diff --git a/frontend/src/components/Chat.test.tsx b/frontend/src/components/Chat.test.tsx
index d732d00..420fc96 100644
--- a/frontend/src/components/Chat.test.tsx
+++ b/frontend/src/components/Chat.test.tsx
@@ -18,6 +18,7 @@ type WsHandlers = {
 	onUpdate: (history: Message[]) => void;
 	onSessionId: (sessionId: string) => void;
 	onError: (message: string) => void;
+	onActivity: (toolName: string) => void;
 	onReconciliationProgress: (
 		storyId: string,
 		status: string,
@@ -393,3 +394,83 @@ describe("Chat reconciliation banner", () => {
 		});
 	});
 });
+
+describe("Chat activity status indicator (Bug 140)", () => {
+	beforeEach(() => {
+		capturedWsHandlers = null;
+		setupMocks();
+	});
+
+	it("shows activity label when tool activity fires during streaming content", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		// Simulate sending a message to set loading=true
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Read my file" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		// Simulate tokens arriving (streamingContent becomes non-empty)
+		act(() => {
+			capturedWsHandlers?.onToken("I'll read that file for you.");
+		});
+
+		// Now simulate a tool activity event while streamingContent is non-empty
+		act(() => {
+			capturedWsHandlers?.onActivity("read_file");
+		});
+
+		// The activity indicator should be visible with the tool activity label
+		const indicator = await screen.findByTestId("activity-indicator");
+		expect(indicator).toBeInTheDocument();
+		expect(indicator).toHaveTextContent("Reading file...");
+	});
+
+	it("shows Thinking... fallback when loading with no streaming and no activity", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		// Simulate sending a message to set loading=true
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Hello" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		// No tokens, no activity — should show "Thinking..."
+		const indicator = await screen.findByTestId("activity-indicator");
+		expect(indicator).toBeInTheDocument();
+		expect(indicator).toHaveTextContent("Thinking...");
+	});
+
+	it("hides Thinking... when streaming content is present but no tool activity", async () => {
+		render(<Chat projectPath="/tmp/project" onCloseProject={vi.fn()} />);
+
+		await waitFor(() => expect(capturedWsHandlers).not.toBeNull());
+
+		// Simulate sending a message to set loading=true
+		const input = screen.getByPlaceholderText("Send a message...");
+		await act(async () => {
+			fireEvent.change(input, { target: { value: "Hello" } });
+		});
+		await act(async () => {
+			fireEvent.keyDown(input, { key: "Enter", shiftKey: false });
+		});
+
+		// Tokens arrive — streamingContent is non-empty, no activity
+		act(() => {
+			capturedWsHandlers?.onToken("Here is my response...");
+		});
+
+		// The activity indicator should NOT be visible (just streaming bubble)
+		expect(screen.queryByTestId("activity-indicator")).not.toBeInTheDocument();
+	});
+});
diff --git a/frontend/src/components/Chat.tsx b/frontend/src/components/Chat.tsx
index 551e18d..8e7728b 100644
--- a/frontend/src/components/Chat.tsx
+++ b/frontend/src/components/Chat.tsx
@@ -683,8 +683,9 @@ export function Chat({ projectPath, onCloseProject }: ChatProps) {
 									</div>
 								</div>
 							)}
-							{loading && !streamingContent && (
+							{loading && (activityStatus != null || !streamingContent) && (
 								<div
+									data-testid="activity-indicator"
 									style={{
 										alignSelf: "flex-start",
 										color: "#888",