diff --git a/packages/compass-assistant/src/compass-assistant-provider.spec.tsx b/packages/compass-assistant/src/compass-assistant-provider.spec.tsx
index c81f43ecf67..58351688d07 100644
--- a/packages/compass-assistant/src/compass-assistant-provider.spec.tsx
+++ b/packages/compass-assistant/src/compass-assistant-provider.spec.tsx
@@ -10,6 +10,7 @@ import {
 } from '@mongodb-js/testing-library-compass';
 import {
   CompassAssistantProvider,
+  createDefaultChat,
   useAssistantActions,
   type AssistantMessage,
 } from './compass-assistant-provider';
@@ -24,8 +25,10 @@ import {
 import type { AtlasAuthService } from '@mongodb-js/atlas-service/provider';
 import type { AtlasService } from '@mongodb-js/atlas-service/provider';
 import { CompassAssistantDrawer } from './compass-assistant-drawer';
-import { createMockChat } from '../test/utils';
+import { createBrokenTransport, createMockChat } from '../test/utils';
 import type { AtlasAiService } from '@mongodb-js/compass-generative-ai/provider';
+import type { TrackFunction } from '@mongodb-js/compass-telemetry';
+import { createLogger } from '@mongodb-js/compass-logging';
 
 function createMockProvider({
   mockAtlasService,
@@ -463,6 +466,44 @@ describe('CompassAssistantProvider', function () {
       expect(screen.queryByText('Hello assistant!')).to.not.exist;
     });
 
+    describe('error handling with default chat', function () {
+      it('fires a telemetry event and displays error banner when error occurs', async function () {
+        const track = sinon.stub();
+        const chat = createDefaultChat({
+          options: {
+            transport: createBrokenTransport(),
+          },
+          originForPrompt: 'mongodb-compass',
+          appNameForPrompt: 'MongoDB Compass',
+          atlasService: {
+            assistantApiEndpoint: sinon
+              .stub()
+              .returns('https://localhost:3000'),
+          } as unknown as AtlasService,
+          logger: createLogger('COMPASS-ASSISTANT-TEST'),
+          track: track as unknown as TrackFunction,
+        });
+        await renderOpenAssistantDrawer({
+          chat,
+        });
+
+        // Send a message
+        userEvent.type(
+          screen.getByPlaceholderText('Ask a question'),
+          'Hello assistant!'
+        );
+        userEvent.click(screen.getByLabelText('Send message'));
+
+        await waitFor(() => {
+          expect(screen.getByText(/Test connection error/)).to.exist;
+        });
+
+        expect(track).to.have.been.calledWith('Assistant Response Failed', {
+          error_name: 'ConnectionError',
+        });
+      });
+    });
+
     describe('clear chat button', function () {
       it('is hidden when the chat is empty', async function () {
         const mockChat = createMockChat({ messages: [] });
@@ -613,49 +654,47 @@ describe('CompassAssistantProvider', function () {
     });
   });
 
-  describe('CompassAssistantProvider', function () {
-    it('uses the Atlas Service assistantApiEndpoint', async function () {
-      const mockAtlasService = {
-        assistantApiEndpoint: sinon
-          .stub()
-          .returns('https://example.com/assistant/api/v1'),
-      };
+  it('uses the Atlas Service assistantApiEndpoint', async function () {
+    const mockAtlasService = {
+      assistantApiEndpoint: sinon
+        .stub()
+        .returns('https://example.com/assistant/api/v1'),
+    };
 
-      const mockAtlasAiService = {
-        ensureAiFeatureAccess: sinon.stub().callsFake(() => {
-          return Promise.resolve();
-        }),
-      };
+    const mockAtlasAiService = {
+      ensureAiFeatureAccess: sinon.stub().callsFake(() => {
+        return Promise.resolve();
+      }),
+    };
 
-      const mockAtlasAuthService = {};
+    const mockAtlasAuthService = {};
 
-      const MockedProvider = CompassAssistantProvider.withMockServices({
-        atlasService: mockAtlasService as unknown as AtlasService,
-        atlasAiService: mockAtlasAiService as unknown as AtlasAiService,
-        atlasAuthService: mockAtlasAuthService as unknown as AtlasAuthService,
-      });
+    const MockedProvider = CompassAssistantProvider.withMockServices({
+      atlasService: mockAtlasService as unknown as AtlasService,
+      atlasAiService: mockAtlasAiService as unknown as AtlasAiService,
+      atlasAuthService: mockAtlasAuthService as unknown as AtlasAuthService,
+    });
 
-      render(
-        <DrawerContentProvider>
-          <DrawerAnchor />
-          <MockedProvider
-            originForPrompt="mongodb-compass"
-            appNameForPrompt="MongoDB Compass"
-          />
-        </DrawerContentProvider>,
-        {
-          preferences: {
-            enableAIAssistant: true,
-            enableGenAIFeatures: true,
-            enableGenAIFeaturesAtlasOrg: true,
-            cloudFeatureRolloutAccess: { GEN_AI_COMPASS: true },
-          },
-        }
-      );
+    render(
+      <DrawerContentProvider>
+        <DrawerAnchor />
+        <MockedProvider
+          originForPrompt="mongodb-compass"
+          appNameForPrompt="MongoDB Compass"
+        />
+      </DrawerContentProvider>,
+      {
+        preferences: {
+          enableAIAssistant: true,
+          enableGenAIFeatures: true,
+          enableGenAIFeaturesAtlasOrg: true,
+          cloudFeatureRolloutAccess: { GEN_AI_COMPASS: true },
+        },
+      }
+    );
 
-      await waitFor(() => {
-        expect(mockAtlasService.assistantApiEndpoint.calledOnce).to.be.true;
-      });
+    await waitFor(() => {
+      expect(mockAtlasService.assistantApiEndpoint.calledOnce).to.be.true;
     });
   });
 });
diff --git a/packages/compass-assistant/src/compass-assistant-provider.tsx b/packages/compass-assistant/src/compass-assistant-provider.tsx
index 8fd88a8dd7f..e9ced74b509 100644
--- a/packages/compass-assistant/src/compass-assistant-provider.tsx
+++ b/packages/compass-assistant/src/compass-assistant-provider.tsx
@@ -8,6 +8,7 @@ import {
 } from '@mongodb-js/compass-app-registry';
 import {
   atlasAuthServiceLocator,
+  type AtlasService,
   atlasServiceLocator,
 } from '@mongodb-js/atlas-service/provider';
 import { DocsProviderTransport } from './docs-provider-transport';
@@ -23,9 +24,16 @@ import {
   useIsAIFeatureEnabled,
   usePreference,
 } from 'compass-preferences-model/provider';
-import { createLoggerLocator } from '@mongodb-js/compass-logging/provider';
+import {
+  createLoggerLocator,
+  type Logger,
+} from '@mongodb-js/compass-logging/provider';
 import type { ConnectionInfo } from '@mongodb-js/connection-info';
-import { useTelemetry } from '@mongodb-js/compass-telemetry/provider';
+import {
+  telemetryLocator,
+  type TrackFunction,
+  useTelemetry,
+} from '@mongodb-js/compass-telemetry/provider';
 import type { AtlasAiService } from '@mongodb-js/compass-generative-ai/provider';
 import { atlasAiServiceLocator } from '@mongodb-js/compass-generative-ai/provider';
 import { buildConversationInstructionsPrompt } from './prompts';
@@ -280,29 +288,20 @@ export const CompassAssistantProvider = registerCompassPlugin(
         </AssistantProvider>
       );
     },
-    activate: (initialProps, { atlasService, atlasAiService, logger }) => {
+    activate: (
+      { chat: initialChat, originForPrompt, appNameForPrompt },
+      { atlasService, atlasAiService, logger, track }
+    ) => {
       const chat =
-        initialProps.chat ??
-        new Chat({
-          transport: new DocsProviderTransport({
-            origin: initialProps.originForPrompt,
-            instructions: buildConversationInstructionsPrompt({
-              target: initialProps.appNameForPrompt,
-            }),
-            model: createOpenAI({
-              baseURL: atlasService.assistantApiEndpoint(),
-              apiKey: '',
-            }).responses('mongodb-chat-latest'),
-          }),
-          onError: (err: Error) => {
-            logger.log.error(
-              logger.mongoLogId(1_001_000_370),
-              'Assistant',
-              'Failed to send a message',
-              { err }
-            );
-          },
+        initialChat ??
+        createDefaultChat({
+          originForPrompt,
+          appNameForPrompt,
+          atlasService,
+          logger,
+          track,
         });
+
       return {
         store: { state: { chat, atlasAiService } },
         deactivate: () => {},
@@ -313,6 +312,51 @@ export const CompassAssistantProvider = registerCompassPlugin(
     atlasService: atlasServiceLocator,
     atlasAiService: atlasAiServiceLocator,
     atlasAuthService: atlasAuthServiceLocator,
+    track: telemetryLocator,
     logger: createLoggerLocator('COMPASS-ASSISTANT'),
   }
 );
+
+export function createDefaultChat({
+  originForPrompt,
+  appNameForPrompt,
+  atlasService,
+  logger,
+  track,
+  options,
+}: {
+  originForPrompt: string;
+  appNameForPrompt: string;
+  atlasService: AtlasService;
+  logger: Logger;
+  track: TrackFunction;
+  options?: {
+    transport: Chat<AssistantMessage>['transport'];
+  };
+}): Chat<AssistantMessage> {
+  return new Chat({
+    transport:
+      options?.transport ??
+      new DocsProviderTransport({
+        origin: originForPrompt,
+        instructions: buildConversationInstructionsPrompt({
+          target: appNameForPrompt,
+        }),
+        model: createOpenAI({
+          baseURL: atlasService.assistantApiEndpoint(),
+          apiKey: '',
+        }).responses('mongodb-chat-latest'),
+      }),
+    onError: (err: Error) => {
+      logger.log.error(
+        logger.mongoLogId(1_001_000_370),
+        'Assistant',
+        'Failed to send a message',
+        { err }
+      );
+      track('Assistant Response Failed', {
+        error_name: err.name,
+      });
+    },
+  });
+}
diff --git a/packages/compass-assistant/src/components/assistant-chat.spec.tsx b/packages/compass-assistant/src/components/assistant-chat.spec.tsx
index b2c2fc54250..98a4d15d6d9 100644
--- a/packages/compass-assistant/src/components/assistant-chat.spec.tsx
+++ b/packages/compass-assistant/src/components/assistant-chat.spec.tsx
@@ -8,7 +8,7 @@ import {
 } from '@mongodb-js/testing-library-compass';
 import { AssistantChat } from './assistant-chat';
 import { expect } from 'chai';
-import { createMockChat } from '../../test/utils';
+import { createBrokenChat, createMockChat } from '../../test/utils';
 import type { ConnectionInfo } from '@mongodb-js/connection-info';
 import {
   AssistantActionsContext,
@@ -16,6 +16,7 @@ import {
 } from '../compass-assistant-provider';
 import sinon from 'sinon';
 import type { TextPart } from 'ai';
+import type { Chat } from '../@ai-sdk/react/chat-react';
 
 describe('AssistantChat', function () {
   const mockMessages: AssistantMessage[] = [
@@ -46,16 +47,13 @@ describe('AssistantChat', function () {
   ];
 
   function renderWithChat(
-    messages: AssistantMessage[],
+    chat: Chat<AssistantMessage>,
     {
       connections,
-      status,
     }: {
       connections?: ConnectionInfo[];
-      status?: 'submitted' | 'streaming';
     } = {}
   ) {
-    const chat = createMockChat({ messages, status });
     // The chat component does not use chat.sendMessage() directly, it uses
     // ensureOptInAndSend() via the AssistantActionsContext.
     const ensureOptInAndSendStub = sinon
@@ -86,7 +84,7 @@ describe('AssistantChat', function () {
   }
 
   it('renders input field and send button', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     const inputField = screen.getByPlaceholderText('Ask a question');
     const sendButton = screen.getByLabelText('Send message');
@@ -96,7 +94,7 @@ describe('AssistantChat', function () {
   });
 
   it('input field accepts text input', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     // eslint-disable-next-line @typescript-eslint/no-unnecessary-type-assertion
     const inputField = screen.getByPlaceholderText(
@@ -109,34 +107,36 @@ describe('AssistantChat', function () {
   });
 
   it('displays the disclaimer and welcome text', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
     expect(screen.getByText(/AI can make mistakes. Review for accuracy./)).to
       .exist;
   });
 
   it('displays the welcome text when there are no messages', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
     expect(screen.getByText(/Welcome to the MongoDB Assistant!/)).to.exist;
   });
 
   it('does not display the welcome text when there are messages', function () {
-    renderWithChat(mockMessages);
+    renderWithChat(createMockChat({ messages: mockMessages }));
     expect(screen.queryByText(/Welcome to the MongoDB Assistant!/)).to.not
       .exist;
   });
 
   it('displays loading state when chat status is submitted', function () {
-    renderWithChat([], { status: 'submitted' });
+    renderWithChat(createMockChat({ messages: [], status: 'submitted' }));
     expect(screen.getByText(/MongoDB Assistant is thinking/)).to.exist;
   });
 
   it('does not display loading in all other cases', function () {
-    renderWithChat(mockMessages, { status: 'streaming' });
+    renderWithChat(
+      createMockChat({ messages: mockMessages, status: 'streaming' })
+    );
     expect(screen.queryByText(/MongoDB Assistant is thinking/)).to.not.exist;
   });
 
   it('send button is disabled when input is empty', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     // eslint-disable-next-line @typescript-eslint/no-unnecessary-type-assertion
     const sendButton = screen.getByLabelText(
@@ -147,7 +147,7 @@ describe('AssistantChat', function () {
   });
 
   it('send button is enabled when input has text', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     const inputField = screen.getByPlaceholderText('Ask a question');
     // eslint-disable-next-line @typescript-eslint/no-unnecessary-type-assertion
@@ -161,7 +161,7 @@ describe('AssistantChat', function () {
   });
 
   it('send button is disabled for whitespace-only input', async function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     const inputField = screen.getByPlaceholderText('Ask a question');
     // eslint-disable-next-line @typescript-eslint/no-unnecessary-type-assertion
@@ -177,7 +177,7 @@ describe('AssistantChat', function () {
   });
 
   it('displays messages in the chat feed', function () {
-    renderWithChat(mockMessages);
+    renderWithChat(createMockChat({ messages: mockMessages }));
 
     expect(screen.getByTestId('assistant-message-user')).to.exist;
     expect(screen.getByTestId('assistant-message-assistant')).to.exist;
@@ -240,7 +240,9 @@ describe('AssistantChat', function () {
   });
 
   it('calls sendMessage when form is submitted', async function () {
-    const { result, ensureOptInAndSendStub } = renderWithChat([]);
+    const { result, ensureOptInAndSendStub } = renderWithChat(
+      createMockChat({ messages: [] })
+    );
     const { track } = result;
     const inputField = screen.getByPlaceholderText('Ask a question');
     const sendButton = screen.getByLabelText('Send message');
@@ -257,7 +259,7 @@ describe('AssistantChat', function () {
   });
 
   it('clears input field after successful submission', function () {
-    renderWithChat([]);
+    renderWithChat(createMockChat({ messages: [] }));
 
     // eslint-disable-next-line @typescript-eslint/no-unnecessary-type-assertion
     const inputField = screen.getByPlaceholderText(
@@ -272,7 +274,9 @@ describe('AssistantChat', function () {
   });
 
   it('trims whitespace from input before sending', async function () {
-    const { ensureOptInAndSendStub, result } = renderWithChat([]);
+    const { ensureOptInAndSendStub, result } = renderWithChat(
+      createMockChat({ messages: [] })
+    );
     const { track } = result;
 
     const inputField = screen.getByPlaceholderText('Ask a question');
@@ -289,7 +293,9 @@ describe('AssistantChat', function () {
   });
 
   it('does not call ensureOptInAndSend when input is empty or whitespace-only', function () {
-    const { ensureOptInAndSendStub } = renderWithChat([]);
+    const { ensureOptInAndSendStub } = renderWithChat(
+      createMockChat({ messages: [] })
+    );
 
     const inputField = screen.getByPlaceholderText('Ask a question');
     const chatForm = screen.getByTestId('assistant-chat-input');
@@ -305,7 +311,7 @@ describe('AssistantChat', function () {
   });
 
   it('displays user and assistant messages with different styling', function () {
-    renderWithChat(mockMessages);
+    renderWithChat(createMockChat({ messages: mockMessages }));
 
     const userMessage = screen.getByTestId('assistant-message-user');
     const assistantMessage = screen.getByTestId('assistant-message-assistant');
@@ -330,7 +336,7 @@ describe('AssistantChat', function () {
       },
     ];
 
-    renderWithChat(messagesWithMultipleParts);
+    renderWithChat(createMockChat({ messages: messagesWithMultipleParts }));
 
     expect(screen.getByText('Here is part 1. And here is part 2.')).to.exist;
   });
@@ -349,7 +355,7 @@ describe('AssistantChat', function () {
       },
     ];
 
-    renderWithChat(messagesWithMixedParts);
+    renderWithChat(createMockChat({ messages: messagesWithMixedParts }));
 
     expect(screen.getByText('This is text content. More text content.')).to
       .exist;
@@ -371,7 +377,7 @@ describe('AssistantChat', function () {
       },
     ];
 
-    renderWithChat(messagesWithDisplayText);
+    renderWithChat(createMockChat({ messages: messagesWithDisplayText }));
 
     // Should display the displayText
     expect(
@@ -387,7 +393,7 @@ describe('AssistantChat', function () {
 
   describe('feedback buttons', function () {
     it('shows feedback buttons only for assistant messages', function () {
-      renderWithChat(mockMessages);
+      renderWithChat(createMockChat({ messages: mockMessages }));
 
       const userMessage = screen.getByTestId('assistant-message-user');
       const assistantMessage = screen.getByTestId(
@@ -408,7 +414,9 @@ describe('AssistantChat', function () {
     });
 
     it('tracks positive feedback when thumbs up is clicked', async function () {
-      const { result } = renderWithChat(mockMessages);
+      const { result } = renderWithChat(
+        createMockChat({ messages: mockMessages })
+      );
       const { track } = result;
 
       const assistantMessage = screen.getByTestId(
@@ -434,7 +442,9 @@ describe('AssistantChat', function () {
     });
 
     it('tracks negative feedback when thumbs down is clicked', async function () {
-      const { result } = renderWithChat(mockMessages);
+      const { result } = renderWithChat(
+        createMockChat({ messages: mockMessages })
+      );
       const { track } = result;
 
       const assistantMessage = screen.getByTestId(
@@ -461,7 +471,9 @@ describe('AssistantChat', function () {
     });
 
     it('tracks detailed feedback when feedback text is submitted', async function () {
-      const { result } = renderWithChat(mockMessages);
+      const { result } = renderWithChat(
+        createMockChat({ messages: mockMessages })
+      );
       const { track } = result;
 
       const assistantMessage = screen.getByTestId(
@@ -505,15 +517,19 @@ describe('AssistantChat', function () {
     });
 
     it('tracks it as "chat response" when source is not present', async function () {
-      const { result } = renderWithChat([
-        {
-          ...mockMessages[1],
-          metadata: {
-            ...mockMessages[1].metadata,
-            source: undefined,
-          },
-        },
-      ]);
+      const { result } = renderWithChat(
+        createMockChat({
+          messages: [
+            {
+              ...mockMessages[1],
+              metadata: {
+                ...mockMessages[1].metadata,
+                source: undefined,
+              },
+            },
+          ],
+        })
+      );
       const { track } = result;
 
       const thumbsDownButton = within(
@@ -546,7 +562,7 @@ describe('AssistantChat', function () {
         },
       ];
 
-      renderWithChat(userOnlyMessages);
+      renderWithChat(createMockChat({ messages: userOnlyMessages }));
 
       // Should not find any feedback buttons in the entire component
       expect(screen.queryByLabelText('Thumbs Up Icon')).to.not.exist;
@@ -573,7 +589,7 @@ describe('AssistantChat', function () {
     });
 
     it('renders confirmation message when message has confirmation metadata', function () {
-      renderWithChat([mockConfirmationMessage]);
+      renderWithChat(createMockChat({ messages: [mockConfirmationMessage] }));
 
       expect(screen.getByText('Please confirm your request')).to.exist;
       expect(
@@ -584,7 +600,7 @@ describe('AssistantChat', function () {
     });
 
     it('does not render regular message content when confirmation metadata exists', function () {
-      renderWithChat([mockConfirmationMessage]);
+      renderWithChat(createMockChat({ messages: [mockConfirmationMessage] }));
 
       // Should not show the message text content when confirmation is present
       expect(screen.queryByText('This is a confirmation message.')).to.not
@@ -592,7 +608,7 @@ describe('AssistantChat', function () {
     });
 
     it('shows confirmation as pending when it is the last message', function () {
-      renderWithChat([mockConfirmationMessage]);
+      renderWithChat(createMockChat({ messages: [mockConfirmationMessage] }));
 
       expect(screen.getByText('Confirm')).to.exist;
       expect(screen.getByText('Cancel')).to.exist;
@@ -610,7 +626,7 @@ describe('AssistantChat', function () {
         },
       ];
 
-      renderWithChat(messages);
+      renderWithChat(createMockChat({ messages: messages }));
 
       // The confirmation message (first one) should show as rejected since it's not the last
       expect(screen.queryByText('Confirm')).to.not.exist;
@@ -619,9 +635,9 @@ describe('AssistantChat', function () {
     });
 
     it('adds new confirmed message when confirmation is confirmed', function () {
-      const { chat, ensureOptInAndSendStub } = renderWithChat([
-        mockConfirmationMessage,
-      ]);
+      const { chat, ensureOptInAndSendStub } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
 
       const confirmButton = screen.getByText('Confirm');
       userEvent.click(confirmButton);
@@ -638,7 +654,9 @@ describe('AssistantChat', function () {
     });
 
     it('updates confirmation state to confirmed and adds a new message when confirm button is clicked', function () {
-      const { chat } = renderWithChat([mockConfirmationMessage]);
+      const { chat } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
 
       const confirmButton = screen.getByText('Confirm');
       userEvent.click(confirmButton);
@@ -657,9 +675,9 @@ describe('AssistantChat', function () {
     });
 
     it('updates confirmation state to rejected and does not add a new message when cancel button is clicked', function () {
-      const { chat, ensureOptInAndSendStub } = renderWithChat([
-        mockConfirmationMessage,
-      ]);
+      const { chat, ensureOptInAndSendStub } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
 
       const cancelButton = screen.getByText('Cancel');
       userEvent.click(cancelButton);
@@ -678,7 +696,9 @@ describe('AssistantChat', function () {
     });
 
     it('shows confirmed status after confirmation is confirmed', function () {
-      const { chat } = renderWithChat([mockConfirmationMessage]);
+      const { chat } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
 
       // Verify buttons are initially present
       expect(screen.getByText('Confirm')).to.exist;
@@ -695,7 +715,9 @@ describe('AssistantChat', function () {
     });
 
     it('shows cancelled status after confirmation is rejected', function () {
-      const { chat } = renderWithChat([mockConfirmationMessage]);
+      const { chat } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
 
       // Verify buttons are initially present
       expect(screen.getByText('Confirm')).to.exist;
@@ -734,7 +756,11 @@ describe('AssistantChat', function () {
         },
       };
 
-      renderWithChat([confirmationMessage1, confirmationMessage2]);
+      renderWithChat(
+        createMockChat({
+          messages: [confirmationMessage1, confirmationMessage2],
+        })
+      );
 
       expect(screen.getAllByText('Request cancelled')).to.have.length(1);
 
@@ -758,7 +784,9 @@ describe('AssistantChat', function () {
         },
       };
 
-      const { chat } = renderWithChat([messageWithExtraMetadata]);
+      const { chat } = renderWithChat(
+        createMockChat({ messages: [messageWithExtraMetadata] })
+      );
 
       const confirmButton = screen.getByText('Confirm');
       userEvent.click(confirmButton);
@@ -777,7 +805,7 @@ describe('AssistantChat', function () {
         parts: [{ type: 'text', text: 'This is a regular message' }],
       };
 
-      renderWithChat([regularMessage]);
+      renderWithChat(createMockChat({ messages: [regularMessage] }));
 
       expect(screen.queryByText('Please confirm your request')).to.not.exist;
       expect(screen.queryByText('Confirm')).to.not.exist;
@@ -786,7 +814,9 @@ describe('AssistantChat', function () {
     });
 
     it('tracks confirmation submitted when confirm button is clicked', async function () {
-      const { result } = renderWithChat([mockConfirmationMessage]);
+      const { result } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
       const { track } = result;
 
       const confirmButton = screen.getByText('Confirm');
@@ -804,7 +834,9 @@ describe('AssistantChat', function () {
     });
 
     it('tracks confirmation submitted when cancel button is clicked', async function () {
-      const { result } = renderWithChat([mockConfirmationMessage]);
+      const { result } = renderWithChat(
+        createMockChat({ messages: [mockConfirmationMessage] })
+      );
       const { track } = result;
 
       const cancelButton = screen.getByText('Cancel');
@@ -822,15 +854,19 @@ describe('AssistantChat', function () {
     });
 
     it('tracks it as "chat response" when source is not present', async function () {
-      const { result } = renderWithChat([
-        {
-          ...mockConfirmationMessage,
-          metadata: {
-            ...mockConfirmationMessage.metadata,
-            source: undefined,
-          },
-        },
-      ]);
+      const { result } = renderWithChat(
+        createMockChat({
+          messages: [
+            {
+              ...mockConfirmationMessage,
+              metadata: {
+                ...mockConfirmationMessage.metadata,
+                source: undefined,
+              },
+            },
+          ],
+        })
+      );
       const { track } = result;
 
       const confirmButton = screen.getByText('Confirm');
@@ -845,9 +881,55 @@ describe('AssistantChat', function () {
     });
   });
 
+  describe('error handling', function () {
+    it('displays error banner when error occurs', async function () {
+      renderWithChat(createBrokenChat());
+
+      const inputField = screen.getByPlaceholderText('Ask a question');
+      const sendButton = screen.getByLabelText('Send message');
+
+      userEvent.type(inputField, 'What is MongoDB?');
+      userEvent.click(sendButton);
+
+      await waitFor(() => {
+        expect(screen.getByText(/Test connection error. Try clearing the chat/))
+          .to.exist;
+      });
+    });
+
+    it('clears error when close button is clicked', async function () {
+      const brokenChat = createBrokenChat();
+      const clearErrorSpy = sinon.spy(brokenChat, 'clearError');
+
+      renderWithChat(brokenChat);
+
+      const inputField = screen.getByPlaceholderText('Ask a question');
+      const sendButton = screen.getByLabelText('Send message');
+
+      userEvent.type(inputField, 'What is MongoDB?');
+      userEvent.click(sendButton);
+
+      await waitFor(() => {
+        expect(screen.getByText(/Test connection error. Try clearing the chat/))
+          .to.exist;
+      });
+
+      const closeButton = screen.getByLabelText('Close Message');
+      userEvent.click(closeButton);
+
+      expect(clearErrorSpy).to.have.been.calledOnce;
+
+      await waitFor(() => {
+        expect(
+          screen.queryByText(/Test connection error. Try clearing the chat/)
+        ).to.not.exist;
+      });
+    });
+  });
+
   describe('related sources', function () {
     it('displays related resources links for assistant messages that include them', async function () {
-      renderWithChat(mockMessages);
+      renderWithChat(createMockChat({ messages: mockMessages }));
       userEvent.click(screen.getByLabelText('Expand Related Resources'));
 
       // TODO(COMPASS-9860) can't find the links in test-electron on RHEL and Ubuntu.
@@ -868,7 +950,7 @@ describe('AssistantChat', function () {
         ...message,
         parts: message.parts.filter((part) => part.type !== 'source-url'),
       }));
-      renderWithChat(messages);
+      renderWithChat(createMockChat({ messages: messages }));
 
       expect(screen.queryByLabelText('Expand Related Resources')).to.not.exist;
     });
@@ -916,7 +998,9 @@ describe('AssistantChat', function () {
         },
       ];
 
-      renderWithChat(messagesWithDuplicateSources);
+      renderWithChat(
+        createMockChat({ messages: messagesWithDuplicateSources })
+      );
       userEvent.click(screen.getByLabelText('Expand Related Resources'));
 
       await waitFor(() => {
diff --git a/packages/compass-assistant/src/components/assistant-chat.tsx b/packages/compass-assistant/src/components/assistant-chat.tsx
index 0f6ee330ce9..5bd5a1ee153 100644
--- a/packages/compass-assistant/src/components/assistant-chat.tsx
+++ b/packages/compass-assistant/src/components/assistant-chat.tsx
@@ -232,11 +232,6 @@ export const AssistantChat: React.FunctionComponent<AssistantChatProps> = ({
   const { ensureOptInAndSend } = useContext(AssistantActionsContext);
   const { messages, status, error, clearError, setMessages } = useChat({
     chat,
-    onError: (error) => {
-      track('Assistant Response Failed', () => ({
-        error_name: error.name,
-      }));
-    },
   });
 
   const scrollToBottom = useCallback(() => {
diff --git a/packages/compass-assistant/test/utils.tsx b/packages/compass-assistant/test/utils.tsx
index 211bcc4fd2a..7325ec62726 100644
--- a/packages/compass-assistant/test/utils.tsx
+++ b/packages/compass-assistant/test/utils.tsx
@@ -5,12 +5,15 @@ import type { AssistantMessage } from '../src/compass-assistant-provider';
 export const createMockChat = ({
   messages,
   status,
+  transport,
 }: {
   messages: AssistantMessage[];
   status?: 'submitted' | 'streaming';
+  transport?: Chat<AssistantMessage>['transport'];
 }) => {
   const newChat = new Chat<AssistantMessage>({
     messages,
+    transport,
   });
   sinon.replace(newChat, 'sendMessage', sinon.stub());
   if (status) {
@@ -20,3 +23,21 @@ export const createMockChat = ({
     sendMessage: sinon.SinonStub;
   };
 };
+
+export function createBrokenTransport() {
+  const testError = new Error('Test connection error');
+  testError.name = 'ConnectionError';
+  const transport = {
+    sendMessages: sinon.stub().rejects(testError),
+    reconnectToStream: sinon.stub().resolves(null),
+  };
+  return transport;
+}
+
+export function createBrokenChat() {
+  const chat = new Chat<AssistantMessage>({
+    messages: [],
+    transport: createBrokenTransport(),
+  });
+  return chat;
+}