diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index 9c2a9bbd..c6e4b440 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -10,6 +10,7 @@
 
 ### Added
 
+- Skill invocation messages are now collapsible in chat output, showing collapsed by default with skill name and expand hint ([#894](https://github.com/badlogic/pi-mono/issues/894))
 - Header values in `models.json` now support environment variables and shell commands, matching `apiKey` resolution ([#909](https://github.com/badlogic/pi-mono/issues/909))
 - `markdown.codeBlockIndent` setting to customize code block indentation in rendered output
 - Extension package management with `pi install`, `pi remove`, `pi update`, and `pi list` commands ([#645](https://github.com/badlogic/pi-mono/issues/645))
diff --git a/packages/coding-agent/src/core/agent-session.ts b/packages/coding-agent/src/core/agent-session.ts
index 2da0677d..78a87e15 100644
--- a/packages/coding-agent/src/core/agent-session.ts
+++ b/packages/coding-agent/src/core/agent-session.ts
@@ -70,6 +70,33 @@ import { buildSystemPrompt } from "./system-prompt.js";
 import type { BashOperations } from "./tools/bash.js";
 import { createAllTools } from "./tools/index.js";
 
+// ============================================================================
+// Skill Block Parsing
+// ============================================================================
+
+/** Parsed skill block from a user message */
+export interface ParsedSkillBlock {
+	name: string;
+	location: string;
+	content: string;
+	userMessage: string | undefined;
+}
+
+/**
+ * Parse a skill block from message text.
+ * Returns null if the text doesn't contain a skill block.
+ */
+export function parseSkillBlock(text: string): ParsedSkillBlock | null {
+	const match = text.match(/^<skill name="([^"]+)" location="([^"]+)">\n([\s\S]*?)\n<\/skill>(?:\n\n([\s\S]+))?$/);
+	if (!match) return null;
+	return {
+		name: match[1],
+		location: match[2],
+		content: match[3],
+		userMessage: match[4]?.trim() || undefined,
+	};
+}
+
 /** Session-specific events that extend the core AgentEvent */
 export type AgentSessionEvent =
 	| AgentEvent
@@ -796,9 +823,8 @@ export class AgentSession {
 		try {
 			const content = readFileSync(skill.filePath, "utf-8");
 			const body = stripFrontmatter(content).trim();
-			const header = `Skill location: ${skill.filePath}\nReferences are relative to ${skill.baseDir}.`;
-			const skillMessage = `${header}\n\n${body}`;
-			return args ? `${skillMessage}\n\n---\n\nUser: ${args}` : skillMessage;
+			const skillBlock = `<skill name="${skill.name}" location="${skill.filePath}">\nReferences are relative to ${skill.baseDir}.\n\n${body}\n</skill>`;
+			return args ? `${skillBlock}\n\n${args}` : skillBlock;
 		} catch (err) {
 			// Emit error like extension commands do
 			this._extensionRunner?.emitError({
diff --git a/packages/coding-agent/src/index.ts b/packages/coding-agent/src/index.ts
index ecf08a77..66ee85b7 100644
--- a/packages/coding-agent/src/index.ts
+++ b/packages/coding-agent/src/index.ts
@@ -8,7 +8,9 @@ export {
 	type AgentSessionEvent,
 	type AgentSessionEventListener,
 	type ModelCycleResult,
+	type ParsedSkillBlock,
 	type PromptOptions,
+	parseSkillBlock,
 	type SessionStats,
 } from "./core/agent-session.js";
 // Auth and model registry
@@ -260,6 +262,7 @@ export {
 	type SettingsConfig,
 	SettingsSelectorComponent,
 	ShowImagesSelectorComponent,
+	SkillInvocationMessageComponent,
 	ThemeSelectorComponent,
 	ThinkingSelectorComponent,
 	ToolExecutionComponent,
diff --git a/packages/coding-agent/src/modes/interactive/components/index.ts b/packages/coding-agent/src/modes/interactive/components/index.ts
index 2676e2cd..a148f27d 100644
--- a/packages/coding-agent/src/modes/interactive/components/index.ts
+++ b/packages/coding-agent/src/modes/interactive/components/index.ts
@@ -21,6 +21,7 @@ export { type ModelsCallbacks, type ModelsConfig, ScopedModelsSelectorComponent
 export { SessionSelectorComponent } from "./session-selector.js";
 export { type SettingsCallbacks, type SettingsConfig, SettingsSelectorComponent } from "./settings-selector.js";
 export { ShowImagesSelectorComponent } from "./show-images-selector.js";
+export { SkillInvocationMessageComponent } from "./skill-invocation-message.js";
 export { ThemeSelectorComponent } from "./theme-selector.js";
 export { ThinkingSelectorComponent } from "./thinking-selector.js";
 export { ToolExecutionComponent, type ToolExecutionOptions } from "./tool-execution.js";
diff --git a/packages/coding-agent/src/modes/interactive/components/skill-invocation-message.ts b/packages/coding-agent/src/modes/interactive/components/skill-invocation-message.ts
new file mode 100644
index 00000000..47732e67
--- /dev/null
+++ b/packages/coding-agent/src/modes/interactive/components/skill-invocation-message.ts
@@ -0,0 +1,55 @@
+import { Box, Markdown, type MarkdownTheme, Text } from "@mariozechner/pi-tui";
+import type { ParsedSkillBlock } from "../../../core/agent-session.js";
+import { getMarkdownTheme, theme } from "../theme/theme.js";
+import { editorKey } from "./keybinding-hints.js";
+
+/**
+ * Component that renders a skill invocation message with collapsed/expanded state.
+ * Uses same background color as custom messages for visual consistency.
+ * Only renders the skill block itself - user message is rendered separately.
+ */
+export class SkillInvocationMessageComponent extends Box {
+	private expanded = false;
+	private skillBlock: ParsedSkillBlock;
+	private markdownTheme: MarkdownTheme;
+
+	constructor(skillBlock: ParsedSkillBlock, markdownTheme: MarkdownTheme = getMarkdownTheme()) {
+		super(1, 1, (t) => theme.bg("customMessageBg", t));
+		this.skillBlock = skillBlock;
+		this.markdownTheme = markdownTheme;
+		this.updateDisplay();
+	}
+
+	setExpanded(expanded: boolean): void {
+		this.expanded = expanded;
+		this.updateDisplay();
+	}
+
+	override invalidate(): void {
+		super.invalidate();
+		this.updateDisplay();
+	}
+
+	private updateDisplay(): void {
+		this.clear();
+
+		if (this.expanded) {
+			// Expanded: label + skill name header + full content
+			const label = theme.fg("customMessageLabel", `\x1b[1m[skill]\x1b[22m`);
+			this.addChild(new Text(label, 0, 0));
+			const header = `**${this.skillBlock.name}**\n\n`;
+			this.addChild(
+				new Markdown(header + this.skillBlock.content, 0, 0, this.markdownTheme, {
+					color: (text: string) => theme.fg("customMessageText", text),
+				}),
+			);
+		} else {
+			// Collapsed: single line - [skill] name (hint to expand)
+			const line =
+				theme.fg("customMessageLabel", `\x1b[1m[skill]\x1b[22m `) +
+				theme.fg("customMessageText", this.skillBlock.name) +
+				theme.fg("dim", ` (${editorKey("expandTools")} to expand)`);
+			this.addChild(new Text(line, 0, 0));
+		}
+	}
+}
diff --git a/packages/coding-agent/src/modes/interactive/interactive-mode.ts b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
index ab4455d8..ecd1708b 100644
--- a/packages/coding-agent/src/modes/interactive/interactive-mode.ts
+++ b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
@@ -52,7 +52,7 @@ import {
 	isBunRuntime,
 	VERSION,
 } from "../../config.js";
-import type { AgentSession, AgentSessionEvent } from "../../core/agent-session.js";
+import { type AgentSession, type AgentSessionEvent, parseSkillBlock } from "../../core/agent-session.js";
 import type { CompactionResult } from "../../core/compaction/index.js";
 import type {
 	ExtensionContext,
@@ -91,6 +91,7 @@ import { OAuthSelectorComponent } from "./components/oauth-selector.js";
 import { ScopedModelsSelectorComponent } from "./components/scoped-models-selector.js";
 import { SessionSelectorComponent } from "./components/session-selector.js";
 import { SettingsSelectorComponent } from "./components/settings-selector.js";
+import { SkillInvocationMessageComponent } from "./components/skill-invocation-message.js";
 import { ToolExecutionComponent } from "./components/tool-execution.js";
 import { TreeSelectorComponent } from "./components/tree-selector.js";
 import { UserMessageComponent } from "./components/user-message.js";
@@ -2030,8 +2031,28 @@ export class InteractiveMode {
 			case "user": {
 				const textContent = this.getUserMessageText(message);
 				if (textContent) {
-					const userComponent = new UserMessageComponent(textContent, this.getMarkdownThemeWithSettings());
-					this.chatContainer.addChild(userComponent);
+					const skillBlock = parseSkillBlock(textContent);
+					if (skillBlock) {
+						// Render skill block (collapsible)
+						this.chatContainer.addChild(new Spacer(1));
+						const component = new SkillInvocationMessageComponent(
+							skillBlock,
+							this.getMarkdownThemeWithSettings(),
+						);
+						component.setExpanded(this.toolOutputExpanded);
+						this.chatContainer.addChild(component);
+						// Render user message separately if present
+						if (skillBlock.userMessage) {
+							const userComponent = new UserMessageComponent(
+								skillBlock.userMessage,
+								this.getMarkdownThemeWithSettings(),
+							);
+							this.chatContainer.addChild(userComponent);
+						}
+					} else {
+						const userComponent = new UserMessageComponent(textContent, this.getMarkdownThemeWithSettings());
+						this.chatContainer.addChild(userComponent);
+					}
 					if (options?.populateHistory) {
 						this.editor.addToHistory?.(textContent);
 					}