diff --git a/can_use_tool_example.py b/can_use_tool_example.py
new file mode 100644
index 00000000..2a7543cd
--- /dev/null
+++ b/can_use_tool_example.py
@@ -0,0 +1,90 @@
+#!/usr/bin/env python3
+"""Example demonstrating canUseTool permission functionality."""
+
+import asyncio
+from claude_agent_sdk import (
+    ClaudeAgentOptions,
+    ClaudeSDKClient,
+    CanUseTool,
+    PermissionResultAllow,
+    PermissionResultDeny,
+    ToolPermissionContext,
+)
+
+
+async def security_callback(
+    tool_name: str, input_data: dict, context: ToolPermissionContext
+) -> PermissionResultAllow | PermissionResultDeny:
+    """Example security callback that implements tool permission policy."""
+    print(f"🔒 Permission check for tool: {tool_name}")
+    print(f"   Input: {input_data}")
+
+    # Example policy: deny dangerous bash commands
+    if tool_name == "Bash":
+        command = input_data.get("command", "")
+        dangerous_patterns = ["rm -rf", "dd if=", "mkfs", "format", "del *"]
+
+        if any(pattern in command for pattern in dangerous_patterns):
+            print("❌ Denied: Command contains dangerous patterns")
+            return PermissionResultDeny(
+                message="Command blocked due to security policy",
+                interrupt=True
+            )
+
+    # Example: Allow but modify file operations to add safety
+    if tool_name in ["Write", "Edit"]:
+        file_path = input_data.get("file_path", "")
+        if file_path.startswith("/etc/") or file_path.startswith("/system/"):
+            print("⚠️  Modified: Adding backup for system file operation")
+            modified_input = input_data.copy()
+            modified_input["backup"] = True
+            return PermissionResultAllow(updated_input=modified_input)
+
+    print("✅ Allowed")
+    return PermissionResultAllow()
+
+
+async def streaming_messages():
+    """Generate streaming messages for testing."""
+    yield {
+        "type": "user",
+        "message": {"role": "user", "content": "What is 2+2?"},
+        "parent_tool_use_id": None,
+        "session_id": "test_session"
+    }
+
+
+async def main():
+    """Main example function."""
+    print("🚀 Testing canUseTool functionality")
+
+    try:
+        # Create options with canUseTool callback
+        options = ClaudeAgentOptions(
+            can_use_tool=security_callback,
+            permission_mode="default",  # This will be overridden to use stdio
+        )
+
+        print("📋 Options created with canUseTool callback")
+
+        # Test with ClaudeSDKClient (streaming mode required for canUseTool)
+        client = ClaudeSDKClient(options=options)
+
+        print("🔌 Connecting to Claude with canUseTool enabled...")
+        await client.connect(streaming_messages())
+
+        print("✅ Connection successful!")
+        print("🔒 canUseTool callback is now active and will intercept tool usage")
+
+        # Note: In a real scenario, you would now interact with the client
+        # and the security_callback would be invoked for each tool use
+
+        await client.disconnect()
+        print("✅ Disconnected successfully")
+
+    except Exception as e:
+        print(f"❌ Error: {e}")
+
+
+if __name__ == "__main__":
+    asyncio.run(main())
\ No newline at end of file
diff --git a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
index bd9fc59d..ebb5d6e6 100644
--- a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
+++ b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
@@ -181,6 +181,10 @@ def _build_command(self) -> list[str]:
         )
         cmd.extend(["--setting-sources", sources_value])
 
+        # Add canUseTool flag if callback is provided
+        if self._options.can_use_tool:
+            cmd.append("--can-use-tool")
+
         # Add extra args for future CLI flags
         for flag, value in self._options.extra_args.items():
             if value is None: