diff --git a/.changeset/FN-7417-windows-terminal-popup.md b/.changeset/FN-7417-windows-terminal-popup.md
new file mode 100644
index 0000000000..3b9a7fea24
--- /dev/null
+++ b/.changeset/FN-7417-windows-terminal-popup.md
@@ -0,0 +1,7 @@
+---
+"@runfusion/fusion": patch
+---
+
+summary: Stop recurring Windows Terminal warning popups during terminal startup.
+category: fix
+dev: Keeps embedded terminal bootstrap on supported shells and surfaces actionable inline errors.
diff --git a/docs/dashboard-guide.md b/docs/dashboard-guide.md
index c14c313021..32a7db3446 100644
--- a/docs/dashboard-guide.md
+++ b/docs/dashboard-guide.md
@@ -508,6 +508,8 @@ Mailbox view shows inbox/outbox communication threads and unread state.
 
 Fusion embeds a terminal using xterm.js. Desktop and tablet use the footer status bar as the terminal launcher; mobile keeps the full-screen terminal path.
 
+On Windows, the embedded terminal starts a supported shell inside Fusion, such as Command Prompt (`cmd.exe`) or Windows PowerShell. Windows Terminal (`wt.exe`) is an external terminal host and is not required or launched for the embedded panel, so Fusion should not show native Windows Terminal help/version popups while starting a terminal. If embedded terminal startup fails, Fusion shows an inline error with **Retry** instead of a blocking native dialog; install or repair Windows Terminal separately with `winget install Microsoft.WindowsTerminal` only if you want to use Windows Terminal outside Fusion.
+
 Use the terminal on desktop/tablet:
 
 1. Select the **Terminal** button in the footer executor status bar.
diff --git a/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx b/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
index 4172628a3d..c192558eac 100644
--- a/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
+++ b/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
@@ -664,6 +664,37 @@ describe("TerminalModal", () => {
     expect(refreshBtn.textContent).toContain("Refresh page");
   });
 
+  it("shows Windows Terminal startup guidance inline on desktop and mobile without native dialog hooks", async () => {
+    const mockRetryBootstrap = vi.fn();
+    const windowsTerminalMessage =
+      "Fusion could not start an embedded terminal shell on Windows. Use Command Prompt or PowerShell for the embedded terminal, or install/repair Windows Terminal separately with `winget install Microsoft.WindowsTerminal` if you want Windows Terminal outside Fusion.";
+    mockUseTerminalSessions.mockReturnValue({
+      ...defaultSessionState,
+      tabs: [],
+      activeTab: null,
+      bootstrapError: windowsTerminalMessage,
+      retryBootstrap: mockRetryBootstrap,
+    });
+
+    const { rerender } = render(<TerminalModal isOpen={true} onClose={mockOnClose} />);
+
+    expect(screen.getByTestId("terminal-bootstrap-error")).toHaveTextContent("Command Prompt or PowerShell");
+    expect(screen.getByTestId("terminal-bootstrap-error")).toHaveTextContent("winget install Microsoft.WindowsTerminal");
+    expect(screen.getByTestId("terminal-bootstrap-error")).not.toHaveTextContent("1.24.11321.0");
+    expect(screen.getByTestId("terminal-retry-btn")).toBeTruthy();
+
+    const previousInnerWidth = window.innerWidth;
+    Object.defineProperty(window, "innerWidth", { value: 390, configurable: true });
+    try {
+      rerender(<TerminalModal isOpen={true} onClose={mockOnClose} />);
+      expect(screen.getByTestId("terminal-bootstrap-error")).toHaveTextContent("Command Prompt or PowerShell");
+      fireEvent.click(screen.getByTestId("terminal-retry-btn"));
+      expect(mockRetryBootstrap).toHaveBeenCalledTimes(1);
+    } finally {
+      Object.defineProperty(window, "innerWidth", { value: previousInnerWidth, configurable: true });
+    }
+  });
+
   it("retry button calls retryBootstrap from the hook", async () => {
     const mockRetryBootstrap = vi.fn();
     mockUseTerminalSessions.mockReturnValue({
diff --git a/packages/dashboard/app/hooks/__tests__/useTerminalSessions.test.ts b/packages/dashboard/app/hooks/__tests__/useTerminalSessions.test.ts
index fafcedefcd..1c8b809d93 100644
--- a/packages/dashboard/app/hooks/__tests__/useTerminalSessions.test.ts
+++ b/packages/dashboard/app/hooks/__tests__/useTerminalSessions.test.ts
@@ -882,9 +882,33 @@ describe("useTerminalSessions", () => {
         expect(result.current.bootstrapError).toBe("Server unreachable");
       });
 
-      // No tabs should be created
+      // No tabs should be created, and the failed generation must not auto-loop.
       expect(result.current.tabs.length).toBe(0);
       expect(result.current.activeTab).toBeNull();
+      expect(mockCreateTerminalSession).toHaveBeenCalledTimes(1);
+    });
+
+    it("shows the Windows Terminal version-only failure once until explicit retry", async () => {
+      localStorageMock.getItem.mockReturnValue(null);
+      mockListTerminalSessions.mockResolvedValue([]);
+      const windowsTerminalMessage =
+        "Fusion could not start an embedded terminal shell on Windows. Use Command Prompt or PowerShell for the embedded terminal, or install/repair Windows Terminal separately with `winget install Microsoft.WindowsTerminal` if you want Windows Terminal outside Fusion.";
+      mockCreateTerminalSession.mockRejectedValue(new Error(windowsTerminalMessage));
+
+      const { result, rerender } = renderHook(() => useTerminalSessions(TEST_PROJECT_ID));
+
+      await waitFor(() => {
+        expect(result.current.bootstrapError).toBe(windowsTerminalMessage);
+      });
+
+      rerender();
+      await new Promise((resolve) => setTimeout(resolve, 0));
+
+      expect(result.current.tabs).toHaveLength(0);
+      expect(result.current.activeTab).toBeNull();
+      expect(result.current.bootstrapError).toBe(windowsTerminalMessage);
+      expect(result.current.bootstrapError).not.toContain("1.24.11321.0");
+      expect(mockCreateTerminalSession).toHaveBeenCalledTimes(1);
     });
 
     it("sets bootstrapError with fallback message for non-Error throws", async () => {
diff --git a/packages/dashboard/app/hooks/useTerminalSessions.ts b/packages/dashboard/app/hooks/useTerminalSessions.ts
index c1dc6ee12b..f5565cef1c 100644
--- a/packages/dashboard/app/hooks/useTerminalSessions.ts
+++ b/packages/dashboard/app/hooks/useTerminalSessions.ts
@@ -146,6 +146,7 @@ export function useTerminalSessions(projectId?: string): UseTerminalSessionsRetu
   // Ref-based generation token to protect against stale completions from prior
   // bootstrap attempts. Only the current generation may mutate state.
   const generationRef = useRef(0);
+  const bootstrapCreateInFlightGenerationRef = useRef<number | null>(null);
 
   useEffect(() => {
     generationRef.current += 1;
@@ -241,12 +242,19 @@ export function useTerminalSessions(projectId?: string): UseTerminalSessionsRetu
 
   // Auto-create first tab if no tabs exist after validation
   useEffect(() => {
-    if (tabs.length === 0 && isReady && serverAvailable) {
+    if (tabs.length === 0 && isReady && serverAvailable && !bootstrapError) {
       // Capture current generation so only this attempt's result is accepted
       const gen = generationRef.current;
+      if (bootstrapCreateInFlightGenerationRef.current === gen) return;
 
       // Small delay to avoid race condition with the validation effect
       const timeout = setTimeout(() => {
+        if (bootstrapCreateInFlightGenerationRef.current === gen) return;
+        bootstrapCreateInFlightGenerationRef.current = gen;
+        /*
+        FNXC:WindowsTerminalStartup 2026-07-02-07:45:
+        Terminal bootstrap failures must render once inside Fusion and then wait for an explicit Retry, so Windows Terminal help/version output cannot recur through an automatic create-session loop.
+        */
         withTimeout(
           createTerminalSession(undefined, undefined, undefined, projectId),
           BOOTSTRAP_CREATE_TIMEOUT_MS,
@@ -284,11 +292,16 @@ export function useTerminalSessions(projectId?: string): UseTerminalSessionsRetu
             const message =
               err instanceof Error ? err.message : typeof err === "string" ? err : "Failed to create terminal session";
             setBootstrapError(message);
+          })
+          .finally(() => {
+            if (bootstrapCreateInFlightGenerationRef.current === gen) {
+              bootstrapCreateInFlightGenerationRef.current = null;
+            }
           });
       }, 0);
       return () => clearTimeout(timeout);
     }
-  }, [isReady, serverAvailable, tabs.length, retryGeneration]); // Run when ready or when tabs become empty
+  }, [bootstrapError, isReady, serverAvailable, tabs.length, retryGeneration]); // Run when ready or when tabs become empty
 
   /**
    * Internal create tab function (used for auto-creation and user-initiated creation).
@@ -491,6 +504,7 @@ export function useTerminalSessions(projectId?: string): UseTerminalSessionsRetu
   const retryBootstrap = useCallback((): void => {
     setBootstrapError(null);
     generationRef.current += 1;
+    bootstrapCreateInFlightGenerationRef.current = null;
     setRetryGeneration((g) => g + 1);
   }, []);
 
diff --git a/packages/dashboard/src/__tests__/routes-automation.test.ts b/packages/dashboard/src/__tests__/routes-automation.test.ts
index 1dbb8dd8e7..006aa2a18b 100644
--- a/packages/dashboard/src/__tests__/routes-automation.test.ts
+++ b/packages/dashboard/src/__tests__/routes-automation.test.ts
@@ -369,7 +369,7 @@ describe("Terminal session routes", () => {
       ["invalid_shell", 400, "Shell not allowed. Please use a supported shell (bash, zsh, sh, cmd, powershell)."],
       ["invalid_cwd", 400, "Terminal working directory is not an authorized project or task worktree."],
       ["pty_load_failed", 503, "Terminal service unavailable. The PTY module could not be loaded."],
-      ["pty_spawn_failed", 500, "Failed to start terminal shell process."],
+      ["pty_spawn_failed", 500, terminalServiceModule.WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR],
     ] as const)("returns %s errors with the correct status and body", async (code, status, error) => {
       const mockService = {
         createSession: vi.fn().mockResolvedValue({
@@ -394,6 +394,35 @@ describe("Terminal session routes", () => {
       terminalServiceSpy.mockRestore();
     });
 
+    it("returns an actionable structured error instead of raw Windows Terminal version text", async () => {
+      const mockService = {
+        createSession: vi.fn().mockResolvedValue({
+          success: false,
+          code: "pty_spawn_failed",
+          error: terminalServiceModule.WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR,
+        }),
+      };
+      const terminalServiceSpy = vi.spyOn(terminalServiceModule, "getTerminalService").mockReturnValue(mockService as any);
+
+      const res = await REQUEST(
+        buildApp(),
+        "POST",
+        "/api/terminal/sessions",
+        JSON.stringify({}),
+        { "Content-Type": "application/json" },
+      );
+
+      expect(res.status).toBe(500);
+      expect(res.body).toEqual({
+        error: terminalServiceModule.WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR,
+        details: { code: "pty_spawn_failed" },
+      });
+      expect(JSON.stringify(res.body)).not.toContain("Windows Terminal\\n1.24.11321.0");
+      expect(mockService.createSession).toHaveBeenCalledTimes(1);
+
+      terminalServiceSpy.mockRestore();
+    });
+
     it("returns 201 for a successful session creation", async () => {
       const mockService = {
         createSession: vi.fn().mockResolvedValue({
diff --git a/packages/dashboard/src/__tests__/terminal-service.test.ts b/packages/dashboard/src/__tests__/terminal-service.test.ts
index d4fbaebf6a..7b51aa792e 100644
--- a/packages/dashboard/src/__tests__/terminal-service.test.ts
+++ b/packages/dashboard/src/__tests__/terminal-service.test.ts
@@ -1,9 +1,13 @@
 import { describe, it, expect, vi, beforeEach, afterEach } from "vitest";
+import * as fs from "node:fs";
+import * as nodePty from "node-pty";
 import {
   READY_QUIET_WINDOW_MS,
   READY_TIMEOUT_MS,
   TerminalService,
   STALE_SESSION_THRESHOLD_MS,
+  WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR,
+  __setTerminalPlatformForTests,
 } from "../terminal-service.js";
 import { runGitCommand } from "../routes/resolve-diff-base.js";
 
@@ -53,6 +57,8 @@ vi.mock("../routes/resolve-diff-base.js", () => ({
   runGitCommand: vi.fn(),
 }));
 
+const ORIGINAL_SHELL = process.env.SHELL;
+
 describe("TerminalService", () => {
   let service: TerminalService;
   const projectRoot = "/test/project";
@@ -60,6 +66,7 @@ describe("TerminalService", () => {
   beforeEach(() => {
     vi.clearAllMocks();
     service = new TerminalService(projectRoot, 10);
+    vi.mocked(nodePty.spawn).mockImplementation(() => mockPtyProcess as never);
     mockPtyProcess._onDataCallback = null;
     mockPtyProcess._onExitCallback = null;
     mockStat.mockResolvedValue({ isDirectory: () => true });
@@ -68,6 +75,13 @@ describe("TerminalService", () => {
 
   afterEach(() => {
     service.cleanup();
+    __setTerminalPlatformForTests(null);
+    vi.restoreAllMocks();
+    if (ORIGINAL_SHELL === undefined) {
+      delete process.env.SHELL;
+    } else {
+      process.env.SHELL = ORIGINAL_SHELL;
+    }
   });
 
   describe("createSession", () => {
@@ -107,6 +121,78 @@ describe("TerminalService", () => {
       });
     });
 
+    it("does not select or probe Windows Terminal when wt.exe is present on Windows", async () => {
+      __setTerminalPlatformForTests("win32");
+      vi.mocked(fs.existsSync).mockImplementation((candidate) => {
+        const value = String(candidate).toLowerCase();
+        return value === "wt.exe" || value.endsWith("\\cmd.exe") || value === "cmd.exe";
+      });
+      process.env.SHELL = "wt.exe";
+      const windowsService = new TerminalService(projectRoot, 10);
+
+      const result = await windowsService.createSession();
+
+      expect(result.success).toBe(true);
+      expect(nodePty.spawn).toHaveBeenCalledWith(
+        "C:\\Windows\\System32\\cmd.exe",
+        [],
+        expect.objectContaining({ cwd: projectRoot }),
+      );
+      expect(nodePty.spawn).not.toHaveBeenCalledWith("wt.exe", expect.anything(), expect.anything());
+      windowsService.cleanup();
+    });
+
+    it("rejects explicit Windows Terminal shells before spawning an embedded PTY", async () => {
+      __setTerminalPlatformForTests("win32");
+      const windowsService = new TerminalService(projectRoot, 10);
+
+      const result = await windowsService.createSession({ shell: "wt.exe" });
+
+      expect(result).toEqual({
+        success: false,
+        code: "invalid_shell",
+        error: "Shell not allowed. Please use a supported shell (bash, zsh, sh, cmd, powershell).",
+      });
+      expect(nodePty.spawn).not.toHaveBeenCalled();
+      windowsService.cleanup();
+    });
+
+    it("maps Windows Terminal version-only spawn output to an actionable inline startup error", async () => {
+      __setTerminalPlatformForTests("win32");
+      vi.mocked(fs.existsSync).mockImplementation((candidate) => String(candidate).toLowerCase().endsWith("cmd.exe"));
+      vi.mocked(nodePty.spawn).mockImplementation(() => {
+        throw new Error("Windows Terminal\n1.24.11321.0");
+      });
+      const windowsService = new TerminalService(projectRoot, 10);
+
+      const result = await windowsService.createSession();
+
+      expect(result).toEqual({
+        success: false,
+        code: "pty_spawn_failed",
+        error: WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR,
+      });
+      expect(result.success ? result.session.shell : result.error).not.toContain("1.24.11321.0");
+      windowsService.cleanup();
+    });
+
+    it("preserves non-Windows shell detection when wt.exe is present in the environment", async () => {
+      __setTerminalPlatformForTests("linux");
+      process.env.SHELL = "/bin/bash";
+      vi.mocked(fs.existsSync).mockImplementation((candidate) => ["/bin/bash", "/bin/sh"].includes(String(candidate)));
+      const linuxService = new TerminalService(projectRoot, 10);
+
+      const result = await linuxService.createSession();
+
+      expect(result.success).toBe(true);
+      expect(nodePty.spawn).toHaveBeenCalledWith(
+        "/bin/bash",
+        ["--login"],
+        expect.objectContaining({ cwd: projectRoot }),
+      );
+      linuxService.cleanup();
+    });
+
     it("allows an explicit project-root cwd", async () => {
       const result = await service.createSession({ cwd: projectRoot });
 
diff --git a/packages/dashboard/src/terminal-service.ts b/packages/dashboard/src/terminal-service.ts
index a7e97c7c52..60aaddeb96 100644
--- a/packages/dashboard/src/terminal-service.ts
+++ b/packages/dashboard/src/terminal-service.ts
@@ -69,6 +69,19 @@ const STRIP_ENV_VARS = [
   "FUSION_API_KEY",
 ];
 
+let platformOverrideForTests: NodeJS.Platform | null = null;
+
+function getTerminalPlatform(): NodeJS.Platform {
+  return platformOverrideForTests ?? os.platform();
+}
+
+export function __setTerminalPlatformForTests(platform: NodeJS.Platform | null): void {
+  platformOverrideForTests = platform;
+}
+
+export const WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR =
+  "Fusion could not start an embedded terminal shell on Windows. Use Command Prompt or PowerShell for the embedded terminal, or install/repair Windows Terminal separately with `winget install Microsoft.WindowsTerminal` if you want Windows Terminal outside Fusion.";
+
 export interface TerminalSession {
   id: string;
   pty: IPty;
@@ -139,8 +152,7 @@ export class TerminalService extends EventEmitter {
   private sessions: Map<string, TerminalSession> = new Map();
   private dataCallbacks: Set<DataCallback> = new Set();
   private exitCallbacks: Set<ExitCallback> = new Set();
-  private isWindows = os.platform() === "win32";
-  private projectRoot: string;
+  private isWindows = getTerminalPlatform() === "win32";  private projectRoot: string;
   private maxSessions: number;
   private registeredWorktreeCache: Map<string, string[]> = new Map();
 
@@ -166,7 +178,7 @@ export class TerminalService extends EventEmitter {
    * Get the default allowed shells for the current platform
    */
   private getAllowedShells(): string[] {
-    const platform = os.platform();
+    const platform = getTerminalPlatform();
     return ALLOWED_SHELL_PATHS[platform] || ALLOWED_SHELL_PATHS.linux;
   }
 
@@ -183,7 +195,7 @@ export class TerminalService extends EventEmitter {
    * Detect the best shell for the current platform
    */
   detectShell(): { shell: string; args: string[] } {
-    const platform = os.platform();
+    const platform = getTerminalPlatform();
     const allowedShells = this.getAllowedShells();
 
     // Helper to get basename handling both path separators
@@ -207,7 +219,11 @@ export class TerminalService extends EventEmitter {
       return ["--login"];
     };
 
-    // First try user's shell from env if it's allowed
+    /*
+    FNXC:WindowsTerminalStartup 2026-07-02-07:45:
+    Fusion's embedded terminal must not invoke or probe Windows Terminal (`wt.exe`) because it is an external terminal host, not a PTY shell; the Windows startup path stays on supported shells and reports actionable Fusion-owned errors instead of recurring native Windows Terminal help/version dialogs.
+    */
+    // First try user's shell from env if it's allowed. Windows intentionally ignores SHELL because values such as wt.exe are terminal hosts, not embedded shells.
     const userShell = process.env.SHELL;
     if (userShell && platform !== "win32") {
       const normalizedUserShell = this.isWindows ? userShell.toLowerCase() : userShell;
@@ -243,7 +259,7 @@ export class TerminalService extends EventEmitter {
     cwd: string,
   ): Record<string, unknown> {
     return {
-      platform: os.platform(),
+      platform: getTerminalPlatform(),
       projectRoot: this.projectRoot,
       cwd,
       requestedShell: requestedShell ?? null,
@@ -580,7 +596,9 @@ export class TerminalService extends EventEmitter {
       return {
         success: false,
         code: "pty_spawn_failed",
-        error: "Failed to start terminal shell process.",
+        error: this.isWindows
+          ? WINDOWS_TERMINAL_EMBEDDED_STARTUP_ERROR
+          : "Failed to start terminal shell process.",
       };
     }