diff --git a/src/acp-agent.ts b/src/acp-agent.ts
index d99ee5a3..3a381864 100644
--- a/src/acp-agent.ts
+++ b/src/acp-agent.ts
@@ -110,6 +110,7 @@ type Session = {
   query: Query;
   input: Pushable<SDKUserMessage>;
   cancelled: boolean;
+  cwd: string;
   permissionMode: PermissionMode;
   settingsManager: SettingsManager;
   accumulatedUsage: AccumulatedUsage;
@@ -672,7 +673,10 @@ export class ClaudeAcpAgent implements Agent {
               this.toolUseCache,
               this.client,
               this.logger,
-              { clientCapabilities: this.clientCapabilities },
+              {
+                clientCapabilities: this.clientCapabilities,
+                cwd: session.cwd,
+              },
             )) {
               await this.client.sessionUpdate(notification);
             }
@@ -784,6 +788,7 @@ export class ClaudeAcpAgent implements Agent {
               {
                 clientCapabilities: this.clientCapabilities,
                 parentToolUseId: message.parent_tool_use_id,
+                cwd: session.cwd,
               },
             )) {
               await this.client.sessionUpdate(notification);
@@ -958,7 +963,11 @@ export class ClaudeAcpAgent implements Agent {
         toolUseCache,
         this.client,
         this.logger,
-        { registerHooks: false, clientCapabilities: this.clientCapabilities },
+        {
+          registerHooks: false,
+          clientCapabilities: this.clientCapabilities,
+          cwd: this.sessions[sessionId]?.cwd,
+        },
       )) {
         await this.client.sessionUpdate(notification);
       }
@@ -1005,6 +1014,7 @@ export class ClaudeAcpAgent implements Agent {
             ...toolInfoFromToolUse(
               { name: toolName, input: toolInput, id: toolUseID },
               supportsTerminalOutput,
+              session?.cwd,
             ),
           },
         });
@@ -1069,6 +1079,7 @@ export class ClaudeAcpAgent implements Agent {
           ...toolInfoFromToolUse(
             { name: toolName, input: toolInput, id: toolUseID },
             supportsTerminalOutput,
+            session?.cwd,
           ),
         },
       });
@@ -1382,6 +1393,7 @@ export class ClaudeAcpAgent implements Agent {
       query: q,
       input: input,
       cancelled: false,
+      cwd: params.cwd,
       permissionMode,
       settingsManager,
       accumulatedUsage: {
@@ -1697,6 +1709,7 @@ export function toAcpNotifications(
     registerHooks?: boolean;
     clientCapabilities?: ClientCapabilities;
     parentToolUseId?: string | null;
+    cwd?: string;
   },
 ): SessionNotification[] {
   const registerHooks = options?.registerHooks !== false;
@@ -1825,7 +1838,7 @@ export function toAcpNotifications(
               toolCallId: chunk.id,
               sessionUpdate: "tool_call_update",
               rawInput,
-              ...toolInfoFromToolUse(chunk, supportsTerminalOutput),
+              ...toolInfoFromToolUse(chunk, supportsTerminalOutput, options?.cwd),
             };
           } else {
             // First encounter (streaming content_block_start or replay) —
@@ -1843,7 +1856,7 @@ export function toAcpNotifications(
               sessionUpdate: "tool_call",
               rawInput,
               status: "pending",
-              ...toolInfoFromToolUse(chunk, supportsTerminalOutput),
+              ...toolInfoFromToolUse(chunk, supportsTerminalOutput, options?.cwd),
             };
           }
         }
@@ -1949,7 +1962,10 @@ export function streamEventToAcpNotifications(
   toolUseCache: ToolUseCache,
   client: AgentSideConnection,
   logger: Logger,
-  options?: { clientCapabilities?: ClientCapabilities },
+  options?: {
+    clientCapabilities?: ClientCapabilities;
+    cwd?: string;
+  },
 ): SessionNotification[] {
   const event = message.event;
   switch (event.type) {
@@ -1964,6 +1980,7 @@ export function streamEventToAcpNotifications(
         {
           clientCapabilities: options?.clientCapabilities,
           parentToolUseId: message.parent_tool_use_id,
+          cwd: options?.cwd,
         },
       );
     case "content_block_delta":
@@ -1977,6 +1994,7 @@ export function streamEventToAcpNotifications(
         {
           clientCapabilities: options?.clientCapabilities,
           parentToolUseId: message.parent_tool_use_id,
+          cwd: options?.cwd,
         },
       );
     // No content
diff --git a/src/lib.ts b/src/lib.ts
index 87421a8f..984e358e 100644
--- a/src/lib.ts
+++ b/src/lib.ts
@@ -15,7 +15,12 @@ export {
   Pushable,
   unreachable,
 } from "./utils.js";
-export { toolInfoFromToolUse, planEntries, toolUpdateFromToolResult } from "./tools.js";
+export {
+  toolInfoFromToolUse,
+  toDisplayPath,
+  planEntries,
+  toolUpdateFromToolResult,
+} from "./tools.js";
 export {
   SettingsManager,
   type ClaudeCodeSettings,
diff --git a/src/tests/acp-agent.test.ts b/src/tests/acp-agent.test.ts
index ab3897c8..554c6071 100644
--- a/src/tests/acp-agent.test.ts
+++ b/src/tests/acp-agent.test.ts
@@ -20,6 +20,7 @@ import { nodeToWebWritable, nodeToWebReadable } from "../utils.js";
 import {
   markdownEscape,
   toolInfoFromToolUse,
+  toDisplayPath,
   toolUpdateFromToolResult,
   toolUpdateFromEditToolResponse,
 } from "../tools.js";
@@ -563,6 +564,20 @@ describe("tool conversions", () => {
     });
   });
 
+  it("should use relative path in title when cwd is provided", () => {
+    const tool_use = {
+      type: "tool_use",
+      id: "toolu_01READ_CWD",
+      name: "Read",
+      input: { file_path: "/Users/test/project/src/main.ts" },
+    };
+
+    const result = toolInfoFromToolUse(tool_use, false, "/Users/test/project");
+    expect(result.title).toBe("Read src/main.ts");
+    // locations.path stays absolute for navigation
+    expect(result.locations).toStrictEqual([{ path: "/Users/test/project/src/main.ts", line: 1 }]);
+  });
+
   it("should handle plan entries", () => {
     const received: SDKAssistantMessage = {
       type: "assistant",
@@ -969,6 +984,22 @@ describe("tool conversions", () => {
   });
 });
 
+describe("toDisplayPath", () => {
+  it("should relativize paths inside cwd and keep absolute paths outside", () => {
+    expect(toDisplayPath("/Users/test/project/src/main.ts", "/Users/test/project")).toBe(
+      "src/main.ts",
+    );
+    expect(toDisplayPath("/etc/hosts", "/Users/test/project")).toBe("/etc/hosts");
+    expect(toDisplayPath("/Users/test/project/src/main.ts")).toBe(
+      "/Users/test/project/src/main.ts",
+    );
+    // Partial directory name match should not be treated as inside cwd
+    expect(toDisplayPath("/Users/test/project-other/file.ts", "/Users/test/project")).toBe(
+      "/Users/test/project-other/file.ts",
+    );
+  });
+});
+
 describe("toolUpdateFromEditToolResponse", () => {
   it("should return empty for non-object input", () => {
     expect(toolUpdateFromEditToolResponse(null)).toEqual({});
@@ -1279,6 +1310,7 @@ describe("stop reason propagation", () => {
       query: gen as any,
       input: new Pushable(),
       cancelled: false,
+      cwd: "/test",
       permissionMode: "default",
       settingsManager: {} as any,
       accumulatedUsage: {
diff --git a/src/tools.ts b/src/tools.ts
index 2b6bac82..07791c45 100644
--- a/src/tools.ts
+++ b/src/tools.ts
@@ -1,3 +1,4 @@
+import path from "node:path";
 import {
   ContentBlock,
   PlanEntry,
@@ -103,9 +104,24 @@ interface ToolUpdate {
   };
 }
 
+/**
+ * Convert an absolute file path to a project-relative path for display.
+ * Returns the original path if it's outside the project directory or if no cwd is provided.
+ */
+export function toDisplayPath(filePath: string, cwd?: string): string {
+  if (!cwd) return filePath;
+  const resolvedCwd = path.resolve(cwd);
+  const resolvedFile = path.resolve(filePath);
+  if (resolvedFile.startsWith(resolvedCwd + path.sep) || resolvedFile === resolvedCwd) {
+    return path.relative(resolvedCwd, resolvedFile);
+  }
+  return filePath;
+}
+
 export function toolInfoFromToolUse(
   toolUse: any,
   supportsTerminalOutput: boolean = false,
+  cwd?: string,
 ): ToolInfo {
   const name = toolUse.name;
 
@@ -154,8 +170,9 @@ export function toolInfoFromToolUse(
       } else if (input.offset) {
         limit = " (from line " + input.offset + ")";
       }
+      const displayPath = input.file_path ? toDisplayPath(input.file_path, cwd) : "File";
       return {
-        title: "Read " + (input.file_path ?? "File") + limit,
+        title: "Read " + displayPath + limit,
         kind: "read",
         locations: input.file_path
           ? [
@@ -189,8 +206,9 @@ export function toolInfoFromToolUse(
           },
         ];
       }
+      const displayPath = input?.file_path ? toDisplayPath(input.file_path, cwd) : undefined;
       return {
-        title: input?.file_path ? `Write ${input.file_path}` : "Write",
+        title: displayPath ? `Write ${displayPath}` : "Write",
         kind: "edit",
         content,
         locations: input?.file_path ? [{ path: input.file_path }] : [],
@@ -210,8 +228,9 @@ export function toolInfoFromToolUse(
           },
         ];
       }
+      const displayPath = input?.file_path ? toDisplayPath(input.file_path, cwd) : undefined;
       return {
-        title: input?.file_path ? `Edit ${input.file_path}` : "Edit",
+        title: displayPath ? `Edit ${displayPath}` : "Edit",
         kind: "edit",
         content,
         locations: input?.file_path ? [{ path: input.file_path }] : [],