diff --git a/.gitignore b/.gitignore
index 96c6ce08d..88c030f26 100644
--- a/.gitignore
+++ b/.gitignore
@@ -7,6 +7,7 @@ evals
 /cagent
 .crush
 .vscode
+.idea/
 *.debug
 
 # agents
diff --git a/examples/welcome_message.yaml b/examples/welcome_message.yaml
old mode 100644
new mode 100755
index c920c68b3..a67b3815c
--- a/examples/welcome_message.yaml
+++ b/examples/welcome_message.yaml
@@ -10,10 +10,10 @@ agents:
       I'm your AI assistant, ready to help you with various tasks.
       
       Here are some things I can do:
-      - Answer questions and provide information
-      - Help with coding and technical problems
-      - Assist with writing and content creation
-      - And much more!
+        - Answer questions and provide information
+        - Help with coding and technical problems
+        - Assist with writing and content creation
+        - And much more!
       
       Just type your question or request below to get started.
     instruction: |
diff --git a/pkg/tui/components/markdown/renderer.go b/pkg/tui/components/markdown/renderer.go
index 5de6e1f73..210336bfc 100644
--- a/pkg/tui/components/markdown/renderer.go
+++ b/pkg/tui/components/markdown/renderer.go
@@ -29,6 +29,7 @@ func NewGlamourRenderer(width int) *glamour.TermRenderer {
 	r, _ := glamour.NewTermRenderer(
 		glamour.WithWordWrap(width),
 		glamour.WithStyles(style),
+		glamour.WithPreservedNewLines(),
 	)
 	return r
 }
diff --git a/pkg/tui/components/message/message.go b/pkg/tui/components/message/message.go
index 728f56797..533816dc4 100644
--- a/pkg/tui/components/message/message.go
+++ b/pkg/tui/components/message/message.go
@@ -148,7 +148,11 @@ func (mv *messageModel) Render(width int) string {
 		return styles.WarningStyle.Render("⚠ stream cancelled ⚠")
 	case types.MessageTypeWelcome:
 		messageStyle := styles.WelcomeMessageStyle
-		rendered, err := markdown.NewRenderer(width - messageStyle.GetHorizontalFrameSize()).Render(msg.Content)
+		// Convert explicit newlines to markdown hard line breaks (two trailing spaces)
+		// This preserves line breaks from YAML multiline syntax (|) while still
+		// allowing markdown formatting like **bold** and *italic*
+		content := preserveLineBreaks(msg.Content)
+		rendered, err := markdown.NewRenderer(width - messageStyle.GetHorizontalFrameSize()).Render(content)
 		if err != nil {
 			rendered = msg.Content
 		}
@@ -223,3 +227,38 @@ var ansiEscape = regexp.MustCompile("\x1b\\[[0-9;]*m")
 func stripANSI(s string) string {
 	return ansiEscape.ReplaceAllString(s, "")
 }
+
+// preserveLineBreaks preserves leading indentation by converting leading spaces
+// to non-breaking spaces (U+00A0) which won't be stripped by markdown parsers.
+// Line breaks are handled by glamour.WithPreservedNewLines().
+func preserveLineBreaks(s string) string {
+	if !strings.Contains(s, "\n") {
+		return preserveIndentation(s)
+	}
+	lines := strings.Split(s, "\n")
+	for i, line := range lines {
+		lines[i] = preserveIndentation(line)
+	}
+	return strings.Join(lines, "\n")
+}
+
+// preserveIndentation converts leading spaces in a line to non-breaking spaces (U+00A0).
+// This prevents markdown parsers from stripping leading whitespace while maintaining
+// the same visual appearance in terminal output.
+func preserveIndentation(line string) string {
+	if line == "" || line[0] != ' ' {
+		return line
+	}
+	leadingSpaces := 0
+	for _, c := range line {
+		if c == ' ' {
+			leadingSpaces++
+		} else {
+			break
+		}
+	}
+	if leadingSpaces == 0 {
+		return line
+	}
+	return strings.Repeat("\u00A0", leadingSpaces) + line[leadingSpaces:]
+}
diff --git a/pkg/tui/components/message/message_test.go b/pkg/tui/components/message/message_test.go
index 6e59bd27d..c27915a68 100644
--- a/pkg/tui/components/message/message_test.go
+++ b/pkg/tui/components/message/message_test.go
@@ -84,3 +84,132 @@ func TestErrorMessagePreservesContent(t *testing.T) {
 	assert.Contains(t, plainRendered, "database")
 	assert.Contains(t, plainRendered, "timeout")
 }
+
+func TestPreserveLineBreaks(t *testing.T) {
+	t.Parallel()
+	const nbsp = "\u00A0"
+	tests := []struct {
+		name     string
+		input    string
+		expected string
+	}{
+		{
+			name:     "single line unchanged",
+			input:    "Hello world",
+			expected: "Hello world",
+		},
+		{
+			name:     "two lines preserved",
+			input:    "Line one\nLine two",
+			expected: "Line one\nLine two",
+		},
+		{
+			name:     "empty line preserved",
+			input:    "Para one\n\nPara two",
+			expected: "Para one\n\nPara two",
+		},
+		{
+			name:     "trailing newline preserved",
+			input:    "Line one\n",
+			expected: "Line one\n",
+		},
+		{
+			name:     "multiple lines with indentation preserved as nbsp",
+			input:    "Hello\n   indented\nback",
+			expected: "Hello\n" + nbsp + nbsp + nbsp + "indented\nback",
+		},
+		{
+			name:     "single line with leading spaces",
+			input:    "  indented",
+			expected: nbsp + nbsp + "indented",
+		},
+		{
+			name:     "tabs are not converted",
+			input:    "\tindented",
+			expected: "\tindented",
+		},
+	}
+	for _, tc := range tests {
+		t.Run(tc.name, func(t *testing.T) {
+			t.Parallel()
+			result := preserveLineBreaks(tc.input)
+			assert.Equal(t, tc.expected, result)
+		})
+	}
+}
+
+func TestPreserveIndentation(t *testing.T) {
+	t.Parallel()
+	const nbsp = "\u00A0"
+	tests := []struct {
+		name     string
+		input    string
+		expected string
+	}{
+		{
+			name:     "no indentation",
+			input:    "hello",
+			expected: "hello",
+		},
+		{
+			name:     "empty string",
+			input:    "",
+			expected: "",
+		},
+		{
+			name:     "single leading space",
+			input:    " hello",
+			expected: nbsp + "hello",
+		},
+		{
+			name:     "multiple leading spaces",
+			input:    "   hello",
+			expected: nbsp + nbsp + nbsp + "hello",
+		},
+		{
+			name:     "only spaces",
+			input:    "   ",
+			expected: nbsp + nbsp + nbsp,
+		},
+		{
+			name:     "spaces in middle not converted",
+			input:    "hello world",
+			expected: "hello world",
+		},
+		{
+			name:     "leading spaces with spaces in middle",
+			input:    "  hello world",
+			expected: nbsp + nbsp + "hello world",
+		},
+	}
+	for _, tc := range tests {
+		t.Run(tc.name, func(t *testing.T) {
+			t.Parallel()
+			result := preserveIndentation(tc.input)
+			assert.Equal(t, tc.expected, result)
+		})
+	}
+}
+
+func TestWelcomeMessagePreservesLineBreaks(t *testing.T) {
+	t.Parallel()
+
+	// Simulate YAML multiline content with | syntax
+	welcomeContent := "Welcome!\n   indented line\nregular line"
+	msg := types.Welcome(welcomeContent)
+	mv := New(msg, nil)
+
+	width := 80
+	mv.SetSize(width, 0)
+
+	rendered := mv.View()
+	require.NotEmpty(t, rendered)
+
+	// The rendered output should have separate lines (hard breaks preserved)
+	lines := strings.Split(rendered, "\n")
+	assert.Greater(t, len(lines), 2, "Welcome message should preserve line breaks")
+
+	// Verify indentation is preserved in the output
+	plainRendered := stripANSI(rendered)
+	assert.Contains(t, plainRendered, "indented")
+}