diff --git a/packages/coding-agent/src/core/tools/read.ts b/packages/coding-agent/src/core/tools/read.ts
index 8a6c42f31..867d04dcf 100644
--- a/packages/coding-agent/src/core/tools/read.ts
+++ b/packages/coding-agent/src/core/tools/read.ts
@@ -10,6 +10,7 @@ import { keyHint, keyText } from "../../modes/interactive/components/keybinding-
 import { getLanguageFromPath, highlightCode, type Theme } from "../../modes/interactive/theme/theme.js";
 import { formatDimensionNote, resizeImage } from "../../utils/image-resize.js";
 import { detectSupportedImageMimeTypeFromFile } from "../../utils/mime.js";
+import { formatPathRelativeToCwdOrAbsolute } from "../../utils/paths.js";
 import type { ToolDefinition, ToolRenderResultOptions } from "../extensions/types.js";
 import { resolveReadPath } from "./path-utils.js";
 import { getTextOutput, invalidArgText, replaceTabs, shortenPath, str } from "./render-utils.js";
@@ -133,7 +134,7 @@ function getCompactReadClassification(
 	if (docsClassification) return docsClassification;
 
 	if (COMPACT_RESOURCE_FILE_NAMES.has(fileName)) {
-		return { kind: "resource", label: fileName };
+		return { kind: "resource", label: formatPathRelativeToCwdOrAbsolute(absolutePath, cwd) };
 	}
 
 	return undefined;
diff --git a/packages/coding-agent/src/modes/interactive/interactive-mode.ts b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
index 00183be84..e1cf20379 100644
--- a/packages/coding-agent/src/modes/interactive/interactive-mode.ts
+++ b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
@@ -85,6 +85,7 @@ import { getChangelogPath, getNewEntries, parseChangelog } from "../../utils/cha
 import { copyToClipboard } from "../../utils/clipboard.js";
 import { extensionForImageMimeType, readClipboardImage } from "../../utils/clipboard-image.js";
 import { parseGitUrl } from "../../utils/git.js";
+import { getCwdRelativePath } from "../../utils/paths.js";
 import { getPiUserAgent } from "../../utils/pi-user-agent.js";
 import { killTrackedDetachedChildren } from "../../utils/shell.js";
 import { ensureTool } from "../../utils/tools-manager.js";
@@ -911,15 +912,9 @@ export class InteractiveMode {
 	private formatContextPath(p: string): string {
 		const cwd = path.resolve(this.sessionManager.getCwd());
 		const absolutePath = path.isAbsolute(p) ? path.resolve(p) : path.resolve(cwd, p);
-		const relativePath = path.relative(cwd, absolutePath);
-		const isInsideCwd =
-			relativePath === "" ||
-			(!relativePath.startsWith("..") &&
-				!relativePath.startsWith(`..${path.sep}`) &&
-				!path.isAbsolute(relativePath));
-
-		if (isInsideCwd) {
-			return relativePath || ".";
+		const relativePath = getCwdRelativePath(absolutePath, cwd);
+		if (relativePath !== undefined) {
+			return relativePath;
 		}
 
 		return this.formatDisplayPath(absolutePath);
diff --git a/packages/coding-agent/src/utils/paths.ts b/packages/coding-agent/src/utils/paths.ts
index 212e4f5ea..ef36de7a9 100644
--- a/packages/coding-agent/src/utils/paths.ts
+++ b/packages/coding-agent/src/utils/paths.ts
@@ -1,4 +1,5 @@
 import { realpathSync } from "node:fs";
+import { isAbsolute, relative, resolve as resolvePath, sep } from "node:path";
 
 /**
  * Resolve a path to its canonical (real) form, following symlinks.
@@ -34,3 +35,23 @@ export function isLocalPath(value: string): boolean {
 	}
 	return true;
 }
+
+function resolveAgainstCwd(filePath: string, cwd: string): string {
+	return isAbsolute(filePath) ? resolvePath(filePath) : resolvePath(cwd, filePath);
+}
+
+export function getCwdRelativePath(filePath: string, cwd: string): string | undefined {
+	const resolvedCwd = resolvePath(cwd);
+	const resolvedPath = resolveAgainstCwd(filePath, resolvedCwd);
+	const relativePath = relative(resolvedCwd, resolvedPath);
+	const isInsideCwd =
+		relativePath === "" ||
+		(relativePath !== ".." && !relativePath.startsWith(`..${sep}`) && !isAbsolute(relativePath));
+
+	return isInsideCwd ? relativePath || "." : undefined;
+}
+
+export function formatPathRelativeToCwdOrAbsolute(filePath: string, cwd: string): string {
+	const absolutePath = resolveAgainstCwd(filePath, cwd);
+	return (getCwdRelativePath(absolutePath, cwd) ?? absolutePath).split(sep).join("/");
+}
diff --git a/packages/coding-agent/test/paths.test.ts b/packages/coding-agent/test/paths.test.ts
index 5f7c115da..208da3f91 100644
--- a/packages/coding-agent/test/paths.test.ts
+++ b/packages/coding-agent/test/paths.test.ts
@@ -2,7 +2,7 @@ import { mkdirSync, mkdtempSync, realpathSync, rmSync, symlinkSync, writeFileSyn
 import { tmpdir } from "node:os";
 import { join } from "node:path";
 import { afterEach, describe, expect, it } from "vitest";
-import { canonicalizePath, isLocalPath } from "../src/utils/paths.js";
+import { canonicalizePath, getCwdRelativePath, isLocalPath } from "../src/utils/paths.js";
 
 let tempDir: string;
 
@@ -61,6 +61,18 @@ describe("canonicalizePath", () => {
 	});
 });
 
+describe("getCwdRelativePath", () => {
+	it("keeps cwd-relative names that start with dots", () => {
+		const cwd = join(tmpdir(), "pi-paths-cwd");
+		expect(getCwdRelativePath(join(cwd, "..config", "AGENTS.md"), cwd)).toBe(join("..config", "AGENTS.md"));
+	});
+
+	it("rejects parent-directory traversals", () => {
+		const cwd = join(tmpdir(), "pi-paths-cwd");
+		expect(getCwdRelativePath(join(cwd, "..", "AGENTS.md"), cwd)).toBeUndefined();
+	});
+});
+
 describe("isLocalPath", () => {
 	it("returns true for bare names", () => {
 		expect(isLocalPath("my-package")).toBe(true);
diff --git a/packages/coding-agent/test/tool-execution-component.test.ts b/packages/coding-agent/test/tool-execution-component.test.ts
index 2510b1adc..1e5d4b00e 100644
--- a/packages/coding-agent/test/tool-execution-component.test.ts
+++ b/packages/coding-agent/test/tool-execution-component.test.ts
@@ -1,4 +1,4 @@
-import { join } from "node:path";
+import { join, resolve } from "node:path";
 import { Text, type TUI } from "@earendil-works/pi-tui";
 import stripAnsi from "strip-ansi";
 import { Type } from "typebox";
@@ -342,12 +342,20 @@ describe("ToolExecutionComponent parity", () => {
 		},
 		{
 			title: "AGENTS.md",
-			path: join(process.cwd(), "AGENTS.md"),
+			path: join(process.cwd(), ".pi", "AGENTS.md"),
 			content: "Hidden resource instructions",
-			compact: "read resource AGENTS.md",
+			compact: "read resource .pi/AGENTS.md",
 			hidden: "Hidden resource instructions",
 			absent: undefined,
 		},
+		{
+			title: "outside AGENTS.md",
+			path: resolve(process.cwd(), "..", "AGENTS.md"),
+			content: "Hidden outside resource instructions",
+			compact: `read resource ${resolve(process.cwd(), "..", "AGENTS.md").replace(/\\/g, "/")}`,
+			hidden: "Hidden outside resource instructions",
+			absent: undefined,
+		},
 		{
 			title: "Pi documentation",
 			path: getReadmePath(),