diff --git a/server/src/chat/transport/matrix/bot/run.rs b/server/src/chat/transport/matrix/bot/run.rs
index a76c5891..cadd98e2 100644
--- a/server/src/chat/transport/matrix/bot/run.rs
+++ b/server/src/chat/transport/matrix/bot/run.rs
@@ -1,7 +1,8 @@
 use crate::agents::AgentPool;
 use crate::slog;
-use matrix_sdk::{Client, config::SyncSettings};
+use matrix_sdk::{Client, LoopCtrl, config::SyncSettings};
 use matrix_sdk::ruma::OwnedRoomId;
+use std::sync::atomic::{AtomicBool, AtomicU64, Ordering};
 use std::collections::{HashMap, HashSet};
 use std::path::PathBuf;
 use std::sync::Arc;
@@ -304,12 +305,129 @@ pub async fn run_bot(
 
     slog!("[matrix-bot] Starting Matrix sync loop");
 
-    // This blocks until the connection is terminated or an error occurs.
+    // Retry state — shared across `Fn` closure invocations via Arc atomics.
+    const MAX_BACKOFF_SECS: u64 = 300;
+    const INITIAL_BACKOFF_SECS: u64 = 5;
+    let backoff = Arc::new(AtomicU64::new(INITIAL_BACKOFF_SECS));
+    let was_disconnected = Arc::new(AtomicBool::new(false));
+
+    let sync_transport = Arc::clone(&transport);
+    let sync_rooms: Vec<String> = announce_room_ids.iter().map(|r| r.to_string()).collect();
+    let sync_bot_name = announce_bot_name.clone();
+
+    let backoff_cb = Arc::clone(&backoff);
+    let was_disconnected_cb = Arc::clone(&was_disconnected);
+
+    // Use sync_with_result_callback so transient errors (network blips, DNS
+    // hiccups, temporary homeserver outages) are handled in the callback
+    // rather than bubbling up as fatal errors.  Fatal errors (HTTP 401/403)
+    // still terminate the loop and propagate to the caller.
     client
-        .sync(SyncSettings::default())
+        .sync_with_result_callback(SyncSettings::default(), move |result| {
+            let backoff = Arc::clone(&backoff_cb);
+            let was_disconnected = Arc::clone(&was_disconnected_cb);
+            let recovery_transport = Arc::clone(&sync_transport);
+            let recovery_rooms = sync_rooms.clone();
+            let recovery_bot_name = sync_bot_name.clone();
+            async move {
+                match result {
+                    Ok(_) => {
+                        // If we previously lost the connection, announce recovery.
+                        if was_disconnected.swap(false, Ordering::Relaxed) {
+                            backoff.store(INITIAL_BACKOFF_SECS, Ordering::Relaxed);
+                            slog!("[matrix-bot] Reconnected to homeserver — resuming normal operation");
+                            let msg = format!(
+                                "⚡ **{recovery_bot_name}** reconnected to homeserver."
+                            );
+                            let html = format!(
+                                "<p>⚡ <strong>{recovery_bot_name}</strong> reconnected to homeserver.</p>"
+                            );
+                            for room_id in &recovery_rooms {
+                                if let Err(e) = recovery_transport
+                                    .send_message(room_id, &msg, &html)
+                                    .await
+                                {
+                                    slog!(
+                                        "[matrix-bot] Failed to send recovery notification to {room_id}: {e}"
+                                    );
+                                }
+                            }
+                        }
+                        Ok(LoopCtrl::Continue)
+                    }
+                    Err(e) if is_fatal_sync_error(&e) => Err(e),
+                    Err(e) => {
+                        // Transient error: log, back off, and let the stream retry.
+                        let delay = backoff.load(Ordering::Relaxed);
+                        slog!("[matrix-bot] Sync warning (retrying in {delay}s): {e}");
+                        was_disconnected.store(true, Ordering::Relaxed);
+                        tokio::time::sleep(std::time::Duration::from_secs(delay)).await;
+                        let new_delay = (delay * 2).min(MAX_BACKOFF_SECS);
+                        backoff.store(new_delay, Ordering::Relaxed);
+                        Ok(LoopCtrl::Continue)
+                    }
+                }
+            }
+        })
         .await
         .map_err(|e| format!("Matrix sync error: {e}"))?;
 
     Ok(())
 }
 
+/// Returns `true` for errors that indicate the bot's session is permanently
+/// invalid (HTTP 401 Unauthorized or 403 Forbidden).  All other errors —
+/// network failures, timeouts, transient 5xx responses — are considered
+/// recoverable and should be retried with exponential back-off.
+fn is_fatal_sync_error(e: &matrix_sdk::Error) -> bool {
+    e.as_client_api_error()
+        .map(|api_err| {
+            let code = api_err.status_code.as_u16();
+            code == 401 || code == 403
+        })
+        .unwrap_or(false)
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+
+    /// An I/O error (e.g. connection refused) must NOT be treated as fatal so
+    /// that the sync loop retries rather than shutting the bot down.
+    #[test]
+    fn io_error_is_not_fatal() {
+        let e: matrix_sdk::Error =
+            std::io::Error::new(std::io::ErrorKind::ConnectionRefused, "connection refused")
+                .into();
+        assert!(!is_fatal_sync_error(&e));
+    }
+
+    /// Exponential back-off must clamp at MAX_BACKOFF_SECS (300 s) regardless
+    /// of how many consecutive failures occur.
+    #[test]
+    fn backoff_clamps_at_max() {
+        const MAX_BACKOFF_SECS: u64 = 300;
+        let mut delay = 5u64;
+        for _ in 0..20 {
+            delay = (delay * 2).min(MAX_BACKOFF_SECS);
+        }
+        assert_eq!(delay, MAX_BACKOFF_SECS);
+    }
+
+    /// Back-off must at least double each step before clamping.
+    #[test]
+    fn backoff_doubles_each_step() {
+        const MAX_BACKOFF_SECS: u64 = 300;
+        let steps: Vec<u64> = std::iter::successors(Some(5u64), |&d| {
+            let next = (d * 2).min(MAX_BACKOFF_SECS);
+            if next < MAX_BACKOFF_SECS { Some(next) } else { None }
+        })
+        .collect();
+        // First few steps: 5, 10, 20, 40, 80, 160
+        assert_eq!(steps[0], 5);
+        assert_eq!(steps[1], 10);
+        assert_eq!(steps[2], 20);
+        assert_eq!(steps[3], 40);
+    }
+}
+