diff --git a/CHANGELOG.md b/CHANGELOG.md
index c04b1363..2393b05b 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,5 +1,9 @@
 # Changelog
 
+## 0.20.1
+
+- fix: inherit process.env when spawning agent subprocess
+
 ## 0.20.0
 
 - Update to @anthropic-ai/claude-agent-sdk@0.2.63
diff --git a/package-lock.json b/package-lock.json
index 8118eee5..70e7a749 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -1,12 +1,12 @@
 {
   "name": "@zed-industries/claude-agent-acp",
-  "version": "0.20.0",
+  "version": "0.20.1",
   "lockfileVersion": 3,
   "requires": true,
   "packages": {
     "": {
       "name": "@zed-industries/claude-agent-acp",
-      "version": "0.20.0",
+      "version": "0.20.1",
       "license": "Apache-2.0",
       "dependencies": {
         "@agentclientprotocol/sdk": "0.14.1",
diff --git a/package.json b/package.json
index 9d590774..62a0f7d1 100644
--- a/package.json
+++ b/package.json
@@ -3,7 +3,7 @@
   "publishConfig": {
     "access": "public"
   },
-  "version": "0.20.0",
+  "version": "0.20.1",
   "description": "An ACP-compatible coding agent powered by the Claude Agent SDK (TypeScript)",
   "main": "dist/lib.js",
   "types": "dist/lib.d.ts",
diff --git a/src/acp-agent.ts b/src/acp-agent.ts
index ed18a0bb..e6550428 100644
--- a/src/acp-agent.ts
+++ b/src/acp-agent.ts
@@ -1240,6 +1240,7 @@ export class ClaudeAcpAgent implements Agent {
       ...(maxThinkingTokens !== undefined && { maxThinkingTokens }),
       ...userProvidedOptions,
       env: {
+        ...process.env,
         ...userProvidedOptions?.env,
         ...createEnvForGateway(this.gatewayAuthMeta),
       },
diff --git a/src/tests/acp-agent.test.ts b/src/tests/acp-agent.test.ts
index b2e5eafa..ab3897c8 100644
--- a/src/tests/acp-agent.test.ts
+++ b/src/tests/acp-agent.test.ts
@@ -227,7 +227,7 @@ describe.skipIf(!process.env.RUN_INTEGRATION_TESTS)("ACP subprocess integration"
       sessionId: newSessionResponse.sessionId,
     });
 
-    expect(client.takeReceivedText()).toBe("");
+    expect(client.takeReceivedText()).toBe("Error: No messages to compact");
 
     // Send something
     await connection.prompt({
diff --git a/src/tests/authorization.test.ts b/src/tests/authorization.test.ts
index 256c73dc..91f44ce9 100644
--- a/src/tests/authorization.test.ts
+++ b/src/tests/authorization.test.ts
@@ -101,12 +101,12 @@ describe("authorization", () => {
     expect(mockQuery).toHaveBeenCalledWith(
       expect.objectContaining({
         options: expect.objectContaining({
-          env: {
+          env: expect.objectContaining({
             ANTHROPIC_AUTH_TOKEN: "",
             ANTHROPIC_BASE_URL: "https://gateway.example",
             ANTHROPIC_CUSTOM_HEADERS: "x-api-key: test",
             userEnv: "userEnv",
-          },
+          }),
         }),
       }),
     );
diff --git a/src/tests/create-session-options.test.ts b/src/tests/create-session-options.test.ts
index 4fe8328e..50515a72 100644
--- a/src/tests/create-session-options.test.ts
+++ b/src/tests/create-session-options.test.ts
@@ -151,6 +151,54 @@ describe("createSession options merging", () => {
     expect(capturedOptions!.hooks?.PostToolUse).toHaveLength(2);
   });
 
+  it("inherits HOME and PATH from process.env when no env is provided", async () => {
+    await agent.newSession({
+      cwd: "/test",
+      mcpServers: [],
+    });
+
+    expect(capturedOptions?.env?.HOME).toBe(process.env.HOME);
+    expect(capturedOptions?.env?.PATH).toBe(process.env.PATH);
+  });
+
+  it("merges user-provided env vars on top of process.env", async () => {
+    await agent.newSession({
+      cwd: "/test",
+      mcpServers: [],
+      _meta: {
+        claudeCode: {
+          options: {
+            env: {
+              CUSTOM_VAR: "custom-value",
+            },
+          },
+        },
+      },
+    });
+
+    expect(capturedOptions?.env?.HOME).toBe(process.env.HOME);
+    expect(capturedOptions?.env?.PATH).toBe(process.env.PATH);
+    expect(capturedOptions?.env?.CUSTOM_VAR).toBe("custom-value");
+  });
+
+  it("allows user-provided env vars to override process.env entries", async () => {
+    await agent.newSession({
+      cwd: "/test",
+      mcpServers: [],
+      _meta: {
+        claudeCode: {
+          options: {
+            env: {
+              HOME: "/custom/home",
+            },
+          },
+        },
+      },
+    });
+
+    expect(capturedOptions?.env?.HOME).toBe("/custom/home");
+  });
+
   it("merges user-provided mcpServers with ACP mcpServers", async () => {
     await agent.newSession({
       cwd: "/test",