diff --git a/crates/acp_thread/src/acp_thread.rs b/crates/acp_thread/src/acp_thread.rs
index bf5b97607b..2bbda6647a 100644
--- a/crates/acp_thread/src/acp_thread.rs
+++ b/crates/acp_thread/src/acp_thread.rs
@@ -4637,7 +4637,8 @@ impl AcpThread {
                 }
 
                 if let Some(_status) = self.pending_terminal_exit.remove(&terminal_id) {
-                    entity.update(cx, |_term, cx| {
+                    entity.update(cx, |term, cx| {
+                        term.inner().update(cx, |inner, _| inner.shrink_to_used());
                         cx.notify();
                     });
                 }
@@ -4673,7 +4674,8 @@ impl AcpThread {
                 status,
             } => {
                 if let Some(entity) = self.terminals.get(&terminal_id) {
-                    entity.update(cx, |_term, cx| {
+                    entity.update(cx, |term, cx| {
+                        term.inner().update(cx, |inner, _| inner.shrink_to_used());
                         cx.notify();
                     });
                 } else {
@@ -5102,6 +5104,83 @@ mod tests {
         );
     }
 
+    #[gpui::test]
+    async fn test_terminal_exit_preserves_visible_scrollback(cx: &mut gpui::TestAppContext) {
+        init_test(cx);
+
+        let fs = FakeFs::new(cx.executor());
+        let project = Project::test(fs, [], cx).await;
+        let connection = Rc::new(FakeAgentConnection::new());
+        let thread = cx
+            .update(|cx| {
+                connection.new_session(
+                    project,
+                    PathList::new(&[std::path::Path::new(path!("/test"))]),
+                    cx,
+                )
+            })
+            .await
+            .unwrap();
+
+        let terminal_id = acp::TerminalId::new(uuid::Uuid::new_v4().to_string());
+        let lower = cx.new(|cx| {
+            let builder = ::terminal::TerminalBuilder::new_display_only(
+                ::terminal::terminal_settings::CursorShape::default(),
+                ::terminal::terminal_settings::AlternateScroll::On,
+                None,
+                0,
+                cx.background_executor(),
+                PathStyle::local(),
+            );
+            builder.subscribe(cx)
+        });
+
+        thread.update(cx, |thread, cx| {
+            thread.on_terminal_provider_event(
+                TerminalProviderEvent::Created {
+                    terminal_id: terminal_id.clone(),
+                    label: "Buffered Test".to_string(),
+                    cwd: None,
+                    output_byte_limit: None,
+                    terminal: lower.clone(),
+                },
+                cx,
+            );
+        });
+
+        let mut output = String::new();
+        for line in 0..15_000 {
+            output.push_str(&format!("line {line}\n"));
+        }
+
+        thread.update(cx, |thread, cx| {
+            thread.on_terminal_provider_event(
+                TerminalProviderEvent::Output {
+                    terminal_id: terminal_id.clone(),
+                    data: output.into_bytes(),
+                },
+                cx,
+            );
+            thread.on_terminal_provider_event(
+                TerminalProviderEvent::Exit {
+                    terminal_id: terminal_id.clone(),
+                    status: acp::TerminalExitStatus::new().exit_code(0),
+                },
+                cx,
+            );
+        });
+
+        let content = thread.read_with(cx, |thread, cx| {
+            let term = thread.terminal(terminal_id.clone()).unwrap();
+            term.read_with(cx, |term, cx| term.inner().read(cx).get_content())
+        });
+
+        assert!(
+            content.contains("line 14999"),
+            "expected output to remain visible after terminal exit, got: {content}"
+        );
+    }
+
     #[gpui::test]
     async fn test_terminal_output_and_exit_buffered_before_created(cx: &mut gpui::TestAppContext) {
         init_test(cx);
diff --git a/crates/terminal/src/alacritty.rs b/crates/terminal/src/alacritty.rs
index 99b6eadf2f..5766d8b8fd 100644
--- a/crates/terminal/src/alacritty.rs
+++ b/crates/terminal/src/alacritty.rs
@@ -800,6 +800,10 @@ pub(super) fn clear_saved_screen(term: &mut Term<ZedListener>) {
     }
 }
 
+pub(super) fn shrink_to_used(term: &mut Term<ZedListener>) {
+    term.grid_mut().truncate();
+}
+
 pub(super) fn make_content(term: &Term<ZedListener>, last_content: &Content) -> Content {
     let content = term.renderable_content();
 
diff --git a/crates/terminal/src/terminal.rs b/crates/terminal/src/terminal.rs
index b3b6c7aff8..9fbfd575de 100644
--- a/crates/terminal/src/terminal.rs
+++ b/crates/terminal/src/terminal.rs
@@ -67,9 +67,9 @@ use crate::alacritty::{
     display_only_term_config, find_from_terminal_point, full_content_range, last_non_empty_lines,
     make_content, new_term, open_pty, pty_options, pty_term_config, resize, screen_lines,
     scroll_display, scroll_to_point, search_matches, selection_text, set_default_cursor_style,
-    set_selection as set_term_selection, spawn_event_loop, toggle_vi_mode as toggle_term_vi_mode,
-    total_lines, update_selection as update_term_selection, update_selection_to_vi_cursor,
-    update_vi_cursor_for_scroll, vi_goto_point, vi_motion,
+    set_selection as set_term_selection, shrink_to_used, spawn_event_loop,
+    toggle_vi_mode as toggle_term_vi_mode, total_lines, update_selection as update_term_selection,
+    update_selection_to_vi_cursor, update_vi_cursor_for_scroll, vi_goto_point, vi_motion,
 };
 use crate::mappings::colors::to_vte_rgb;
 use crate::mappings::keys::to_esc_str;
@@ -1888,6 +1888,10 @@ impl Terminal {
         self.events.push_back(InternalEvent::Clear)
     }
 
+    pub fn shrink_to_used(&mut self) {
+        shrink_to_used(&mut self.term.lock());
+    }
+
     pub fn scroll_line_up(&mut self) {
         self.events
             .push_back(InternalEvent::Scroll(Scroll::Delta(1)));