diff --git a/src/main/agent-runtime/context-compactor.ts b/src/main/agent-runtime/context-compactor.ts
new file mode 100644
index 00000000..a5f50637
--- /dev/null
+++ b/src/main/agent-runtime/context-compactor.ts
@@ -0,0 +1,158 @@
+/**
+ * Deterministic pi context compactor.
+ *
+ * pi's `transformContext` hook runs before each LLM call and returns
+ * the message list that will actually be sent. A long-running agent
+ * can accumulate hundreds of messages — if we forward every one on
+ * every call we pay per-token for the whole history, and large models
+ * throttle when the context approaches their window.
+ *
+ * This compactor keeps the hook pure and provider-free: no LLM
+ * round-trip, no mutation, no IO. It estimates token count using a
+ * 4-chars-per-token heuristic, keeps recent traffic verbatim, and
+ * collapses older messages into a single "context summary" user turn
+ * that preserves the assistant's narrative plus tool-call headlines.
+ *
+ * Triggering only when the estimate clears the threshold means short
+ * runs pay nothing; long runs see roughly constant per-call cost once
+ * they cross the threshold.
+ */
+
+import type { AgentMessage } from "@mariozechner/pi-agent-core";
+
+/** Token-budget threshold that triggers compaction. */
+const COMPACTION_TRIGGER_TOKENS = 120_000;
+/**
+ * Number of recent messages preserved verbatim. The tail must include
+ * the current turn plus enough context for the agent to answer without
+ * losing mid-stream state (tool-call pairs, user intent).
+ */
+const RECENT_MESSAGE_TAIL = 20;
+/** Rough tokens-per-char estimator; good enough for gating. */
+const CHARS_PER_TOKEN = 4;
+/** Per-assistant-message summary cap to keep the compacted turn readable. */
+const MAX_SUMMARY_CHARS_PER_MESSAGE = 160;
+
+interface MessageLike {
+  role?: string;
+  content?: unknown;
+  timestamp?: number;
+}
+
+export interface CompactionOutcome {
+  changed: boolean;
+  messages: AgentMessage[] | null;
+}
+
+/**
+ * Returns a compacted message list when the incoming transcript
+ * exceeds the budget, or `{ changed: false }` when no compaction is
+ * needed. The transformContext hook forwards the result verbatim.
+ */
+export function compactMessagesIfNeeded(messages: AgentMessage[]): CompactionOutcome {
+  const estimatedTokens = estimateTokens(messages);
+  if (estimatedTokens < COMPACTION_TRIGGER_TOKENS) {
+    return { changed: false, messages: null };
+  }
+  if (messages.length <= RECENT_MESSAGE_TAIL + 1) {
+    return { changed: false, messages: null };
+  }
+
+  const cutoff = messages.length - RECENT_MESSAGE_TAIL;
+  const older = messages.slice(0, cutoff);
+  const recent = messages.slice(cutoff);
+
+  const summaryText = buildSummaryText(older);
+  const summary: AgentMessage = {
+    role: "user",
+    content: [{ type: "text", text: summaryText }],
+    timestamp: Date.now(),
+  } as AgentMessage;
+
+  return { changed: true, messages: [summary, ...recent] };
+}
+
+function estimateTokens(messages: AgentMessage[]): number {
+  let total = 0;
+  for (const message of messages) {
+    total += estimateMessageTokens(message);
+  }
+  return total;
+}
+
+function estimateMessageTokens(message: AgentMessage): number {
+  const raw = extractTextForEstimate(message as MessageLike);
+  return Math.ceil(raw.length / CHARS_PER_TOKEN);
+}
+
+function extractTextForEstimate(message: MessageLike): string {
+  const content = message.content;
+  if (typeof content === "string") return content;
+  if (!Array.isArray(content)) return "";
+  const parts: string[] = [];
+  for (const block of content) {
+    if (!block || typeof block !== "object") continue;
+    const obj = block as { type?: string; text?: string; thinking?: string; name?: string };
+    if (typeof obj.text === "string") parts.push(obj.text);
+    else if (typeof obj.thinking === "string") parts.push(obj.thinking);
+    else if (obj.type === "toolCall" && typeof obj.name === "string") parts.push(`tool:${obj.name}`);
+  }
+  return parts.join(" ");
+}
+
+function buildSummaryText(older: AgentMessage[]): string {
+  const lines: string[] = [
+    "[Context summary — older turns compacted to stay within the token budget]",
+    "",
+  ];
+  const firstUserText = findFirstUserPrompt(older);
+  if (firstUserText) {
+    lines.push(`Original task: ${truncate(firstUserText, 200)}`);
+    lines.push("");
+  }
+  const assistantPoints = collectAssistantHighlights(older);
+  if (assistantPoints.length > 0) {
+    lines.push("Key turns:");
+    for (const point of assistantPoints) {
+      lines.push(`- ${point}`);
+    }
+  }
+  lines.push("");
+  lines.push(`(${older.length} earlier message${older.length === 1 ? "" : "s"} compacted.)`);
+  return lines.join("\n");
+}
+
+function findFirstUserPrompt(messages: AgentMessage[]): string | null {
+  for (const message of messages) {
+    const raw = message as MessageLike;
+    if (raw.role !== "user") continue;
+    const text = extractTextForEstimate(raw).trim();
+    if (text.length > 0) return text;
+  }
+  return null;
+}
+
+function collectAssistantHighlights(messages: AgentMessage[]): string[] {
+  const highlights: string[] = [];
+  for (const message of messages) {
+    const raw = message as MessageLike;
+    if (raw.role !== "assistant") continue;
+    const text = extractTextForEstimate(raw).trim();
+    if (text.length === 0) continue;
+    highlights.push(truncate(firstSentence(text), MAX_SUMMARY_CHARS_PER_MESSAGE));
+    if (highlights.length >= 12) break;
+  }
+  return highlights;
+}
+
+function firstSentence(text: string): string {
+  const collapsed = text.replace(/\s+/g, " ").trim();
+  const sentenceEnd = collapsed.search(/[.?!](\s|$)/);
+  if (sentenceEnd > 0) return collapsed.slice(0, sentenceEnd + 1);
+  return collapsed;
+}
+
+function truncate(text: string, maxLen: number): string {
+  if (text.length <= maxLen) return text;
+  return text.slice(0, maxLen - 1).trimEnd() + "…";
+}
diff --git a/src/main/agent-runtime/hook-handlers.ts b/src/main/agent-runtime/hook-handlers.ts
index 75269486..0a957c38 100644
--- a/src/main/agent-runtime/hook-handlers.ts
+++ b/src/main/agent-runtime/hook-handlers.ts
@@ -29,6 +29,7 @@ import {
   projectToolExecutionToWorkProduct,
   type ArtifactProjectorRunContext,
 } from "./artifact-projector";
+import { compactMessagesIfNeeded } from "./context-compactor";
 
 export interface ActiveRunContext {
   runId: string;
@@ -174,15 +175,16 @@ export function handleAfterToolCall(
 }
 
 /**
- * Context-transform hook. Placeholder pass-through; auto-compaction
- * wiring lives in session-management-service and plugs in here once
- * the compactor is available (tracked separately from the contract
- * wiring).
+ * Context-transform hook. Delegates to `compactMessagesIfNeeded`,
+ * which is a pure, provider-free deterministic compactor. Runs before
+ * every LLM call; short transcripts short-circuit on the token-budget
+ * check so the steady-state cost is negligible.
  */
 export function handleTransformContext(
   _deps: HookHandlerDeps,
   _ctx: ActiveRunContext,
-  _payload: TransformContextRpcPayload,
+  payload: TransformContextRpcPayload,
 ): TransformContextRpcResult {
-  return { changed: false, messages: null };
+  const outcome = compactMessagesIfNeeded(payload.messages);
+  return { changed: outcome.changed, messages: outcome.messages };
 }