diff --git a/crates/agent_ui/src/agent_panel.rs b/crates/agent_ui/src/agent_panel.rs
index c7a962b277d..cd3f7ae2264 100644
--- a/crates/agent_ui/src/agent_panel.rs
+++ b/crates/agent_ui/src/agent_panel.rs
@@ -1275,6 +1275,11 @@ impl AgentPanel {
             },
         );
 
+        cx.on_release(|this, cx| {
+            this.dismiss_all_terminal_notifications(cx);
+        })
+        .detach();
+
         let mut panel = Self {
             workspace_id,
             base_view,
@@ -2217,16 +2222,7 @@ impl AgentPanel {
         window: &mut Window,
         cx: &mut Context<Self>,
     ) {
-        let is_active = self.active_terminal_id() == Some(terminal_id);
-        // Only suppress when the user can actually see the bell, i.e. the
-        // terminal is focused AND the OS window is active. A bell delivered to
-        // a background window should still be marked unseen.
-        let user_is_looking = is_active
-            && window.is_window_active()
-            && self.terminals.get(&terminal_id).is_some_and(|terminal| {
-                terminal.view.focus_handle(cx).contains_focused(window, cx)
-            });
-        if user_is_looking {
+        if self.active_terminal_visible(terminal_id, window, cx) {
             return;
         }
         let newly_notified = {
@@ -2244,7 +2240,10 @@ impl AgentPanel {
             cx.emit(AgentPanelEvent::EntryChanged);
             cx.notify();
             #[cfg(feature = "audio")]
-            self.play_terminal_notification_sound(cx);
+            self.play_terminal_notification_sound(
+                self.terminal_status_visible(terminal_id, window, cx),
+                cx,
+            );
             self.show_terminal_notification(terminal_id, window, cx);
         }
     }
@@ -2262,6 +2261,9 @@ impl AgentPanel {
             return;
         }
         let title = terminal.title(cx);
+        if self.terminal_status_visible(terminal_id, window, cx) {
+            return;
+        }
         let settings = AgentSettings::get_global(cx);
         match settings.notify_when_agent_waiting {
             NotifyWhenAgentWaiting::PrimaryScreen => {
@@ -2338,6 +2340,8 @@ impl AgentPanel {
                             })
                             .log_err();
                     });
+
+                    this.dismiss_terminal_notifications(terminal_id, cx);
                 }
                 AgentNotificationEvent::Dismissed => {
                     this.dismiss_terminal_notifications(terminal_id, cx);
@@ -2353,10 +2357,25 @@ impl AgentPanel {
             }
         });
 
-        let multi_workspace_subscription = window.root::<MultiWorkspace>().flatten().map(|mw| {
-            cx.observe_in(&mw, window, move |this, _, window, cx| {
-                this.dismiss_terminal_pop_up_if_visible(terminal_id, &pop_up_weak, window, cx);
+        let multi_workspace_subscription = {
+            let pop_up_weak = pop_up_weak.clone();
+            window.root::<MultiWorkspace>().flatten().map(|mw| {
+                cx.observe_in(&mw, window, move |this, _, window, cx| {
+                    this.dismiss_terminal_pop_up_if_visible(terminal_id, &pop_up_weak, window, cx);
+                })
             })
+        };
+
+        let this_panel = cx.entity();
+        let agent_panel_subscription = cx.subscribe_in(&this_panel, window, {
+            move |this, _, event: &AgentPanelEvent, window, cx| match event {
+                AgentPanelEvent::ActiveViewChanged | AgentPanelEvent::ActiveViewFocused => {
+                    this.dismiss_terminal_pop_up_if_visible(terminal_id, &pop_up_weak, window, cx);
+                }
+                AgentPanelEvent::EntryChanged
+                | AgentPanelEvent::TerminalClosed { .. }
+                | AgentPanelEvent::ThreadInteracted { .. } => {}
+            }
         });
 
         let Some(terminal) = self.terminals.get_mut(&terminal_id) else {
@@ -2370,12 +2389,15 @@ impl AgentPanel {
         terminal
             .notification_subscriptions
             .push(window_activation_subscription);
+        terminal
+            .notification_subscriptions
+            .push(agent_panel_subscription);
         if let Some(subscription) = multi_workspace_subscription {
             terminal.notification_subscriptions.push(subscription);
         }
     }
 
-    fn dismiss_terminal_notifications(&mut self, terminal_id: TerminalId, cx: &mut Context<Self>) {
+    fn dismiss_terminal_notifications(&mut self, terminal_id: TerminalId, cx: &mut App) {
         let Some(terminal) = self.terminals.get_mut(&terminal_id) else {
             return;
         };
@@ -2390,11 +2412,18 @@ impl AgentPanel {
         }
     }
 
-    fn terminal_visible_to_user(&self, terminal_id: TerminalId, window: &Window, cx: &App) -> bool {
+    fn dismiss_all_terminal_notifications(&mut self, cx: &mut App) {
+        let terminal_ids = self.terminals.keys().copied().collect::<Vec<_>>();
+        for terminal_id in terminal_ids {
+            self.dismiss_terminal_notifications(terminal_id, cx);
+        }
+    }
+
+    fn active_terminal_visible(&self, terminal_id: TerminalId, window: &Window, cx: &App) -> bool {
         if !window.is_window_active() {
             return false;
         }
-        if self.active_terminal_id() != Some(terminal_id) {
+        if !self.terminal_surface_visible(terminal_id) {
             return false;
         }
         let Some(workspace) = self.workspace.upgrade() else {
@@ -2402,9 +2431,6 @@ impl AgentPanel {
         };
         if let Some(multi_workspace) = window.root::<MultiWorkspace>().flatten() {
             let multi_workspace = multi_workspace.read(cx);
-            if multi_workspace.sidebar_open() {
-                return true;
-            }
             if multi_workspace.workspace() != &workspace {
                 return false;
             }
@@ -2412,6 +2438,36 @@ impl AgentPanel {
         AgentPanel::is_visible(&workspace, cx)
     }
 
+    fn terminal_surface_visible(&self, terminal_id: TerminalId) -> bool {
+        self.active_terminal_id() == Some(terminal_id)
+            && matches!(self.visible_surface(), VisibleSurface::Terminal(_))
+    }
+
+    fn terminal_status_visible(&self, terminal_id: TerminalId, window: &Window, cx: &App) -> bool {
+        if !window.is_window_active() {
+            return false;
+        }
+
+        if let Some(multi_workspace) = window.root::<MultiWorkspace>().flatten() {
+            let multi_workspace = multi_workspace.read(cx);
+            if multi_workspace.sidebar_open() && multi_workspace.is_threads_list_view_active(cx) {
+                return true;
+            }
+
+            let Some(workspace) = self.workspace.upgrade() else {
+                return false;
+            };
+
+            return multi_workspace.workspace() == &workspace
+                && self.terminal_surface_visible(terminal_id)
+                && AgentPanel::is_visible(&workspace, cx);
+        }
+
+        self.workspace.upgrade().is_some_and(|workspace| {
+            self.terminal_surface_visible(terminal_id) && AgentPanel::is_visible(&workspace, cx)
+        })
+    }
+
     fn dismiss_terminal_pop_up_if_visible(
         &mut self,
         terminal_id: TerminalId,
@@ -2419,9 +2475,17 @@ impl AgentPanel {
         window: &mut Window,
         cx: &mut Context<Self>,
     ) {
-        if !self.terminal_visible_to_user(terminal_id, window, cx) {
+        if !self.terminal_status_visible(terminal_id, window, cx) {
             return;
         }
+        if self.active_terminal_visible(terminal_id, window, cx)
+            && let Some(terminal) = self.terminals.get_mut(&terminal_id)
+            && terminal.has_notification
+        {
+            terminal.has_notification = false;
+            cx.emit(AgentPanelEvent::EntryChanged);
+            cx.notify();
+        }
         if let Some(pop_up) = pop_up.upgrade() {
             pop_up.update(cx, |notification, cx| {
                 notification.dismiss(cx);
@@ -2430,11 +2494,9 @@ impl AgentPanel {
     }
 
     #[cfg(feature = "audio")]
-    fn play_terminal_notification_sound(&self, cx: &mut App) {
-        // We only reach this when the user isn't looking at the terminal,
-        // so it is effectively hidden — only `Never` suppresses the sound.
+    fn play_terminal_notification_sound(&self, visible: bool, cx: &mut App) {
         let settings = AgentSettings::get_global(cx);
-        if settings.play_sound_when_agent_done.should_play(false) {
+        if settings.play_sound_when_agent_done.should_play(visible) {
             Audio::play_sound(Sound::AgentDone, cx);
         }
     }
@@ -3512,6 +3574,13 @@ impl AgentPanel {
         }
     }
 
+    pub(crate) fn visible_conversation_view(&self) -> Option<&Entity<ConversationView>> {
+        match self.visible_surface() {
+            VisibleSurface::AgentThread(conversation_view) => Some(conversation_view),
+            _ => None,
+        }
+    }
+
     pub fn conversation_views(&self) -> Vec<Entity<ConversationView>> {
         self.active_conversation_view()
             .into_iter()
@@ -5935,7 +6004,7 @@ mod tests {
     use crate::conversation_view::tests::{StubAgentServer, init_test};
     use crate::test_support::{
         active_session_id, active_thread_id, open_thread_with_connection,
-        open_thread_with_custom_connection, send_message,
+        open_thread_with_custom_connection, register_test_sidebar, send_message,
     };
     use acp_thread::{AgentConnection, StubAgentConnection, ThreadStatus, UserMessageId};
     use action_log::ActionLog;
@@ -7809,6 +7878,56 @@ mod tests {
         (panel, cx)
     }
 
+    async fn setup_visible_panel(
+        cx: &mut TestAppContext,
+    ) -> (Entity<AgentPanel>, VisualTestContext) {
+        setup_visible_panel_with_sidebar(cx, true).await
+    }
+
+    async fn setup_visible_panel_with_sidebar(
+        cx: &mut TestAppContext,
+        threads_list_active: bool,
+    ) -> (Entity<AgentPanel>, VisualTestContext) {
+        init_test(cx);
+        cx.update(|cx| {
+            agent::ThreadStore::init_global(cx);
+            language_model::LanguageModelRegistry::test(cx);
+            AgentSettings::override_global(
+                AgentSettings {
+                    notify_when_agent_waiting: NotifyWhenAgentWaiting::PrimaryScreen,
+                    ..AgentSettings::get_global(cx).clone()
+                },
+                cx,
+            );
+        });
+
+        let fs = FakeFs::new(cx.executor());
+        cx.update(|cx| <dyn fs::Fs>::set_global(fs.clone(), cx));
+        fs.insert_tree("/project", json!({ "file.txt": "" })).await;
+        let project = Project::test(fs.clone(), [Path::new("/project")], cx).await;
+
+        let multi_workspace =
+            cx.add_window(|window, cx| MultiWorkspace::test_new(project.clone(), window, cx));
+
+        let workspace = multi_workspace
+            .read_with(cx, |multi_workspace, _cx| {
+                multi_workspace.workspace().clone()
+            })
+            .unwrap();
+
+        let mut cx = VisualTestContext::from_window(multi_workspace.into(), cx);
+        register_test_sidebar(threads_list_active, &mut cx);
+
+        let panel = workspace.update_in(&mut cx, |workspace, window, cx| {
+            let panel = cx.new(|cx| AgentPanel::new(workspace, None, window, cx));
+            workspace.add_panel(panel.clone(), window, cx);
+            workspace.focus_panel::<AgentPanel>(window, cx);
+            panel
+        });
+
+        (panel, cx)
+    }
+
     fn expected_terminal_drop_text(paths: &[PathBuf]) -> String {
         let mut text = String::new();
         for path in paths {
@@ -8578,6 +8697,499 @@ mod tests {
         });
     }
 
+    #[gpui::test]
+    async fn test_visible_terminal_bell_is_suppressed(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        cx.update(|window, cx| {
+            assert!(window.is_window_active());
+            assert!(panel.read(cx).focus_handle(cx).contains_focused(window, cx));
+        });
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(!terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_visible_terminal_bell_is_suppressed_without_focus(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        let workspace = cx.update(|window, cx| {
+            window
+                .root::<MultiWorkspace>()
+                .flatten()
+                .expect("test window should have a MultiWorkspace root")
+                .read(cx)
+                .workspace()
+                .clone()
+        });
+        workspace.update_in(&mut cx, |workspace, window, cx| {
+            workspace.focus_handle(cx).focus(window, cx);
+        });
+        cx.update(|window, cx| {
+            assert!(window.is_window_active());
+            assert!(workspace.read(cx).focus_handle(cx).is_focused(window));
+            assert!(!panel.read(cx).focus_handle(cx).contains_focused(window, cx));
+        });
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(!terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_terminal_bell_notifies_when_configuration_overlay_covers_terminal(
+        cx: &mut TestAppContext,
+    ) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        panel.update_in(&mut cx, |panel, window, cx| {
+            panel.set_overlay(OverlayView::Configuration, true, window, cx);
+        });
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(terminal.has_notification);
+        });
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("covered terminal bell should show a notification");
+    }
+
+    #[gpui::test]
+    async fn test_thread_notification_shows_when_configuration_overlay_covers_thread(
+        cx: &mut TestAppContext,
+    ) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let connection = StubAgentConnection::new();
+        connection.set_next_prompt_updates(vec![acp::SessionUpdate::AgentMessageChunk(
+            acp::ContentChunk::new("Default response".into()),
+        )]);
+        open_thread_with_connection(&panel, connection, &mut cx);
+
+        panel.update_in(&mut cx, |panel, window, cx| {
+            panel.set_overlay(OverlayView::Configuration, true, window, cx);
+        });
+        send_message(&panel, &mut cx);
+
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("covered thread should show a notification");
+    }
+
+    #[gpui::test]
+    async fn test_terminal_bell_marks_without_popup_when_sidebar_open(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let first_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Build", true, window, cx)
+            })
+            .expect("first test terminal should be inserted");
+        let second_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Server", true, window, cx)
+            })
+            .expect("second test terminal should be inserted");
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, _cx| {
+            assert_eq!(panel.active_terminal_id(), Some(second_terminal_id));
+        });
+        cx.update(|window, cx| {
+            let multi_workspace = window
+                .root::<MultiWorkspace>()
+                .flatten()
+                .expect("test window should have a MultiWorkspace root");
+            multi_workspace.update(cx, |multi_workspace, cx| {
+                multi_workspace.open_sidebar(cx);
+            });
+        });
+        cx.run_until_parked();
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(first_terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let first_terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == first_terminal_id)
+                .expect("first terminal should remain in the panel");
+            assert!(first_terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_terminal_bell_notifies_when_sidebar_history_open(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel_with_sidebar(cx, false).await;
+        let first_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Build", true, window, cx)
+            })
+            .expect("first test terminal should be inserted");
+        let second_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Server", true, window, cx)
+            })
+            .expect("second test terminal should be inserted");
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, _cx| {
+            assert_eq!(panel.active_terminal_id(), Some(second_terminal_id));
+        });
+        cx.update(|window, cx| {
+            let multi_workspace = window
+                .root::<MultiWorkspace>()
+                .flatten()
+                .expect("test window should have a MultiWorkspace root");
+            multi_workspace.update(cx, |multi_workspace, cx| {
+                multi_workspace.open_sidebar(cx);
+            });
+        });
+        cx.run_until_parked();
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(first_terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let first_terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == first_terminal_id)
+                .expect("first terminal should remain in the panel");
+            assert!(first_terminal.has_notification);
+        });
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("terminal bell should notify when the sidebar thread list is hidden");
+    }
+
+    #[gpui::test]
+    async fn test_terminal_notification_dismissed_when_sidebar_opens(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let first_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Build", true, window, cx)
+            })
+            .expect("first test terminal should be inserted");
+        let second_terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Server", true, window, cx)
+            })
+            .expect("second test terminal should be inserted");
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, _cx| {
+            assert_eq!(panel.active_terminal_id(), Some(second_terminal_id));
+        });
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(first_terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("inactive terminal bell should show a notification");
+
+        cx.update(|window, cx| {
+            let multi_workspace = window
+                .root::<MultiWorkspace>()
+                .flatten()
+                .expect("test window should have a MultiWorkspace root");
+            multi_workspace.update(cx, |multi_workspace, cx| {
+                multi_workspace.open_sidebar(cx);
+            });
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let first_terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == first_terminal_id)
+                .expect("first terminal should remain in the panel");
+            assert!(first_terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_focused_terminal_bell_notifies_when_window_inactive(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        cx.update(|window, cx| {
+            assert!(window.is_window_active());
+            assert!(panel.read(cx).focus_handle(cx).contains_focused(window, cx));
+        });
+        cx.deactivate_window();
+        cx.update(|window, _cx| {
+            assert!(!window.is_window_active());
+        });
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(terminal.has_notification);
+        });
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("background terminal bell should show a notification");
+    }
+
+    #[gpui::test]
+    async fn test_active_terminal_notification_clears_when_window_reactivates(
+        cx: &mut TestAppContext,
+    ) {
+        let (panel, mut cx) = setup_visible_panel(cx).await;
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        cx.deactivate_window();
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(terminal.has_notification);
+        });
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("background terminal bell should show a notification");
+
+        cx.update(|window, _cx| {
+            window.activate_window();
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(!terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_terminal_notification_dismissed_when_active_terminal_becomes_visible(
+        cx: &mut TestAppContext,
+    ) {
+        let (panel, mut cx) = setup_panel(cx).await;
+        cx.update(|_window, cx| {
+            AgentSettings::override_global(
+                AgentSettings {
+                    notify_when_agent_waiting: NotifyWhenAgentWaiting::PrimaryScreen,
+                    ..AgentSettings::get_global(cx).clone()
+                },
+                cx,
+            );
+        });
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        cx.run_until_parked();
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(terminal.has_notification);
+        });
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("hidden terminal bell should show a notification");
+
+        let workspace = cx.update(|window, cx| {
+            window
+                .root::<MultiWorkspace>()
+                .flatten()
+                .expect("test window should have a MultiWorkspace root")
+                .read(cx)
+                .workspace()
+                .clone()
+        });
+        workspace.update_in(&mut cx, |workspace, window, cx| {
+            workspace.add_panel(panel.clone(), window, cx);
+            workspace.focus_panel::<AgentPanel>(window, cx);
+        });
+        cx.run_until_parked();
+
+        panel.read_with(&cx, |panel, cx| {
+            let terminal = panel
+                .terminals(cx)
+                .into_iter()
+                .find(|terminal| terminal.id == terminal_id)
+                .expect("terminal should remain in the panel");
+            assert!(!terminal.has_notification);
+        });
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
+    #[gpui::test]
+    async fn test_terminal_notification_closed_when_panel_dropped(cx: &mut TestAppContext) {
+        let (panel, mut cx) = setup_panel(cx).await;
+        cx.update(|_window, cx| {
+            AgentSettings::override_global(
+                AgentSettings {
+                    notify_when_agent_waiting: NotifyWhenAgentWaiting::PrimaryScreen,
+                    ..AgentSettings::get_global(cx).clone()
+                },
+                cx,
+            );
+        });
+        let terminal_id = panel
+            .update_in(&mut cx, |panel, window, cx| {
+                panel.insert_test_terminal("Claude", true, window, cx)
+            })
+            .expect("test terminal should be inserted");
+        let weak_panel = panel.downgrade();
+        cx.run_until_parked();
+
+        panel.update(&mut cx, |panel, cx| {
+            panel.emit_test_terminal_bell(terminal_id, cx);
+        });
+        cx.run_until_parked();
+
+        cx.windows()
+            .iter()
+            .find_map(|window| window.downcast::<AgentNotification>())
+            .expect("hidden terminal bell should show a notification");
+
+        drop(panel);
+        cx.update(|_window, _cx| {});
+        cx.run_until_parked();
+
+        assert!(
+            !weak_panel.is_upgradable(),
+            "agent panel should be released after dropping the last handle"
+        );
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
+    }
+
     #[gpui::test]
     async fn test_terminal_notification_view_activates_terminal_workspace(cx: &mut TestAppContext) {
         init_test(cx);
@@ -8656,6 +9268,11 @@ mod tests {
         notification
             .update(cx, |notification, _window, cx| notification.accept(cx))
             .unwrap();
+        assert!(
+            cx.windows()
+                .iter()
+                .all(|window| window.downcast::<AgentNotification>().is_none())
+        );
         cx.run_until_parked();
 
         multi_workspace
diff --git a/crates/agent_ui/src/conversation_view.rs b/crates/agent_ui/src/conversation_view.rs
index 5e5f6af52b3..96d6476b9a3 100644
--- a/crates/agent_ui/src/conversation_view.rs
+++ b/crates/agent_ui/src/conversation_view.rs
@@ -2533,18 +2533,24 @@ impl ConversationView {
             return false;
         };
 
-        multi_workspace.read(cx).sidebar_open()
-            || multi_workspace.read(cx).workspace() == &workspace
-                && AgentPanel::is_visible(&workspace, cx)
-                && multi_workspace
-                    .read(cx)
-                    .workspace()
-                    .read(cx)
-                    .panel::<AgentPanel>(cx)
-                    .map_or(false, |p| {
-                        p.read(cx).active_conversation_view().map(|c| c.entity_id())
-                            == Some(cx.entity_id())
-                    })
+        let multi_workspace = multi_workspace.read(cx);
+        multi_workspace.sidebar_open() && multi_workspace.is_threads_list_view_active(cx)
+            || multi_workspace.workspace() == &workspace
+                && self.is_visible_in_agent_panel(&workspace, cx)
+    }
+
+    fn is_visible_in_agent_panel(&self, workspace: &Entity<Workspace>, cx: &Context<Self>) -> bool {
+        AgentPanel::is_visible(workspace, cx)
+            && workspace
+                .read(cx)
+                .panel::<AgentPanel>(cx)
+                .is_some_and(|panel| {
+                    panel
+                        .read(cx)
+                        .visible_conversation_view()
+                        .map(|conversation_view| conversation_view.entity_id())
+                        == Some(cx.entity_id())
+                })
     }
 
     fn agent_status_visible(&self, window: &Window, cx: &Context<Self>) -> bool {
@@ -2557,7 +2563,7 @@ impl ConversationView {
         } else {
             self.workspace
                 .upgrade()
-                .is_some_and(|workspace| AgentPanel::is_visible(&workspace, cx))
+                .is_some_and(|workspace| self.is_visible_in_agent_panel(&workspace, cx))
         }
     }
 
@@ -2569,7 +2575,7 @@ impl ConversationView {
             } else {
                 self.workspace
                     .upgrade()
-                    .is_some_and(|workspace| AgentPanel::is_visible(&workspace, cx))
+                    .is_some_and(|workspace| self.is_visible_in_agent_panel(&workspace, cx))
             };
         let settings = AgentSettings::get_global(cx);
         if settings.play_sound_when_agent_done.should_play(visible) {
@@ -3179,6 +3185,7 @@ pub(crate) mod tests {
 
     use crate::agent_panel;
     use crate::completion_provider::AgentContextSource;
+    use crate::test_support::register_test_sidebar;
     use crate::thread_metadata_store::ThreadMetadataStore;
 
     use super::*;
@@ -4164,6 +4171,7 @@ pub(crate) mod tests {
             .unwrap();
 
         let cx = &mut VisualTestContext::from_window(multi_workspace_handle.into(), cx);
+        register_test_sidebar(true, cx);
 
         // Open the sidebar so that sidebar_open() returns true.
         multi_workspace_handle
@@ -4228,6 +4236,80 @@ pub(crate) mod tests {
         );
     }
 
+    #[gpui::test]
+    async fn test_notification_when_sidebar_open_but_thread_list_hidden(cx: &mut TestAppContext) {
+        init_test(cx);
+
+        let fs = FakeFs::new(cx.executor());
+
+        cx.update(|cx| {
+            cx.update_flags(true, vec!["agent-v2".to_string()]);
+            agent::ThreadStore::init_global(cx);
+            language_model::LanguageModelRegistry::test(cx);
+            <dyn Fs>::set_global(fs.clone(), cx);
+        });
+
+        let project = Project::test(fs, [], cx).await;
+        let multi_workspace_handle =
+            cx.add_window(|window, cx| MultiWorkspace::test_new(project.clone(), window, cx));
+
+        let workspace = multi_workspace_handle
+            .read_with(cx, |mw, _cx| mw.workspace().clone())
+            .unwrap();
+
+        let cx = &mut VisualTestContext::from_window(multi_workspace_handle.into(), cx);
+        register_test_sidebar(false, cx);
+        multi_workspace_handle
+            .update(cx, |mw, _window, cx| {
+                mw.open_sidebar(cx);
+            })
+            .unwrap();
+        cx.run_until_parked();
+
+        let thread_store = cx.update(|_window, cx| cx.new(|cx| ThreadStore::new(cx)));
+        let connection_store =
+            cx.update(|_window, cx| cx.new(|cx| AgentConnectionStore::new(project.clone(), cx)));
+
+        let conversation_view = cx.update(|window, cx| {
+            cx.new(|cx| {
+                ConversationView::new(
+                    Rc::new(StubAgentServer::default_response()),
+                    connection_store,
+                    Agent::Custom { id: "Test".into() },
+                    None,
+                    None,
+                    None,
+                    None,
+                    None,
+                    workspace.downgrade(),
+                    project.clone(),
+                    Some(thread_store),
+                    None,
+                    AgentThreadSource::AgentPanel,
+                    window,
+                    cx,
+                )
+            })
+        });
+        cx.run_until_parked();
+
+        let message_editor = message_editor(&conversation_view, cx);
+        message_editor.update_in(cx, |editor, window, cx| {
+            editor.set_text("Hello", window, cx);
+        });
+
+        active_thread(&conversation_view, cx)
+            .update_in(cx, |view, window, cx| view.send(window, cx));
+        cx.run_until_parked();
+
+        assert!(
+            cx.windows()
+                .iter()
+                .any(|window| window.downcast::<AgentNotification>().is_some()),
+            "Expected notification when the sidebar is open but the thread list is hidden"
+        );
+    }
+
     #[gpui::test]
     async fn test_notification_dismissed_when_sidebar_opens(cx: &mut TestAppContext) {
         init_test(cx);
@@ -4250,6 +4332,7 @@ pub(crate) mod tests {
             .unwrap();
 
         let cx = &mut VisualTestContext::from_window(multi_workspace_handle.into(), cx);
+        register_test_sidebar(true, cx);
 
         let thread_store = cx.update(|_window, cx| cx.new(|cx| ThreadStore::new(cx)));
         let connection_store =
diff --git a/crates/agent_ui/src/test_support.rs b/crates/agent_ui/src/test_support.rs
index 509dfdbb559..3f8d5c8c6df 100644
--- a/crates/agent_ui/src/test_support.rs
+++ b/crates/agent_ui/src/test_support.rs
@@ -1,13 +1,17 @@
 use acp_thread::{AgentConnection, StubAgentConnection};
 use agent_client_protocol::schema as acp;
 use agent_servers::{AgentServer, AgentServerDelegate};
-use gpui::{Entity, Task, TestAppContext, VisualTestContext};
+use gpui::{
+    App, AppContext as _, Context, Entity, EventEmitter, FocusHandle, Focusable, IntoElement,
+    Pixels, Render, Task, TestAppContext, VisualTestContext, Window, div, px,
+};
 use project::AgentId;
 use project::Project;
 use settings::SettingsStore;
 use std::any::Any;
 use std::cell::RefCell;
 use std::rc::Rc;
+use workspace::{MultiWorkspace, Sidebar as WorkspaceSidebar, SidebarEvent, SidebarSide};
 
 use crate::AgentPanel;
 use crate::agent_panel;
@@ -109,6 +113,71 @@ pub fn init_test(cx: &mut TestAppContext) {
     });
 }
 
+pub struct TestWorkspaceSidebar {
+    focus_handle: FocusHandle,
+    threads_list_active: bool,
+}
+
+impl TestWorkspaceSidebar {
+    fn new(threads_list_active: bool, cx: &mut Context<Self>) -> Self {
+        Self {
+            focus_handle: cx.focus_handle(),
+            threads_list_active,
+        }
+    }
+}
+
+impl EventEmitter<SidebarEvent> for TestWorkspaceSidebar {}
+
+impl Focusable for TestWorkspaceSidebar {
+    fn focus_handle(&self, _cx: &App) -> FocusHandle {
+        self.focus_handle.clone()
+    }
+}
+
+impl WorkspaceSidebar for TestWorkspaceSidebar {
+    fn width(&self, _cx: &App) -> Pixels {
+        px(300.)
+    }
+
+    fn set_width(&mut self, _width: Option<Pixels>, _cx: &mut Context<Self>) {}
+
+    fn has_notifications(&self, _cx: &App) -> bool {
+        false
+    }
+
+    fn side(&self, _cx: &App) -> SidebarSide {
+        SidebarSide::Left
+    }
+
+    fn is_threads_list_view_active(&self) -> bool {
+        self.threads_list_active
+    }
+}
+
+impl Render for TestWorkspaceSidebar {
+    fn render(&mut self, _window: &mut Window, _cx: &mut Context<Self>) -> impl IntoElement {
+        div()
+    }
+}
+
+pub fn register_test_sidebar(
+    threads_list_active: bool,
+    cx: &mut VisualTestContext,
+) -> Entity<TestWorkspaceSidebar> {
+    cx.update(|window, cx| {
+        let multi_workspace = window
+            .root::<MultiWorkspace>()
+            .flatten()
+            .expect("test window should have a MultiWorkspace root");
+        let sidebar = cx.new(|cx| TestWorkspaceSidebar::new(threads_list_active, cx));
+        multi_workspace.update(cx, |multi_workspace, cx| {
+            multi_workspace.register_sidebar(sidebar.clone(), cx);
+        });
+        sidebar
+    })
+}
+
 pub fn open_thread_with_connection(
     panel: &Entity<AgentPanel>,
     connection: StubAgentConnection,