diff --git a/apps/web/src/components/BranchToolbar.logic.test.ts b/apps/web/src/components/BranchToolbar.logic.test.ts
index ff4bb76bf12a..bd1b11a6cd28 100644
--- a/apps/web/src/components/BranchToolbar.logic.test.ts
+++ b/apps/web/src/components/BranchToolbar.logic.test.ts
@@ -489,6 +489,24 @@ describe("resolveEffectiveEnvMode", () => {
       }),
     ).toBe("worktree");
   });
+
+  it("keeps a server thread in worktree mode while its worktree is still being created", () => {
+    expect(
+      resolveEffectiveEnvMode({
+        activeWorktreePath: null,
+        hasServerThread: true,
+        draftThreadEnvMode: undefined,
+        preparingWorktree: true,
+      }),
+    ).toBe("worktree");
+    expect(
+      resolveEffectiveEnvMode({
+        activeWorktreePath: null,
+        hasServerThread: true,
+        draftThreadEnvMode: undefined,
+      }),
+    ).toBe("local");
+  });
 });
 
 describe("resolveEnvModeLabel", () => {
@@ -510,11 +528,17 @@ describe("resolveCurrentWorkspaceLabel", () => {
 
 describe("resolveLockedWorkspaceLabel", () => {
   it("uses a shorter label for the main repo checkout", () => {
-    expect(resolveLockedWorkspaceLabel(null)).toBe("Local checkout");
+    expect(resolveLockedWorkspaceLabel(null, "local")).toBe("Local checkout");
   });
 
   it("uses a shorter label for an attached worktree", () => {
-    expect(resolveLockedWorkspaceLabel("/repo/.t3/worktrees/feature-a")).toBe("Worktree");
+    expect(resolveLockedWorkspaceLabel("/repo/.t3/worktrees/feature-a", "worktree")).toBe(
+      "Worktree",
+    );
+  });
+
+  it("describes a worktree that is still being created as a new worktree", () => {
+    expect(resolveLockedWorkspaceLabel(null, "worktree")).toBe("New worktree");
   });
 });
 
diff --git a/apps/web/src/components/BranchToolbar.logic.ts b/apps/web/src/components/BranchToolbar.logic.ts
index 85d306f919ae..cbc887954019 100644
--- a/apps/web/src/components/BranchToolbar.logic.ts
+++ b/apps/web/src/components/BranchToolbar.logic.ts
@@ -104,8 +104,14 @@ export function resolveCurrentWorkspaceLabel(activeWorktreePath: string | null):
   return activeWorktreePath ? "Current worktree" : resolveEnvModeLabel("local");
 }
 
-export function resolveLockedWorkspaceLabel(activeWorktreePath: string | null): string {
-  return activeWorktreePath ? "Worktree" : "Local checkout";
+// A locked thread in worktree mode with no path is still creating its
+// worktree, so it reads as a new worktree rather than the project checkout.
+export function resolveLockedWorkspaceLabel(
+  activeWorktreePath: string | null,
+  effectiveEnvMode: EnvMode,
+): string {
+  if (activeWorktreePath) return "Worktree";
+  return effectiveEnvMode === "worktree" ? resolveEnvModeLabel("worktree") : "Local checkout";
 }
 
 export interface PreviousWorktreeSeed {
@@ -159,15 +165,20 @@ export function resolveEffectiveEnvMode(input: {
   activeWorktreePath: string | null;
   hasServerThread: boolean;
   draftThreadEnvMode: EnvMode | undefined;
+  /**
+   * The server is still creating this thread's worktree. The thread exists
+   * from the start of that setup but gets its worktree path only at the end.
+   */
+  preparingWorktree?: boolean;
 }): EnvMode {
-  const { activeWorktreePath, hasServerThread, draftThreadEnvMode } = input;
+  const { activeWorktreePath, hasServerThread, draftThreadEnvMode, preparingWorktree } = input;
   if (!hasServerThread) {
     if (activeWorktreePath) {
       return "local";
     }
     return draftThreadEnvMode === "worktree" ? "worktree" : "local";
   }
-  return activeWorktreePath ? "worktree" : "local";
+  return activeWorktreePath || preparingWorktree ? "worktree" : "local";
 }
 
 export function resolveDraftEnvModeAfterBranchChange(input: {
diff --git a/apps/web/src/components/BranchToolbar.tsx b/apps/web/src/components/BranchToolbar.tsx
index 1e5cb85a9737..eca4fab601d0 100644
--- a/apps/web/src/components/BranchToolbar.tsx
+++ b/apps/web/src/components/BranchToolbar.tsx
@@ -28,7 +28,6 @@ import {
   resolveContextStripLabelsCompact,
   resolveCurrentWorkspaceLabel,
   resolveEnvModeLabel,
-  resolveEffectiveEnvMode,
   resolveLockedWorkspaceLabel,
   resolvePreviousWorktreeLabel,
   resolvePreviousWorktreeSeed,
@@ -74,7 +73,8 @@ interface BranchToolbarProps {
   showGitControls: boolean;
   draftId?: DraftId;
   onEnvModeChange: (mode: EnvMode) => void;
-  effectiveEnvModeOverride?: EnvMode;
+  /** The thread's env mode as ChatView resolves it. */
+  envMode: EnvMode;
   activeThreadBranchOverride?: string | null;
   onActiveThreadBranchOverrideChange?: (branch: string | null) => void;
   startFromOrigin: boolean;
@@ -141,7 +141,7 @@ const MobileRunContextSelector = memo(function MobileRunContextSelector({
   const workspaceLabel = forceNewWorktree
     ? resolveEnvModeLabel("worktree")
     : envModeLocked
-      ? resolveLockedWorkspaceLabel(activeWorktreePath)
+      ? resolveLockedWorkspaceLabel(activeWorktreePath, effectiveEnvMode)
       : effectiveEnvMode === "worktree"
         ? resolveEnvModeLabel("worktree")
         : resolveCurrentWorkspaceLabel(activeWorktreePath);
@@ -511,7 +511,7 @@ export const BranchToolbar = memo(function BranchToolbar({
   showGitControls,
   draftId,
   onEnvModeChange,
-  effectiveEnvModeOverride,
+  envMode,
   activeThreadBranchOverride,
   onActiveThreadBranchOverrideChange,
   startFromOrigin,
@@ -546,13 +546,7 @@ export const BranchToolbar = memo(function BranchToolbar({
   const activeWorktreePath = forceNewWorktree
     ? null
     : (serverThread?.worktreePath ?? draftThread?.worktreePath ?? null);
-  const effectiveEnvMode =
-    (forceNewWorktree ? "worktree" : effectiveEnvModeOverride) ??
-    resolveEffectiveEnvMode({
-      activeWorktreePath,
-      hasServerThread: serverThread !== null,
-      draftThreadEnvMode: draftThread?.envMode,
-    });
+  const effectiveEnvMode = forceNewWorktree ? "worktree" : envMode;
   const envModeLocked = envLocked || (serverThread !== null && activeWorktreePath !== null);
 
   // "Previous worktree" hops a draft into the most recently active worktree
@@ -720,11 +714,7 @@ export const BranchToolbar = memo(function BranchToolbar({
           threadId={threadId}
           {...(draftId ? { draftId } : {})}
           envLocked={envLocked}
-          {...(forceNewWorktree
-            ? { effectiveEnvModeOverride: "worktree" }
-            : effectiveEnvModeOverride
-              ? { effectiveEnvModeOverride }
-              : {})}
+          effectiveEnvModeOverride={effectiveEnvMode}
           {...(activeThreadBranchOverride !== undefined ? { activeThreadBranchOverride } : {})}
           {...(onActiveThreadBranchOverrideChange ? { onActiveThreadBranchOverrideChange } : {})}
           startFromOrigin={startFromOrigin}
diff --git a/apps/web/src/components/BranchToolbarEnvModeSelector.tsx b/apps/web/src/components/BranchToolbarEnvModeSelector.tsx
index 1d72ddf87e18..40692063e979 100644
--- a/apps/web/src/components/BranchToolbarEnvModeSelector.tsx
+++ b/apps/web/src/components/BranchToolbarEnvModeSelector.tsx
@@ -64,10 +64,10 @@ export const BranchToolbarEnvModeSelector = memo(function BranchToolbarEnvModeSe
           className="inline-flex h-7 min-w-0 items-center gap-1 border border-transparent px-1.75 font-normal text-muted-foreground/70 text-xs sm:h-6"
           data-composer-context-control
         >
-          {forceNewWorktree ? (
-            <FolderGit2Icon className="size-3 shrink-0" />
-          ) : activeWorktreePath ? (
+          {activeWorktreePath ? (
             <FolderGitIcon className="size-3 shrink-0" />
+          ) : effectiveEnvMode === "worktree" ? (
+            <FolderGit2Icon className="size-3 shrink-0" />
           ) : (
             <FolderIcon className="size-3 shrink-0" />
           )}
@@ -79,16 +79,14 @@ export const BranchToolbarEnvModeSelector = memo(function BranchToolbarEnvModeSe
               data-composer-label-motion
               className="block w-full min-w-0 max-w-[240px] truncate transition-opacity duration-180 ease-drawer group-data-[compact]/composer-context:opacity-0 motion-reduce:transition-none"
             >
-              {forceNewWorktree
-                ? resolveEnvModeLabel("worktree")
-                : resolveLockedWorkspaceLabel(activeWorktreePath)}
+              {resolveLockedWorkspaceLabel(activeWorktreePath, effectiveEnvMode)}
             </span>
           </span>
         </TooltipTrigger>
         <TooltipPopup>
           {forceNewWorktree
             ? "Each model starts in its own worktree."
-            : resolveLockedWorkspaceLabel(activeWorktreePath)}
+            : resolveLockedWorkspaceLabel(activeWorktreePath, effectiveEnvMode)}
         </TooltipPopup>
       </Tooltip>
     );
diff --git a/apps/web/src/components/ChatView.tsx b/apps/web/src/components/ChatView.tsx
index cd36675860df..f5c3825cee33 100644
--- a/apps/web/src/components/ChatView.tsx
+++ b/apps/web/src/components/ChatView.tsx
@@ -5845,6 +5845,7 @@ export default function ChatView(props: ChatViewProps) {
     activeWorktreePath,
     hasServerThread: isServerThread,
     draftThreadEnvMode: isLocalDraftThread ? draftThread?.envMode : undefined,
+    preparingWorktree: isPreparingWorktree,
   });
   const canOverrideServerThreadEnvMode = Boolean(
     isServerThread &&
@@ -10238,9 +10239,7 @@ export default function ChatView(props: ChatViewProps) {
                                 onEnvModeChange={onEnvModeChange}
                                 startFromOrigin={startFromOrigin}
                                 onStartFromOriginChange={onStartFromOriginChange}
-                                {...(canOverrideServerThreadEnvMode
-                                  ? { effectiveEnvModeOverride: envMode }
-                                  : {})}
+                                envMode={envMode}
                                 {...(canOverrideServerThreadEnvMode
                                   ? {
                                       activeThreadBranchOverride: activeThreadBranch,