diff --git a/crates/owlen-tui/src/ui.rs b/crates/owlen-tui/src/ui.rs
index 7337b2e..f680a96 100644
--- a/crates/owlen-tui/src/ui.rs
+++ b/crates/owlen-tui/src/ui.rs
@@ -273,6 +273,8 @@ pub fn render_chat(frame: &mut Frame<'_>, app: &mut ChatApp) {
         0
     };
 
+    let status_message = system_status_message(app);
+
     let mut constraints = vec![Constraint::Min(8)]; // Messages
 
     if thinking_height > 0 {
@@ -284,7 +286,12 @@ pub fn render_chat(frame: &mut Frame<'_>, app: &mut ChatApp) {
     }
 
     constraints.push(Constraint::Length(input_height)); // Input
-    constraints.push(Constraint::Length(4)); // System/Status output (2 lines content + 2 borders)
+
+    let status_visual_lines = calculate_wrapped_line_count(status_message.lines(), available_width);
+    let status_visible_rows = status_visual_lines.clamp(1, 5);
+    let status_height = status_visible_rows as u16 + 2; // +2 for borders
+
+    constraints.push(Constraint::Length(status_height)); // System/Status output (dynamic)
     constraints.push(Constraint::Length(3)); // Mode and shortcuts bar
 
     let layout = Layout::default()
@@ -309,7 +316,7 @@ pub fn render_chat(frame: &mut Frame<'_>, app: &mut ChatApp) {
     render_input(frame, layout[idx], app);
     idx += 1;
 
-    render_system_output(frame, layout[idx], app);
+    render_system_output(frame, layout[idx], app, &status_message);
     idx += 1;
 
     render_status(frame, layout[idx], app);
@@ -1865,15 +1872,13 @@ fn render_input(frame: &mut Frame<'_>, area: Rect, app: &mut ChatApp) {
     }
 }
 
-fn render_system_output(frame: &mut Frame<'_>, area: Rect, app: &ChatApp) {
-    let theme = app.theme();
+fn system_status_message(app: &ChatApp) -> String {
     let system_status = app.system_status();
 
-    // Priority: system_status > error > status > "Ready"
-    let display_message = if !system_status.is_empty() {
+    if !system_status.is_empty() {
         system_status.to_string()
     } else if let Some(error) = app.error_message() {
-        format!("Error: {}", error)
+        format!("Error: {error}")
     } else {
         let status = app.status_message();
         if status.is_empty() || status == "Ready" {
@@ -1881,15 +1886,31 @@ fn render_system_output(frame: &mut Frame<'_>, area: Rect, app: &ChatApp) {
         } else {
             status.to_string()
         }
+    }
+}
+
+fn render_system_output(frame: &mut Frame<'_>, area: Rect, app: &ChatApp, message: &str) {
+    let theme = app.theme();
+
+    let color = if message.starts_with("Error:") {
+        theme.error
+    } else {
+        theme.info
     };
 
-    // Create a simple paragraph with wrapping enabled
-    let line = Line::from(Span::styled(
-        display_message,
-        Style::default().fg(theme.info),
-    ));
+    let text_lines: Vec<Line> = if message.is_empty() {
+        vec![Line::from(Span::styled(
+            "Ready",
+            Style::default().fg(color),
+        ))]
+    } else {
+        message
+            .lines()
+            .map(|line| Line::from(Span::styled(line.to_string(), Style::default().fg(color))))
+            .collect()
+    };
 
-    let paragraph = Paragraph::new(line)
+    let paragraph = Paragraph::new(text_lines)
         .style(Style::default().bg(theme.background))
         .block(
             Block::default()