagesPerCall = append(m.messagesPerCall, msgCopy)
+
+	if len(tools) > 0 {
+		return &providers.LLMResponse{
+			ToolCalls: []providers.ToolCall{{
+				ID:        "call_loop_test",
+				Type:      "function",
+				Name:      "loop_test_tool",
+				Arguments: map[string]any{"value": "x"},
+			}},
+		}, nil
+	}
+
+	return &providers.LLMResponse{
+		Content:   "Recovered direct answer",
+		ToolCalls: []providers.ToolCall{},
+	}, nil
+}
+
+func (m *toolLimitFallbackProvider) GetDefaultModel() string {
+	return "tool-limit-fallback-model"
+}
+
 // mockCustomTool is a simple mock tool for registration testing
 type mockCustomTool struct{}
 
@@ -488,6 +527,29 @@ func (m *toolLimitTestTool) Execute(ctx context.Context, args map[string]any) *t
 	return tools.SilentResult("tool limit test result")
 }
 
+type loopTestTool struct{}
+
+func (m *loopTestTool) Name() string {
+	return "loop_test_tool"
+}
+
+func (m *loopTestTool) Description() string {
+	return "Loop test tool"
+}
+
+func (m *loopTestTool) Parameters() map[string]any {
+	return map[string]any{
+		"type": "object",
+		"properties": map[string]any{
+			"value": map[string]any{"type": "string"},
+		},
+	}
+}
+
+func (m *loopTestTool) Execute(ctx context.Context, args map[string]any) *tools.ToolResult {
+	return tools.SilentResult("loop tool result")
+}
+
 // testHelper executes a message and returns the response
 type testHelper struct {
 	al *AgentLoop
@@ -1190,6 +1252,57 @@ func TestAgentLoop_ToolLimitUsesDedicatedFallback(t *testing.T) {
 	if response != toolLimitResponse {
 		t.Fatalf("response = %q, want %q", response, toolLimitResponse)
 	}
+}
+
+func TestAgentLoop_ToolLimitFallsBackToDirectAnswer(t *testing.T) {
+	tmpDir, err := os.MkdirTemp("", "agent-test-*")
+	if err != nil {
+		t.Fatalf("Failed to create temp dir: %v", err)
+	}
+	defer os.RemoveAll(tmpDir)
+
+	cfg := &config.Config{
+		Agents: config.AgentsConfig{
+			Defaults: config.AgentDefaults{
+				Workspace:         tmpDir,
+				Model:             "test-model",
+				MaxTokens:         4096,
+				MaxToolIterations: 1,
+			},
+		},
+	}
+
+	msgBus := bus.NewMessageBus()
+	provider := &toolLimitFallbackProvider{}
+	al := NewAgentLoop(cfg, msgBus, provider)
+	al.RegisterTool(&loopTestTool{})
+
+	sessionKey := "tool-limit-session"
+	response, err := al.ProcessDirectWithChannel(context.Background(), "hello", sessionKey, "test", "chat1")
+	if err != nil {
+		t.Fatalf("ProcessDirectWithChannel failed: %v", err)
+	}
+	if response != "Recovered direct answer" {
+		t.Fatalf("response = %q, want %q", response, "Recovered direct answer")
+	}
+	if provider.calls != 2 {
+		t.Fatalf("provider calls = %d, want 2", provider.calls)
+	}
+	if len(provider.toolsPerCall) != 2 {
+		t.Fatalf("toolsPerCall len = %d, want 2", len(provider.toolsPerCall))
+	}
+	if provider.toolsPerCall[0] == 0 {
+		t.Fatalf("expected first call to include tools, got %v", provider.toolsPerCall)
+	}
+	if provider.toolsPerCall[1] != 0 {
+		t.Fatalf("expected second call to disable tools, got %v", provider.toolsPerCall)
+	}
+
+	fallbackMessages := provider.messagesPerCall[1]
+	lastMessage := fallbackMessages[len(fallbackMessages)-1]
+	if lastMessage.Role != "user" || !strings.Contains(lastMessage.Content, "Tool iteration limit reached") {
+		t.Fatalf("unexpected fallback prompt: %+v", lastMessage)
+	}
 
 	defaultAgent := al.registry.GetDefaultAgent()
 	if defaultAgent == nil {
@@ -1207,8 +1320,23 @@ func TestAgentLoop_ToolLimitUsesDedicatedFallback(t *testing.T) {
 		t.Fatalf("history len = %d, want 4", len(history))
 	}
 	assertRoles(t, history, "user", "assistant", "tool", "assistant")
-	if history[3].Content != toolLimitResponse {
-		t.Fatalf("final assistant content = %q, want %q", history[3].Content, toolLimitResponse)
+	if len(history[1].ToolCalls) != 1 || history[1].ToolCalls[0].Name != "loop_test_tool" {
+		if len(history[1].ToolCalls) != 1 ||
+			history[1].ToolCalls[0].Function == nil ||
+			history[1].ToolCalls[0].Function.Name != "loop_test_tool" {
+			t.Fatalf("unexpected assistant tool call history: %+v", history[1].ToolCalls)
+		}
+	}
+	if history[2].Content != "loop tool result" {
+		t.Fatalf("tool result content = %q, want %q", history[2].Content, "loop tool result")
+	}
+	if history[3].Content != "Recovered direct answer" {
+		t.Fatalf("final assistant content = %q, want %q", history[3].Content, "Recovered direct answer")
+	}
+	for _, msg := range history {
+		if strings.Contains(msg.Content, "Tool iteration limit reached") {
+			t.Fatalf("synthetic fallback prompt leaked into session history: %+v", history)
+		}
 	}
 }
 
@@ -1223,7 +1351,6 @@ func TestProcessDirectWithChannel_TriggersMCPInitialization(t *testing.T) {
 	}
 	defer os.RemoveAll(tmpDir)
 
-	// Test with MCP enabled but no servers - should not initialize manager
 	cfg := &config.Config{
 		Agents: config.AgentsConfig{
 			Defaults: config.AgentDefaults{