diff --git a/packages/vscode-ide-companion/src/acp/AcpConnection.ts b/packages/vscode-ide-companion/src/acp/AcpConnection.ts
index 8b0d2593..41cb0fd5 100644
--- a/packages/vscode-ide-companion/src/acp/AcpConnection.ts
+++ b/packages/vscode-ide-companion/src/acp/AcpConnection.ts
@@ -286,7 +286,23 @@ export class AcpConnection {
             params as AcpPermissionRequest,
           );
           break;
+        case 'fs/read_text_file':
+          result = await this.handleReadTextFile(
+            params as {
+              path: string;
+              sessionId: string;
+              line: number | null;
+              limit: number | null;
+            },
+          );
+          break;
+        case 'fs/write_text_file':
+          result = await this.handleWriteTextFile(
+            params as { path: string; content: string; sessionId: string },
+          );
+          break;
         default:
+          console.warn(`[ACP] Unhandled method: ${method}`);
           break;
       }
 
@@ -317,12 +333,19 @@ export class AcpConnection {
     try {
       const response = await this.onPermissionRequest(params);
       const optionId = response.optionId;
-      const outcome = optionId.includes('reject') ? 'rejected' : 'selected';
+
+      // Handle cancel, reject, or allow
+      let outcome: string;
+      if (optionId.includes('reject') || optionId === 'cancel') {
+        outcome = 'rejected';
+      } else {
+        outcome = 'selected';
+      }
 
       return {
         outcome: {
           outcome,
-          optionId,
+          optionId: optionId === 'cancel' ? 'reject_once' : optionId,
         },
       };
     } catch (_error) {
@@ -335,6 +358,83 @@ export class AcpConnection {
     }
   }
 
+  private async handleReadTextFile(params: {
+    path: string;
+    sessionId: string;
+    line: number | null;
+    limit: number | null;
+  }): Promise<{ content: string }> {
+    const fs = await import('fs/promises');
+
+    console.log(`[ACP] fs/read_text_file request received for: ${params.path}`);
+    console.log(`[ACP] Parameters:`, {
+      line: params.line,
+      limit: params.limit,
+      sessionId: params.sessionId,
+    });
+
+    try {
+      const content = await fs.readFile(params.path, 'utf-8');
+      console.log(
+        `[ACP] Successfully read file: ${params.path} (${content.length} bytes)`,
+      );
+
+      // Handle line offset and limit if specified
+      if (params.line !== null || params.limit !== null) {
+        const lines = content.split('\n');
+        const startLine = params.line || 0;
+        const endLine = params.limit ? startLine + params.limit : lines.length;
+        const selectedLines = lines.slice(startLine, endLine);
+        const result = { content: selectedLines.join('\n') };
+        console.log(`[ACP] Returning ${selectedLines.length} lines`);
+        return result;
+      }
+
+      const result = { content };
+      console.log(`[ACP] Returning full file content`);
+      return result;
+    } catch (error) {
+      const errorMsg = error instanceof Error ? error.message : String(error);
+      console.error(`[ACP] Failed to read file ${params.path}:`, errorMsg);
+
+      // Throw a proper error that will be caught by handleIncomingRequest
+      throw new Error(`Failed to read file '${params.path}': ${errorMsg}`);
+    }
+  }
+
+  private async handleWriteTextFile(params: {
+    path: string;
+    content: string;
+    sessionId: string;
+  }): Promise<null> {
+    const fs = await import('fs/promises');
+    const path = await import('path');
+
+    console.log(
+      `[ACP] fs/write_text_file request received for: ${params.path}`,
+    );
+    console.log(`[ACP] Content size: ${params.content.length} bytes`);
+
+    try {
+      // Ensure directory exists
+      const dirName = path.dirname(params.path);
+      console.log(`[ACP] Ensuring directory exists: ${dirName}`);
+      await fs.mkdir(dirName, { recursive: true });
+
+      // Write file
+      await fs.writeFile(params.path, params.content, 'utf-8');
+
+      console.log(`[ACP] Successfully wrote file: ${params.path}`);
+      return null;
+    } catch (error) {
+      const errorMsg = error instanceof Error ? error.message : String(error);
+      console.error(`[ACP] Failed to write file ${params.path}:`, errorMsg);
+
+      // Throw a proper error that will be caught by handleIncomingRequest
+      throw new Error(`Failed to write file '${params.path}': ${errorMsg}`);
+    }
+  }
+
   private async initialize(): Promise<AcpResponse> {
     const initializeParams = {
       protocolVersion: 1,
diff --git a/packages/vscode-ide-companion/src/webview/App.css b/packages/vscode-ide-companion/src/webview/App.css
index 1f12993c..ccde6afd 100644
--- a/packages/vscode-ide-companion/src/webview/App.css
+++ b/packages/vscode-ide-companion/src/webview/App.css
@@ -338,3 +338,149 @@ body {
   font-family: monospace;
 }
 
+/* Claude-style Inline Permission Request */
+.permission-request-inline {
+  margin: 16px 0;
+  animation: slideIn 0.3s ease-out;
+}
+
+@keyframes slideIn {
+  from {
+    opacity: 0;
+    transform: translateY(10px);
+  }
+  to {
+    opacity: 1;
+    transform: translateY(0);
+  }
+}
+
+.permission-card {
+  background: linear-gradient(
+    135deg,
+    rgba(79, 134, 247, 0.08) 0%,
+    rgba(79, 134, 247, 0.03) 100%
+  );
+  border: 1.5px solid rgba(79, 134, 247, 0.3);
+  border-radius: 10px;
+  padding: 16px;
+  backdrop-filter: blur(10px);
+  box-shadow: 0 4px 12px rgba(0, 0, 0, 0.1);
+}
+
+.permission-card-header {
+  display: flex;
+  align-items: center;
+  gap: 12px;
+  margin-bottom: 16px;
+}
+
+.permission-icon-wrapper {
+  width: 40px;
+  height: 40px;
+  border-radius: 8px;
+  background: linear-gradient(135deg, rgba(79, 134, 247, 0.2), rgba(79, 134, 247, 0.1));
+  display: flex;
+  align-items: center;
+  justify-content: center;
+  font-size: 20px;
+}
+
+.permission-info {
+  flex: 1;
+}
+
+.permission-tool-title {
+  font-size: 14px;
+  font-weight: 600;
+  color: var(--vscode-editor-foreground);
+  margin-bottom: 2px;
+}
+
+.permission-subtitle {
+  font-size: 12px;
+  color: rgba(255, 255, 255, 0.6);
+}
+
+.permission-actions-row {
+  display: flex;
+  gap: 8px;
+  flex-wrap: wrap;
+}
+
+.permission-btn-inline {
+  flex: 1;
+  min-width: 100px;
+  padding: 10px 16px;
+  border: 1.5px solid transparent;
+  border-radius: 6px;
+  font-size: 13px;
+  font-weight: 500;
+  cursor: pointer;
+  transition: all 0.2s ease;
+  font-family: var(--vscode-font-family);
+  display: flex;
+  align-items: center;
+  justify-content: center;
+  gap: 6px;
+  position: relative;
+  overflow: hidden;
+}
+
+.permission-btn-inline::before {
+  content: '';
+  position: absolute;
+  top: 50%;
+  left: 50%;
+  width: 0;
+  height: 0;
+  border-radius: 50%;
+  background: rgba(255, 255, 255, 0.1);
+  transform: translate(-50%, -50%);
+  transition: width 0.3s, height 0.3s;
+}
+
+.permission-btn-inline:hover::before {
+  width: 300px;
+  height: 300px;
+}
+
+.permission-btn-inline.allow {
+  background: linear-gradient(135deg, rgba(46, 160, 67, 0.25), rgba(46, 160, 67, 0.15));
+  color: #4ec9b0;
+  border-color: rgba(46, 160, 67, 0.4);
+}
+
+.permission-btn-inline.allow:hover {
+  background: linear-gradient(135deg, rgba(46, 160, 67, 0.35), rgba(46, 160, 67, 0.25));
+  border-color: rgba(46, 160, 67, 0.6);
+  transform: translateY(-2px);
+  box-shadow: 0 4px 12px rgba(46, 160, 67, 0.3);
+}
+
+.permission-btn-inline.reject {
+  background: linear-gradient(135deg, rgba(200, 40, 40, 0.25), rgba(200, 40, 40, 0.15));
+  color: #f48771;
+  border-color: rgba(200, 40, 40, 0.4);
+}
+
+.permission-btn-inline.reject:hover {
+  background: linear-gradient(135deg, rgba(200, 40, 40, 0.35), rgba(200, 40, 40, 0.25));
+  border-color: rgba(200, 40, 40, 0.6);
+  transform: translateY(-2px);
+  box-shadow: 0 4px 12px rgba(200, 40, 40, 0.3);
+}
+
+.permission-btn-inline.always {
+  border-style: dashed;
+}
+
+.always-badge {
+  font-size: 14px;
+  animation: pulse 1.5s ease-in-out infinite;
+}
+
+.permission-btn-inline:active {
+  transform: translateY(0);
+}
+
diff --git a/packages/vscode-ide-companion/src/webview/App.tsx b/packages/vscode-ide-companion/src/webview/App.tsx
index e3e17d4b..af3eabc9 100644
--- a/packages/vscode-ide-companion/src/webview/App.tsx
+++ b/packages/vscode-ide-companion/src/webview/App.tsx
@@ -19,6 +19,10 @@ export const App: React.FC = () => {
     Array<Record<string, unknown>>
   >([]);
   const [showSessionSelector, setShowSessionSelector] = useState(false);
+  const [permissionRequest, setPermissionRequest] = useState<{
+    options: Array<{ name: string; kind: string; optionId: string }>;
+    toolCall: { title?: string };
+  } | null>(null);
   const messagesEndRef = useRef<HTMLDivElement>(null);
 
   const handlePermissionRequest = React.useCallback(
@@ -26,19 +30,21 @@ export const App: React.FC = () => {
       options: Array<{ name: string; kind: string; optionId: string }>;
       toolCall: { title?: string };
     }) => {
-      const optionNames = request.options.map((opt) => opt.name).join(', ');
-      const confirmed = window.confirm(
-        `Tool permission request:\n${request.toolCall.title || 'Tool Call'}\n\nOptions: ${optionNames}\n\nAllow?`,
-      );
-
-      const selectedOption = confirmed
-        ? request.options.find((opt) => opt.kind === 'allow_once')
-        : request.options.find((opt) => opt.kind === 'reject_once');
+      console.log('[WebView] Permission request received:', request);
+      // Show custom modal instead of window.confirm()
+      setPermissionRequest(request);
+    },
+    [],
+  );
 
+  const handlePermissionResponse = React.useCallback(
+    (optionId: string) => {
+      console.log('[WebView] Sending permission response:', optionId);
       vscode.postMessage({
         type: 'permissionResponse',
-        data: { optionId: selectedOption?.optionId || 'reject_once' },
+        data: { optionId },
       });
+      setPermissionRequest(null);
     },
     [vscode],
   );
@@ -244,6 +250,45 @@ export const App: React.FC = () => {
           </div>
         ))}
 
+        {/* Claude-style Inline Permission Request */}
+        {permissionRequest && (
+          <div className="permission-request-inline">
+            <div className="permission-card">
+              <div className="permission-card-header">
+                <div className="permission-icon-wrapper">
+                  <span className="permission-icon">🔧</span>
+                </div>
+                <div className="permission-info">
+                  <div className="permission-tool-title">
+                    {permissionRequest.toolCall.title || 'Tool Request'}
+                  </div>
+                  <div className="permission-subtitle">
+                    Waiting for your approval
+                  </div>
+                </div>
+              </div>
+
+              <div className="permission-actions-row">
+                {permissionRequest.options.map((option) => {
+                  const isAllow = option.kind.includes('allow');
+                  const isAlways = option.kind.includes('always');
+
+                  return (
+                    <button
+                      key={option.optionId}
+                      onClick={() => handlePermissionResponse(option.optionId)}
+                      className={`permission-btn-inline ${isAllow ? 'allow' : 'reject'} ${isAlways ? 'always' : ''}`}
+                    >
+                      {isAlways && <span className="always-badge">⚡</span>}
+                      {option.name}
+                    </button>
+                  );
+                })}
+              </div>
+            </div>
+          </div>
+        )}
+
         {isStreaming && currentStreamContent && (
           <div className="message assistant streaming">
             <div className="message-content">{currentStreamContent}</div>