diff --git a/nemoguardrails/actions/llm/utils.py b/nemoguardrails/actions/llm/utils.py
index b71adb76c..1cf6fc388 100644
--- a/nemoguardrails/actions/llm/utils.py
+++ b/nemoguardrails/actions/llm/utils.py
@@ -110,6 +110,7 @@ async def llm_call(
             generation_llm, prompt, all_callbacks
         )
 
+    _store_reasoning_traces(response)
     _store_tool_calls(response)
     _store_response_metadata(response)
     return _extract_content(response)
@@ -172,6 +173,18 @@ def _convert_messages_to_langchain_format(prompt: List[dict]) -> List:
     return dicts_to_messages(prompt)
 
 
+def _store_reasoning_traces(response) -> None:
+    if hasattr(response, "additional_kwargs"):
+        additional_kwargs = response.additional_kwargs
+        if (
+            isinstance(additional_kwargs, dict)
+            and "reasoning_content" in additional_kwargs
+        ):
+            reasoning_content = additional_kwargs["reasoning_content"]
+            if reasoning_content:
+                reasoning_trace_var.set(reasoning_content)
+
+
 def _store_tool_calls(response) -> None:
     """Extract and store tool calls from response in context."""
     tool_calls = getattr(response, "tool_calls", None)
@@ -192,15 +205,6 @@ def _store_response_metadata(response) -> None:
                 metadata[field_name] = getattr(response, field_name)
         llm_response_metadata_var.set(metadata)
 
-        if hasattr(response, "additional_kwargs"):
-            additional_kwargs = response.additional_kwargs
-            if (
-                isinstance(additional_kwargs, dict)
-                and "reasoning_content" in additional_kwargs
-            ):
-                reasoning_content = additional_kwargs["reasoning_content"]
-                if reasoning_content:
-                    reasoning_trace_var.set(reasoning_content)
     else:
         llm_response_metadata_var.set(None)
 
@@ -704,6 +708,12 @@ def extract_tool_calls_from_events(events: list) -> Optional[list]:
     return None
 
 
+def extract_bot_thinking_from_events(events: list):
+    for event in events:
+        if event.get("type") == "BotThinking":
+            return event.get("content")
+
+
 def get_and_clear_response_metadata_contextvar() -> Optional[dict]:
     """Get the current response metadata and clear it from the context.
 
diff --git a/nemoguardrails/rails/llm/llmrails.py b/nemoguardrails/rails/llm/llmrails.py
index fe56bcf08..e736a32df 100644
--- a/nemoguardrails/rails/llm/llmrails.py
+++ b/nemoguardrails/rails/llm/llmrails.py
@@ -43,8 +43,8 @@
 
 from nemoguardrails.actions.llm.generation import LLMGenerationActions
 from nemoguardrails.actions.llm.utils import (
+    extract_bot_thinking_from_events,
     extract_tool_calls_from_events,
-    get_and_clear_reasoning_trace_contextvar,
     get_and_clear_response_metadata_contextvar,
     get_colang_history,
 )
@@ -1037,7 +1037,7 @@ async def generate_async(
             else:
                 res = GenerationResponse(response=[new_message])
 
-            if reasoning_trace := get_and_clear_reasoning_trace_contextvar():
+            if reasoning_trace := extract_bot_thinking_from_events(events):
                 if prompt:
                     # For prompt mode, response should be a string
                     if isinstance(res.response, str):
@@ -1182,7 +1182,7 @@ async def generate_async(
         else:
             # If a prompt is used, we only return the content of the message.
 
-            if reasoning_trace := get_and_clear_reasoning_trace_contextvar():
+            if reasoning_trace := extract_bot_thinking_from_events(events):
                 new_message["content"] = reasoning_trace + new_message["content"]
 
             if prompt:
diff --git a/tests/test_reasoning_trace_extraction.py b/tests/test_reasoning_trace_extraction.py
new file mode 100644
index 000000000..5c3be2436
--- /dev/null
+++ b/tests/test_reasoning_trace_extraction.py
@@ -0,0 +1,306 @@
+# SPDX-FileCopyrightText: Copyright (c) 2023 NVIDIA CORPORATION & AFFILIATES. All rights reserved.
+# SPDX-License-Identifier: Apache-2.0
+#
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at
+#
+# http://www.apache.org/licenses/LICENSE-2.0
+#
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+
+from unittest.mock import AsyncMock
+
+import pytest
+from langchain_core.messages import AIMessage
+
+from nemoguardrails.actions.llm.utils import _store_reasoning_traces
+from nemoguardrails.context import reasoning_trace_var
+
+
+class TestStoreReasoningTracesUnit:
+    def test_store_reasoning_traces_with_valid_reasoning_content(self):
+        test_reasoning = "Step 1: Analyze the question\nStep 2: Formulate response"
+
+        response = AIMessage(
+            content="The answer is 42",
+            additional_kwargs={"reasoning_content": test_reasoning},
+        )
+
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == test_reasoning
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_empty_reasoning_content(self):
+        response = AIMessage(
+            content="Response", additional_kwargs={"reasoning_content": ""}
+        )
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_none_reasoning_content(self):
+        response = AIMessage(
+            content="Response", additional_kwargs={"reasoning_content": None}
+        )
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_without_reasoning_content_key(self):
+        response = AIMessage(
+            content="Response", additional_kwargs={"other_key": "other_value"}
+        )
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_empty_additional_kwargs(self):
+        response = AIMessage(content="Response", additional_kwargs={})
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_without_additional_kwargs_attribute(self):
+        class SimpleResponse:
+            def __init__(self, content):
+                self.content = content
+
+        response = SimpleResponse("Response")
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_non_dict_additional_kwargs(self):
+        class ResponseWithInvalidKwargs:
+            def __init__(self):
+                self.content = "Response"
+                self.additional_kwargs = "not_a_dict"
+
+        response = ResponseWithInvalidKwargs()
+
+        reasoning_trace_var.set(None)
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_overwrites_previous_trace(self):
+        initial_trace = "Initial reasoning"
+        new_trace = "New reasoning"
+
+        reasoning_trace_var.set(initial_trace)
+
+        response = AIMessage(
+            content="Response", additional_kwargs={"reasoning_content": new_trace}
+        )
+
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == new_trace
+        assert stored_trace != initial_trace
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_multiline_content(self):
+        multiline_reasoning = """Thought process:
+1. First, understand the user's intent
+2. Second, check available data
+3. Third, formulate a response
+4. Finally, validate the response"""
+
+        response = AIMessage(
+            content="Response",
+            additional_kwargs={"reasoning_content": multiline_reasoning},
+        )
+
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == multiline_reasoning
+
+        reasoning_trace_var.set(None)
+
+    def test_store_reasoning_traces_with_special_characters(self):
+        special_reasoning = "Thinking: Let's analyze this <step> with \"quotes\" and 'apostrophes' & symbols!"
+
+        response = AIMessage(
+            content="Response",
+            additional_kwargs={"reasoning_content": special_reasoning},
+        )
+
+        _store_reasoning_traces(response)
+
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == special_reasoning
+
+        reasoning_trace_var.set(None)
+
+
+class TestReasoningTraceIntegration:
+    @pytest.mark.asyncio
+    async def test_llm_call_extracts_reasoning_from_additional_kwargs(self):
+        test_reasoning = "Let me think about this carefully..."
+
+        mock_llm = AsyncMock()
+        mock_response = AIMessage(
+            content="The answer is 42",
+            additional_kwargs={"reasoning_content": test_reasoning},
+        )
+        mock_llm.ainvoke = AsyncMock(return_value=mock_response)
+
+        from nemoguardrails.actions.llm.utils import llm_call
+
+        reasoning_trace_var.set(None)
+        result = await llm_call(mock_llm, "What is the answer?")
+
+        assert result == "The answer is 42"
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == test_reasoning
+
+        reasoning_trace_var.set(None)
+
+    @pytest.mark.asyncio
+    async def test_llm_call_handles_missing_reasoning_content(self):
+        mock_llm = AsyncMock()
+        mock_response = AIMessage(content="Regular response", additional_kwargs={})
+        mock_llm.ainvoke = AsyncMock(return_value=mock_response)
+
+        from nemoguardrails.actions.llm.utils import llm_call
+
+        reasoning_trace_var.set(None)
+        result = await llm_call(mock_llm, "Hello")
+
+        assert result == "Regular response"
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace is None
+
+        reasoning_trace_var.set(None)
+
+    @pytest.mark.asyncio
+    async def test_llm_call_with_message_list_extracts_reasoning(self):
+        test_reasoning = "Analyzing the conversation context..."
+
+        mock_llm = AsyncMock()
+        mock_response = AIMessage(
+            content="Here's my response",
+            additional_kwargs={"reasoning_content": test_reasoning},
+        )
+        mock_llm.ainvoke = AsyncMock(return_value=mock_response)
+
+        from nemoguardrails.actions.llm.utils import llm_call
+
+        messages = [
+            {"role": "user", "content": "Hello"},
+            {"role": "assistant", "content": "Hi there"},
+        ]
+
+        reasoning_trace_var.set(None)
+        result = await llm_call(mock_llm, messages)
+
+        assert result == "Here's my response"
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == test_reasoning
+
+        reasoning_trace_var.set(None)
+
+    @pytest.mark.asyncio
+    async def test_multiple_llm_calls_preserve_separate_reasoning_traces(self):
+        first_reasoning = "First analysis"
+        second_reasoning = "Second analysis"
+
+        mock_llm = AsyncMock()
+        call_count = 0
+
+        async def mock_ainvoke(*args, **kwargs):
+            nonlocal call_count
+            call_count += 1
+            if call_count == 1:
+                return AIMessage(
+                    content="First response",
+                    additional_kwargs={"reasoning_content": first_reasoning},
+                )
+            else:
+                return AIMessage(
+                    content="Second response",
+                    additional_kwargs={"reasoning_content": second_reasoning},
+                )
+
+        mock_llm.ainvoke = mock_ainvoke
+
+        from nemoguardrails.actions.llm.utils import llm_call
+
+        reasoning_trace_var.set(None)
+        result1 = await llm_call(mock_llm, "First query")
+        trace1 = reasoning_trace_var.get()
+
+        reasoning_trace_var.set(None)
+        result2 = await llm_call(mock_llm, "Second query")
+        trace2 = reasoning_trace_var.get()
+
+        assert trace1 == first_reasoning
+        assert trace2 == second_reasoning
+
+        reasoning_trace_var.set(None)
+
+    @pytest.mark.asyncio
+    async def test_reasoning_content_with_other_additional_kwargs(self):
+        test_reasoning = "Complex reasoning process"
+
+        mock_llm = AsyncMock()
+        mock_response = AIMessage(
+            content="Response",
+            additional_kwargs={
+                "reasoning_content": test_reasoning,
+                "model": "test-model",
+                "finish_reason": "stop",
+                "other_metadata": {"key": "value"},
+            },
+        )
+        mock_llm.ainvoke = AsyncMock(return_value=mock_response)
+
+        from nemoguardrails.actions.llm.utils import llm_call
+
+        reasoning_trace_var.set(None)
+        result = await llm_call(mock_llm, "Query")
+
+        assert result == "Response"
+        stored_trace = reasoning_trace_var.get()
+        assert stored_trace == test_reasoning
+
+        reasoning_trace_var.set(None)