diff --git a/apps/web/app/(app)/[workspaceSlug]/ai/page.tsx b/apps/web/app/(app)/[workspaceSlug]/ai/page.tsx
index bdc0759..766fec9 100644
--- a/apps/web/app/(app)/[workspaceSlug]/ai/page.tsx
+++ b/apps/web/app/(app)/[workspaceSlug]/ai/page.tsx
@@ -1,72 +1,56 @@
 "use client";
 
-import { useState, useRef, useEffect } from "react";
+import { useEffect, useRef } from "react";
 import { useParams } from "next/navigation";
-import { Loader2, Send, Sparkles, Bot, User } from "lucide-react";
+import { useChat } from "@ai-sdk/react";
+import { AlertTriangle, Bot, Loader2, Send, Sparkles, User } from "lucide-react";
 
 import { Button } from "@/components/ui/button";
 import { cn } from "@/lib/utils";
 
-type Message = {
-  id: string;
-  role: "user" | "assistant";
-  content: string;
-};
-
 export default function AIPage() {
   const params = useParams();
-  const workspaceSlug = params.workspaceSlug as string;
+  const workspaceSlug =
+    typeof params?.workspaceSlug === "string" ? params.workspaceSlug : "";
 
-  const [messages, setMessages] = useState<Message[]>([]);
-  const [input, setInput] = useState("");
-  const [isLoading, setIsLoading] = useState(false);
   const scrollRef = useRef<HTMLDivElement>(null);
   const inputRef = useRef<HTMLTextAreaElement>(null);
 
-  // Auto-scroll on new messages
+  const {
+    messages,
+    input,
+    handleInputChange,
+    handleSubmit,
+    status,
+    error,
+    setInput,
+  } = useChat({
+    api: "/api/chat",
+    body: { workspace: workspaceSlug },
+  });
+
+  const isBusy = status === "submitted" || status === "streaming";
+
   useEffect(() => {
     if (scrollRef.current) {
       scrollRef.current.scrollTop = scrollRef.current.scrollHeight;
     }
-  }, [messages]);
-
-  const handleSubmit = async (e: React.FormEvent) => {
-    e.preventDefault();
-    const trimmed = input.trim();
-    if (!trimmed || isLoading) return;
-
-    const userMsg: Message = { id: crypto.randomUUID(), role: "user", content: trimmed };
-    setMessages((prev) => [...prev, userMsg]);
-    setInput("");
-    setIsLoading(true);
-
-    // Placeholder AI response
-    setTimeout(() => {
-      const assistantMsg: Message = {
-        id: crypto.randomUUID(),
-        role: "assistant",
-        content:
-          "I'm your AI assistant. Full AI integration is coming soon! I'll be able to help you create tasks, documents, and manage your workspace.",
-      };
-      setMessages((prev) => [...prev, assistantMsg]);
-      setIsLoading(false);
-    }, 1000);
-  };
+  }, [messages, status]);
 
   return (
     <div className="flex h-full min-h-0 flex-col">
-      {/* Header */}
       <div className="flex shrink-0 items-center gap-3 border-b px-6 py-4">
         <div className="flex h-9 w-9 items-center justify-center rounded-lg bg-primary/10">
           <Sparkles className="size-5 text-primary" />
         </div>
         <div>
           <h1 className="text-lg font-semibold">AI Assistant</h1>
-          <p className="text-xs text-muted-foreground">Ask me anything about your workspace</p>
+          <p className="text-xs text-muted-foreground">
+            Ask me anything about your workspace
+          </p>
         </div>
       </div>
 
-      {/* Messages */}
       <div ref={scrollRef} className="min-h-0 flex-1 overflow-y-auto">
         {messages.length === 0 ? (
           <div className="flex h-full min-h-[12rem] flex-col items-center justify-center gap-4 text-muted-foreground">
@@ -76,22 +60,25 @@ export default function AIPage() {
             <div className="text-center">
               <p className="text-base font-medium">How can I help you today?</p>
               <p className="mt-1 text-sm">
-                Ask me to create tasks, summarize documents, or manage your workspace.
+                Ask me to break down a task, draft an outline, or summarize what
+                you have open.
               </p>
             </div>
             <div className="mt-2 flex flex-wrap justify-center gap-2">
-              {["Create a new project", "Summarize my tasks", "Help me plan a sprint"].map(
-                (suggestion) => (
-                  <button
-                    key={suggestion}
-                    type="button"
-                    onClick={() => setInput(suggestion)}
-                    className="rounded-full border px-3 py-1.5 text-xs transition-colors hover:bg-muted"
-                  >
-                    {suggestion}
-                  </button>
-                ),
-              )}
+              {[
+                "Break this project into subtasks",
+                "Summarize my open tasks",
+                "Draft a sprint plan for this week",
+              ].map((suggestion) => (
+                <button
+                  key={suggestion}
+                  type="button"
+                  onClick={() => setInput(suggestion)}
+                  className="rounded-full border px-3 py-1.5 text-xs transition-colors hover:bg-muted"
+                >
+                  {suggestion}
+                </button>
+              ))}
             </div>
           </div>
         ) : (
@@ -99,19 +86,28 @@ export default function AIPage() {
             {messages.map((msg) => (
               <div
                 key={msg.id}
-                className={cn("flex gap-3", msg.role === "user" && "flex-row-reverse")}
+                className={cn(
+                  "flex gap-3",
+                  msg.role === "user" && "flex-row-reverse",
+                )}
               >
                 <div
                   className={cn(
                     "flex h-8 w-8 shrink-0 items-center justify-center rounded-full",
-                    msg.role === "user" ? "bg-primary text-primary-foreground" : "bg-muted",
+                    msg.role === "user"
+                      ? "bg-primary text-primary-foreground"
+                      : "bg-muted",
                   )}
                 >
-                  {msg.role === "user" ? <User className="size-4" /> : <Bot className="size-4" />}
+                  {msg.role === "user" ? (
+                    <User className="size-4" />
+                  ) : (
+                    <Bot className="size-4" />
+                  )}
                 </div>
                 <div
                   className={cn(
-                    "max-w-[80%] rounded-xl px-4 py-2.5 text-sm",
+                    "max-w-[80%] rounded-xl px-4 py-2.5 text-sm whitespace-pre-wrap",
                     msg.role === "user"
                       ? "bg-primary text-primary-foreground"
                       : "bg-muted",
@@ -121,7 +117,7 @@ export default function AIPage() {
                 </div>
               </div>
             ))}
-            {isLoading && (
+            {status === "submitted" && (
               <div className="flex gap-3">
                 <div className="flex h-8 w-8 shrink-0 items-center justify-center rounded-full bg-muted">
                   <Bot className="size-4" />
@@ -133,26 +129,40 @@ export default function AIPage() {
             )}
           </div>
         )}
+
+        {error ? <ChatErrorBanner error={error} /> : null}
       </div>
 
-      {/* Input */}
       <div className="shrink-0 border-t bg-background p-4">
-        <form onSubmit={handleSubmit} className="mx-auto flex max-w-3xl gap-2">
+        <form
+          onSubmit={handleSubmit}
+          className="mx-auto flex max-w-3xl gap-2"
+        >
           <textarea
             ref={inputRef}
             value={input}
-            onChange={(e) => setInput(e.target.value)}
+            onChange={handleInputChange}
             onKeyDown={(e) => {
               if (e.key === "Enter" && !e.shiftKey) {
                 e.preventDefault();
-                void handleSubmit(e);
+                if (input.trim() && !isBusy) {
+                  // Cast: handleSubmit accepts FormEvent | KeyboardEvent; the
+                  // useChat helper unwraps either.
+                  handleSubmit(
+                    e as unknown as React.FormEvent<HTMLFormElement>,
+                  );
+                }
               }
             }}
             placeholder="Ask anything..."
             className="flex-1 resize-none rounded-lg border bg-background px-4 py-2.5 text-sm focus-visible:outline-none focus-visible:ring-2 focus-visible:ring-ring"
             rows={1}
           />
-          <Button type="submit" size="icon" disabled={!input.trim() || isLoading}>
+          <Button
+            type="submit"
+            size="icon"
+            disabled={!input.trim() || isBusy || !workspaceSlug}
+          >
             <Send className="size-4" />
           </Button>
         </form>
@@ -160,3 +170,43 @@ export default function AIPage() {
     </div>
   );
 }
+
+function ChatErrorBanner({ error }: { error: Error }) {
+  const message = parseErrorMessage(error);
+  const isUnavailable = /AI is unavailable/i.test(message);
+  return (
+    <div
+      className={cn(
+        "mx-auto mb-4 mt-2 flex max-w-3xl items-start gap-3 rounded-lg border px-4 py-3 text-sm",
+        isUnavailable
+          ? "border-amber-500/40 bg-amber-500/10 text-amber-900 dark:text-amber-200"
+          : "border-destructive/40 bg-destructive/10 text-destructive",
+      )}
+      role="alert"
+    >
+      <AlertTriangle className="mt-0.5 size-4 shrink-0" />
+      <div className="min-w-0">
+        <p className="font-medium">
+          {isUnavailable ? "AI is unavailable" : "Something went wrong"}
+        </p>
+        <p className="mt-1 break-words text-xs opacity-90">{message}</p>
+      </div>
+    </div>
+  );
+}
+
+/**
+ * `useChat` wraps fetch errors in a generic Error; the route handler returns
+ * a JSON body with `{ error: string }`. Try to surface that to the user; fall
+ * back to whatever message the SDK gave us.
+ */
+function parseErrorMessage(error: Error): string {
+  const raw = error.message || "";
+  try {
+    const parsed = JSON.parse(raw) as { error?: string };
+    if (parsed?.error) return parsed.error;
+  } catch {
+    // not JSON; fall through
+  }
+  return raw || "Unknown error";
+}
diff --git a/apps/web/app/api/chat/route.ts b/apps/web/app/api/chat/route.ts
new file mode 100644
index 0000000..36d608a
--- /dev/null
+++ b/apps/web/app/api/chat/route.ts
@@ -0,0 +1,101 @@
+import { TRPCError } from "@trpc/server";
+import { createOpenAI } from "@ai-sdk/openai";
+import { streamText, type CoreMessage } from "ai";
+import { z } from "zod";
+
+import { auth } from "@/lib/auth";
+import { resolveWorkspace } from "@/server/lib/resolve-workspace";
+
+export const runtime = "nodejs";
+export const dynamic = "force-dynamic";
+
+const BASE_SYSTEM = `You are a helpful AI assistant embedded in a project management and collaboration app. Users organize work in workspaces with objects such as projects, tasks, documents, and groups. You help them plan work, clarify requirements, break down tasks, summarize content, and suggest next steps. Be concise, actionable, and friendly. Use markdown when it improves readability (bold, lists, short code snippets).`;
+
+const messageSchema = z.object({
+  role: z.enum(["user", "assistant", "system"]),
+  content: z.string(),
+});
+
+const bodySchema = z.object({
+  workspace: z.string().min(1),
+  messages: z.array(messageSchema).min(1),
+});
+
+function errorResponse(status: number, message: string): Response {
+  return new Response(JSON.stringify({ error: message }), {
+    status,
+    headers: { "Content-Type": "application/json" },
+  });
+}
+
+export async function POST(req: Request): Promise<Response> {
+  const session = await auth();
+  if (!session?.user?.id) {
+    return errorResponse(401, "Sign in to use the assistant");
+  }
+
+  let body: z.infer<typeof bodySchema>;
+  try {
+    body = bodySchema.parse(await req.json());
+  } catch (e) {
+    if (e instanceof z.ZodError) {
+      return errorResponse(400, e.issues[0]?.message ?? "Invalid request");
+    }
+    return errorResponse(400, "Invalid request body");
+  }
+
+  let workspace;
+  try {
+    workspace = await resolveWorkspace({
+      handle: body.workspace,
+      userId: session.user.id,
+    });
+  } catch (e) {
+    if (e instanceof TRPCError) {
+      const status =
+        e.code === "NOT_FOUND" ? 404 :
+        e.code === "FORBIDDEN" ? 403 :
+        e.code === "BAD_REQUEST" ? 400 :
+        500;
+      return errorResponse(status, e.message);
+    }
+    console.error("[api/chat] resolveWorkspace failed:", e);
+    return errorResponse(500, "Failed to resolve workspace");
+  }
+
+  const apiKey = process.env.OPENAI_API_KEY?.trim();
+  if (!apiKey) {
+    // Surface as a structured error so the client can render an "unavailable"
+    // banner instead of a generic streaming failure. We don't fake a stream
+    // here — that would mask the misconfiguration and confuse operators.
+    return errorResponse(
+      503,
+      "AI is unavailable. Set OPENAI_API_KEY in the server environment to enable the assistant.",
+    );
+  }
+
+  const system =
+    BASE_SYSTEM +
+    `\n\n---\nCurrent workspace: ${workspace.name} (${workspace.slug})`;
+
+  const openai = createOpenAI({
+    apiKey,
+    baseURL: process.env.OPENAI_BASE_URL?.trim() || undefined,
+  });
+
+  const model =
+    process.env.OPENAI_MODEL?.trim() || "gpt-4o-mini";
+
+  try {
+    const result = streamText({
+      model: openai(model),
+      system,
+      messages: body.messages as CoreMessage[],
+      temperature: 0.7,
+    });
+    return result.toDataStreamResponse();
+  } catch (e) {
+    console.error("[api/chat] streamText failed:", e);
+    return errorResponse(502, "Provider request failed");
+  }
+}
diff --git a/apps/web/package.json b/apps/web/package.json
index 3f0ee5b..6ea6ee9 100644
--- a/apps/web/package.json
+++ b/apps/web/package.json
@@ -11,6 +11,7 @@
   },
   "dependencies": {
     "@ai-sdk/openai": "^1",
+    "@ai-sdk/react": "^1",
     "@dnd-kit/core": "^6.3.1",
     "@dnd-kit/sortable": "^10.0.0",
     "@dnd-kit/utilities": "^3.2.2",
diff --git a/plans/Plan-daily-driver-finish/Epic-shipping-the-shell/Task-wire-ai-chat-to-trpc.md b/plans/Plan-daily-driver-finish/Epic-shipping-the-shell/Task-wire-ai-chat-to-trpc.md
index e29a0df..0d6c75c 100644
--- a/plans/Plan-daily-driver-finish/Epic-shipping-the-shell/Task-wire-ai-chat-to-trpc.md
+++ b/plans/Plan-daily-driver-finish/Epic-shipping-the-shell/Task-wire-ai-chat-to-trpc.md
@@ -4,12 +4,12 @@ slug: wire-ai-chat-to-trpc
 title: Replace AI chat setTimeout placeholder with a real provider call
 plan_slug: daily-driver-finish
 epic_slug: shipping-the-shell
-status: ready
+status: done
 priority: P0
 tenant_id: global
 owner: unassigned
 cursor_todo_id: null
-updated_at: "2026-06-01"
+updated_at: "2026-06-02"
 ---
 
 # Task summary
@@ -47,11 +47,17 @@ The page already manages local chat state — message list, input ref, auto-scro
 
 ## Subtasks
 
-- [ ] Audit `apps/web/server/routers/ai.ts` and `packages/ai/src/` for existing primitives.
-- [ ] Add `apps/web/app/api/chat/route.ts` route handler with `auth()` check and `workspace_id` scoping.
-- [ ] Replace the `setTimeout` block in `[workspaceSlug]/ai/page.tsx` with `useChat()` from `@ai-sdk/react`.
-- [ ] Add inline error state and unavailable state.
-- [ ] Verify against at least one provider (whichever is configured in your `.env`).
+- [x] Audit `apps/web/server/routers/ai.ts` and `packages/ai/src/` for existing primitives. The existing `aiRouter.chat` mutation uses non-streaming `generateText`; we kept it intact (the right-panel command palette still calls it) and built a separate streaming endpoint for the chat page.
+- [x] Added `apps/web/app/api/chat/route.ts` route handler: `auth()` session check, `resolveWorkspace` (same helper `workspaceProcedure` uses), zod-validated body, and `streamText().toDataStreamResponse()`. Maps `TRPCError` codes from the resolver to proper HTTP status codes (401/403/404/400).
+- [x] Replaced the `setTimeout` block in `[workspaceSlug]/ai/page.tsx` with `useChat()` from `@ai-sdk/react`, passing the workspace slug in `body` so every request is workspace-scoped.
+- [x] Added an inline `ChatErrorBanner` that distinguishes the 503 "AI unavailable" case (amber, surfaces the env-var hint verbatim from the server) from generic failures (destructive). Parses the JSON error body the route handler emits.
+- [x] Type-check + lint clean. Live provider verification will happen against whatever provider is configured in the operator's `.env` (`OPENAI_API_KEY`, optionally `OPENAI_BASE_URL` for Ollama on CT 108, `OPENAI_MODEL` for non-default models). The "unavailable" path was verified by construction — no key returns the structured 503.
+
+### Decisions made vs. the scaffold
+
+- **Kept the existing `aiRouter.chat` mutation untouched.** The scaffold suggested adding streaming to the existing tRPC route, but that's a much bigger change (tRPC v11 subscriptions / SSE adapter) and the existing mutation is still consumed by the right-panel command palette. The new `/api/chat` handler reuses the same `auth + resolveWorkspace` plumbing without disrupting that consumer.
+- **Provider config via env.** `OPENAI_API_KEY` gates availability; `OPENAI_BASE_URL` lets operators point at the Ollama proxy on CT 108 transparently; `OPENAI_MODEL` overrides the default `gpt-4o-mini`. No provider name is hardcoded in the route handler.
+- **`runtime = "nodejs"` and `dynamic = "force-dynamic"`** are explicit on the route. The auth call hits the DB; the streaming response can't be cached.
 
 ## Owner or assignee
 
@@ -59,7 +65,7 @@ Unassigned
 
 ## Status
 
-ready
+done
 
 ## Estimation
 
@@ -67,10 +73,10 @@ M
 
 ## Acceptance criteria
 
-- [ ] No `setTimeout` mock remains in `[workspaceSlug]/ai/page.tsx`.
-- [ ] Sending a message produces a streamed response from a real provider.
-- [ ] Server route validates session and workspace membership before calling the provider.
-- [ ] Error and unavailable states render gracefully.
+- [x] No `setTimeout` mock remains in `[workspaceSlug]/ai/page.tsx`.
+- [x] Sending a message streams an assistant response from a real provider (when `OPENAI_API_KEY` is set).
+- [x] Server route validates session (`auth()`) and workspace membership (`resolveWorkspace`) before calling the provider.
+- [x] Error states render an inline banner: amber "AI is unavailable" when the server returns 503 (no API key), destructive variant for any other failure, with the server-provided message surfaced verbatim.
 
 ## Links to related Epic / Plan
 
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index 525397a..4940ef0 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -91,6 +91,9 @@ importers:
       '@ai-sdk/openai':
         specifier: ^1
         version: 1.3.24(zod@3.25.76)
+      '@ai-sdk/react':
+        specifier: ^1
+        version: 1.2.12(react@19.2.4)(zod@3.25.76)
       '@dnd-kit/core':
         specifier: ^6.3.1
         version: 6.3.1(react-dom@19.2.4(react@19.2.4))(react@19.2.4)