diff --git a/cli/src/components/__tests__/terminal-command-display.test.tsx b/cli/src/components/__tests__/terminal-command-display.test.tsx
new file mode 100644
index 0000000000..29b24bd856
--- /dev/null
+++ b/cli/src/components/__tests__/terminal-command-display.test.tsx
@@ -0,0 +1,206 @@
+import { beforeAll, describe, expect, test } from 'bun:test'
+import { createTestRenderer } from '@opentui/core/testing'
+import { createRoot, flushSync } from '@opentui/react'
+import React from 'react'
+
+import { TerminalCommandDisplay } from '../terminal-command-display'
+import { initializeThemeStore } from '../../hooks/use-theme'
+
+beforeAll(() => {
+  initializeThemeStore()
+})
+
+describe('TerminalCommandDisplay', () => {
+  test('renders short output without truncation or show more button', async () => {
+    const setup = await createTestRenderer({ width: 80, height: 10 })
+    const root = createRoot(setup.renderer)
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="ls"
+          output="file1.txt\nfile2.txt"
+          expandable={true}
+          maxVisibleLines={5}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ ls')
+      expect(frame).toContain('file1.txt')
+      expect(frame).toContain('file2.txt')
+      expect(frame).not.toContain('Show')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+
+  test('truncates output exceeding maxVisibleLines and displays show more button', async () => {
+    const setup = await createTestRenderer({ width: 80, height: 15 })
+    const root = createRoot(setup.renderer)
+
+    const manyLines = Array.from(
+      { length: 20 },
+      (_, i) => `log line ${i + 1}`,
+    ).join('\n')
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="cat logs.txt"
+          output={manyLines}
+          expandable={true}
+          maxVisibleLines={5}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ cat logs.txt')
+      expect(frame).toContain('log line 1')
+      expect(frame).toContain('log line 5')
+      expect(frame).not.toContain('log line 10')
+      expect(frame).toContain('Show 15 more lines')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+
+  test('handles output where a single long line wraps', async () => {
+    const setup = await createTestRenderer({ width: 40, height: 15 })
+    const root = createRoot(setup.renderer)
+
+    // A single line of 280 chars wraps into 7 visual lines on 40-col terminal
+    const longLine = 'a'.repeat(280)
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="echo long"
+          output={longLine}
+          expandable={true}
+          maxVisibleLines={5}
+          availableWidth={40}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ echo long')
+      expect(frame).toContain('Show')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+
+  test('preserves interstitial blank lines in preview and counts them toward maxVisibleLines', async () => {
+    const setup = await createTestRenderer({ width: 80, height: 15 })
+    const root = createRoot(setup.renderer)
+
+    // 5 visual lines: 'header', '', 'middle', '', 'footer'
+    // followed by 2 off-screen lines: 'extra1', 'extra2'
+    const output = 'header\n\nmiddle\n\nfooter\nextra1\nextra2'
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="test"
+          output={output}
+          expandable={true}
+          maxVisibleLines={5}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ test')
+      expect(frame).toContain('header')
+      expect(frame).toContain('middle')
+      expect(frame).toContain('footer')
+      expect(frame).not.toContain('extra1')
+      expect(frame).not.toContain('extra2')
+      expect(frame).toContain('Show 2 more lines')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+
+  test('counts off-screen blank lines in hiddenLinesCount accurately', async () => {
+    const setup = await createTestRenderer({ width: 80, height: 15 })
+    const root = createRoot(setup.renderer)
+
+    // 3 visible lines, then 5 off-screen visual lines containing blank lines
+    const output = 'line 1\nline 2\nline 3\n\n\nline 6\n\nline 8'
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="git log"
+          output={output}
+          expandable={true}
+          maxVisibleLines={3}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ git log')
+      expect(frame).toContain('line 1')
+      expect(frame).toContain('line 3')
+      expect(frame).not.toContain('line 6')
+      // Total visual lines: 8. Max visible: 3. Hidden: 5.
+      expect(frame).toContain('Show 5 more lines')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+
+  test('accurately counts remaining visual lines when a line wraps across the preview boundary', async () => {
+    const setup = await createTestRenderer({ width: 20, height: 15 })
+    const root = createRoot(setup.renderer)
+
+    // line 1: 1 visual line
+    // line 2: 100 chars on width 20 wraps to 5 visual lines (total visual lines = 6)
+    // With maxVisibleLines = 3, line 1 takes 1 and line 2 takes 2. 3 remaining hidden lines.
+    const output = 'start\n' + 'a'.repeat(100)
+
+    flushSync(() => {
+      root.render(
+        <TerminalCommandDisplay
+          command="wrap-test"
+          output={output}
+          expandable={true}
+          maxVisibleLines={3}
+          availableWidth={20}
+        />,
+      )
+    })
+
+    try {
+      await setup.renderOnce()
+      const frame = setup.captureCharFrame()
+      expect(frame).toContain('$ wrap-test')
+      expect(frame).toContain('start')
+      expect(frame).toContain('Show 3 more lines')
+    } finally {
+      flushSync(() => root.unmount())
+      setup.renderer.destroy()
+    }
+  })
+})
diff --git a/cli/src/components/terminal-command-display.tsx b/cli/src/components/terminal-command-display.tsx
index 1f72fe8e2c..8a76f9f8a9 100644
--- a/cli/src/components/terminal-command-display.tsx
+++ b/cli/src/components/terminal-command-display.tsx
@@ -61,7 +61,8 @@ export const TerminalCommandDisplay = ({
       </span>
       {timeoutLabel && (
         <span fg={theme.muted} attributes={TextAttributes.DIM}>
-          {' '}({timeoutLabel})
+          {' '}
+          ({timeoutLabel})
         </span>
       )}
     </text>
@@ -82,38 +83,89 @@ export const TerminalCommandDisplay = ({
   const width = Math.max(10, availableWidth ?? separatorWidth)
   const allLines = output.split('\n')
 
-  // Calculate total visual lines across all output lines
-  let totalVisualLines = 0
-  const visualLinesByOriginalLine: string[][] = []
-
-  for (const line of allLines) {
-    const { lines: wrappedLines } = getLastNVisualLines(line, width, Infinity)
-    visualLinesByOriginalLine.push(wrappedLines)
-    totalVisualLines += wrappedLines.length
-  }
-
-  const hasMoreLines = totalVisualLines > maxLines
-  const hiddenLinesCount = totalVisualLines - maxLines
-
-  // Build display output
+  let hasMoreLines = false
+  let hiddenLinesCount = 0
   let displayOutput: string
-  if (isExpanded || !hasMoreLines) {
+
+  if (isExpanded) {
+    if (allLines.length > maxLines) {
+      hasMoreLines = true
+    } else {
+      let totalVisual = 0
+      for (const line of allLines) {
+        if (line.length === 0) {
+          totalVisual++
+        } else if (line.length <= width) {
+          totalVisual++
+        } else {
+          totalVisual += Math.max(1, Math.ceil(line.length / width))
+        }
+      }
+      hasMoreLines = totalVisual > maxLines
+    }
+    hiddenLinesCount = 0
     displayOutput = output
   } else {
-    // Take first N visual lines
+    // Only wrap lines until maxLines visual lines are gathered
     const displayLines: string[] = []
-    let count = 0
+    let linesProcessed = 0
+    let excessInProcessedLine = 0
 
-    for (const wrappedLines of visualLinesByOriginalLine) {
-      for (const line of wrappedLines) {
-        if (count >= maxLines) break
-        displayLines.push(line)
-        count++
+    for (const line of allLines) {
+      if (line.length === 0) {
+        linesProcessed++
+        displayLines.push('')
+        if (displayLines.length >= maxLines) break
+        continue
       }
-      if (count >= maxLines) break
+      const { lines: wrapped } = getLastNVisualLines(line, width, Infinity)
+      let brokeEarly = false
+      for (let i = 0; i < wrapped.length; i++) {
+        if (displayLines.length < maxLines) {
+          displayLines.push(wrapped[i])
+        } else {
+          excessInProcessedLine = wrapped.length - i
+          brokeEarly = true
+          break
+        }
+      }
+      linesProcessed++
+      if (brokeEarly || displayLines.length >= maxLines) break
     }
 
-    displayOutput = displayLines.join('\n')
+    hasMoreLines = excessInProcessedLine > 0 || linesProcessed < allLines.length
+
+    if (!hasMoreLines) {
+      displayOutput = output
+      hiddenLinesCount = 0
+    } else {
+      displayOutput = displayLines.slice(0, maxLines).join('\n')
+
+      let remainingVisualLines = excessInProcessedLine
+      const EXACT_WRAP_LINE_BUDGET = 50
+      let exactLinesCount = 0
+
+      for (let i = linesProcessed; i < allLines.length; i++) {
+        const line = allLines[i]
+        if (line.length === 0) {
+          remainingVisualLines++
+          continue
+        }
+        if (exactLinesCount < EXACT_WRAP_LINE_BUDGET) {
+          const { lines: wrapped } = getLastNVisualLines(line, width, Infinity)
+          remainingVisualLines += wrapped.length
+          exactLinesCount++
+        } else {
+          remainingVisualLines +=
+            line.length <= width
+              ? 1
+              : Math.max(1, Math.ceil(line.length / width))
+        }
+      }
+
+      const totalVisualLines = displayLines.length + remainingVisualLines
+      hiddenLinesCount = Math.max(1, totalVisualLines - maxLines)
+    }
   }
 
   return (