diff --git a/packages/cli/src/config/settings.test.ts b/packages/cli/src/config/settings.test.ts
index ac8882922c..b9f605f263 100644
--- a/packages/cli/src/config/settings.test.ts
+++ b/packages/cli/src/config/settings.test.ts
@@ -428,8 +428,11 @@ describe('Settings Loading and Merging', () => {
         '/workspace/dir',
       ]);
 
-      // Verify excludeTools are overwritten by workspace
-      expect(settings.merged.tools?.exclude).toEqual(['workspace-tool']);
+      // Verify excludeTools are concatenated and de-duped
+      expect(settings.merged.tools?.exclude).toEqual([
+        'user-tool',
+        'workspace-tool',
+      ]);
 
       // Verify excludedProjectEnvVars are concatenated and de-duped
       expect(settings.merged.advanced?.excludedEnvVars).toEqual(
diff --git a/packages/cli/src/config/settingsSchema.ts b/packages/cli/src/config/settingsSchema.ts
index 4d2258b213..be8996fa61 100644
--- a/packages/cli/src/config/settingsSchema.ts
+++ b/packages/cli/src/config/settingsSchema.ts
@@ -662,6 +662,7 @@ const SETTINGS_SCHEMA = {
         default: undefined as string[] | undefined,
         description: 'Tool names to exclude from discovery.',
         showInDialog: false,
+        mergeStrategy: MergeStrategy.UNION,
       },
       discoveryCommand: {
         type: 'string',