diff --git a/crates/goose-cli/src/commands/session.rs b/crates/goose-cli/src/commands/session.rs
index 23e3a2acf8..b6d39638e7 100644
--- a/crates/goose-cli/src/commands/session.rs
+++ b/crates/goose-cli/src/commands/session.rs
@@ -9,6 +9,8 @@ use crate::config::Config;
 use crate::prompt::rustyline::RustylinePrompt;
 use crate::prompt::Prompt;
 use crate::session::{ensure_session_dir, get_most_recent_session, Session};
+use goose::agents::extension::ExtensionError;
+use mcp_client::transport::Error as McpClientError;
 
 /// Get the provider and model to use, following priority:
 /// 1. CLI arguments
@@ -91,7 +93,17 @@ pub async fn build_session<'a>(
             agent
                 .add_extension(extension_config.clone())
                 .await
-                .unwrap_or_else(|_| panic!("Failed to start extension: {}", name));
+                .unwrap_or_else(|e| {
+                    let err = match e {
+                        ExtensionError::Transport(McpClientError::StdioProcessError(inner)) => {
+                            inner
+                        }
+                        _ => e.to_string(),
+                    };
+                    println!("Failed to start extension: {}, {:?}", name, err);
+                    println!("Please check extension configuration for {}.", name);
+                    process::exit(1);
+                });
         }
     }
 
diff --git a/crates/goose/src/agents/capabilities.rs b/crates/goose/src/agents/capabilities.rs
index b986737b5d..f6b888b57b 100644
--- a/crates/goose/src/agents/capabilities.rs
+++ b/crates/goose/src/agents/capabilities.rs
@@ -143,7 +143,7 @@ impl Capabilities {
         let init_result = client
             .initialize(info, capabilities)
             .await
-            .map_err(|_| ExtensionError::Initialization(config.clone()))?;
+            .map_err(|e| ExtensionError::Initialization(config.clone(), e))?;
 
         // Store instructions if provided
         if let Some(instructions) = init_result.instructions {
diff --git a/crates/goose/src/agents/extension.rs b/crates/goose/src/agents/extension.rs
index 9ba5bfc596..cbcc489109 100644
--- a/crates/goose/src/agents/extension.rs
+++ b/crates/goose/src/agents/extension.rs
@@ -7,8 +7,8 @@ use thiserror::Error;
 /// Errors from Extension operation
 #[derive(Error, Debug)]
 pub enum ExtensionError {
-    #[error("Failed to start the MCP server from configuration `{0}` within 60 seconds")]
-    Initialization(ExtensionConfig),
+    #[error("Failed to start the MCP server from configuration `{0}` `{1}`")]
+    Initialization(ExtensionConfig, ClientError),
     #[error("Failed a client call to an MCP server: {0}")]
     Client(#[from] ClientError),
     #[error("User Message exceeded context-limit. History could not be truncated to accomodate.")]
diff --git a/crates/mcp-client/src/transport/stdio.rs b/crates/mcp-client/src/transport/stdio.rs
index 879421783d..5789640f60 100644
--- a/crates/mcp-client/src/transport/stdio.rs
+++ b/crates/mcp-client/src/transport/stdio.rs
@@ -1,11 +1,11 @@
 use std::collections::HashMap;
 use std::sync::Arc;
-use tokio::process::{Child, ChildStdin, ChildStdout, Command};
+use tokio::process::{Child, ChildStderr, ChildStdin, ChildStdout, Command};
 
 use async_trait::async_trait;
 use mcp_core::protocol::JsonRpcMessage;
-use tokio::io::{AsyncBufReadExt, AsyncWriteExt, BufReader};
-use tokio::sync::mpsc;
+use tokio::io::{AsyncBufReadExt, AsyncReadExt, AsyncWriteExt, BufReader};
+use tokio::sync::{mpsc, Mutex};
 
 use super::{send_message, Error, PendingRequests, Transport, TransportHandle, TransportMessage};
 
@@ -16,20 +16,59 @@ pub struct StdioActor {
     receiver: mpsc::Receiver<TransportMessage>,
     pending_requests: Arc<PendingRequests>,
     _process: Child, // we store the process to keep it alive
+    error_sender: mpsc::Sender<Error>,
     stdin: ChildStdin,
     stdout: ChildStdout,
+    stderr: ChildStderr,
 }
 
 impl StdioActor {
-    pub async fn run(self) {
-        tokio::join!(
-            Self::handle_incoming_messages(self.stdout, self.pending_requests.clone()),
-            Self::handle_outgoing_messages(
-                self.receiver,
-                self.stdin,
-                self.pending_requests.clone()
-            )
+    pub async fn run(mut self) {
+        use tokio::pin;
+
+        let incoming = Self::handle_incoming_messages(self.stdout, self.pending_requests.clone());
+        let outgoing = Self::handle_outgoing_messages(
+            self.receiver,
+            self.stdin,
+            self.pending_requests.clone(),
         );
+
+        // take ownership of futures for tokio::select
+        pin!(incoming);
+        pin!(outgoing);
+
+        // Use select! to wait for either I/O completion or process exit
+        tokio::select! {
+            result = &mut incoming => {
+                tracing::debug!("Stdin handler completed: {:?}", result);
+            }
+            result = &mut outgoing => {
+                tracing::debug!("Stdout handler completed: {:?}", result);
+            }
+            // capture the status so we don't need to wait for a timeout
+            status = self._process.wait() => {
+                tracing::debug!("Process exited with status: {:?}", status);
+            }
+        }
+
+        // Then always try to read stderr before cleaning up
+        let mut stderr_buffer = Vec::new();
+        if let Ok(bytes) = self.stderr.read_to_end(&mut stderr_buffer).await {
+            let err_msg = if bytes > 0 {
+                String::from_utf8_lossy(&stderr_buffer).to_string()
+            } else {
+                "Process ended unexpectedly".to_string()
+            };
+
+            tracing::error!("Process stderr: {}", err_msg);
+            let _ = self
+                .error_sender
+                .send(Error::StdioProcessError(err_msg))
+                .await;
+        }
+
+        // Clean up regardless of which path we took
+        self.pending_requests.clear().await;
     }
 
     async fn handle_incoming_messages(stdout: ChildStdout, pending_requests: Arc<PendingRequests>) {
@@ -38,7 +77,7 @@ impl StdioActor {
         loop {
             match reader.read_line(&mut line).await {
                 Ok(0) => {
-                    eprintln!("Child process ended (EOF on stdout)");
+                    tracing::error!("Child process ended (EOF on stdout)");
                     break;
                 } // EOF
                 Ok(_) => {
@@ -69,11 +108,11 @@ impl StdioActor {
         mut stdin: ChildStdin,
         pending_requests: Arc<PendingRequests>,
     ) {
-        while let Some(transport_msg) = receiver.recv().await {
+        while let Some(mut transport_msg) = receiver.recv().await {
             let message_str = match serde_json::to_string(&transport_msg.message) {
                 Ok(s) => s,
                 Err(e) => {
-                    if let Some(tx) = transport_msg.response_tx {
+                    if let Some(tx) = transport_msg.response_tx.take() {
                         let _ = tx.send(Err(Error::Serialization(e)));
                     }
                     continue;
@@ -82,7 +121,7 @@ impl StdioActor {
 
             tracing::debug!(message = ?transport_msg.message, "Sending outgoing message");
 
-            if let Some(response_tx) = transport_msg.response_tx {
+            if let Some(response_tx) = transport_msg.response_tx.take() {
                 if let JsonRpcMessage::Request(request) = &transport_msg.message {
                     if let Some(id) = &request.id {
                         pending_requests.insert(id.to_string(), response_tx).await;
@@ -111,12 +150,29 @@ impl StdioActor {
 #[derive(Clone)]
 pub struct StdioTransportHandle {
     sender: mpsc::Sender<TransportMessage>,
+    error_receiver: Arc<Mutex<mpsc::Receiver<Error>>>,
 }
 
 #[async_trait::async_trait]
 impl TransportHandle for StdioTransportHandle {
     async fn send(&self, message: JsonRpcMessage) -> Result<JsonRpcMessage, Error> {
-        send_message(&self.sender, message).await
+        let result = send_message(&self.sender, message).await;
+        // Check for any pending errors even if send is successful
+        self.check_for_errors().await?;
+        result
+    }
+}
+
+impl StdioTransportHandle {
+    /// Check if there are any process errors
+    pub async fn check_for_errors(&self) -> Result<(), Error> {
+        match self.error_receiver.lock().await.try_recv() {
+            Ok(error) => {
+                tracing::debug!("Found error: {:?}", error);
+                Err(error)
+            }
+            Err(_) => Ok(()),
+        }
     }
 }
 
@@ -139,13 +195,13 @@ impl StdioTransport {
         }
     }
 
-    async fn spawn_process(&self) -> Result<(Child, ChildStdin, ChildStdout), Error> {
+    async fn spawn_process(&self) -> Result<(Child, ChildStdin, ChildStdout, ChildStderr), Error> {
         let mut process = Command::new(&self.command)
             .envs(&self.env)
             .args(&self.args)
             .stdin(std::process::Stdio::piped())
             .stdout(std::process::Stdio::piped())
-            .stderr(std::process::Stdio::inherit())
+            .stderr(std::process::Stdio::piped())
             .kill_on_drop(true)
             // 0 sets the process group ID equal to the process ID
             .process_group(0) // don't inherit signal handling from parent process
@@ -162,7 +218,12 @@ impl StdioTransport {
             .take()
             .ok_or_else(|| Error::StdioProcessError("Failed to get stdout".into()))?;
 
-        Ok((process, stdin, stdout))
+        let stderr = process
+            .stderr
+            .take()
+            .ok_or_else(|| Error::StdioProcessError("Failed to get stderr".into()))?;
+
+        Ok((process, stdin, stdout, stderr))
     }
 }
 
@@ -171,20 +232,26 @@ impl Transport for StdioTransport {
     type Handle = StdioTransportHandle;
 
     async fn start(&self) -> Result<Self::Handle, Error> {
-        let (process, stdin, stdout) = self.spawn_process().await?;
+        let (process, stdin, stdout, stderr) = self.spawn_process().await?;
         let (message_tx, message_rx) = mpsc::channel(32);
+        let (error_tx, error_rx) = mpsc::channel(1);
 
         let actor = StdioActor {
             receiver: message_rx,
             pending_requests: Arc::new(PendingRequests::new()),
             _process: process,
+            error_sender: error_tx,
             stdin,
             stdout,
+            stderr,
         };
 
         tokio::spawn(actor.run());
 
-        let handle = StdioTransportHandle { sender: message_tx };
+        let handle = StdioTransportHandle {
+            sender: message_tx,
+            error_receiver: Arc::new(Mutex::new(error_rx)),
+        };
         Ok(handle)
     }