diff --git a/packages/cli/src/ui/components/InputPrompt.test.tsx b/packages/cli/src/ui/components/InputPrompt.test.tsx
index 330faec022..e9f4efcd8f 100644
--- a/packages/cli/src/ui/components/InputPrompt.test.tsx
+++ b/packages/cli/src/ui/components/InputPrompt.test.tsx
@@ -61,7 +61,7 @@ import type { UIState } from '../contexts/UIStateContext.js';
 import { isLowColorDepth } from '../utils/terminalUtils.js';
 import { cpLen } from '../utils/textUtils.js';
 import { defaultKeyMatchers, Command } from '../key/keyMatchers.js';
-import type { Key } from '../hooks/useKeypress.js';
+import { useKeypress, type Key } from '../hooks/useKeypress.js';
 import {
   appEvents,
   AppEvent,
@@ -163,6 +163,18 @@ describe('InputPrompt', () => {
   let mockBuffer: TextBuffer;
   let mockCommandContext: CommandContext;
 
+  const GlobalEscapeHandler = ({ onEscape }: { onEscape: () => void }) => {
+    useKeypress(
+      (key) => {
+        if (key.name !== 'escape') return false;
+        onEscape();
+        return true;
+      },
+      { isActive: true, priority: false },
+    );
+    return null;
+  };
+
   const mockedUseShellHistory = vi.mocked(useShellHistory);
   const mockedUseCommandCompletion = vi.mocked(useCommandCompletion);
   const mockedUseInputHistory = vi.mocked(useInputHistory);
@@ -2770,6 +2782,54 @@ describe('InputPrompt', () => {
       unmount();
     });
 
+    it('should not propagate ESC to global cancellation handler when shell mode is active (responding)', async () => {
+      props.shellModeActive = true;
+      props.streamingState = StreamingState.Responding;
+      const onGlobalEscape = vi.fn();
+
+      const { stdin, unmount } = await renderWithProviders(
+        <>
+          <GlobalEscapeHandler onEscape={onGlobalEscape} />
+          <InputPrompt {...props} />
+        </>,
+      );
+
+      await act(async () => {
+        stdin.write('\x1B');
+        vi.advanceTimersByTime(100);
+      });
+
+      await waitFor(() => {
+        expect(props.setShellModeActive).toHaveBeenCalledWith(false);
+      });
+      expect(onGlobalEscape).not.toHaveBeenCalled();
+      unmount();
+    });
+
+    it('should allow ESC to reach global cancellation handler when responding and no overlay is active', async () => {
+      props.shellModeActive = false;
+      props.streamingState = StreamingState.Responding;
+      const onGlobalEscape = vi.fn();
+
+      const { stdin, unmount } = await renderWithProviders(
+        <>
+          <GlobalEscapeHandler onEscape={onGlobalEscape} />
+          <InputPrompt {...props} />
+        </>,
+      );
+
+      await act(async () => {
+        stdin.write('\x1B');
+        vi.advanceTimersByTime(100);
+      });
+
+      await waitFor(() => {
+        expect(onGlobalEscape).toHaveBeenCalledTimes(1);
+      });
+      expect(props.setShellModeActive).not.toHaveBeenCalled();
+      unmount();
+    });
+
     it('should handle ESC when completion suggestions are showing', async () => {
       mockedUseCommandCompletion.mockReturnValue({
         ...mockCommandCompletion,
diff --git a/packages/cli/src/ui/components/InputPrompt.tsx b/packages/cli/src/ui/components/InputPrompt.tsx
index 35cf7ef656..e7c221579a 100644
--- a/packages/cli/src/ui/components/InputPrompt.tsx
+++ b/packages/cli/src/ui/components/InputPrompt.tsx
@@ -686,13 +686,9 @@ export const InputPrompt: React.FC<InputPromptProps> = ({
         return true;
       }
 
-      if (
-        key.name === 'escape' &&
-        (streamingState === StreamingState.Responding ||
-          streamingState === StreamingState.WaitingForConfirmation)
-      ) {
-        return false;
-      }
+      const isGenerating =
+        streamingState === StreamingState.Responding ||
+        streamingState === StreamingState.WaitingForConfirmation;
 
       const isPlainTab =
         key.name === 'tab' && !key.shift && !key.alt && !key.ctrl && !key.cmd;
@@ -877,6 +873,12 @@ export const InputPrompt: React.FC<InputPromptProps> = ({
           return true;
         }
 
+        // If we're generating and no local overlay consumed Escape, let it
+        // propagate to the global cancellation handler.
+        if (isGenerating) {
+          return false;
+        }
+
         handleEscPress();
         return true;
       }
diff --git a/packages/cli/src/ui/contexts/KeypressContext.test.tsx b/packages/cli/src/ui/contexts/KeypressContext.test.tsx
index c2256ed5ae..e7d0406dd7 100644
--- a/packages/cli/src/ui/contexts/KeypressContext.test.tsx
+++ b/packages/cli/src/ui/contexts/KeypressContext.test.tsx
@@ -14,6 +14,7 @@ import {
   useKeypressContext,
   ESC_TIMEOUT,
   FAST_RETURN_TIMEOUT,
+  KeypressPriority,
   type Key,
 } from './KeypressContext.js';
 import { terminalCapabilityManager } from '../utils/terminalCapabilityManager.js';
@@ -259,6 +260,48 @@ describe('KeypressContext', () => {
       );
     });
 
+    it('should stop propagation when a higher priority handler returns true', async () => {
+      const higherPriorityHandler = vi.fn(() => true);
+      const lowerPriorityHandler = vi.fn();
+      const { result } = await renderHookWithProviders(() =>
+        useKeypressContext(),
+      );
+
+      act(() => {
+        result.current.subscribe(higherPriorityHandler, KeypressPriority.High);
+        result.current.subscribe(lowerPriorityHandler, KeypressPriority.Normal);
+      });
+
+      act(() => stdin.write('\x1b[27u'));
+
+      expect(higherPriorityHandler).toHaveBeenCalledWith(
+        expect.objectContaining({ name: 'escape' }),
+      );
+      expect(lowerPriorityHandler).not.toHaveBeenCalled();
+    });
+
+    it('should continue propagation when a higher priority handler does not consume the event', async () => {
+      const higherPriorityHandler = vi.fn(() => false);
+      const lowerPriorityHandler = vi.fn();
+      const { result } = await renderHookWithProviders(() =>
+        useKeypressContext(),
+      );
+
+      act(() => {
+        result.current.subscribe(higherPriorityHandler, KeypressPriority.High);
+        result.current.subscribe(lowerPriorityHandler, KeypressPriority.Normal);
+      });
+
+      act(() => stdin.write('\x1b[27u'));
+
+      expect(higherPriorityHandler).toHaveBeenCalledWith(
+        expect.objectContaining({ name: 'escape' }),
+      );
+      expect(lowerPriorityHandler).toHaveBeenCalledWith(
+        expect.objectContaining({ name: 'escape' }),
+      );
+    });
+
     it('should handle double Escape', async () => {
       const keyHandler = vi.fn();
       const { result } = await renderHookWithProviders(() =>