diff --git a/packages/app/e2e/helpers/desktop-updates.ts b/packages/app/e2e/helpers/desktop-updates.ts
index 4023f4f54..15af76323 100644
--- a/packages/app/e2e/helpers/desktop-updates.ts
+++ b/packages/app/e2e/helpers/desktop-updates.ts
@@ -124,7 +124,7 @@ export async function injectDesktopBridge(page: Page, config: DesktopBridgeConfi
       return {
         serverId: cfg.serverId,
         status: daemonRunning ? "running" : "stopped",
-        listen: null,
+        listen: "127.0.0.1:6767",
         hostname: null,
         pid: currentPid,
         home: "",
diff --git a/packages/app/src/desktop/daemon/daemon-management-error.test.ts b/packages/app/src/desktop/daemon/daemon-management-error.test.ts
new file mode 100644
index 000000000..c328b2ce6
--- /dev/null
+++ b/packages/app/src/desktop/daemon/daemon-management-error.test.ts
@@ -0,0 +1,51 @@
+import { describe, expect, it } from "vitest";
+import {
+  DaemonConnectionRegistrationError,
+  DaemonManagementOperationError,
+  getDaemonManagementErrorPresentation,
+} from "./daemon-management-error";
+
+describe("getDaemonManagementErrorPresentation", () => {
+  it("refreshes status when the daemon started but localhost registration failed", () => {
+    const presentation = getDaemonManagementErrorPresentation(
+      new DaemonConnectionRegistrationError("Desktop daemon did not return a listen address."),
+      false,
+    );
+
+    expect(presentation).toEqual({
+      message:
+        "Built-in daemon started, but Paseo could not save the localhost connection. Toggle daemon management off and on again, or add localhost manually.",
+      refreshStatus: true,
+    });
+  });
+
+  it("does not refresh status for daemon stop failures", () => {
+    const presentation = getDaemonManagementErrorPresentation(new Error("stop failed"), true);
+
+    expect(presentation).toEqual({
+      message: "Built-in daemon management was paused, but Paseo could not stop the daemon.",
+      refreshStatus: false,
+    });
+  });
+
+  it("uses the pre-mutation daemon management state for operation failures", () => {
+    const presentation = getDaemonManagementErrorPresentation(
+      new DaemonManagementOperationError(new Error("stop failed"), true),
+      false,
+    );
+
+    expect(presentation).toEqual({
+      message: "Built-in daemon management was paused, but Paseo could not stop the daemon.",
+      refreshStatus: false,
+    });
+  });
+
+  it("does not refresh status for generic update failures", () => {
+    const presentation = getDaemonManagementErrorPresentation(new Error("settings failed"), false);
+
+    expect(presentation).toEqual({
+      message: "Unable to update built-in daemon management.",
+      refreshStatus: false,
+    });
+  });
+});
diff --git a/packages/app/src/desktop/daemon/daemon-management-error.ts b/packages/app/src/desktop/daemon/daemon-management-error.ts
new file mode 100644
index 000000000..38a6816c6
--- /dev/null
+++ b/packages/app/src/desktop/daemon/daemon-management-error.ts
@@ -0,0 +1,52 @@
+export class DaemonConnectionRegistrationError extends Error {
+  constructor(message: string) {
+    super(message);
+    this.name = "DaemonConnectionRegistrationError";
+  }
+}
+
+export class DaemonManagementOperationError extends Error {
+  readonly originalError: Error;
+  readonly wasManagingDaemon: boolean;
+
+  constructor(error: Error, wasManagingDaemon: boolean) {
+    super(error.message);
+    this.name = error.name;
+    this.cause = error;
+    this.originalError = error;
+    this.wasManagingDaemon = wasManagingDaemon;
+  }
+}
+
+export interface DaemonManagementErrorPresentation {
+  message: string;
+  refreshStatus: boolean;
+}
+
+export function getDaemonManagementErrorPresentation(
+  error: Error,
+  isManagingDaemon: boolean,
+): DaemonManagementErrorPresentation {
+  const presentationError =
+    error instanceof DaemonManagementOperationError ? error.originalError : error;
+  const wasManagingDaemon =
+    error instanceof DaemonManagementOperationError ? error.wasManagingDaemon : isManagingDaemon;
+
+  if (presentationError instanceof DaemonConnectionRegistrationError) {
+    return {
+      message:
+        "Built-in daemon started, but Paseo could not save the localhost connection. Toggle daemon management off and on again, or add localhost manually.",
+      refreshStatus: true,
+    };
+  }
+  if (wasManagingDaemon) {
+    return {
+      message: "Built-in daemon management was paused, but Paseo could not stop the daemon.",
+      refreshStatus: false,
+    };
+  }
+  return {
+    message: "Unable to update built-in daemon management.",
+    refreshStatus: false,
+  };
+}
diff --git a/packages/app/src/desktop/hooks/use-built-in-daemon-management.ts b/packages/app/src/desktop/hooks/use-built-in-daemon-management.ts
index abecc9fc3..c2e39da17 100644
--- a/packages/app/src/desktop/hooks/use-built-in-daemon-management.ts
+++ b/packages/app/src/desktop/hooks/use-built-in-daemon-management.ts
@@ -9,8 +9,15 @@ import {
   executeDaemonManagementToggle,
   type DaemonManagementToggleResult,
 } from "@/desktop/daemon/daemon-management-toggle";
+import {
+  DaemonConnectionRegistrationError,
+  DaemonManagementOperationError,
+  getDaemonManagementErrorPresentation,
+} from "@/desktop/daemon/daemon-management-error";
 import { useDesktopIpcErrorReporter } from "@/desktop/hooks/desktop-ipc-error";
 import type { DesktopSettings } from "@/desktop/settings/desktop-settings";
+import { getHostRuntimeStore } from "@/runtime/host-runtime";
+import { upsertDesktopDaemonConnection } from "@/runtime/daemon-start-service";
 import { confirmDialog } from "@/utils/confirm-dialog";
 
 type DesktopDaemonSettings = DesktopSettings["daemon"];
@@ -37,27 +44,51 @@ export function useBuiltInDaemonManagement(
     DaemonManagementToggleResult,
     Error
   >({
-    mutationFn: () =>
-      executeDaemonManagementToggle(settings.manageBuiltInDaemon, daemonStatus, {
-        confirm: () =>
-          confirmDialog({
-            title: "Pause built-in daemon",
-            message:
-              "This will stop the built-in daemon immediately. Running agents and terminals connected to the built-in daemon will be stopped.",
-            confirmLabel: "Pause and stop",
-            cancelLabel: "Cancel",
-            destructive: true,
-          }),
-        persistSettings: (next) => updateSettings(next) as Promise<void>,
-        startDaemon: startDesktopDaemon,
-        stopDaemon: stopDesktopDaemon,
-      }),
+    mutationFn: async () => {
+      const wasManagingDaemon = settings.manageBuiltInDaemon;
+      try {
+        const result = await executeDaemonManagementToggle(wasManagingDaemon, daemonStatus, {
+          confirm: () =>
+            confirmDialog({
+              title: "Pause built-in daemon",
+              message:
+                "This will stop the built-in daemon immediately. Running agents and terminals connected to the built-in daemon will be stopped.",
+              confirmLabel: "Pause and stop",
+              cancelLabel: "Cancel",
+              destructive: true,
+            }),
+          persistSettings: (next) => updateSettings(next) as Promise<void>,
+          startDaemon: startDesktopDaemon,
+          stopDaemon: stopDesktopDaemon,
+        });
+        if (result.kind === "enabled") {
+          const upsertResult = await upsertDesktopDaemonConnection(
+            getHostRuntimeStore(),
+            result.newStatus,
+          );
+          if (!upsertResult.ok) {
+            throw new DaemonConnectionRegistrationError(upsertResult.error);
+          }
+        }
+        return result;
+      } catch (error) {
+        throw new DaemonManagementOperationError(
+          error instanceof Error ? error : new Error(String(error)),
+          wasManagingDaemon,
+        );
+      }
+    },
     onError: (error) => {
+      const presentation = getDaemonManagementErrorPresentation(
+        error,
+        settings.manageBuiltInDaemon,
+      );
+      if (presentation.refreshStatus) {
+        refreshStatus();
+      }
       reportError({
         error,
-        message: settings.manageBuiltInDaemon
-          ? "Built-in daemon management was paused, but Paseo could not stop the daemon."
-          : "Unable to update built-in daemon management.",
+        message: presentation.message,
         logLabel: "[Settings] Failed to update built-in daemon management",
       });
     },
diff --git a/packages/app/src/runtime/daemon-start-service.test.ts b/packages/app/src/runtime/daemon-start-service.test.ts
index b01ccd841..4793fb8af 100644
--- a/packages/app/src/runtime/daemon-start-service.test.ts
+++ b/packages/app/src/runtime/daemon-start-service.test.ts
@@ -1,5 +1,5 @@
 import { describe, expect, it, vi } from "vitest";
-import { DaemonStartService } from "./daemon-start-service";
+import { DaemonStartService, upsertDesktopDaemonConnection } from "./daemon-start-service";
 import type { HostRuntimeStore } from "./host-runtime";
 import type { DesktopDaemonStatus } from "@/desktop/daemon/desktop-daemon";
 
@@ -223,3 +223,50 @@ describe("DaemonStartService", () => {
     expect(notifications).toBe(countAfterFirst);
   });
 });
+
+describe("upsertDesktopDaemonConnection", () => {
+  it("upserts a valid desktop daemon status", async () => {
+    const fake = createFakeStore();
+
+    const result = await upsertDesktopDaemonConnection(fake.store, makeStatus());
+
+    expect(result).toEqual({ ok: true });
+    expect(fake.upserts).toEqual([
+      { listenAddress: "127.0.0.1:6767", serverId: "srv_desktop", hostname: "desktop" },
+    ]);
+  });
+
+  it("rejects a missing listen address without upserting", async () => {
+    const fake = createFakeStore();
+
+    const result = await upsertDesktopDaemonConnection(fake.store, makeStatus({ listen: null }));
+
+    expect(result).toEqual({
+      ok: false,
+      error: "Desktop daemon did not return a listen address.",
+    });
+    expect(fake.upserts).toEqual([]);
+  });
+
+  it("rejects a missing server id without upserting", async () => {
+    const fake = createFakeStore();
+
+    const result = await upsertDesktopDaemonConnection(fake.store, makeStatus({ serverId: "" }));
+
+    expect(result).toEqual({
+      ok: false,
+      error: "Desktop daemon did not return a server id.",
+    });
+    expect(fake.upserts).toEqual([]);
+  });
+
+  it("rejects an unsupported listen address without upserting", async () => {
+    const fake = createFakeStore();
+
+    const result = await upsertDesktopDaemonConnection(fake.store, makeStatus({ listen: "???" }));
+
+    expect(result.ok).toBe(false);
+    expect(result.ok ? "" : result.error).toContain("unsupported listen address");
+    expect(fake.upserts).toEqual([]);
+  });
+});
diff --git a/packages/app/src/runtime/daemon-start-service.ts b/packages/app/src/runtime/daemon-start-service.ts
index e9437931f..e3c178bde 100644
--- a/packages/app/src/runtime/daemon-start-service.ts
+++ b/packages/app/src/runtime/daemon-start-service.ts
@@ -4,13 +4,41 @@ import type { HostRuntimeStore } from "@/runtime/host-runtime";
 
 export type DaemonStartResult = { ok: true } | { ok: false; error: string };
 
+type DaemonConnectionStore = Pick<HostRuntimeStore, "upsertConnectionFromListen">;
+
 export interface DaemonStartServiceDeps {
-  store: Pick<HostRuntimeStore, "upsertConnectionFromListen">;
+  store: DaemonConnectionStore;
   startDesktopDaemon?: () => Promise<DesktopDaemonStatus>;
 }
 
+export async function upsertDesktopDaemonConnection(
+  store: DaemonConnectionStore,
+  daemon: DesktopDaemonStatus,
+): Promise<DaemonStartResult> {
+  const listenAddress = daemon.listen?.trim() ?? "";
+  const serverId = daemon.serverId.trim();
+  if (!listenAddress) {
+    return { ok: false, error: "Desktop daemon did not return a listen address." };
+  }
+  if (!serverId) {
+    return { ok: false, error: "Desktop daemon did not return a server id." };
+  }
+  if (!connectionFromListen(listenAddress)) {
+    return {
+      ok: false,
+      error: `Desktop daemon returned an unsupported listen address: ${listenAddress}`,
+    };
+  }
+  await store.upsertConnectionFromListen({
+    listenAddress,
+    serverId,
+    hostname: daemon.hostname,
+  });
+  return { ok: true };
+}
+
 export class DaemonStartService {
-  private readonly store: Pick<HostRuntimeStore, "upsertConnectionFromListen">;
+  private readonly store: DaemonConnectionStore;
   private readonly invokeStartDesktopDaemon: () => Promise<DesktopDaemonStatus>;
   private readonly listeners = new Set<() => void>();
   private lastError: string | null = null;
@@ -25,23 +53,8 @@ export class DaemonStartService {
     this.beginRequest();
     try {
       const daemon = await this.invokeStartDesktopDaemon();
-      const listenAddress = daemon.listen?.trim() ?? "";
-      const serverId = daemon.serverId.trim();
-      if (!listenAddress) {
-        return this.fail("Desktop daemon did not return a listen address.");
-      }
-      if (!serverId) {
-        return this.fail("Desktop daemon did not return a server id.");
-      }
-      if (!connectionFromListen(listenAddress)) {
-        return this.fail(`Desktop daemon returned an unsupported listen address: ${listenAddress}`);
-      }
-      await this.store.upsertConnectionFromListen({
-        listenAddress,
-        serverId,
-        hostname: daemon.hostname,
-      });
-      return { ok: true };
+      const result = await upsertDesktopDaemonConnection(this.store, daemon);
+      return result.ok ? result : this.fail(result.error);
     } catch (error) {
       return this.fail(error instanceof Error ? error.message : String(error));
     } finally {
diff --git a/packages/app/src/screens/settings-screen.tsx b/packages/app/src/screens/settings-screen.tsx
index 0dd19f9bf..6d0ab7a2e 100644
--- a/packages/app/src/screens/settings-screen.tsx
+++ b/packages/app/src/screens/settings-screen.tsx
@@ -84,6 +84,7 @@ import {
 import { Combobox, ComboboxItem, type ComboboxOption } from "@/components/ui/combobox";
 import { DesktopPermissionsSection } from "@/desktop/components/desktop-permissions-section";
 import { IntegrationsSection } from "@/desktop/components/integrations-section";
+import { LocalDaemonSection } from "@/desktop/components/desktop-updates-section";
 import { isElectronRuntime } from "@/desktop/host";
 import { useDesktopAppUpdater } from "@/desktop/updates/use-desktop-app-updater";
 import { formatVersionWithPrefix } from "@/desktop/updates/desktop-updates";
@@ -133,6 +134,7 @@ interface SidebarSectionItem {
 
 const SIDEBAR_SECTION_ITEMS: SidebarSectionItem[] = [
   { id: "general", label: "General", icon: Settings },
+  { id: "daemon", label: "Daemon", icon: Server, desktopOnly: true },
   { id: "appearance", label: "Appearance", icon: Palette },
   { id: "shortcuts", label: "Shortcuts", icon: Keyboard, desktopOnly: true },
   { id: "integrations", label: "Integrations", icon: Puzzle, desktopOnly: true },
@@ -155,6 +157,24 @@ const HOST_SECTION_ITEMS: HostSectionItem[] = [
   { id: "host", label: "Host", icon: Server },
 ];
 
+function renderHostSettingsContent(
+  view: Extract<SettingsView, { kind: "host" }>,
+  onHostRemoved: () => void,
+): ReactNode {
+  switch (view.section) {
+    case "connections":
+      return <HostConnectionsPage serverId={view.serverId} />;
+    case "agents":
+      return <HostAgentsPage serverId={view.serverId} />;
+    case "workspaces":
+      return <HostWorkspacesPage serverId={view.serverId} />;
+    case "providers":
+      return <HostProvidersPage serverId={view.serverId} />;
+    case "host":
+      return <HostSettingsPage serverId={view.serverId} onHostRemoved={onHostRemoved} />;
+  }
+}
+
 // ---------------------------------------------------------------------------
 // Trigger + sidebar style helpers
 // ---------------------------------------------------------------------------
@@ -1325,18 +1345,7 @@ export default function SettingsScreen({ view }: SettingsScreenProps) {
 
   const content = (() => {
     if (view.kind === "host") {
-      switch (view.section) {
-        case "connections":
-          return <HostConnectionsPage serverId={view.serverId} />;
-        case "agents":
-          return <HostAgentsPage serverId={view.serverId} />;
-        case "workspaces":
-          return <HostWorkspacesPage serverId={view.serverId} />;
-        case "providers":
-          return <HostProvidersPage serverId={view.serverId} />;
-        case "host":
-          return <HostSettingsPage serverId={view.serverId} onHostRemoved={handleHostRemoved} />;
-      }
+      return renderHostSettingsContent(view, handleHostRemoved);
     }
     if (view.kind === "projects") {
       return <ProjectsScreen view={view} />;
@@ -1356,6 +1365,8 @@ export default function SettingsScreen({ view }: SettingsScreenProps) {
               handleTerminalScrollbackLinesChange={handleTerminalScrollbackLinesChange}
             />
           );
+        case "daemon":
+          return <LocalDaemonSection />;
         case "appearance":
           return <AppearanceSection />;
         case "shortcuts":
diff --git a/packages/app/src/screens/settings/host-page.tsx b/packages/app/src/screens/settings/host-page.tsx
index 78835e378..2680838fd 100644
--- a/packages/app/src/screens/settings/host-page.tsx
+++ b/packages/app/src/screens/settings/host-page.tsx
@@ -7,7 +7,10 @@ import { AdaptiveRenameModal } from "@/components/rename-modal";
 import { SettingsTextAreaCard } from "@/components/settings-textarea";
 import { Button } from "@/components/ui/button";
 import { Switch } from "@/components/ui/switch";
+import { startDesktopDaemon, stopDesktopDaemon } from "@/desktop/daemon/desktop-daemon";
 import { LocalDaemonSection } from "@/desktop/components/desktop-updates-section";
+import { useDaemonStatus } from "@/desktop/hooks/use-daemon-status";
+import { useDesktopSettings } from "@/desktop/settings/desktop-settings";
 import { PairDeviceModal } from "@/desktop/components/pair-device-modal";
 import { useDaemonConfig } from "@/hooks/use-daemon-config";
 import { useIsLocalDaemon } from "@/hooks/use-is-local-daemon";
@@ -72,7 +75,6 @@ function formatDaemonVersionBadge(version: string | null): string | null {
 }
 
 const REMOVE_CONNECTION_HEADER: SheetHeader = { title: "Remove connection" };
-const REMOVE_HOST_HEADER: SheetHeader = { title: "Remove host" };
 
 function useHostProfile(serverId: string): HostProfile | null {
   const daemons = useHosts();
@@ -276,7 +278,7 @@ export function HostSettingsPage({
 
       {isLocalDaemon ? <LocalDaemonSection /> : null}
 
-      <RemoveHostSection host={host} onRemoved={onHostRemoved} />
+      <RemoveHostSection host={host} isLocalDaemon={isLocalDaemon} onRemoved={onHostRemoved} />
     </View>
   );
 }
@@ -826,11 +828,22 @@ function PairDeviceRow() {
   );
 }
 
-function RemoveHostSection({ host, onRemoved }: { host: HostProfile; onRemoved?: () => void }) {
+function RemoveHostSection({
+  host,
+  isLocalDaemon,
+  onRemoved,
+}: {
+  host: HostProfile;
+  isLocalDaemon: boolean;
+  onRemoved?: () => void;
+}) {
   const { theme } = useUnistyles();
   const { removeHost } = useHostMutations();
+  const { updateSettings } = useDesktopSettings();
+  const { data: daemonStatusData, setStatus } = useDaemonStatus();
   const [isConfirming, setIsConfirming] = useState(false);
   const [isRemoving, setIsRemoving] = useState(false);
+  const daemonStatus = daemonStatusData?.status ?? null;
 
   const destructiveTextStyle = useMemo(
     () => ({ color: theme.colors.destructive }),
@@ -843,9 +856,45 @@ function RemoveHostSection({ host, onRemoved }: { host: HostProfile; onRemoved?:
     setIsConfirming(false);
   }, [isRemoving]);
   const handleCancel = useCallback(() => setIsConfirming(false), []);
+  const rollbackLocalhostRemoval = useCallback(
+    async (shouldRestartDaemon: boolean) => {
+      await updateSettings({ daemon: { manageBuiltInDaemon: true } });
+      if (!shouldRestartDaemon) {
+        return;
+      }
+      setStatus(await startDesktopDaemon());
+    },
+    [setStatus, updateSettings],
+  );
   const handleConfirmRemove = useCallback(() => {
     setIsRemoving(true);
-    void removeHost(host.serverId)
+    const remove = async () => {
+      let didDisableDaemonManagement = false;
+      let didStopDaemon = false;
+      if (isLocalDaemon) {
+        try {
+          await updateSettings({ daemon: { manageBuiltInDaemon: false } });
+          didDisableDaemonManagement = true;
+          if (daemonStatus?.status === "running" && daemonStatus.desktopManaged) {
+            setStatus(await stopDesktopDaemon());
+            didStopDaemon = true;
+          }
+          await removeHost(host.serverId);
+        } catch (error) {
+          if (didDisableDaemonManagement) {
+            try {
+              await rollbackLocalhostRemoval(didStopDaemon);
+            } catch (rollbackError) {
+              console.error("[HostPage] Failed to roll back localhost removal", rollbackError);
+            }
+          }
+          throw error;
+        }
+        return;
+      }
+      await removeHost(host.serverId);
+    };
+    void remove()
       .then(() => {
         setIsConfirming(false);
         onRemoved?.();
@@ -853,10 +902,29 @@ function RemoveHostSection({ host, onRemoved }: { host: HostProfile; onRemoved?:
       })
       .catch((error) => {
         console.error("[HostPage] Failed to remove host", error);
-        Alert.alert("Error", "Unable to remove host");
+        Alert.alert(
+          "Error",
+          isLocalDaemon ? "Unable to remove localhost connection" : "Unable to remove host",
+        );
       })
       .finally(() => setIsRemoving(false));
-  }, [host.serverId, onRemoved, removeHost]);
+  }, [
+    daemonStatus,
+    host.serverId,
+    isLocalDaemon,
+    onRemoved,
+    removeHost,
+    rollbackLocalhostRemoval,
+    setStatus,
+    updateSettings,
+  ]);
+
+  const confirmationHeader = useMemo<SheetHeader>(
+    () => ({
+      title: isLocalDaemon ? "Remove localhost connection and stop daemon?" : "Remove host",
+    }),
+    [isLocalDaemon],
+  );
 
   const removeIcon = useMemo(
     () => <Trash2 size={theme.iconSize.sm} color={theme.colors.destructive} />,
@@ -870,9 +938,13 @@ function RemoveHostSection({ host, onRemoved }: { host: HostProfile; onRemoved?:
       <View style={settingsStyles.card}>
         <View style={settingsStyles.row}>
           <View style={settingsStyles.rowContent}>
-            <Text style={settingsStyles.rowTitle}>Remove host</Text>
+            <Text style={settingsStyles.rowTitle}>
+              {isLocalDaemon ? "Remove localhost connection" : "Remove host"}
+            </Text>
             <Text style={settingsStyles.rowHint}>
-              Removes this host and its saved connections from this device
+              {isLocalDaemon
+                ? "Removes localhost from this device and stops the built-in daemon"
+                : "Removes this host and its saved connections from this device"}
             </Text>
           </View>
           <Button
@@ -890,13 +962,15 @@ function RemoveHostSection({ host, onRemoved }: { host: HostProfile; onRemoved?:
 
       {isConfirming ? (
         <AdaptiveModalSheet
-          header={REMOVE_HOST_HEADER}
+          header={confirmationHeader}
           visible
           onClose={handleCloseConfirm}
           testID="remove-host-confirm-modal"
         >
           <Text style={styles.confirmText}>
-            Remove {host.label}? This will delete its saved connections.
+            {isLocalDaemon
+              ? "This will remove the localhost connection, turn off built-in daemon management, and stop the managed daemon. Remote hosts remain connected."
+              : `Remove ${host.label}? This will delete its saved connections.`}
           </Text>
           <View style={styles.confirmActions}>
             <Button
diff --git a/packages/app/src/utils/host-routes.ts b/packages/app/src/utils/host-routes.ts
index 24c88503d..256c98def 100644
--- a/packages/app/src/utils/host-routes.ts
+++ b/packages/app/src/utils/host-routes.ts
@@ -383,6 +383,7 @@ export function buildHostNewWorkspaceRoute(
 
 export const SETTINGS_SECTION_SLUGS = [
   "general",
+  "daemon",
   "appearance",
   "shortcuts",
   "integrations",