diff --git a/internal/util/upgrade.go b/internal/util/upgrade.go
index 48d53609..15d11c5e 100644
--- a/internal/util/upgrade.go
+++ b/internal/util/upgrade.go
@@ -307,16 +307,28 @@ func replaceBinary(ctx context.Context, logger logger.Logger, assetPath, version
 		return fmt.Errorf("failed to extract binary")
 	}
 
-	if err := checkWritePermission(currentExe); err != nil {
-		return fmt.Errorf("insufficient permissions to update binary: %w", err)
-	}
-
 	info, err := os.Stat(currentExe)
 	if err != nil {
 		return fmt.Errorf("failed to get file info: %w", err)
 	}
 	fileMode := info.Mode()
 
+	if err := checkWritePermission(currentExe); err != nil {
+		if strings.Contains(err.Error(), "binary is currently running") {
+			var updateErr error
+			updateAction := func() {
+				updateErr = updateRunningBinary(currentExe, binaryPath, fileMode)
+			}
+			tui.ShowSpinner("Setting up background update...", updateAction)
+			if updateErr != nil {
+				return fmt.Errorf("failed to set up background update: %w", updateErr)
+			}
+			tui.ShowSuccess("Successfully scheduled update to %s. The update will complete when this process exits.", version)
+			return nil
+		}
+		return fmt.Errorf("insufficient permissions to update binary: %w", err)
+	}
+
 	var replaceErr error
 	replaceAction := func() {
 		if err := copyFile(binaryPath, currentExe); err != nil {
@@ -369,6 +381,9 @@ func checkWritePermission(filePath string) error {
 
 	file, err := os.OpenFile(filePath, os.O_WRONLY, info.Mode())
 	if err != nil {
+		if strings.Contains(err.Error(), "text file busy") {
+			return fmt.Errorf("binary is currently running: %w", err)
+		}
 		return err
 	}
 	file.Close()
@@ -376,6 +391,100 @@ func checkWritePermission(filePath string) error {
 	return nil
 }
 
+// cleanupUpdateFiles removes any leftover temporary files from previous update attempts
+func cleanupUpdateFiles(dir string) {
+	tmpFiles := []string{
+		filepath.Join(dir, ".agentuity.new"),
+		filepath.Join(dir, ".agentuity.old"),
+		filepath.Join(dir, ".agentuity_updater.sh"),
+		filepath.Join(dir, ".agentuity_updater.ps1"),
+	}
+
+	for _, file := range tmpFiles {
+		_ = os.Remove(file)
+	}
+}
+
+func updateRunningBinary(currentExe, newBinary string, fileMode os.FileMode) error {
+	dir := filepath.Dir(currentExe)
+	tmpBinary := filepath.Join(dir, ".agentuity.new")
+	oldBinary := filepath.Join(dir, ".agentuity.old")
+
+	cleanupUpdateFiles(dir)
+
+	if err := copyFile(newBinary, tmpBinary); err != nil {
+		return fmt.Errorf("failed to copy new binary to temp location: %w", err)
+	}
+
+	if err := os.Chmod(tmpBinary, fileMode); err != nil {
+		return fmt.Errorf("failed to set permissions on new binary: %w", err)
+	}
+
+	if runtime.GOOS == "windows" {
+		script := fmt.Sprintf(`
+$currentExe = "%s"
+$oldBinary = "%s" 
+$tmpBinary = "%s"
+$updateScript = $MyInvocation.MyCommand.Path
+
+# Wait for the process to exit (give it a moment)
+Start-Sleep -Seconds 1
+
+# Perform the update
+try {
+    # Move current binary to old
+    if (Test-Path $currentExe) {
+        Move-Item -Path $currentExe -Destination $oldBinary -Force
+    }
+    
+    # Move new binary to current location
+    Move-Item -Path $tmpBinary -Destination $currentExe -Force
+    
+    # Clean up old binary
+    if (Test-Path $oldBinary) {
+        Remove-Item -Path $oldBinary -Force
+    }
+    
+    # Clean up this script
+    Remove-Item -Path $updateScript -Force
+} catch {
+    # If something goes wrong, try to restore the old binary
+    if (Test-Path $oldBinary) {
+        Move-Item -Path $oldBinary -Destination $currentExe -Force
+    }
+}
+`, currentExe, oldBinary, tmpBinary)
+
+		updateScript := filepath.Join(dir, ".agentuity_updater.ps1")
+		if err := os.WriteFile(updateScript, []byte(script), 0644); err != nil {
+			return fmt.Errorf("failed to create update script: %w", err)
+		}
+
+		cmd := exec.Command("powershell", "-WindowStyle", "Hidden", "-Command",
+			fmt.Sprintf("Start-Process powershell -ArgumentList '-WindowStyle Hidden -ExecutionPolicy Bypass -File \"%s\"' -WindowStyle Hidden", updateScript))
+		return cmd.Start()
+	} else {
+		script := fmt.Sprintf(`#!/bin/sh
+# Wait for the process to exit
+sleep 1
+# Perform the update
+mv "%s" "%s"
+mv "%s" "%s"
+rm "%s"
+# Clean up this script
+rm -- "$0"
+`, currentExe, oldBinary, tmpBinary, currentExe, oldBinary)
+
+		updateScript := filepath.Join(dir, ".agentuity_updater.sh")
+		if err := os.WriteFile(updateScript, []byte(script), 0755); err != nil {
+			return fmt.Errorf("failed to create update script: %w", err)
+		}
+
+		cmd := exec.Command("sh", "-c", fmt.Sprintf("nohup %s > /dev/null 2>&1 &", updateScript))
+		return cmd.Start()
+	}
+}
+
 func extractBinary(ctx context.Context, logger logger.Logger, assetPath, extractDir string) string {
 	var extractErr error
 	var binaryPath string