diff --git a/frontend/src/app/layout.tsx b/frontend/src/app/layout.tsx
index a4f7cfd..e8829db 100644
--- a/frontend/src/app/layout.tsx
+++ b/frontend/src/app/layout.tsx
@@ -37,6 +37,26 @@ export default async function RootLayout({ children }: { children: React.ReactNo
 
   return (
     <html lang={locale} suppressHydrationWarning>
+      <head>
+        <script
+          dangerouslySetInnerHTML={{
+            __html: `
+              (function() {
+                try {
+                  var theme = localStorage.getItem('merchant-theme-preference');
+                  var darkQuery = window.matchMedia('(prefers-color-scheme: dark)');
+                  var themeToApply = 'light';
+                  if (theme === 'dark' || ((!theme || theme === 'system') && darkQuery.matches)) {
+                    themeToApply = 'dark';
+                  }
+                  document.documentElement.classList.remove('light', 'dark');
+                  document.documentElement.classList.add(themeToApply);
+                } catch (e) {}
+              })();
+            `,
+          }}
+        />
+      </head>
       <body className={`${spaceGrotesk.variable} ${spaceMono.variable} min-h-screen font-sans`}>
         <NextIntlClientProvider locale={locale} messages={messages}>
           <ThemeProvider>
diff --git a/frontend/src/components/ThemeProvider.tsx b/frontend/src/components/ThemeProvider.tsx
index 8d898c8..0e86283 100644
--- a/frontend/src/components/ThemeProvider.tsx
+++ b/frontend/src/components/ThemeProvider.tsx
@@ -7,8 +7,8 @@ export default function ThemeProvider({ children }: { children: ReactNode }) {
   return (
     <NextThemesProvider
       attribute="class"
-      defaultTheme="dark"
-      enableSystem={false}
+      defaultTheme="system"
+      enableSystem={true}
       storageKey="merchant-theme-preference"
     >
       {children}
diff --git a/frontend/src/components/ThemeToggle.tsx b/frontend/src/components/ThemeToggle.tsx
index 2648fa3..b38adf8 100644
--- a/frontend/src/components/ThemeToggle.tsx
+++ b/frontend/src/components/ThemeToggle.tsx
@@ -4,7 +4,7 @@ import { useTheme } from "next-themes";
 import { useEffect, useState } from "react";
 
 export default function ThemeToggle() {
-  const { resolvedTheme, setTheme } = useTheme();
+  const { theme, setTheme, resolvedTheme } = useTheme();
   const [mounted, setMounted] = useState(false);
 
   // Avoid hydration mismatch by only rendering after mount
@@ -14,26 +14,32 @@ export default function ThemeToggle() {
 
   if (!mounted) {
     return (
-      <button className="h-9 w-9 rounded-lg border border-white/10 bg-white/5" aria-label="Toggle theme">
-        <span className="sr-only">Loading theme toggle</span>
-      </button>
+      <button className="h-9 w-9 rounded-lg border border-white/10 bg-white/5" aria-label="Loading theme settings" />
     );
   }
 
+  const cycleTheme = () => {
+    const themes = ["light", "dark", "system"];
+    const currentIndex = themes.indexOf(theme || "system");
+    const nextIndex = (currentIndex + 1) % themes.length;
+    setTheme(themes[nextIndex]);
+  };
+
   return (
     <button
-      onClick={() => setTheme(resolvedTheme === "dark" ? "light" : "dark")}
-      className="flex h-9 w-9 items-center justify-center rounded-lg border border-white/10 bg-white/5 transition-colors hover:bg-white/10"
-      aria-label="Toggle theme"
+      onClick={cycleTheme}
+      className="flex h-9 w-9 items-center justify-center rounded-lg border border-white/10 bg-white/5 transition-all hover:bg-white/10 active:scale-95"
+      aria-label={`Switch theme (current: ${theme})`}
+      title={theme === 'system' ? `Theme: System (${resolvedTheme})` : `Theme: ${theme}`}
     >
-      {resolvedTheme === "dark" ? (
+      {theme === "light" ? (
         <svg
           xmlns="http://www.w3.org/2000/svg"
           fill="none"
           viewBox="0 0 24 24"
           strokeWidth={1.5}
           stroke="currentColor"
-          className="h-5 w-5 text-mint"
+          className="h-5 w-5 text-amber-500"
         >
           <path
             strokeLinecap="round"
@@ -41,7 +47,7 @@ export default function ThemeToggle() {
             d="M12 3v2.25m6.364.386l-1.591 1.591M21 12h-2.25m-.386 6.364l-1.591-1.591M12 18.75V21m-4.773-4.227l-1.591 1.591M5.25 12H3m4.227-4.773L5.636 5.636M15.75 12a3.75 3.75 0 11-7.5 0 3.75 3.75 0 017.5 0z"
           />
         </svg>
-      ) : (
+      ) : theme === "dark" ? (
         <svg
           xmlns="http://www.w3.org/2000/svg"
           fill="none"
@@ -56,6 +62,26 @@ export default function ThemeToggle() {
             d="M21.752 15.002A9.718 9.718 0 0118 15.75c-5.385 0-9.75-4.365-9.75-9.75 0-1.33.266-2.597.748-3.752A9.753 9.753 0 003 11.25C3 16.635 7.365 21 12.75 21a9.753 9.753 0 009.002-5.998z"
           />
         </svg>
+      ) : (
+        <div className="relative flex items-center justify-center">
+          <svg
+            xmlns="http://www.w3.org/2000/svg"
+            fill="none"
+            viewBox="0 0 24 24"
+            strokeWidth={1.5}
+            stroke="currentColor"
+            className="h-5 w-5 text-slate-400"
+          >
+            <path
+              strokeLinecap="round"
+              strokeLinejoin="round"
+              d="M9 17.25v1.007a3 3 0 01-.879 2.122L7.5 21h9l-.621-.621A3 3 0 0115 18.257V17.25m6-12V15a2.25 2.25 0 01-2.25 2.25H5.25A2.25 2.25 0 013 15V5.25m18 0A2.25 2.25 0 0018.75 3H5.25A2.25 2.25 0 003 5.25m18 0V12a2.25 2.25 0 01-2.25 2.25H5.25A2.25 2.25 0 013 12V5.25"
+            />
+          </svg>
+          <div className="absolute -bottom-0.5 -right-0.5 flex h-2 w-2 items-center justify-center">
+            <div className={`h-1.5 w-1.5 rounded-full ${resolvedTheme === 'dark' ? 'bg-mint' : 'bg-amber-500'}`} />
+          </div>
+        </div>
       )}
     </button>
   );
