diff --git a/src/agents/pi-embedded-runner/run/attempt.test.ts b/src/agents/pi-embedded-runner/run/attempt.test.ts
index bc6cddfb5d6..27982edcf05 100644
--- a/src/agents/pi-embedded-runner/run/attempt.test.ts
+++ b/src/agents/pi-embedded-runner/run/attempt.test.ts
@@ -8,6 +8,7 @@ import {
   resolvePromptBuildHookResult,
   resolvePromptModeForSession,
   shouldInjectOllamaCompatNumCtx,
+  decodeHtmlEntitiesInObject,
   wrapOllamaCompatNumCtx,
   wrapStreamFnTrimToolCallNames,
 } from "./attempt.js";
@@ -453,3 +454,42 @@ describe("shouldInjectOllamaCompatNumCtx", () => {
     ).toBe(false);
   });
 });
+
+describe("decodeHtmlEntitiesInObject", () => {
+  it("decodes HTML entities in string values", () => {
+    const result = decodeHtmlEntitiesInObject(
+      "source .env && psql "$DB" -c <query>",
+    );
+    expect(result).toBe('source .env && psql "$DB" -c <query>');
+  });
+
+  it("recursively decodes nested objects", () => {
+    const input = {
+      command: "cd ~/dev &amp;&amp; npm run build",
+      args: ["--flag=&quot;value&quot;", "&lt;input&gt;"],
+      nested: { deep: "a &amp; b" },
+    };
+    const result = decodeHtmlEntitiesInObject(input) as Record<string, unknown>;
+    expect(result.command).toBe("cd ~/dev && npm run build");
+    expect((result.args as string[])[0]).toBe('--flag="value"');
+    expect((result.args as string[])[1]).toBe("<input>");
+    expect((result.nested as Record<string, string>).deep).toBe("a & b");
+  });
+
+  it("passes through non-string primitives unchanged", () => {
+    expect(decodeHtmlEntitiesInObject(42)).toBe(42);
+    expect(decodeHtmlEntitiesInObject(null)).toBe(null);
+    expect(decodeHtmlEntitiesInObject(true)).toBe(true);
+    expect(decodeHtmlEntitiesInObject(undefined)).toBe(undefined);
+  });
+
+  it("returns strings without entities unchanged", () => {
+    const input = "plain string with no entities";
+    expect(decodeHtmlEntitiesInObject(input)).toBe(input);
+  });
+
+  it("decodes numeric character references", () => {
+    expect(decodeHtmlEntitiesInObject("&#39;hello&#39;")).toBe("'hello'");
+    expect(decodeHtmlEntitiesInObject("&#x27;world&#x27;")).toBe("'world'");
+  });
+});
diff --git a/src/agents/pi-embedded-runner/run/attempt.ts b/src/agents/pi-embedded-runner/run/attempt.ts
index c34043a5351..627fb017953 100644
--- a/src/agents/pi-embedded-runner/run/attempt.ts
+++ b/src/agents/pi-embedded-runner/run/attempt.ts
@@ -102,6 +102,7 @@ import {
   type EmbeddedPiQueueHandle,
   setActiveEmbeddedRun,
 } from "../runs.js";
+import { isXaiProvider } from "../../schema/clean-for-xai.js";
 import { buildEmbeddedSandboxInfo } from "../sandbox-info.js";
 import { prewarmSessionFile, trackSessionManagerAccess } from "../session-manager-cache.js";
 import { prepareSessionManagerForRun } from "../session-manager-init.js";
@@ -421,6 +422,110 @@ export function wrapStreamFnTrimToolCallNames(
   };
 }
 
+// ---------------------------------------------------------------------------
+// xAI / Grok: decode HTML entities in tool call arguments
+// ---------------------------------------------------------------------------
+
+const HTML_ENTITY_RE = /&(?:amp|lt|gt|quot|apos|#39|#x[0-9a-f]+|#\d+);/i;
+
+function decodeHtmlEntities(value: string): string {
+  return value
+    .replace(/&amp;/gi, "&")
+    .replace(/&quot;/gi, '"')
+    .replace(/&#39;/gi, "'")
+    .replace(/&apos;/gi, "'")
+    .replace(/&lt;/gi, "<")
+    .replace(/&gt;/gi, ">")
+    .replace(/&#x([0-9a-f]+);/gi, (_, hex) => String.fromCodePoint(Number.parseInt(hex, 16)))
+    .replace(/&#(\d+);/gi, (_, dec) => String.fromCodePoint(Number.parseInt(dec, 10)));
+}
+
+export function decodeHtmlEntitiesInObject(obj: unknown): unknown {
+  if (typeof obj === "string") {
+    return HTML_ENTITY_RE.test(obj) ? decodeHtmlEntities(obj) : obj;
+  }
+  if (Array.isArray(obj)) {
+    return obj.map(decodeHtmlEntitiesInObject);
+  }
+  if (obj && typeof obj === "object") {
+    const result: Record<string, unknown> = {};
+    for (const [key, val] of Object.entries(obj as Record<string, unknown>)) {
+      result[key] = decodeHtmlEntitiesInObject(val);
+    }
+    return result;
+  }
+  return obj;
+}
+
+function decodeXaiToolCallArgumentsInMessage(message: unknown): void {
+  if (!message || typeof message !== "object") {
+    return;
+  }
+  const content = (message as { content?: unknown }).content;
+  if (!Array.isArray(content)) {
+    return;
+  }
+  for (const block of content) {
+    if (!block || typeof block !== "object") {
+      continue;
+    }
+    const typedBlock = block as { type?: unknown; arguments?: unknown };
+    if (typedBlock.type !== "toolCall" || !typedBlock.arguments) {
+      continue;
+    }
+    if (typeof typedBlock.arguments === "object") {
+      typedBlock.arguments = decodeHtmlEntitiesInObject(typedBlock.arguments);
+    }
+  }
+}
+
+function wrapStreamDecodeXaiToolCallArguments(
+  stream: ReturnType<typeof streamSimple>,
+): ReturnType<typeof streamSimple> {
+  const originalResult = stream.result.bind(stream);
+  stream.result = async () => {
+    const message = await originalResult();
+    decodeXaiToolCallArgumentsInMessage(message);
+    return message;
+  };
+
+  const originalAsyncIterator = stream[Symbol.asyncIterator].bind(stream);
+  (stream as { [Symbol.asyncIterator]: typeof originalAsyncIterator })[Symbol.asyncIterator] =
+    function () {
+      const iterator = originalAsyncIterator();
+      return {
+        async next() {
+          const result = await iterator.next();
+          if (!result.done && result.value && typeof result.value === "object") {
+            const event = result.value as { partial?: unknown; message?: unknown };
+            decodeXaiToolCallArgumentsInMessage(event.partial);
+            decodeXaiToolCallArgumentsInMessage(event.message);
+          }
+          return result;
+        },
+        async return(value?: unknown) {
+          return iterator.return?.(value) ?? { done: true as const, value: undefined };
+        },
+        async throw(error?: unknown) {
+          return iterator.throw?.(error) ?? { done: true as const, value: undefined };
+        },
+      };
+    };
+  return stream;
+}
+
+function wrapStreamFnDecodeXaiToolCallArguments(baseFn: StreamFn): StreamFn {
+  return (model, context, options) => {
+    const maybeStream = baseFn(model, context, options);
+    if (maybeStream && typeof maybeStream === "object" && "then" in maybeStream) {
+      return Promise.resolve(maybeStream).then((stream) =>
+        wrapStreamDecodeXaiToolCallArguments(stream),
+      );
+    }
+    return wrapStreamDecodeXaiToolCallArguments(maybeStream);
+  };
+}
+
 export async function resolvePromptBuildHookResult(params: {
   prompt: string;
   messages: unknown[];
@@ -1158,6 +1263,12 @@ export async function runEmbeddedAttempt(
         allowedToolNames,
       );
 
+      if (isXaiProvider(params.provider, params.modelId)) {
+        activeSession.agent.streamFn = wrapStreamFnDecodeXaiToolCallArguments(
+          activeSession.agent.streamFn,
+        );
+      }
+
       if (anthropicPayloadLogger) {
         activeSession.agent.streamFn = anthropicPayloadLogger.wrapStreamFn(
           activeSession.agent.streamFn,