diff --git a/.changeset/terminal-workspace-picker-floating.md b/.changeset/terminal-workspace-picker-floating.md
new file mode 100644
index 0000000000..df9f150130
--- /dev/null
+++ b/.changeset/terminal-workspace-picker-floating.md
@@ -0,0 +1,7 @@
+---
+"@runfusion/fusion": patch
+---
+
+summary: Fix terminal workspace drop-down rendering behind the floating terminal modal.
+category: fix
+dev: Keeps the portaled TerminalModal workspace picker above floatingZ and hidden until positioned.
diff --git a/packages/dashboard/app/components/TerminalModal.tsx b/packages/dashboard/app/components/TerminalModal.tsx
index 195014a77f..371cbc0399 100644
--- a/packages/dashboard/app/components/TerminalModal.tsx
+++ b/packages/dashboard/app/components/TerminalModal.tsx
@@ -3,6 +3,7 @@ import { createPortal } from "react-dom";
 import {
   useState,
   useEffect,
+  useLayoutEffect,
   useRef,
   useCallback,
   useMemo,
@@ -1272,6 +1273,13 @@ export function TerminalModal({ isOpen, onClose, initialCommand, initialCommandG
     setTerminalWorkspaceMenuPosition({ top, left, width, maxHeight: constrainedHeight });
   }, [getEffectiveViewport]);
 
+  useLayoutEffect(() => {
+    if (!terminalWorkspaceMenuOpen) {
+      return;
+    }
+    updateTerminalWorkspaceMenuPosition();
+  }, [terminalWorkspaceMenuOpen, terminalWorkspaces.length, updateTerminalWorkspaceMenuPosition]);
+
   useEffect(() => {
     if (!terminalWorkspaceMenuOpen) {
       setTerminalWorkspaceMenuPosition(null);
@@ -2438,6 +2446,15 @@ export function TerminalModal({ isOpen, onClose, initialCommand, initialCommandG
   // FNXC:Terminal 2026-06-23-04:30: Always carry the base `terminal-modal-overlay` class so the no-dim/no-blur rule applies in EVERY mode (docked, floating, AND the mobile/default sheet that is neither) — the terminal must never dim the page behind it.
   const overlayClassName = `modal-overlay open terminal-modal-overlay${isDockedMode ? " terminal-modal-overlay--docked" : ""}${isFloatingMode ? " terminal-modal-overlay--floating" : ""}`;
   const modalClassName = `modal terminal-modal${isMobileTerminal && !embedded ? " terminal-modal--mobile" : ""}${isDockedMode ? " terminal-modal--docked" : ""}${isFloatingMode ? " terminal-modal--floating" : ""}${isBelowMode ? " terminal-modal--below" : ""}${embedded ? " terminal-modal--embedded" : ""}`;
+  /*
+  FNXC:TerminalWorkspaces 2026-07-13-00:00:
+  The workspace picker menu is portaled to `document.body`, so floating terminal mode must compare it in the same root stacking context as the panel. Keep the menu one layer above the panel's shared `floatingZ`; otherwise the fixed CSS fallback band sits below the 10100+ floating stack and the menu appears invisible behind the modal.
+
+  FNXC:TerminalWorkspaces 2026-07-13-00:00:
+  The portaled listbox has CSS fallback coordinates for non-JS resilience, but it must never paint there during the open-frame measurement pass. Position in a layout effect and keep the menu invisible/non-interactive until the computed trigger-relative coordinates are applied.
+  */
+  const terminalWorkspaceMenuFloatingZ = isFloatingMode ? Math.max(5000, floatingZ + 1) : undefined;
+
   const modalStyle = {
     ...(keyboardOverlap > 0
       ? {
@@ -2739,14 +2756,18 @@ export function TerminalModal({ isOpen, onClose, initialCommand, initialCommandG
                   className="terminal-workspace-picker-menu"
                   role="listbox"
                   aria-label={t("terminal.selectWorkspace", "Select terminal workspace")}
-                  style={terminalWorkspaceMenuPosition
-                    ? {
-                        top: terminalWorkspaceMenuPosition.top,
-                        left: terminalWorkspaceMenuPosition.left,
-                        width: terminalWorkspaceMenuPosition.width,
-                        maxHeight: terminalWorkspaceMenuPosition.maxHeight,
-                      }
-                    : undefined}
+                  style={{
+                    ...(terminalWorkspaceMenuPosition
+                      ? {
+                          top: terminalWorkspaceMenuPosition.top,
+                          left: terminalWorkspaceMenuPosition.left,
+                          width: terminalWorkspaceMenuPosition.width,
+                          maxHeight: terminalWorkspaceMenuPosition.maxHeight,
+                        }
+                      : {}),
+                    ...(terminalWorkspaceMenuFloatingZ ? { zIndex: terminalWorkspaceMenuFloatingZ } : {}),
+                    ...(!terminalWorkspaceMenuPosition ? { visibility: "hidden", pointerEvents: "none" } : {}),
+                  }}
                   onPointerDown={(event) => event.stopPropagation()}
                 >
                   <button
diff --git a/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx b/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
index 1c087df2e4..e409ed3208 100644
--- a/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
+++ b/packages/dashboard/app/components/__tests__/TerminalModal.test.tsx
@@ -642,6 +642,126 @@ describe("TerminalModal", () => {
     expect(createTab).toHaveBeenCalledWith({ cwd: "/repo/.worktrees/duplicate", title: "FN-9998" });
   });
 
+  function mockPopulatedTerminalWorkspaces(): void {
+    mockUseWorkspaces.mockReturnValue({
+      projectName: "kb",
+      workspaces: [
+        { id: "FN-7253", label: "FN-7253", title: "Add worktree picker", worktree: "/repo/.worktrees/fn-7253", kind: "task" },
+        { id: "FN-0000", label: "FN-0000", title: "Missing worktree", kind: "task" },
+      ],
+      loading: false,
+      error: null,
+    });
+  }
+
+  function mockWorkspaceTriggerRect(trigger: Element, rect: Partial<DOMRect> = {}): void {
+    vi.spyOn(trigger, "getBoundingClientRect").mockReturnValue({
+      x: 220,
+      y: 18,
+      top: 18,
+      left: 220,
+      right: 352,
+      bottom: 54,
+      width: 132,
+      height: 36,
+      toJSON: () => ({}),
+      ...rect,
+    } as DOMRect);
+  }
+
+  it("layers the floating workspace picker above the terminal and positions it before the rAF fallback", async () => {
+    const requestAnimationFrameSpy = vi.spyOn(window, "requestAnimationFrame").mockImplementation(() => 123);
+    vi.spyOn(window, "cancelAnimationFrame").mockImplementation(() => undefined);
+    mockPopulatedTerminalWorkspaces();
+    window.localStorage.setItem("fusion:terminal-display-mode-floating-layering", "floating");
+
+    render(<TerminalModal isOpen={true} onClose={mockOnClose} projectId="floating-layering" />);
+
+    const modal = await screen.findByTestId("terminal-modal");
+    expect(modal).toHaveClass("terminal-modal--floating");
+    const trigger = screen.getByLabelText("Select terminal workspace: Project Root");
+    mockWorkspaceTriggerRect(trigger);
+
+    fireEvent.click(trigger);
+
+    const listbox = screen.getByRole("listbox", { name: "Select terminal workspace" });
+    expect(listbox.parentElement).toBe(document.body);
+    expect(requestAnimationFrameSpy).toHaveBeenCalled();
+    expect(Number.parseFloat(listbox.style.zIndex)).toBeGreaterThan(Number.parseFloat(modal.style.zIndex));
+    expect(listbox.style.top).not.toBe("");
+    expect(listbox.style.left).not.toBe("");
+    expect(listbox.style.width).not.toBe("");
+    expect(listbox.style.maxHeight).not.toBe("");
+    expect(listbox).not.toHaveStyle({ visibility: "hidden" });
+    expect(listbox).not.toHaveStyle({ pointerEvents: "none" });
+    expect(listbox).toHaveTextContent("Project Root");
+    expect(listbox).toHaveTextContent("FN-7253");
+    expect(screen.getByText("No worktree").closest("button")).toBeDisabled();
+  });
+
+  it.each([
+    ["docked", { projectId: "workspace-picker-docked", displayMode: "docked", embedded: false, mobile: false }],
+    ["below", { projectId: "workspace-picker-below", displayMode: "below", embedded: false, mobile: false }],
+    ["embedded", { projectId: "workspace-picker-embedded", displayMode: "docked", embedded: true, mobile: false }],
+    ["mobile", { projectId: "workspace-picker-mobile", displayMode: "docked", embedded: false, mobile: true }],
+  ])("keeps the workspace picker positioned in %s terminal mode", async (_label, config) => {
+    mockPopulatedTerminalWorkspaces();
+    const previousInnerWidth = window.innerWidth;
+    const previousInnerHeight = window.innerHeight;
+    const previousOntouchstart = window.ontouchstart;
+    window.localStorage.setItem(`fusion:terminal-display-mode-${config.projectId}`, config.displayMode);
+    if (config.mobile) {
+      Object.defineProperty(window, "innerWidth", { value: 390, configurable: true });
+      Object.defineProperty(window, "innerHeight", { value: 720, configurable: true });
+      Object.defineProperty(window, "ontouchstart", { value: null, configurable: true });
+      _resetInitialViewportHeight();
+    }
+
+    try {
+      render(
+        <TerminalModal
+          isOpen={true}
+          onClose={mockOnClose}
+          projectId={config.projectId}
+          embedded={config.embedded}
+          scopeId={config.embedded ? "FN-7253" : undefined}
+        />,
+      );
+
+      const modal = await screen.findByTestId("terminal-modal");
+      if (config.displayMode === "below" && !config.mobile && !config.embedded) {
+        expect(modal).toHaveClass("terminal-modal--below");
+      } else if (config.embedded) {
+        expect(screen.getByTestId("terminal-embedded-host")).toBeInTheDocument();
+      } else if (config.mobile) {
+        expect(modal).not.toHaveClass("terminal-modal--floating");
+        expect(modal).not.toHaveClass("terminal-modal--docked");
+      } else {
+        expect(modal).toHaveClass("terminal-modal--docked");
+      }
+
+      const trigger = screen.getByLabelText("Select terminal workspace: Project Root");
+      mockWorkspaceTriggerRect(trigger, config.mobile ? { right: 360, width: 140 } : {});
+      fireEvent.click(trigger);
+      const listbox = screen.getByRole("listbox", { name: "Select terminal workspace" });
+      expect(listbox.parentElement).toBe(document.body);
+      expect(listbox.style.top).not.toBe("");
+      expect(listbox.style.left).not.toBe("");
+      expect(listbox).not.toHaveStyle({ visibility: "hidden" });
+      expect(listbox).toHaveTextContent("Project Root");
+      expect(listbox).toHaveTextContent("FN-7253");
+    } finally {
+      Object.defineProperty(window, "innerWidth", { value: previousInnerWidth, configurable: true });
+      Object.defineProperty(window, "innerHeight", { value: previousInnerHeight, configurable: true });
+      if (previousOntouchstart === undefined) {
+        delete (window as any).ontouchstart;
+      } else {
+        Object.defineProperty(window, "ontouchstart", { value: previousOntouchstart, configurable: true });
+      }
+      _resetInitialViewportHeight();
+    }
+  });
+
   it("keeps floating and mobile worktree menus reachable and dismissible without orphaned controls", async () => {
     const createTab = vi.fn().mockResolvedValue(defaultTab);
     mockUseTerminalSessions.mockReturnValue({