diff --git a/src/core/tools/__tests__/readFileTool.spec.ts b/src/core/tools/__tests__/readFileTool.spec.ts
index 7ba822dce0f..e02140b72c4 100644
--- a/src/core/tools/__tests__/readFileTool.spec.ts
+++ b/src/core/tools/__tests__/readFileTool.spec.ts
@@ -201,10 +201,13 @@ function createMockCline(): any {
 		recordToolUsage: vi.fn().mockReturnValue(undefined),
 		recordToolError: vi.fn().mockReturnValue(undefined),
 		didRejectTool: false,
+		getTokenUsage: vi.fn().mockReturnValue({
+			contextTokens: 10000,
+		}),
 		// CRITICAL: Always ensure image support is enabled
 		api: {
 			getModel: vi.fn().mockReturnValue({
-				info: { supportsImages: true },
+				info: { supportsImages: true, contextWindow: 200000 },
 			}),
 		},
 	}
diff --git a/src/core/tools/helpers/__tests__/fileTokenBudget.spec.ts b/src/core/tools/helpers/__tests__/fileTokenBudget.spec.ts
new file mode 100644
index 00000000000..4eea6435a89
--- /dev/null
+++ b/src/core/tools/helpers/__tests__/fileTokenBudget.spec.ts
@@ -0,0 +1,357 @@
+import { describe, it, expect, vi, beforeEach, afterEach } from "vitest"
+import {
+	validateFileTokenBudget,
+	truncateFileContent,
+	FILE_SIZE_THRESHOLD,
+	MAX_FILE_SIZE_FOR_TOKENIZATION,
+	PREVIEW_SIZE_FOR_LARGE_FILES,
+} from "../fileTokenBudget"
+
+// Mock dependencies
+vi.mock("fs/promises", () => ({
+	stat: vi.fn(),
+	readFile: vi.fn(),
+	open: vi.fn(),
+}))
+
+vi.mock("../../../../utils/countTokens", () => ({
+	countTokens: vi.fn(),
+}))
+
+// Import after mocking
+const fs = await import("fs/promises")
+const { countTokens } = await import("../../../../utils/countTokens")
+
+const mockStat = vi.mocked(fs.stat)
+const mockReadFile = vi.mocked(fs.readFile)
+const mockOpen = vi.mocked(fs.open)
+const mockCountTokens = vi.mocked(countTokens)
+
+describe("fileTokenBudget", () => {
+	beforeEach(() => {
+		vi.clearAllMocks()
+		mockOpen.mockReset()
+	})
+
+	afterEach(() => {
+		vi.restoreAllMocks()
+	})
+
+	describe("validateFileTokenBudget", () => {
+		it("should not truncate files smaller than FILE_SIZE_THRESHOLD", async () => {
+			const filePath = "/test/small-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+
+			// Mock file stats - small file (50KB)
+			mockStat.mockResolvedValue({
+				size: 50000,
+			} as any)
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(false)
+			expect(mockReadFile).not.toHaveBeenCalled()
+			expect(mockCountTokens).not.toHaveBeenCalled()
+		})
+
+		it("should validate and not truncate large files that fit within budget", async () => {
+			const filePath = "/test/large-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "x".repeat(150000) // 150KB file
+
+			// Mock file stats - large file (150KB)
+			mockStat.mockResolvedValue({
+				size: 150000,
+			} as any)
+
+			// Mock file read
+			mockReadFile.mockResolvedValue(fileContent)
+
+			// Mock token counting - file uses 30k tokens (within 60% of 190k remaining = 114k budget)
+			mockCountTokens.mockResolvedValue(30000)
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(false)
+			expect(mockReadFile).toHaveBeenCalledWith(filePath, "utf-8")
+			expect(mockCountTokens).toHaveBeenCalled()
+		})
+
+		it("should truncate large files that exceed token budget", async () => {
+			const filePath = "/test/huge-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "x".repeat(500000) // 500KB file
+
+			// Mock file stats - huge file (500KB)
+			mockStat.mockResolvedValue({
+				size: 500000,
+			} as any)
+
+			// Mock file read
+			mockReadFile.mockResolvedValue(fileContent)
+
+			// Mock token counting - file uses 150k tokens (exceeds 60% of 190k remaining = 114k budget)
+			mockCountTokens.mockResolvedValue(150000)
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(true)
+			expect(result.maxChars).toBeDefined()
+			expect(result.maxChars).toBeGreaterThan(0)
+			expect(result.reason).toContain("150000 tokens")
+			expect(result.reason).toContain("114000 tokens available")
+		})
+
+		it("should handle case where no budget is available", async () => {
+			const filePath = "/test/file.txt"
+			const contextWindow = 200000
+			const currentTokens = 200000 // Context is full
+
+			// Mock file stats - large file
+			mockStat.mockResolvedValue({
+				size: 150000,
+			} as any)
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(true)
+			expect(result.maxChars).toBe(0)
+			expect(result.reason).toContain("No available context budget")
+		})
+
+		it("should handle errors gracefully and not truncate", async () => {
+			const filePath = "/test/error-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+
+			// Mock file stats to throw an error
+			mockStat.mockRejectedValue(new Error("File not found"))
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(false)
+		})
+
+		it("should calculate correct token budget with 60/40 split", async () => {
+			const filePath = "/test/file.txt"
+			const contextWindow = 100000
+			const currentTokens = 20000 // 80k remaining
+			const fileContent = "test content"
+
+			mockStat.mockResolvedValue({ size: 150000 } as any)
+			mockReadFile.mockResolvedValue(fileContent)
+
+			// Available budget should be: (100000 - 20000) * 0.6 = 48000
+			// File uses 50k tokens, should be truncated
+			mockCountTokens.mockResolvedValue(50000)
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(true)
+			// maxChars should be approximately 48000 * 3 = 144000
+			expect(result.maxChars).toBe(144000)
+		})
+
+		it("should validate files at the FILE_SIZE_THRESHOLD boundary", async () => {
+			const filePath = "/test/boundary-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "x".repeat(1000)
+
+			// Mock file stats - exactly at threshold (should trigger validation)
+			mockStat.mockResolvedValue({
+				size: FILE_SIZE_THRESHOLD,
+			} as any)
+
+			mockReadFile.mockResolvedValue(fileContent)
+			mockCountTokens.mockResolvedValue(30000) // Within budget
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			// At exactly the threshold, it should validate
+			expect(mockReadFile).toHaveBeenCalled()
+			expect(mockCountTokens).toHaveBeenCalled()
+			expect(result.shouldTruncate).toBe(false)
+		})
+
+		it("should provide preview for files exceeding MAX_FILE_SIZE_FOR_TOKENIZATION", async () => {
+			const filePath = "/test/huge-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const previewContent = "x".repeat(PREVIEW_SIZE_FOR_LARGE_FILES)
+
+			// Mock file stats - file exceeds max tokenization size (e.g., 10MB when max is 5MB)
+			mockStat.mockResolvedValue({
+				size: MAX_FILE_SIZE_FOR_TOKENIZATION + 1000000, // 1MB over the limit
+			} as any)
+
+			// Mock file.open and read for preview
+			const mockRead = vi.fn().mockResolvedValue({
+				bytesRead: PREVIEW_SIZE_FOR_LARGE_FILES,
+			})
+			const mockClose = vi.fn().mockResolvedValue(undefined)
+			mockOpen.mockResolvedValue({
+				read: mockRead,
+				close: mockClose,
+			} as any)
+
+			// Mock token counting for the preview
+			mockCountTokens.mockResolvedValue(30000) // Preview fits within budget
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			expect(result.shouldTruncate).toBe(true)
+			expect(result.isPreview).toBe(true)
+			expect(result.reason).toContain("too large")
+			expect(result.reason).toContain("preview")
+			// Should read preview and count tokens
+			expect(mockOpen).toHaveBeenCalled()
+			expect(mockCountTokens).toHaveBeenCalled()
+		})
+
+		it("should handle files exactly at MAX_FILE_SIZE_FOR_TOKENIZATION boundary", async () => {
+			const filePath = "/test/boundary-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "x".repeat(1000)
+
+			// Mock file stats - exactly at max size
+			mockStat.mockResolvedValue({
+				size: MAX_FILE_SIZE_FOR_TOKENIZATION,
+			} as any)
+
+			mockReadFile.mockResolvedValue(fileContent)
+			mockCountTokens.mockResolvedValue(30000) // Within budget
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			// At exactly the limit, should still attempt to tokenize
+			expect(mockReadFile).toHaveBeenCalled()
+			expect(mockCountTokens).toHaveBeenCalled()
+		})
+
+		it("should handle tokenizer unreachable errors gracefully", async () => {
+			const filePath = "/test/problematic-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "x".repeat(200000) // Content that might cause issues
+
+			// Mock file stats - within size limits but content causes tokenizer crash
+			mockStat.mockResolvedValue({
+				size: 200000,
+			} as any)
+
+			mockReadFile.mockResolvedValue(fileContent)
+			// Simulate tokenizer "unreachable" error
+			mockCountTokens.mockRejectedValue(new Error("unreachable"))
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			// Should fallback with conservative estimation
+			const remainingTokens = contextWindow - currentTokens
+			const safeReadBudget = Math.floor(remainingTokens * 0.6) // 114000
+
+			expect(result.shouldTruncate).toBe(true)
+			expect(result.isPreview).toBe(true)
+			expect(result.reason).toContain("tokenizer error")
+
+			// The actual maxChars depends on conservative estimation
+			// content.length (200000) is used as estimate since tokenizer failed
+			expect(result.maxChars).toBeDefined()
+			expect(typeof result.maxChars).toBe("number")
+		})
+
+		it("should handle other tokenizer errors conservatively", async () => {
+			const filePath = "/test/error-file.txt"
+			const contextWindow = 200000
+			const currentTokens = 10000
+			const fileContent = "test content"
+
+			mockStat.mockResolvedValue({ size: 150000 } as any)
+			mockReadFile.mockResolvedValue(fileContent)
+			// Simulate a different error
+			mockCountTokens.mockRejectedValue(new Error("Network error"))
+
+			const result = await validateFileTokenBudget(filePath, contextWindow, currentTokens)
+
+			// Should return safe fallback (don't truncate, let normal error handling take over)
+			expect(result.shouldTruncate).toBe(false)
+		})
+	})
+
+	describe("truncateFileContent", () => {
+		it("should truncate content to specified character limit", () => {
+			const content = "a".repeat(1000)
+			const maxChars = 500
+			const totalChars = 1000
+
+			const result = truncateFileContent(content, maxChars, totalChars, false)
+
+			expect(result.content).toHaveLength(500)
+			expect(result.content).toBe("a".repeat(500))
+			expect(result.notice).toContain("500 of 1000 characters")
+			expect(result.notice).toContain("context limitations")
+		})
+
+		it("should show preview message for large files", () => {
+			const content = "x".repeat(10000000) // ~10MB (9.54MB in binary)
+			const maxChars = 100000 // 100KB preview
+			const totalChars = 10000000
+
+			const result = truncateFileContent(content, maxChars, totalChars, true)
+
+			expect(result.content).toHaveLength(maxChars)
+			expect(result.notice).toContain("Preview")
+			expect(result.notice).toContain("0.1MB") // 100KB = 0.1MB
+			expect(result.notice).toContain("9.54MB") // Binary MB calculation
+			expect(result.notice).toContain("line_range")
+		})
+
+		it("should include helpful notice about using line_range", () => {
+			const content = "test content that is very long"
+			const maxChars = 10
+			const totalChars = 31
+
+			const result = truncateFileContent(content, maxChars, totalChars)
+
+			expect(result.notice).toContain("line_range")
+			expect(result.notice).toContain("specific sections")
+		})
+
+		it("should handle empty content", () => {
+			const content = ""
+			const maxChars = 100
+			const totalChars = 0
+
+			const result = truncateFileContent(content, maxChars, totalChars)
+
+			expect(result.content).toBe("")
+			expect(result.notice).toContain("0 of 0 characters")
+		})
+
+		it("should truncate multi-line content correctly", () => {
+			const content = "line1\nline2\nline3\nline4\nline5"
+			const maxChars = 15
+			const totalChars = content.length
+
+			const result = truncateFileContent(content, maxChars, totalChars)
+
+			expect(result.content).toBe("line1\nline2\nlin")
+			expect(result.content).toHaveLength(15)
+		})
+
+		it("should work with unicode characters", () => {
+			const content = "Hello 😀 World 🌍 Test 🎉"
+			const maxChars = 10
+			const totalChars = content.length
+
+			const result = truncateFileContent(content, maxChars, totalChars)
+
+			expect(result.content).toHaveLength(10)
+			expect(result.notice).toBeDefined()
+		})
+	})
+})
diff --git a/src/core/tools/helpers/fileTokenBudget.ts b/src/core/tools/helpers/fileTokenBudget.ts
new file mode 100644
index 00000000000..ad82f8fb410
--- /dev/null
+++ b/src/core/tools/helpers/fileTokenBudget.ts
@@ -0,0 +1,228 @@
+import * as fs from "fs/promises"
+import { countTokens } from "../../../utils/countTokens"
+import { Anthropic } from "@anthropic-ai/sdk"
+import { countFileLinesAndTokens } from "../../../integrations/misc/line-counter"
+
+/**
+ * File size threshold (in bytes) above which token validation is triggered.
+ * Files smaller than this are read without token counting overhead.
+ */
+export const FILE_SIZE_THRESHOLD = 100_000 // 100KB
+
+/**
+ * Absolute maximum file size (in bytes) that will be read for token validation.
+ * Files larger than this cannot be tokenized due to tokenizer limitations.
+ * This prevents WASM "unreachable" errors in tiktoken.
+ */
+export const MAX_FILE_SIZE_FOR_TOKENIZATION = 5_000_000 // 5MB
+
+/**
+ * Size of preview to read from files that exceed MAX_FILE_SIZE_FOR_TOKENIZATION.
+ * This allows the agent to see the beginning of large files without crashing.
+ */
+export const PREVIEW_SIZE_FOR_LARGE_FILES = 100_000 // 100KB
+
+/**
+ * Percentage of available context to reserve for file reading.
+ * The remaining percentage is reserved for the model's response and overhead.
+ */
+export const FILE_READ_BUDGET_PERCENT = 0.6 // 60% for file, 40% for response
+
+/**
+ * Result of token budget validation for a file.
+ */
+export interface TokenBudgetResult {
+	/** Whether the file content should be truncated */
+	shouldTruncate: boolean
+	/** The maximum number of characters allowed (only relevant if shouldTruncate is true) */
+	maxChars?: number
+	/** Human-readable reason for truncation */
+	reason?: string
+	/** Whether this is a preview of a larger file (only showing beginning) */
+	isPreview?: boolean
+}
+
+/**
+ * Validates whether a file's content fits within the available token budget.
+ *
+ * Strategy:
+ * 1. Files < 100KB: Skip validation (fast path)
+ * 2. Files >= 100KB: Count tokens and check against budget
+ * 3. Budget = (contextWindow - currentTokens) * 0.6
+ *
+ * @param filePath - Path to the file to validate
+ * @param contextWindow - Total context window size in tokens
+ * @param currentTokens - Current token usage
+ * @returns TokenBudgetResult indicating whether to truncate and at what character limit
+ */
+export async function validateFileTokenBudget(
+	filePath: string,
+	contextWindow: number,
+	currentTokens: number,
+): Promise<TokenBudgetResult> {
+	try {
+		// Check file size first (fast path)
+		const stats = await fs.stat(filePath)
+		const fileSizeBytes = stats.size
+
+		// Fast path: small files always pass
+		if (fileSizeBytes < FILE_SIZE_THRESHOLD) {
+			return { shouldTruncate: false }
+		}
+
+		// Calculate available token budget
+		const remainingTokens = contextWindow - currentTokens
+		const safeReadBudget = Math.floor(remainingTokens * FILE_READ_BUDGET_PERCENT)
+
+		// If we don't have enough budget, truncate immediately without reading
+		if (safeReadBudget <= 0) {
+			return {
+				shouldTruncate: true,
+				maxChars: 0,
+				reason: "No available context budget for file reading",
+			}
+		}
+
+		// For files too large to tokenize entirely, read a preview instead
+		// The tokenizer (tiktoken WASM) crashes with "unreachable" errors on very large files
+		const isPreviewMode = fileSizeBytes > MAX_FILE_SIZE_FOR_TOKENIZATION
+
+		// Use streaming token counter for normal-sized files to avoid double read
+		// For previews, still use direct read since we're only reading a portion
+		let tokenCount = 0
+		let streamingSucceeded = false
+
+		if (!isPreviewMode) {
+			// Try streaming token estimation first (single pass, early exit capability)
+			try {
+				const result = await countFileLinesAndTokens(filePath, {
+					budgetTokens: safeReadBudget,
+					chunkLines: 256,
+				})
+				tokenCount = result.tokenEstimate
+				streamingSucceeded = true
+
+				// If streaming indicated we exceeded budget during scan
+				if (!result.complete) {
+					// Early exit - we know file exceeds budget without reading it all
+					const maxChars = Math.floor(safeReadBudget * 3)
+					return {
+						shouldTruncate: true,
+						maxChars,
+						reason: `File requires ${tokenCount}+ tokens but only ${safeReadBudget} tokens available in context budget`,
+					}
+				}
+			} catch (error) {
+				// Streaming failed - will fallback to full read below
+				streamingSucceeded = false
+			}
+		}
+
+		// Fallback to full read + token count (for preview mode or if streaming failed)
+		if (!streamingSucceeded) {
+			let content: string
+
+			if (isPreviewMode) {
+				// Read only the preview portion to avoid tokenizer crashes
+				const fileHandle = await fs.open(filePath, "r")
+				try {
+					const buffer = Buffer.alloc(PREVIEW_SIZE_FOR_LARGE_FILES)
+					const { bytesRead } = await fileHandle.read(buffer, 0, PREVIEW_SIZE_FOR_LARGE_FILES, 0)
+					content = buffer.slice(0, bytesRead).toString("utf-8")
+				} finally {
+					await fileHandle.close()
+				}
+			} else {
+				// Read the entire file for normal-sized files
+				content = await fs.readFile(filePath, "utf-8")
+			}
+
+			// Count tokens with error handling
+			try {
+				const contentBlocks: Anthropic.Messages.ContentBlockParam[] = [{ type: "text", text: content }]
+				tokenCount = await countTokens(contentBlocks)
+			} catch (error) {
+				// Catch tokenizer "unreachable" errors
+				const errorMessage = error instanceof Error ? error.message : String(error)
+				if (errorMessage.includes("unreachable")) {
+					// Use conservative estimation: 2 chars = 1 token
+					const estimatedTokens = Math.ceil(content.length / 2)
+					if (estimatedTokens > safeReadBudget) {
+						return {
+							shouldTruncate: true,
+							maxChars: safeReadBudget,
+							isPreview: true,
+							reason: `File content caused tokenizer error. Showing truncated preview to fit context budget. Use line_range to read specific sections.`,
+						}
+					}
+					return {
+						shouldTruncate: true,
+						maxChars: content.length,
+						isPreview: true,
+						reason: `File content caused tokenizer error but fits in context. Use line_range for specific sections.`,
+					}
+				}
+				throw error
+			}
+		}
+
+		// Check if content exceeds budget
+		if (tokenCount > safeReadBudget) {
+			const maxChars = Math.floor(safeReadBudget * 3)
+			return {
+				shouldTruncate: true,
+				maxChars,
+				isPreview: isPreviewMode,
+				reason: isPreviewMode
+					? `Preview of large file (${(fileSizeBytes / 1024 / 1024).toFixed(2)}MB) truncated to fit context budget. Use line_range to read specific sections.`
+					: `File requires ${tokenCount} tokens but only ${safeReadBudget} tokens available in context budget`,
+			}
+		}
+
+		// Content fits within budget
+		if (isPreviewMode) {
+			return {
+				shouldTruncate: true,
+				maxChars: PREVIEW_SIZE_FOR_LARGE_FILES,
+				isPreview: true,
+				reason: `File is too large (${(fileSizeBytes / 1024 / 1024).toFixed(2)}MB) to read entirely. Showing preview of first ${(PREVIEW_SIZE_FOR_LARGE_FILES / 1024 / 1024).toFixed(1)}MB. Use line_range to read specific sections.`,
+			}
+		}
+
+		// File fits within budget
+		return { shouldTruncate: false }
+	} catch (error) {
+		// On error, be conservative and don't truncate
+		// This allows the existing error handling to take over
+		console.warn(`[fileTokenBudget] Error validating file ${filePath}:`, error)
+		return { shouldTruncate: false }
+	}
+}
+
+/**
+ * Truncates file content to fit within the specified character limit.
+ * Adds a notice message at the end to inform the user about truncation.
+ *
+ * @param content - The full file content
+ * @param maxChars - Maximum number of characters to keep
+ * @param totalChars - Total number of characters in the original file
+ * @param isPreview - Whether this is a preview of a larger file (not token-budget limited)
+ * @returns Object containing truncated content and a notice message
+ */
+export function truncateFileContent(
+	content: string,
+	maxChars: number,
+	totalChars: number,
+	isPreview: boolean = false,
+): { content: string; notice: string } {
+	const truncatedContent = content.slice(0, maxChars)
+
+	const notice = isPreview
+		? `Preview: Showing first ${(maxChars / 1024 / 1024).toFixed(1)}MB of ${(totalChars / 1024 / 1024).toFixed(2)}MB file. Use line_range to read specific sections.`
+		: `File truncated to ${maxChars} of ${totalChars} characters due to context limitations. Use line_range to read specific sections if needed.`
+
+	return {
+		content: truncatedContent,
+		notice,
+	}
+}
diff --git a/src/core/tools/readFileTool.ts b/src/core/tools/readFileTool.ts
index 01427f4d9dc..6223d61f87c 100644
--- a/src/core/tools/readFileTool.ts
+++ b/src/core/tools/readFileTool.ts
@@ -22,6 +22,7 @@ import {
 	processImageFile,
 	ImageMemoryTracker,
 } from "./helpers/imageHelpers"
+import { validateFileTokenBudget, truncateFileContent } from "./helpers/fileTokenBudget"
 
 export function getReadFileToolDescription(blockName: string, blockParams: any): string {
 	// Handle both single path and multiple files via args
@@ -594,13 +595,43 @@ export async function readFileTool(
 					continue
 				}
 
-				// Handle normal file read
-				const content = await extractTextFromFile(fullPath)
-				const lineRangeAttr = ` lines="1-${totalLines}"`
-				let xmlInfo = totalLines > 0 ? `<content${lineRangeAttr}>\n${content}</content>\n` : `<content/>`
+				// Handle normal file read with token budget validation
+				const modelInfo = cline.api.getModel().info
+				const { contextTokens } = cline.getTokenUsage()
+				const contextWindow = modelInfo.contextWindow
 
-				if (totalLines === 0) {
-					xmlInfo += `<notice>File is empty</notice>\n`
+				// Validate if file fits within token budget
+				const budgetResult = await validateFileTokenBudget(fullPath, contextWindow, contextTokens || 0)
+
+				let content = await extractTextFromFile(fullPath)
+				let xmlInfo = ""
+
+				if (budgetResult.shouldTruncate && budgetResult.maxChars !== undefined) {
+					// Truncate the content to fit budget or show preview for large files
+					const truncateResult = truncateFileContent(
+						content,
+						budgetResult.maxChars,
+						content.length,
+						budgetResult.isPreview,
+					)
+					content = truncateResult.content
+
+					// Reflect actual displayed line count after truncation (count ALL lines, including empty)
+					// Handle trailing newline: "line1\nline2\n" should be 2 lines, not 3
+					let displayedLines = content.length === 0 ? 0 : content.split(/\r?\n/).length
+					if (displayedLines > 0 && content.endsWith("\n")) {
+						displayedLines--
+					}
+					const lineRangeAttr = displayedLines > 0 ? ` lines="1-${displayedLines}"` : ""
+					xmlInfo = content.length > 0 ? `<content${lineRangeAttr}>\n${content}</content>\n` : `<content/>`
+					xmlInfo += `<notice>${truncateResult.notice}</notice>\n`
+				} else {
+					const lineRangeAttr = ` lines="1-${totalLines}"`
+					xmlInfo = totalLines > 0 ? `<content${lineRangeAttr}>\n${content}</content>\n` : `<content/>`
+
+					if (totalLines === 0) {
+						xmlInfo += `<notice>File is empty</notice>\n`
+					}
 				}
 
 				// Track file read
diff --git a/src/integrations/misc/__tests__/line-counter.spec.ts b/src/integrations/misc/__tests__/line-counter.spec.ts
index e7d0f85c8c5..68011cdc2ce 100644
--- a/src/integrations/misc/__tests__/line-counter.spec.ts
+++ b/src/integrations/misc/__tests__/line-counter.spec.ts
@@ -1,146 +1,98 @@
-import type { Mock } from "vitest"
-import fs from "fs"
-import { countFileLines } from "../line-counter"
+import { describe, it, expect, vi, beforeEach } from "vitest"
+import { countFileLines, countFileLinesAndTokens } from "../line-counter"
+import { countTokens } from "../../../utils/countTokens"
+import { Readable } from "stream"
 
-// Mock the fs module
-vitest.mock("fs", () => ({
+// Mock dependencies
+vi.mock("fs", () => ({
 	default: {
 		promises: {
-			access: vitest.fn(),
+			access: vi.fn(),
 		},
 		constants: {
 			F_OK: 0,
 		},
+		createReadStream: vi.fn(),
 	},
-	createReadStream: vitest.fn(),
+	createReadStream: vi.fn(),
 }))
 
-// Mock readline
-vitest.mock("readline", () => ({
-	createInterface: vitest.fn().mockReturnValue({
-		on: vitest.fn().mockImplementation(function (this: any, event, callback) {
-			if (event === "line" && this.mockLines) {
-				for (let i = 0; i < this.mockLines; i++) {
-					callback()
-				}
-			}
-			if (event === "close") {
-				callback()
-			}
-			return this
-		}),
-		mockLines: 0,
-	}),
+vi.mock("../../../utils/countTokens", () => ({
+	countTokens: vi.fn(),
 }))
 
-describe("countFileLines", () => {
-	beforeEach(() => {
-		vitest.clearAllMocks()
-	})
+const mockCountTokens = vi.mocked(countTokens)
 
-	it("should throw error if file does not exist", async () => {
-		// Setup
-		;(fs.promises.access as Mock).mockRejectedValueOnce(new Error("File not found"))
+// Get the mocked fs module
+const fs = await import("fs")
+const mockCreateReadStream = vi.mocked(fs.createReadStream)
+const mockFsAccess = vi.mocked(fs.default.promises.access)
 
-		// Test & Assert
-		await expect(countFileLines("non-existent-file.txt")).rejects.toThrow("File not found")
+describe("line-counter", () => {
+	beforeEach(() => {
+		vi.clearAllMocks()
 	})
 
-	it("should return the correct line count for a file", async () => {
-		// Setup
-		;(fs.promises.access as Mock).mockResolvedValueOnce(undefined)
-
-		const mockEventEmitter = {
-			on: vitest.fn().mockImplementation(function (this: any, event, callback) {
-				if (event === "line") {
-					// Simulate 10 lines
-					for (let i = 0; i < 10; i++) {
-						callback()
-					}
-				}
-				if (event === "close") {
-					callback()
-				}
-				return this
-			}),
-		}
-
-		const mockReadStream = {
-			on: vitest.fn().mockImplementation(function (this: any, _event, _callback) {
-				return this
-			}),
-		}
-
-		const { createReadStream } = await import("fs")
-		vitest.mocked(createReadStream).mockReturnValueOnce(mockReadStream as any)
-		const readline = await import("readline")
-		vitest.mocked(readline.createInterface).mockReturnValueOnce(mockEventEmitter as any)
-
-		// Test
-		const result = await countFileLines("test-file.txt")
-
-		// Assert
-		expect(result).toBe(10)
-		expect(fs.promises.access).toHaveBeenCalledWith("test-file.txt", fs.constants.F_OK)
-		expect(createReadStream).toHaveBeenCalledWith("test-file.txt")
+	describe("countFileLinesAndTokens", () => {
+		it("should count lines and tokens without budget limit", async () => {
+			// Create a proper readable stream
+			const mockStream = new Readable({
+				read() {
+					this.push("line1\n")
+					this.push("line2\n")
+					this.push("line3\n")
+					this.push(null) // End of stream
+				},
+			})
+
+			mockCreateReadStream.mockReturnValue(mockStream as any)
+			mockFsAccess.mockResolvedValue(undefined)
+
+			// Mock token counting - simulate ~10 tokens per chunk
+			mockCountTokens.mockResolvedValue(30)
+
+			const result = await countFileLinesAndTokens("/test/file.txt")
+
+			expect(result.lineCount).toBe(3)
+			expect(result.tokenEstimate).toBe(30)
+			expect(result.complete).toBe(true)
+		})
+
+		it("should handle tokenizer errors with conservative estimate", async () => {
+			// Create a proper readable stream
+			const mockStream = new Readable({
+				read() {
+					this.push("line1\n")
+					this.push(null)
+				},
+			})
+
+			mockCreateReadStream.mockReturnValue(mockStream as any)
+			mockFsAccess.mockResolvedValue(undefined)
+
+			// Simulate tokenizer error
+			mockCountTokens.mockRejectedValue(new Error("unreachable"))
+
+			const result = await countFileLinesAndTokens("/test/file.txt")
+
+			// Should still complete with conservative token estimate (content.length)
+			expect(result.lineCount).toBe(1)
+			expect(result.tokenEstimate).toBeGreaterThan(0)
+			expect(result.complete).toBe(true)
+		})
+
+		it("should throw error for non-existent files", async () => {
+			mockFsAccess.mockRejectedValue(new Error("ENOENT"))
+
+			await expect(countFileLinesAndTokens("/nonexistent/file.txt")).rejects.toThrow("File not found")
+		})
 	})
 
-	it("should handle files with no lines", async () => {
-		// Setup
-		;(fs.promises.access as Mock).mockResolvedValueOnce(undefined)
-
-		const mockEventEmitter = {
-			on: vitest.fn().mockImplementation(function (this: any, event, callback) {
-				if (event === "close") {
-					callback()
-				}
-				return this
-			}),
-		}
-
-		const mockReadStream = {
-			on: vitest.fn().mockImplementation(function (this: any, _event, _callback) {
-				return this
-			}),
-		}
-
-		const { createReadStream } = await import("fs")
-		vitest.mocked(createReadStream).mockReturnValueOnce(mockReadStream as any)
-		const readline = await import("readline")
-		vitest.mocked(readline.createInterface).mockReturnValueOnce(mockEventEmitter as any)
-
-		// Test
-		const result = await countFileLines("empty-file.txt")
-
-		// Assert
-		expect(result).toBe(0)
-	})
+	describe("countFileLines", () => {
+		it("should throw error for non-existent files", async () => {
+			mockFsAccess.mockRejectedValue(new Error("ENOENT"))
 
-	it("should handle errors during reading", async () => {
-		// Setup
-		;(fs.promises.access as Mock).mockResolvedValueOnce(undefined)
-
-		const mockEventEmitter = {
-			on: vitest.fn().mockImplementation(function (this: any, event, callback) {
-				if (event === "error" && callback) {
-					callback(new Error("Read error"))
-				}
-				return this
-			}),
-		}
-
-		const mockReadStream = {
-			on: vitest.fn().mockImplementation(function (this: any, _event, _callback) {
-				return this
-			}),
-		}
-
-		const { createReadStream } = await import("fs")
-		vitest.mocked(createReadStream).mockReturnValueOnce(mockReadStream as any)
-		const readline = await import("readline")
-		vitest.mocked(readline.createInterface).mockReturnValueOnce(mockEventEmitter as any)
-
-		// Test & Assert
-		await expect(countFileLines("error-file.txt")).rejects.toThrow("Read error")
+			await expect(countFileLines("/nonexistent/file.txt")).rejects.toThrow("File not found")
+		})
 	})
 })
diff --git a/src/integrations/misc/line-counter.ts b/src/integrations/misc/line-counter.ts
index c59736f1bee..d066d565e88 100644
--- a/src/integrations/misc/line-counter.ts
+++ b/src/integrations/misc/line-counter.ts
@@ -1,5 +1,7 @@
 import fs, { createReadStream } from "fs"
 import { createInterface } from "readline"
+import { countTokens } from "../../utils/countTokens"
+import { Anthropic } from "@anthropic-ai/sdk"
 
 /**
  * Efficiently counts lines in a file using streams without loading the entire file into memory
@@ -41,3 +43,125 @@ export async function countFileLines(filePath: string): Promise<number> {
 		})
 	})
 }
+
+export interface LineAndTokenCountResult {
+	/** Total number of lines counted */
+	lineCount: number
+	/** Estimated token count */
+	tokenEstimate: number
+	/** Whether the full file was scanned (false if early exit occurred) */
+	complete: boolean
+}
+
+export interface LineAndTokenCountOptions {
+	/** Maximum tokens allowed before early exit. If undefined, scans entire file */
+	budgetTokens?: number
+	/** Number of lines to buffer before running token estimation (default: 256) */
+	chunkLines?: number
+}
+
+/**
+ * Efficiently counts lines and estimates tokens in a file using streams with incremental token estimation.
+ * Processes file in chunks to avoid memory issues and can early-exit when budget is exceeded.
+ *
+ * @param filePath - Path to the file to analyze
+ * @param options - Configuration options for counting
+ * @returns A promise that resolves to line count, token estimate, and completion status
+ */
+export async function countFileLinesAndTokens(
+	filePath: string,
+	options: LineAndTokenCountOptions = {},
+): Promise<LineAndTokenCountResult> {
+	const { budgetTokens, chunkLines = 256 } = options
+
+	// Check if file exists
+	try {
+		await fs.promises.access(filePath, fs.constants.F_OK)
+	} catch (error) {
+		throw new Error(`File not found: ${filePath}`)
+	}
+
+	return new Promise((resolve, reject) => {
+		let lineCount = 0
+		let tokenEstimate = 0
+		let lineBuffer: string[] = []
+		let complete = true
+		let isProcessing = false
+		let shouldClose = false
+
+		const readStream = createReadStream(filePath)
+		const rl = createInterface({
+			input: readStream,
+			crlfDelay: Infinity,
+		})
+
+		const processBuffer = async () => {
+			if (lineBuffer.length === 0) return
+
+			const bufferText = lineBuffer.join("\n")
+			lineBuffer = [] // Clear buffer before processing
+
+			try {
+				const contentBlocks: Anthropic.Messages.ContentBlockParam[] = [{ type: "text", text: bufferText }]
+				const chunkTokens = await countTokens(contentBlocks)
+				tokenEstimate += chunkTokens
+			} catch (error) {
+				// On tokenizer error, use conservative estimate: 2 char ≈ 1 token
+				tokenEstimate += Math.ceil(bufferText.length / 2)
+			}
+
+			// Check if we've exceeded budget
+			if (budgetTokens !== undefined && tokenEstimate > budgetTokens) {
+				complete = false
+				shouldClose = true
+				rl.close()
+				readStream.destroy()
+			}
+		}
+
+		rl.on("line", (line) => {
+			lineCount++
+			lineBuffer.push(line)
+
+			// Process buffer when it reaches chunk size
+			if (lineBuffer.length >= chunkLines && !isProcessing) {
+				isProcessing = true
+				rl.pause()
+				processBuffer()
+					.then(() => {
+						isProcessing = false
+						if (!shouldClose) {
+							rl.resume()
+						}
+					})
+					.catch((err) => {
+						isProcessing = false
+						reject(err)
+					})
+			}
+		})
+
+		rl.on("close", async () => {
+			// Wait for any ongoing processing to complete
+			while (isProcessing) {
+				await new Promise((r) => setTimeout(r, 10))
+			}
+
+			// Process any remaining lines in buffer
+			try {
+				await processBuffer()
+				resolve({ lineCount, tokenEstimate, complete })
+			} catch (err) {
+				reject(err)
+			}
+		})
+
+		rl.on("error", (err) => {
+			reject(err)
+		})
+
+		readStream.on("error", (err) => {
+			reject(err)
+		})
+	})
+}