diff --git a/src/lmstudio/json_api.py b/src/lmstudio/json_api.py
index 25926a1..f5d8d28 100644
--- a/src/lmstudio/json_api.py
+++ b/src/lmstudio/json_api.py
@@ -1334,14 +1334,20 @@ def _report_prompt_processing_progress(self, progress: float) -> None:
             self._on_prompt_processing_progress(progress)
 
     def _handle_invalid_tool_request(
-        self, err_msg: str, request: ToolCallRequest | None = None
+        self,
+        err_msg: str,
+        request: ToolCallRequest | None = None,
+        *,
+        exc: Exception | None = None,
     ) -> str:
         _on_handle_invalid_tool_request = self._on_handle_invalid_tool_request
         if _on_handle_invalid_tool_request is not None:
             # Allow users to override the error message, or force an exception
             self._logger.debug("Invoking on_handle_invalid_tool_request callback")
-            exc = LMStudioPredictionError(err_msg)
-            user_err_msg = _on_handle_invalid_tool_request(exc, request)
+            callback_exc = LMStudioPredictionError(err_msg)
+            if exc is not None:
+                callback_exc.__cause__ = exc
+            user_err_msg = _on_handle_invalid_tool_request(callback_exc, request)
             if user_err_msg is not None:
                 err_msg = user_err_msg
         if request is not None:
@@ -1349,6 +1355,14 @@ def _handle_invalid_tool_request(
         # We don't allow users to prevent the exception when there's no request
         raise LMStudioPredictionError(err_msg)
 
+    def _handle_failed_tool_request(
+        self, exc: Exception, request: ToolCallRequest
+    ) -> ToolCallResultData:
+        err_msg = self._handle_invalid_tool_request(
+            f"Unhandled Python exception: {exc!r}", request, exc=exc
+        )
+        return ToolCallResultData(content=json.dumps(err_msg), tool_call_id=request.id)
+
     def request_tool_call(
         self, request: ToolCallRequest
     ) -> Callable[[], ToolCallResultData]:
diff --git a/src/lmstudio/sync_api.py b/src/lmstudio/sync_api.py
index 735c029..b41e9b9 100644
--- a/src/lmstudio/sync_api.py
+++ b/src/lmstudio/sync_api.py
@@ -1591,13 +1591,13 @@ def _wrapped_on_prompt_processing_progress(progress: float) -> None:
                 channel_cm = self._session._create_channel(endpoint)
                 prediction_stream = PredictionStream(channel_cm, endpoint)
                 tool_call_requests: list[ToolCallRequest] = []
-                pending_tool_calls: list[SyncFuture[Any]] = []
+                pending_tool_calls: dict[SyncFuture[Any], ToolCallRequest] = {}
                 for event in prediction_stream._iter_events():
                     if isinstance(event, PredictionToolCallEvent):
                         tool_call_request = event.arg
                         tool_call_requests.append(tool_call_request)
                         tool_call = endpoint.request_tool_call(tool_call_request)
-                        pending_tool_calls.append(pool.submit(tool_call))
+                        pending_tool_calls[pool.submit(tool_call)] = tool_call_request
                 prediction = prediction_stream.result()
                 self._logger.debug(
                     "Completed .act() prediction round", round_index=round_index
@@ -1610,8 +1610,22 @@ def _wrapped_on_prompt_processing_progress(progress: float) -> None:
                     with sdk_callback_invocation(err_msg, self._logger):
                         on_prediction_completed(round_result)
                 if pending_tool_calls:
+
+                    def _finish_tool_call(fut: SyncFuture[Any]) -> Any:
+                        exc = fut.exception()
+                        if exc is not None:
+                            if not isinstance(exc, Exception):
+                                # Don't allow base exceptions to be suppressed
+                                raise exc
+                            failed_request = pending_tool_calls[fut]
+                            return endpoint._handle_failed_tool_request(
+                                exc, failed_request
+                            )
+                        return fut.result()
+
                     tool_results = [
-                        fut.result() for fut in as_completed(pending_tool_calls)
+                        _finish_tool_call(fut)
+                        for fut in as_completed(pending_tool_calls)
                     ]
                     requests_message = agent_chat.add_assistant_response(
                         prediction, tool_call_requests
diff --git a/tests/test_inference.py b/tests/test_inference.py
index 71027fe..60cd91e 100644
--- a/tests/test_inference.py
+++ b/tests/test_inference.py
@@ -247,11 +247,7 @@ def _append_fragment(f: LlmPredictionFragment, round_index: int) -> None:
 
 def divide(numerator: float, denominator: float) -> float | str:
     """Divide the given numerator by the given denominator. Return the result."""
-    try:
-        return numerator / denominator
-    except Exception as exc:
-        # TODO: Perform this exception-to-response-string translation implicitly
-        return f"Unhandled Python exception: {exc!r}"
+    return numerator / denominator
 
 
 @pytest.mark.lmstudio
@@ -268,13 +264,13 @@ def test_tool_using_agent_error_handling(caplog: LogCap) -> None:
         )
         tools = [divide]
         predictions: list[PredictionRoundResult] = []
-        invalid_requests: list[tuple[LMStudioPredictionError, ToolCallRequest]] = []
+        request_failures: list[LMStudioPredictionError] = []
 
         def _handle_invalid_request(
             exc: LMStudioPredictionError, request: ToolCallRequest | None
         ) -> None:
             if request is not None:
-                invalid_requests.append((exc, request))
+                request_failures.append(exc)
 
         act_result = llm.act(
             chat,
@@ -284,8 +280,11 @@ def _handle_invalid_request(
         )
         assert len(predictions) > 1
         assert act_result.rounds == len(predictions)
-        # Test case is currently suppressing exceptions inside the tool call
-        assert invalid_requests == []
+        # Ensure the tool call failure was reported to the user callback
+        assert len(request_failures) == 1
+        tool_failure_exc = request_failures[0]
+        assert isinstance(tool_failure_exc, LMStudioPredictionError)
+        assert isinstance(tool_failure_exc.__cause__, ZeroDivisionError)
         # If the content checks prove flaky in practice, they can be dropped
         assert "divide" in predictions[-1].content
         assert "zero" in predictions[-1].content