diff --git a/modelcontextprotocol/server.py b/modelcontextprotocol/server.py
index 752cb29..6269ceb 100644
--- a/modelcontextprotocol/server.py
+++ b/modelcontextprotocol/server.py
@@ -1,7 +1,7 @@
 import argparse
 import json
 import os
-from typing import Any, Dict, List
+from typing import Any, Dict, List, Union
 from fastmcp import FastMCP
 from tools import (
     search_assets,
@@ -474,9 +474,9 @@ def traverse_lineage_tool(
 
 @mcp.tool()
 def update_assets_tool(
-    assets,
-    attribute_name,
-    attribute_values,
+    assets: Union[Dict[str, Any], List[Dict[str, Any]], str],
+    attribute_name: str,
+    attribute_values: Union[List[Any], str],
 ):
     """
     Update one or multiple assets with different values for attributes or term operations.
diff --git a/modelcontextprotocol/tests/__init__.py b/modelcontextprotocol/tests/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/modelcontextprotocol/tests/test_update_assets_tool.py b/modelcontextprotocol/tests/test_update_assets_tool.py
new file mode 100644
index 0000000..df2c385
--- /dev/null
+++ b/modelcontextprotocol/tests/test_update_assets_tool.py
@@ -0,0 +1,259 @@
+"""Tests for update_assets_tool JSON string input handling.
+
+Verifies that the update_assets_tool correctly parses parameters
+that arrive as JSON strings (a common behavior from MCP clients)
+rather than native dicts/lists.
+
+Regression test for: AICHAT-595
+"""
+
+import json
+from unittest.mock import patch, MagicMock
+
+import pytest
+
+import sys
+import os
+
+# Add the modelcontextprotocol directory to path so imports work
+sys.path.insert(0, os.path.dirname(os.path.dirname(os.path.abspath(__file__))))
+
+from utils.parameters import parse_json_parameter, parse_list_parameter
+
+
+class TestParseJsonParameter:
+    """Tests for parse_json_parameter utility."""
+
+    def test_dict_passthrough(self):
+        """Native dict should be returned as-is."""
+        data = {"guid": "abc-123", "name": "Test"}
+        assert parse_json_parameter(data) == data
+
+    def test_list_passthrough(self):
+        """Native list should be returned as-is."""
+        data = [{"guid": "abc-123"}]
+        assert parse_json_parameter(data) == data
+
+    def test_string_dict_parsed(self):
+        """JSON string encoding a dict should be parsed to dict."""
+        data = {"guid": "abc-123", "name": "Test", "type_name": "Table"}
+        json_str = json.dumps(data)
+        assert parse_json_parameter(json_str) == data
+
+    def test_string_list_parsed(self):
+        """JSON string encoding a list should be parsed to list."""
+        data = [{"guid": "abc-123"}, {"guid": "def-456"}]
+        json_str = json.dumps(data)
+        assert parse_json_parameter(json_str) == data
+
+    def test_none_returns_none(self):
+        assert parse_json_parameter(None) is None
+
+    def test_invalid_json_string_raises(self):
+        with pytest.raises(json.JSONDecodeError):
+            parse_json_parameter("{invalid json")
+
+
+class TestParseListParameter:
+    """Tests for parse_list_parameter utility."""
+
+    def test_list_passthrough(self):
+        data = ["value1", "value2"]
+        assert parse_list_parameter(data) == data
+
+    def test_string_list_parsed(self):
+        data = ["VERIFIED"]
+        json_str = json.dumps(data)
+        assert parse_list_parameter(json_str) == data
+
+    def test_string_single_value_wrapped(self):
+        """A JSON string encoding a single value should be wrapped in a list."""
+        json_str = json.dumps("VERIFIED")
+        assert parse_list_parameter(json_str) == ["VERIFIED"]
+
+    def test_single_value_wrapped(self):
+        """A non-list, non-string value should be wrapped in a list."""
+        assert parse_list_parameter(42) == [42]
+
+    def test_none_returns_none(self):
+        assert parse_list_parameter(None) is None
+
+    def test_string_dict_wrapped(self):
+        """A JSON string encoding a dict should be wrapped in a list."""
+        data = {"operation": "append", "term_guids": ["guid-1"]}
+        json_str = json.dumps(data)
+        result = parse_list_parameter(json_str)
+        assert result == [data]
+
+
+class TestUpdateAssetsToolStringInputs:
+    """Integration tests: update_assets_tool accepts JSON string parameters.
+
+    These tests verify the regression fix for AICHAT-595 where the tool
+    would reject JSON string inputs with Pydantic validation errors.
+    """
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_assets_as_json_string(self, mock_settings, mock_update_assets):
+        """update_assets_tool should accept assets as a JSON string."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 1, "errors": []}
+
+        assets_dict = {
+            "guid": "19cb18b6-43e7-4373-8863-e997c9276d9e",
+            "name": "Test Asset",
+            "type_name": "DataProduct",
+            "qualified_name": "default/test/asset",
+        }
+        assets_str = json.dumps(assets_dict)
+
+        result = update_assets_tool(
+            assets=assets_str,
+            attribute_name="user_description",
+            attribute_values=["New description"],
+        )
+
+        assert result["updated_count"] == 1
+        assert mock_update_assets.called
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_attribute_values_as_json_string(self, mock_settings, mock_update_assets):
+        """update_assets_tool should accept attribute_values as a JSON string."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 1, "errors": []}
+
+        assets_dict = {
+            "guid": "19cb18b6-43e7-4373-8863-e997c9276d9e",
+            "name": "Test Asset",
+            "type_name": "DataProduct",
+            "qualified_name": "default/test/asset",
+        }
+        attribute_values_str = json.dumps(["Updated user description"])
+
+        result = update_assets_tool(
+            assets=assets_dict,
+            attribute_name="user_description",
+            attribute_values=attribute_values_str,
+        )
+
+        assert result["updated_count"] == 1
+        assert mock_update_assets.called
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_both_params_as_json_strings(self, mock_settings, mock_update_assets):
+        """Both assets and attribute_values can arrive as JSON strings."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 1, "errors": []}
+
+        assets_dict = {
+            "guid": "19cb18b6-43e7-4373-8863-e997c9276d9e",
+            "name": "Test Asset",
+            "type_name": "DataProduct",
+            "qualified_name": "default/test/asset",
+        }
+        assets_str = json.dumps(assets_dict)
+        attribute_values_str = json.dumps(["New description"])
+
+        result = update_assets_tool(
+            assets=assets_str,
+            attribute_name="user_description",
+            attribute_values=attribute_values_str,
+        )
+
+        assert result["updated_count"] == 1
+        assert mock_update_assets.called
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_assets_list_as_json_string(self, mock_settings, mock_update_assets):
+        """update_assets_tool should accept a list of assets as JSON string."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 2, "errors": []}
+
+        assets_list = [
+            {
+                "guid": "guid-1",
+                "name": "Asset 1",
+                "type_name": "Table",
+                "qualified_name": "default/test/asset1",
+            },
+            {
+                "guid": "guid-2",
+                "name": "Asset 2",
+                "type_name": "Table",
+                "qualified_name": "default/test/asset2",
+            },
+        ]
+        assets_str = json.dumps(assets_list)
+
+        result = update_assets_tool(
+            assets=assets_str,
+            attribute_name="user_description",
+            attribute_values=["Desc 1", "Desc 2"],
+        )
+
+        assert result["updated_count"] == 2
+
+    def test_invalid_json_assets_returns_error(self):
+        """Invalid JSON string for assets should return a clear error."""
+        from server import update_assets_tool
+
+        result = update_assets_tool(
+            assets="{not valid json",
+            attribute_name="user_description",
+            attribute_values=["desc"],
+        )
+
+        assert "error" in result
+        assert result["updated_count"] == 0
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_native_dict_still_works(self, mock_settings, mock_update_assets):
+        """Native dict/list inputs should continue to work."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 1, "errors": []}
+
+        result = update_assets_tool(
+            assets={
+                "guid": "guid-1",
+                "name": "Asset",
+                "type_name": "Table",
+                "qualified_name": "default/test/asset",
+            },
+            attribute_name="user_description",
+            attribute_values=["Description"],
+        )
+
+        assert result["updated_count"] == 1
+
+    @patch("server.update_assets")
+    @patch("server.get_settings")
+    def test_readme_update_with_string_params(self, mock_settings, mock_update_assets):
+        """Readme updates should work when parameters arrive as JSON strings."""
+        from server import update_assets_tool
+
+        mock_update_assets.return_value = {"updated_count": 1, "errors": []}
+
+        assets_dict = {
+            "guid": "19cb18b6-43e7-4373-8863-e997c9276d9e",
+            "name": "Data Product",
+            "type_name": "DataProduct",
+            "qualified_name": "default/test/product",
+        }
+
+        result = update_assets_tool(
+            assets=json.dumps(assets_dict),
+            attribute_name="readme",
+            attribute_values=json.dumps(["# My README\nContent here"]),
+        )
+
+        assert result["updated_count"] == 1