diff --git a/packages/types/src/global-settings.ts b/packages/types/src/global-settings.ts
index e713cafa4c7..044aeab34dc 100644
--- a/packages/types/src/global-settings.ts
+++ b/packages/types/src/global-settings.ts
@@ -105,6 +105,7 @@ export const globalSettingsSchema = z.object({
 	historyPreviewCollapsed: z.boolean().optional(),
 	profileThresholds: z.record(z.string(), z.number()).optional(),
 	hasOpenedModeSelector: z.boolean().optional(),
+	systemPromptWarningDismissed: z.boolean().optional(),
 })
 
 export type GlobalSettings = z.infer<typeof globalSettingsSchema>
diff --git a/src/shared/ExtensionMessage.ts b/src/shared/ExtensionMessage.ts
index 73ebf59d4c8..2211735ef85 100644
--- a/src/shared/ExtensionMessage.ts
+++ b/src/shared/ExtensionMessage.ts
@@ -217,6 +217,7 @@ export type ExtensionState = Pick<
 	| "codebaseIndexConfig"
 	| "codebaseIndexModels"
 	| "profileThresholds"
+	| "systemPromptWarningDismissed"
 > & {
 	version: string
 	clineMessages: ClineMessage[]
diff --git a/webview-ui/src/components/chat/ChatView.tsx b/webview-ui/src/components/chat/ChatView.tsx
index a4f18c870c1..affc5073908 100644
--- a/webview-ui/src/components/chat/ChatView.tsx
+++ b/webview-ui/src/components/chat/ChatView.tsx
@@ -95,6 +95,7 @@ const ChatViewComponent: React.ForwardRefRenderFunction<ChatViewRef, ChatViewPro
 		customModes,
 		telemetrySetting,
 		hasSystemPromptOverride,
+		systemPromptWarningDismissed,
 		historyPreviewCollapsed, // Added historyPreviewCollapsed
 		soundEnabled,
 		soundVolume,
@@ -1381,7 +1382,7 @@ const ChatViewComponent: React.ForwardRefRenderFunction<ChatViewRef, ChatViewPro
 						onClose={handleTaskCloseButtonClick}
 					/>
 
-					{hasSystemPromptOverride && (
+					{hasSystemPromptOverride && !systemPromptWarningDismissed && (
 						<div className="px-3">
 							<SystemPromptWarning />
 						</div>
diff --git a/webview-ui/src/components/chat/SystemPromptWarning.tsx b/webview-ui/src/components/chat/SystemPromptWarning.tsx
index 0ed7a727337..7d7398737a4 100644
--- a/webview-ui/src/components/chat/SystemPromptWarning.tsx
+++ b/webview-ui/src/components/chat/SystemPromptWarning.tsx
@@ -1,15 +1,27 @@
 import React from "react"
 import { useAppTranslation } from "@/i18n/TranslationContext"
+import { useExtensionState } from "@/context/ExtensionStateContext"
 
 export const SystemPromptWarning: React.FC = () => {
 	const { t } = useAppTranslation()
+	const { setSystemPromptWarningDismissed } = useExtensionState()
+
+	const handleDismiss = () => {
+		setSystemPromptWarningDismissed(true)
+	}
 
 	return (
 		<div className="flex items-center px-4 py-2 mb-2 text-sm rounded bg-vscode-editorWarning-foreground text-vscode-editor-background">
 			<div className="flex items-center justify-center w-5 h-5 mr-2">
 				<span className="codicon codicon-warning" />
 			</div>
-			<span>{t("chat:systemPromptWarning")}</span>
+			<span className="flex-1">{t("chat:systemPromptWarning")}</span>
+			<button
+				onClick={handleDismiss}
+				className="flex items-center justify-center w-5 h-5 ml-2 hover:bg-vscode-editor-background hover:bg-opacity-20 rounded"
+				title="Dismiss warning">
+				<span className="codicon codicon-close" />
+			</button>
 		</div>
 	)
 }
diff --git a/webview-ui/src/components/chat/__tests__/SystemPromptWarning.spec.tsx b/webview-ui/src/components/chat/__tests__/SystemPromptWarning.spec.tsx
new file mode 100644
index 00000000000..624412ee9b1
--- /dev/null
+++ b/webview-ui/src/components/chat/__tests__/SystemPromptWarning.spec.tsx
@@ -0,0 +1,83 @@
+// npx vitest run src/components/chat/__tests__/SystemPromptWarning.spec.tsx
+
+import { describe, it, expect, vi } from "vitest"
+import { render, screen, fireEvent } from "@testing-library/react"
+import { SystemPromptWarning } from "../SystemPromptWarning"
+import { useExtensionState } from "@/context/ExtensionStateContext"
+import { useAppTranslation } from "@/i18n/TranslationContext"
+
+// Mock the hooks
+vi.mock("@/context/ExtensionStateContext")
+vi.mock("@/i18n/TranslationContext")
+
+const mockSetSystemPromptWarningDismissed = vi.fn()
+const mockT = vi.fn((key: string) => {
+	if (key === "chat:systemPromptWarning") {
+		return "WARNING: Custom system prompt override active. This can severely break functionality and cause unpredictable behavior."
+	}
+	return key
+})
+
+describe("SystemPromptWarning", () => {
+	beforeEach(() => {
+		vi.clearAllMocks()
+		;(useExtensionState as any).mockReturnValue({
+			setSystemPromptWarningDismissed: mockSetSystemPromptWarningDismissed,
+		})
+		;(useAppTranslation as any).mockReturnValue({
+			t: mockT,
+		})
+	})
+
+	it("renders the warning message", () => {
+		render(<SystemPromptWarning />)
+
+		expect(screen.getByText(/WARNING: Custom system prompt override active/)).toBeInTheDocument()
+	})
+
+	it("renders the warning icon", () => {
+		render(<SystemPromptWarning />)
+
+		const warningIcon = document.querySelector(".codicon-warning")
+		expect(warningIcon).toBeInTheDocument()
+	})
+
+	it("renders the dismiss button", () => {
+		render(<SystemPromptWarning />)
+
+		const dismissButton = screen.getByRole("button")
+		expect(dismissButton).toBeInTheDocument()
+		expect(dismissButton).toHaveAttribute("title", "Dismiss warning")
+	})
+
+	it("renders the close icon in dismiss button", () => {
+		render(<SystemPromptWarning />)
+
+		const closeIcon = document.querySelector(".codicon-close")
+		expect(closeIcon).toBeInTheDocument()
+	})
+
+	it("calls setSystemPromptWarningDismissed when dismiss button is clicked", () => {
+		render(<SystemPromptWarning />)
+
+		const dismissButton = screen.getByRole("button")
+		fireEvent.click(dismissButton)
+
+		expect(mockSetSystemPromptWarningDismissed).toHaveBeenCalledWith(true)
+		expect(mockSetSystemPromptWarningDismissed).toHaveBeenCalledTimes(1)
+	})
+
+	it("has correct CSS classes for styling", () => {
+		render(<SystemPromptWarning />)
+
+		const container = document.querySelector(".flex.items-center.px-4.py-2.mb-2")
+		expect(container).toBeInTheDocument()
+		expect(container).toHaveClass("bg-vscode-editorWarning-foreground", "text-vscode-editor-background")
+	})
+
+	it("uses translation for the warning text", () => {
+		render(<SystemPromptWarning />)
+
+		expect(mockT).toHaveBeenCalledWith("chat:systemPromptWarning")
+	})
+})
diff --git a/webview-ui/src/context/ExtensionStateContext.tsx b/webview-ui/src/context/ExtensionStateContext.tsx
index c87ccdb6e92..cb501f8ff29 100644
--- a/webview-ui/src/context/ExtensionStateContext.tsx
+++ b/webview-ui/src/context/ExtensionStateContext.tsx
@@ -40,6 +40,8 @@ export interface ExtensionStateContextType extends ExtensionState {
 	mdmCompliant?: boolean
 	hasOpenedModeSelector: boolean // New property to track if user has opened mode selector
 	setHasOpenedModeSelector: (value: boolean) => void // Setter for the new property
+	systemPromptWarningDismissed?: boolean // New property to track if system prompt warning is dismissed
+	setSystemPromptWarningDismissed: (value: boolean) => void // Setter for the new property
 	condensingApiConfigId?: string
 	setCondensingApiConfigId: (value: string) => void
 	customCondensingPrompt?: string
@@ -183,6 +185,7 @@ export const ExtensionStateContextProvider: React.FC<{ children: React.ReactNode
 		condensingApiConfigId: "", // Default empty string for condensing API config ID
 		customCondensingPrompt: "", // Default empty string for custom condensing prompt
 		hasOpenedModeSelector: false, // Default to false (not opened yet)
+		systemPromptWarningDismissed: false, // Default to false (not dismissed yet)
 		autoApprovalEnabled: false,
 		customModes: [],
 		maxOpenTabsContext: 20,
@@ -431,6 +434,8 @@ export const ExtensionStateContextProvider: React.FC<{ children: React.ReactNode
 		setHistoryPreviewCollapsed: (value) =>
 			setState((prevState) => ({ ...prevState, historyPreviewCollapsed: value })),
 		setHasOpenedModeSelector: (value) => setState((prevState) => ({ ...prevState, hasOpenedModeSelector: value })),
+		setSystemPromptWarningDismissed: (value) =>
+			setState((prevState) => ({ ...prevState, systemPromptWarningDismissed: value })),
 		setAutoCondenseContext: (value) => setState((prevState) => ({ ...prevState, autoCondenseContext: value })),
 		setAutoCondenseContextPercent: (value) =>
 			setState((prevState) => ({ ...prevState, autoCondenseContextPercent: value })),