diff --git a/packages/cli/src/ui/hooks/useGeminiStream.ts b/packages/cli/src/ui/hooks/useGeminiStream.ts
index caf82a47..5e741547 100644
--- a/packages/cli/src/ui/hooks/useGeminiStream.ts
+++ b/packages/cli/src/ui/hooks/useGeminiStream.ts
@@ -28,6 +28,7 @@ import {
   ToolCallStatus,
 } from '../types.js';
 import { isAtCommand } from '../utils/commandUtils.js';
+import { parseAndFormatApiError } from '../utils/errorParsing.js';
 import { useShellCommandProcessor } from './shellCommandProcessor.js';
 import { handleAtCommand } from './atCommandProcessor.js';
 import { findLastSafeSplitPoint } from '../utils/markdownUtilities.js';
@@ -467,7 +468,9 @@ export const useGeminiStream = (
           addItem(
             {
               type: MessageType.ERROR,
-              text: `[Stream Error: ${getErrorMessage(error) || 'Unknown error'}]`,
+              text: parseAndFormatApiError(
+                getErrorMessage(error) || 'Unknown error',
+              ),
             },
             userMessageTimestamp,
           );
diff --git a/packages/cli/src/ui/utils/errorParsing.test.ts b/packages/cli/src/ui/utils/errorParsing.test.ts
new file mode 100644
index 00000000..afee5793
--- /dev/null
+++ b/packages/cli/src/ui/utils/errorParsing.test.ts
@@ -0,0 +1,56 @@
+/**
+ * @license
+ * Copyright 2025 Google LLC
+ * SPDX-License-Identifier: Apache-2.0
+ */
+
+import { describe, it, expect } from 'vitest';
+import { parseAndFormatApiError } from './errorParsing.js';
+
+describe('parseAndFormatApiError', () => {
+  it('should format a valid API error JSON', () => {
+    const errorMessage =
+      'got status: 400 Bad Request. {"error":{"code":400,"message":"API key not valid. Please pass a valid API key.","status":"INVALID_ARGUMENT"}}';
+    const expected =
+      'API Error: API key not valid. Please pass a valid API key. (Status: INVALID_ARGUMENT)';
+    expect(parseAndFormatApiError(errorMessage)).toBe(expected);
+  });
+
+  it('should return the original message if it is not a JSON error', () => {
+    const errorMessage = 'This is a plain old error message';
+    expect(parseAndFormatApiError(errorMessage)).toBe(errorMessage);
+  });
+
+  it('should return the original message for malformed JSON', () => {
+    const errorMessage = '[Stream Error: {"error": "malformed}';
+    expect(parseAndFormatApiError(errorMessage)).toBe(errorMessage);
+  });
+
+  it('should handle JSON that does not match the ApiError structure', () => {
+    const errorMessage = '[Stream Error: {"not_an_error": "some other json"}]';
+    expect(parseAndFormatApiError(errorMessage)).toBe(errorMessage);
+  });
+
+  it('should format a nested API error', () => {
+    const nestedErrorMessage = JSON.stringify({
+      error: {
+        code: 429,
+        message:
+          "Gemini 2.5 Pro Preview doesn't have a free quota tier. For more information on this error, head to: https://ai.google.dev/gemini-api/docs/rate-limits.",
+        status: 'RESOURCE_EXHAUSTED',
+      },
+    });
+
+    const errorMessage = JSON.stringify({
+      error: {
+        code: 429,
+        message: nestedErrorMessage,
+        status: 'Too Many Requests',
+      },
+    });
+
+    expect(parseAndFormatApiError(errorMessage)).toBe(
+      "API Error: Gemini 2.5 Pro Preview doesn't have a free quota tier. For more information on this error, head to: https://ai.google.dev/gemini-api/docs/rate-limits. (Status: Too Many Requests)",
+    );
+  });
+});
diff --git a/packages/cli/src/ui/utils/errorParsing.ts b/packages/cli/src/ui/utils/errorParsing.ts
new file mode 100644
index 00000000..aec337b6
--- /dev/null
+++ b/packages/cli/src/ui/utils/errorParsing.ts
@@ -0,0 +1,56 @@
+/**
+ * @license
+ * Copyright 2025 Google LLC
+ * SPDX-License-Identifier: Apache-2.0
+ */
+
+export interface ApiError {
+  error: {
+    code: number;
+    message: string;
+    status: string;
+    details: unknown[];
+  };
+}
+
+function isApiError(error: unknown): error is ApiError {
+  return (
+    typeof error === 'object' &&
+    error !== null &&
+    'error' in error &&
+    typeof (error as ApiError).error === 'object' &&
+    'message' in (error as ApiError).error
+  );
+}
+
+export function parseAndFormatApiError(errorMessage: string): string {
+  // The error message might be prefixed with some text, like "[Stream Error: ...]".
+  // We want to find the start of the JSON object.
+  const jsonStart = errorMessage.indexOf('{');
+  if (jsonStart === -1) {
+    return errorMessage; // Not a JSON error, return as is.
+  }
+
+  const jsonString = errorMessage.substring(jsonStart);
+
+  try {
+    const error = JSON.parse(jsonString) as unknown;
+    if (isApiError(error)) {
+      let finalMessage = error.error.message;
+      try {
+        // See if the message is a stringified JSON with another error
+        const nestedError = JSON.parse(finalMessage) as unknown;
+        if (isApiError(nestedError)) {
+          finalMessage = nestedError.error.message;
+        }
+      } catch (_e) {
+        // It's not a nested JSON error, so we just use the message as is.
+      }
+      return `API Error: ${finalMessage} (Status: ${error.error.status})`;
+    }
+  } catch (_e) {
+    // Not a valid JSON, fall through and return the original message.
+  }
+
+  return errorMessage;
+}