diff --git a/media/main.css b/media/main.css
index bfbff34..a5e3a99 100644
--- a/media/main.css
+++ b/media/main.css
@@ -889,3 +889,69 @@ kbd {
 .thought-content {
   padding: 10px 12px;
 }
+
+/* Diff Display Styles */
+.diff-container {
+  margin: 8px 0;
+  border-radius: 4px;
+  overflow: hidden;
+  border: 1px solid var(--vscode-panel-border);
+}
+
+.diff-header {
+  font-weight: bold;
+  padding: 6px 10px;
+  background: var(--vscode-editor-lineHighlightBackground);
+  border-bottom: 1px solid var(--vscode-panel-border);
+  font-family: var(--vscode-editor-font-family);
+  font-size: var(--vscode-editor-font-size);
+}
+
+.diff-content {
+  font-family: var(--vscode-editor-font-family);
+  font-size: var(--vscode-editor-font-size);
+  margin: 0;
+  padding: 0;
+  overflow-x: auto;
+}
+
+.diff-line {
+  padding: 1px 10px;
+  white-space: pre;
+  line-height: 1.4;
+}
+
+.diff-add {
+  background-color: var(--vscode-diffEditor-insertedTextBackground);
+  color: var(
+    --vscode-diffEditor-insertedTextForeground,
+    var(--vscode-editor-foreground)
+  );
+}
+
+.diff-remove {
+  background-color: var(--vscode-diffEditor-removedTextBackground);
+  color: var(
+    --vscode-diffEditor-removedTextForeground,
+    var(--vscode-editor-foreground)
+  );
+}
+
+.diff-context {
+  color: var(--vscode-descriptionForeground);
+}
+
+.diff-empty {
+  padding: 10px;
+  color: var(--vscode-descriptionForeground);
+  font-style: italic;
+  text-align: center;
+}
+
+.diff-truncated {
+  padding: 6px 10px;
+  color: var(--vscode-descriptionForeground);
+  font-style: italic;
+  background: var(--vscode-editor-lineHighlightBackground);
+  border-top: 1px solid var(--vscode-panel-border);
+}
diff --git a/src/test/webview.test.ts b/src/test/webview.test.ts
index ab98738..6a31f6b 100644
--- a/src/test/webview.test.ts
+++ b/src/test/webview.test.ts
@@ -10,6 +10,8 @@ import {
   ansiToHtml,
   hasAnsiCodes,
   getToolKindIcon,
+  computeLineDiff,
+  renderDiff,
   type VsCodeApi,
   type Tool,
   type WebviewElements,
@@ -1261,4 +1263,79 @@ suite("Webview", () => {
       assert.ok(html.includes('title="edit"'));
     });
   });
+
+  suite("computeLineDiff", () => {
+    test("returns empty array for empty inputs", () => {
+      const result = computeLineDiff("", "");
+      assert.strictEqual(result.length, 0);
+    });
+
+    test("marks all lines as add for new file", () => {
+      const result = computeLineDiff(null, "line1\nline2");
+      assert.strictEqual(result.length, 2);
+      assert.strictEqual(result[0].type, "add");
+      assert.strictEqual(result[0].line, "line1");
+      assert.strictEqual(result[1].type, "add");
+      assert.strictEqual(result[1].line, "line2");
+    });
+
+    test("marks all lines as remove for deleted file", () => {
+      const result = computeLineDiff("line1\nline2", null);
+      assert.strictEqual(result.length, 2);
+      assert.strictEqual(result[0].type, "remove");
+      assert.strictEqual(result[1].type, "remove");
+    });
+
+    test("marks old as remove and new as add for modified file", () => {
+      const result = computeLineDiff("old", "new");
+      assert.strictEqual(result.length, 2);
+      assert.strictEqual(result[0].type, "remove");
+      assert.strictEqual(result[0].line, "old");
+      assert.strictEqual(result[1].type, "add");
+      assert.strictEqual(result[1].line, "new");
+    });
+  });
+
+  suite("renderDiff", () => {
+    test("returns no changes message for empty diff", () => {
+      const result = renderDiff(undefined, "", "");
+      assert.ok(result.includes("diff-container"));
+      assert.ok(result.includes("No changes"));
+    });
+
+    test("renders file path header when provided", () => {
+      const result = renderDiff("/path/to/file.ts", null, "new content");
+      assert.ok(result.includes("diff-header"));
+      assert.ok(result.includes("/path/to/file.ts"));
+    });
+
+    test("renders additions with diff-add class", () => {
+      const result = renderDiff(undefined, null, "added line");
+      assert.ok(result.includes("diff-add"));
+      assert.ok(result.includes("+ added line"));
+    });
+
+    test("renders deletions with diff-remove class", () => {
+      const result = renderDiff(undefined, "removed line", null);
+      assert.ok(result.includes("diff-remove"));
+      assert.ok(result.includes("- removed line"));
+    });
+
+    test("escapes HTML in diff content", () => {
+      const result = renderDiff(
+        undefined,
+        null,
+        "<script>alert('xss')</script>"
+      );
+      assert.ok(result.includes("&lt;script&gt;"));
+      assert.ok(!result.includes("<script>alert"));
+    });
+
+    test("truncates large diffs", () => {
+      const manyLines = Array(600).fill("line").join("\n");
+      const result = renderDiff(undefined, null, manyLines);
+      assert.ok(result.includes("diff-truncated"));
+      assert.ok(result.includes("500"));
+    });
+  });
 });
diff --git a/src/views/webview/main.ts b/src/views/webview/main.ts
index 3e13124..7d46caf 100644
--- a/src/views/webview/main.ts
+++ b/src/views/webview/main.ts
@@ -223,6 +223,97 @@ export function hasAnsiCodes(text: string): boolean {
   return /\x1b\[[0-9;]*m/.test(text);
 }
 
+export interface DiffLine {
+  type: "add" | "remove" | "context";
+  line: string;
+}
+
+/**
+ * Compute a simple line-by-line diff between old and new text.
+ * Returns an array of diff lines marked as add/remove/context.
+ */
+export function computeLineDiff(
+  oldText: string | null | undefined,
+  newText: string | null | undefined
+): DiffLine[] {
+  // Handle edge cases
+  if (!oldText && !newText) {
+    return [];
+  }
+  if (!oldText) {
+    // New file - all lines are additions
+    return newText!.split("\n").map((line) => ({ type: "add", line }));
+  }
+  if (!newText) {
+    // Deleted file - all lines are deletions
+    return oldText!.split("\n").map((line) => ({ type: "remove", line }));
+  }
+
+  // Simple line-by-line diff
+  const oldLines = oldText.split("\n");
+  const newLines = newText.split("\n");
+  const result: DiffLine[] = [];
+
+  // Simple algorithm: mark old lines as removed, new lines as added
+  // Future optimization: detect common lines and mark as context
+  for (const line of oldLines) {
+    result.push({ type: "remove", line });
+  }
+  for (const line of newLines) {
+    result.push({ type: "add", line });
+  }
+
+  return result;
+}
+
+export function renderDiff(
+  path: string | undefined,
+  oldText: string | null | undefined,
+  newText: string | null | undefined
+): string {
+  const diffLines = computeLineDiff(oldText, newText);
+
+  if (diffLines.length === 0) {
+    return '<div class="diff-container"><div class="diff-empty">No changes</div></div>';
+  }
+
+  const truncated = diffLines.length > 500;
+  const linesToShow = truncated ? diffLines.slice(0, 500) : diffLines;
+
+  let html = '<div class="diff-container">';
+
+  if (path) {
+    html += '<div class="diff-header">' + escapeHtml(path) + "</div>";
+  }
+
+  html += '<pre class="diff-content">';
+
+  for (const diffLine of linesToShow) {
+    const prefix =
+      diffLine.type === "add" ? "+ " : diffLine.type === "remove" ? "- " : "  ";
+    const className = "diff-line diff-" + diffLine.type;
+    html +=
+      '<div class="' +
+      className +
+      '">' +
+      escapeHtml(prefix + diffLine.line) +
+      "</div>";
+  }
+
+  html += "</pre>";
+
+  if (truncated) {
+    html +=
+      '<div class="diff-truncated">... (truncated, showing first 500 of ' +
+      diffLines.length +
+      " lines)</div>";
+  }
+
+  html += "</div>";
+
+  return html;
+}
+
 export function getToolsHtml(
   tools: Record<string, Tool>,
   expandedToolId?: string | null
@@ -909,6 +1000,12 @@ export class WebviewController {
               output = firstContent.content.text;
             } else if (firstContent.type === "terminal") {
               output = msg.terminalOutput || "";
+            } else if (firstContent.type === "diff") {
+              output = renderDiff(
+                firstContent.path,
+                firstContent.oldText,
+                firstContent.newText
+              );
             }
           }