diff --git a/packages/happy-cli/src/claude/utils/startHappyServer.test.ts b/packages/happy-cli/src/claude/utils/startHappyServer.test.ts
new file mode 100644
index 000000000..51b75f551
--- /dev/null
+++ b/packages/happy-cli/src/claude/utils/startHappyServer.test.ts
@@ -0,0 +1,94 @@
+/**
+ * Tests for Happy MCP server
+ * Verifies that the per-request transport pattern works correctly,
+ * especially with @modelcontextprotocol/sdk >= 1.26.0 which forbids
+ * reusing a stateless StreamableHTTPServerTransport across requests.
+ */
+
+import { describe, it, expect, afterEach } from 'vitest'
+import { startHappyServer } from './startHappyServer'
+import http from 'node:http'
+
+function createMockClient() {
+    const messages: unknown[] = [];
+    return {
+        sessionId: 'test-session-123',
+        sendClaudeSessionMessage: (msg: unknown) => {
+            messages.push(msg);
+        },
+        _messages: messages,
+    } as any;
+}
+
+function postJSON(url: string, body: object): Promise<{ status: number; body: string }> {
+    return new Promise((resolve, reject) => {
+        const data = JSON.stringify(body);
+        const req = http.request(url, {
+            method: 'POST',
+            headers: {
+                'Content-Type': 'application/json',
+                'Accept': 'application/json, text/event-stream',
+            },
+        }, (res) => {
+            let body = '';
+            res.on('data', (chunk) => body += chunk);
+            res.on('end', () => resolve({ status: res.statusCode!, body }));
+        });
+        req.on('error', reject);
+        req.write(data);
+        req.end();
+    });
+}
+
+const MCP_INITIALIZE = {
+    jsonrpc: '2.0',
+    method: 'initialize',
+    params: {
+        protocolVersion: '2024-11-05',
+        capabilities: {},
+        clientInfo: { name: 'test', version: '1.0.0' },
+    },
+    id: 1,
+};
+
+describe('startHappyServer', () => {
+    let server: Awaited<ReturnType<typeof startHappyServer>> | null = null;
+
+    afterEach(() => {
+        server?.stop();
+        server = null;
+    });
+
+    it('should start and return a url and tool names', async () => {
+        const client = createMockClient();
+        server = await startHappyServer(client);
+
+        expect(server.url).toMatch(/^http:\/\/127\.0\.0\.1:\d+/);
+        expect(server.toolNames).toEqual(['change_title']);
+    });
+
+    it('should respond to a single MCP initialize request', async () => {
+        const client = createMockClient();
+        server = await startHappyServer(client);
+
+        const res = await postJSON(server.url, MCP_INITIALIZE);
+        expect(res.status).toBe(200);
+    });
+
+    it('should handle multiple sequential requests without 500 errors', async () => {
+        const client = createMockClient();
+        server = await startHappyServer(client);
+
+        // This is the core regression test: SDK >= 1.26.0 throws
+        // "Stateless transport cannot be reused across requests"
+        // if a single transport handles more than one request.
+        const res1 = await postJSON(server.url, MCP_INITIALIZE);
+        expect(res1.status).toBe(200);
+
+        const res2 = await postJSON(server.url, MCP_INITIALIZE);
+        expect(res2.status).toBe(200);
+
+        const res3 = await postJSON(server.url, MCP_INITIALIZE);
+        expect(res3.status).toBe(200);
+    });
+});
diff --git a/packages/happy-cli/src/claude/utils/startHappyServer.ts b/packages/happy-cli/src/claude/utils/startHappyServer.ts
index 2a6ba79e6..7caae2044 100644
--- a/packages/happy-cli/src/claude/utils/startHappyServer.ts
+++ b/packages/happy-cli/src/claude/utils/startHappyServer.ts
@@ -33,59 +33,65 @@ export async function startHappyServer(client: ApiSessionClient) {
     };
 
     //
-    // Create the MCP server
+    // Create a per-request MCP server factory
+    // @modelcontextprotocol/sdk >= 1.26.0 forbids reusing a stateless
+    // StreamableHTTPServerTransport across requests, so we create a fresh
+    // McpServer + transport for each incoming request (following the SDK's
+    // own simpleStatelessStreamableHttp.ts example).
     //
 
-    const mcp = new McpServer({
-        name: "Happy MCP",
-        version: "1.0.0",
-    });
+    function createMcpServer(): McpServer {
+        const mcp = new McpServer({
+            name: "Happy MCP",
+            version: "1.0.0",
+        });
 
-    mcp.registerTool('change_title', {
-        description: 'Change the title of the current chat session',
-        title: 'Change Chat Title',
-        inputSchema: {
-            title: z.string().describe('The new title for the chat session'),
-        },
-    }, async (args) => {
-        const response = await handler(args.title);
-        logger.debug('[happyMCP] Response:', response);
-        
-        if (response.success) {
-            return {
-                content: [
-                    {
-                        type: 'text',
-                        text: `Successfully changed chat title to: "${args.title}"`,
-                    },
-                ],
-                isError: false,
-            };
-        } else {
-            return {
-                content: [
-                    {
-                        type: 'text',
-                        text: `Failed to change chat title: ${response.error || 'Unknown error'}`,
-                    },
-                ],
-                isError: true,
-            };
-        }
-    });
+        mcp.registerTool('change_title', {
+            description: 'Change the title of the current chat session',
+            title: 'Change Chat Title',
+            inputSchema: {
+                title: z.string().describe('The new title for the chat session'),
+            },
+        }, async (args) => {
+            const response = await handler(args.title);
+            logger.debug('[happyMCP] Response:', response);
 
-    const transport = new StreamableHTTPServerTransport({
-        // NOTE: Returning session id here will result in claude
-        // sdk spawn to fail with `Invalid Request: Server already initialized`
-        sessionIdGenerator: undefined
-    });
-    await mcp.connect(transport);
+            if (response.success) {
+                return {
+                    content: [
+                        {
+                            type: 'text',
+                            text: `Successfully changed chat title to: "${args.title}"`,
+                        },
+                    ],
+                    isError: false,
+                };
+            } else {
+                return {
+                    content: [
+                        {
+                            type: 'text',
+                            text: `Failed to change chat title: ${response.error || 'Unknown error'}`,
+                        },
+                    ],
+                    isError: true,
+                };
+            }
+        });
+
+        return mcp;
+    }
 
     //
     // Create the HTTP server
     //
 
     const server = createServer(async (req, res) => {
+        const mcp = createMcpServer();
+        const transport = new StreamableHTTPServerTransport({
+            sessionIdGenerator: undefined,
+        });
+        await mcp.connect(transport);
         try {
             await transport.handleRequest(req, res);
         } catch (error) {
@@ -94,6 +100,10 @@ export async function startHappyServer(client: ApiSessionClient) {
                 res.writeHead(500).end();
             }
         }
+        res.on("close", () => {
+            transport.close();
+            mcp.close();
+        });
     });
 
     const baseUrl = await new Promise<URL>((resolve) => {
@@ -110,7 +120,6 @@ export async function startHappyServer(client: ApiSessionClient) {
         toolNames: ['change_title'],
         stop: () => {
             logger.debug(`[happyMCP] server:stop sessionId=${client.sessionId}`);
-            mcp.close();
             server.close();
         }
     }