diff --git a/packages/happy-cli/src/claude/sdk/utils.ts b/packages/happy-cli/src/claude/sdk/utils.ts
index 0602d5a85..9b1cde7b5 100644
--- a/packages/happy-cli/src/claude/sdk/utils.ts
+++ b/packages/happy-cli/src/claude/sdk/utils.ts
@@ -77,6 +77,13 @@ export function getCleanEnv(): NodeJS.ProcessEnv {
         logger.debug('[Claude SDK] Removed Bun-specific environment variables for Node.js compatibility')
     }
 
+    // Remove Claude Code nested-session detection variables.
+    // When the daemon is started from within a Claude Code session, CLAUDECODE=1 leaks
+    // into all child processes. Claude Code detects this and refuses to start, causing
+    // every remote session to crash with "Process exited unexpectedly".
+    delete env.CLAUDECODE
+    delete env.CLAUDE_CODE_ENTRYPOINT
+
     return env
 }
 
diff --git a/packages/happy-cli/src/daemon/run.ts b/packages/happy-cli/src/daemon/run.ts
index 75889d14e..473c8218a 100644
--- a/packages/happy-cli/src/daemon/run.ts
+++ b/packages/happy-cli/src/daemon/run.ts
@@ -408,6 +408,11 @@ export async function startDaemon(): Promise<void> {
           // Add extra environment variables (these should already be filtered)
           Object.assign(tmuxEnv, extraEnv);
 
+          // Remove Claude Code nested-session detection variables so spawned
+          // sessions don't inherit them from a daemon started inside Claude Code.
+          delete tmuxEnv.CLAUDECODE;
+          delete tmuxEnv.CLAUDE_CODE_ENTRYPOINT;
+
           const tmuxResult = await tmux.spawnInTmux([fullCommand], {
             sessionName: tmuxSessionName,
             windowName: windowName,
@@ -497,14 +502,22 @@ export async function startDaemon(): Promise<void> {
 
           // TODO: In future, sessionId could be used with --resume to continue existing sessions
           // For now, we ignore it - each spawn creates a new session
+          // Build a clean environment for the spawned session.
+          // Remove CLAUDECODE and CLAUDE_CODE_ENTRYPOINT to prevent Claude Code from
+          // detecting a "nested session" and refusing to start when the daemon was
+          // launched from within a Claude Code session.
+          const spawnEnv: Record<string, string | undefined> = {
+            ...process.env,
+            ...extraEnv
+          };
+          delete spawnEnv.CLAUDECODE;
+          delete spawnEnv.CLAUDE_CODE_ENTRYPOINT;
+
           const happyProcess = spawnHappyCLI(args, {
             cwd: directory,
             detached: true,  // Sessions stay alive when daemon stops
             stdio: ['ignore', 'pipe', 'pipe'],  // Capture stdout/stderr for debugging
-            env: {
-              ...process.env,
-              ...extraEnv
-            }
+            env: spawnEnv
           });
 
           // Log output for debugging
diff --git a/packages/happy-cli/src/ui/logger.ts b/packages/happy-cli/src/ui/logger.ts
index ecf739b61..63b788ab5 100644
--- a/packages/happy-cli/src/ui/logger.ts
+++ b/packages/happy-cli/src/ui/logger.ts
@@ -201,9 +201,11 @@ class Logger {
   }
 
   private logToFile(prefix: string, message: string, ...args: unknown[]): void {
-    const logLine = `${prefix} ${message} ${args.map(arg => 
-      typeof arg === 'string' ? arg : JSON.stringify(arg)
-    ).join(' ')}\n`
+    const logLine = `${prefix} ${message} ${args.map(arg => {
+      if (typeof arg === 'string') return arg
+      if (arg instanceof Error) return arg.stack || arg.message
+      return JSON.stringify(arg)
+    }).join(' ')}\n`
     
     // Send to remote server if configured
     if (this.dangerouslyUnencryptedServerLoggingUrl) {