diff --git a/apps/mobile/src/features/settings/SettingsServerControlsRouteScreen.tsx b/apps/mobile/src/features/settings/SettingsServerControlsRouteScreen.tsx
index 090467a8cd90..94312207714a 100644
--- a/apps/mobile/src/features/settings/SettingsServerControlsRouteScreen.tsx
+++ b/apps/mobile/src/features/settings/SettingsServerControlsRouteScreen.tsx
@@ -50,10 +50,16 @@ const PAGE_PROJECT_KEYS: Record<SettingsPage, readonly ProjectScopedServerSettin
 };
 
 const WORKSPACE_CHOICES: ReadonlyArray<{
-  readonly mode: ThreadEnvMode;
+  readonly mode: ThreadEnvMode | null;
   readonly label: string;
   readonly description: string;
 }> = [
+  // Only offered at environment scope; a project falls back through "Use defaults".
+  {
+    mode: null,
+    label: "Inherit",
+    description: "Use the repository's t3.json, or the current checkout.",
+  },
   {
     mode: "local",
     label: "Current checkout",
@@ -126,6 +132,10 @@ function ServerSettingsDetail(props: { readonly page: SettingsPage }) {
     const value = reference.settings[key];
     return displayTargets.every((entry) => entry.settings[key] === value) ? value : null;
   };
+  // `uniform` folds a real null into "mixed"; nullable keys need the distinction.
+  const isMixed = (key: keyof ServerSettings) =>
+    reference === null ||
+    displayTargets.some((entry) => entry.settings[key] !== reference.settings[key]);
   const updateSettings = useAtomCommand(serverEnvironment.updateSettings, {
     label: "environment settings update",
     reportFailure: true,
@@ -219,17 +229,22 @@ function ServerSettingsDetail(props: { readonly page: SettingsPage }) {
                   <SettingsSection
                     title="Default workspace"
                     trailing={
-                      pendingWrites === 0 && uniform("defaultThreadEnvMode") === null ? (
+                      pendingWrites === 0 && isMixed("defaultThreadEnvMode") ? (
                         <MixedValuesLabel projectSelected={projectSelected} />
                       ) : null
                     }
                   >
-                    {WORKSPACE_CHOICES.map((choice, index) => (
+                    {WORKSPACE_CHOICES.filter(
+                      (choice) => choice.mode !== null || !projectSelected,
+                    ).map((choice, index) => (
                       <ChoiceRow
-                        key={choice.mode}
+                        key={choice.mode ?? "inherit"}
                         label={choice.label}
                         description={choice.description}
-                        selected={uniform("defaultThreadEnvMode") === choice.mode}
+                        selected={
+                          !isMixed("defaultThreadEnvMode") &&
+                          uniform("defaultThreadEnvMode") === choice.mode
+                        }
                         separated={index > 0}
                         disabled={disabledFor("defaultThreadEnvMode")}
                         onPress={() => write({ defaultThreadEnvMode: choice.mode })}
diff --git a/apps/mobile/src/features/settings/settings-scoped-server.test.ts b/apps/mobile/src/features/settings/settings-scoped-server.test.ts
index dd589cd2038c..185fb07e602f 100644
--- a/apps/mobile/src/features/settings/settings-scoped-server.test.ts
+++ b/apps/mobile/src/features/settings/settings-scoped-server.test.ts
@@ -69,6 +69,39 @@ describe("mobile project settings scope", () => {
     expect(secondSettings.responseStreamingMode).toBe("token");
   });
 
+  it("removes a project override when a picker sends null for a key that cannot store it", () => {
+    const settings: ServerSettings = {
+      ...DEFAULT_SERVER_SETTINGS,
+      projectSettingsOverrides: {
+        [firstProject]: { defaultThreadEnvMode: "worktree", defaultAutoPull: true },
+      },
+    };
+    const targets = resolveMobileSettingsTargets(
+      [environment(firstId, settings)],
+      [{ environmentId: firstId, id: firstProject }],
+    );
+    expect(planMobileScopedSettingsPatch(targets, true, { defaultThreadEnvMode: null })).toEqual([
+      {
+        environmentId: firstId,
+        patch: { projectSettingsOverrides: { [firstProject]: { defaultAutoPull: true } } },
+      },
+    ]);
+    expect(planMobileScopedSettingsPatch(targets, true, { defaultModelSelection: null })).toEqual([
+      {
+        environmentId: firstId,
+        patch: {
+          projectSettingsOverrides: {
+            [firstProject]: {
+              defaultThreadEnvMode: "worktree",
+              defaultAutoPull: true,
+              defaultModelSelection: null,
+            },
+          },
+        },
+      },
+    ]);
+  });
+
   it("resets only the selected page's override and rejects environment-wide writes", () => {
     const settings: ServerSettings = {
       ...DEFAULT_SERVER_SETTINGS,
diff --git a/apps/mobile/src/features/settings/settings-scoped-server.ts b/apps/mobile/src/features/settings/settings-scoped-server.ts
index 53cc44a7ee1c..01020a3eb221 100644
--- a/apps/mobile/src/features/settings/settings-scoped-server.ts
+++ b/apps/mobile/src/features/settings/settings-scoped-server.ts
@@ -1,4 +1,5 @@
 import {
+  isNullableProjectSettingsOverride,
   PROJECT_SCOPED_SERVER_SETTING_KEYS,
   type EnvironmentId,
   type ProjectId,
@@ -69,7 +70,19 @@ export function planMobileScopedSettingsPatch(
       continue;
     const current =
       target.environment.serverConfig.settings.projectSettingsOverrides[target.projectId] ?? {};
-    const next = { ...current, ...patch };
+    const next: Record<string, unknown> = { ...current };
+    for (const [key, value] of Object.entries(patch)) {
+      // A picker's "Inherit" sends null; for keys whose override cannot
+      // store null that means remove the override.
+      if (
+        value === null &&
+        !isNullableProjectSettingsOverride(key as ProjectScopedServerSettingKey)
+      ) {
+        delete next[key];
+      } else {
+        next[key] = value;
+      }
+    }
     const overrides = writes.get(target.environment.environmentId) ?? {};
     overrides[target.projectId] = next;
     writes.set(target.environment.environmentId, overrides);
diff --git a/apps/mobile/src/features/threads/new-task-flow-provider.tsx b/apps/mobile/src/features/threads/new-task-flow-provider.tsx
index 4a912f171a55..f2801255b3bc 100644
--- a/apps/mobile/src/features/threads/new-task-flow-provider.tsx
+++ b/apps/mobile/src/features/threads/new-task-flow-provider.tsx
@@ -20,10 +20,6 @@ import {
 } from "@t3tools/contracts";
 import { resolveProjectSettings } from "@t3tools/shared/projectSettings";
 import { parseT3ProjectFile } from "@t3tools/shared/t3ProjectFile";
-import {
-  isDefaultThreadEnvModeSettled,
-  resolveDefaultThreadEnvMode,
-} from "@t3tools/shared/threadEnvMode";
 import * as Arr from "effect/Array";
 import { pipe } from "effect/Function";
 
@@ -431,38 +427,35 @@ export function NewTaskFlowProvider(props: React.PropsWithChildren) {
       : null,
   );
   const t3ProjectFileData = t3ProjectFileQuery.data as ProjectReadFileResult | null;
-  const t3ProjectFileDefaultMode = useMemo(() => {
-    if (t3ProjectFileData === null || t3ProjectFileData.truncated) return null;
-    return parseT3ProjectFile(t3ProjectFileData.contents)?.defaultThreadEnvMode ?? null;
-  }, [t3ProjectFileData]);
-  // Environment settings with the project's overrides applied; the
-  // aggregate's own legacy fields still count until the server folds them.
+  const t3ProjectFile = useMemo(
+    () =>
+      t3ProjectFileData === null || t3ProjectFileData.truncated
+        ? null
+        : parseT3ProjectFile(t3ProjectFileData.contents),
+    [t3ProjectFileData],
+  );
+  // Environment settings with the project's overrides and its t3.json
+  // applied; the aggregate's own legacy fields still count until the server
+  // folds them.
   const projectSettings = useMemo(
     () =>
       resolveProjectSettings(
         selectedEnvironmentServerConfig?.settings ?? DEFAULT_SERVER_SETTINGS,
         selectedProject?.id ?? null,
         selectedProject,
+        t3ProjectFile,
       ),
-    [selectedEnvironmentServerConfig?.settings, selectedProject],
+    [selectedEnvironmentServerConfig?.settings, selectedProject, t3ProjectFile],
   );
-  const projectThreadEnvMode =
-    projectSettings.sources.defaultThreadEnvMode === "project"
-      ? projectSettings.settings.defaultThreadEnvMode
-      : undefined;
-  const defaultWorkspaceMode: WorkspaceMode = resolveDefaultThreadEnvMode({
-    projectSetting: projectThreadEnvMode,
-    projectFile: t3ProjectFileDefaultMode,
-    globalDefault: projectSettings.settings.defaultThreadEnvMode,
-  });
-  // While unsettled the resolved default is provisional. Nothing may write
-  // it into the draft during that window (the auto-branch effect does), or
-  // the frozen interim value beats the t3.json default once it loads.
-  const defaultWorkspaceModeSettled = isDefaultThreadEnvModeSettled({
-    explicitMode: selectedProjectDraft.workspaceSelection?.mode,
-    projectSetting: projectThreadEnvMode,
-    projectFilePending: t3ProjectFileQuery.isPending,
-  });
+  const defaultWorkspaceMode: WorkspaceMode = projectSettings.settings.defaultThreadEnvMode;
+  // While the file read is pending and nothing above it decided, the
+  // resolved default is provisional. Nothing may write it into the draft
+  // during that window (the auto-branch effect does), or the frozen interim
+  // value beats the t3.json default once it loads.
+  const defaultWorkspaceModeSettled =
+    selectedProjectDraft.workspaceSelection?.mode !== undefined ||
+    projectSettings.sources.defaultThreadEnvMode !== "environment" ||
+    !t3ProjectFileQuery.isPending;
   const workspaceMode = selectedProjectDraft.workspaceSelection?.mode ?? defaultWorkspaceMode;
   const selectedBranchName = selectedProjectDraft.workspaceSelection?.branch ?? null;
   const selectedWorktreePath = selectedProjectDraft.workspaceSelection?.worktreePath ?? null;
diff --git a/apps/web/src/components/files/projectFilesQueryState.ts b/apps/web/src/components/files/projectFilesQueryState.ts
index b9a880301831..a6a556231e18 100644
--- a/apps/web/src/components/files/projectFilesQueryState.ts
+++ b/apps/web/src/components/files/projectFilesQueryState.ts
@@ -20,7 +20,12 @@ const EMPTY_PROJECT_FILE_PATH = "";
 const EMPTY_PROJECT_FILE_QUERY_ATOM = Atom.make(
   AsyncResult.initial<ProjectReadFileResult, never>(false),
 ).pipe(Atom.withLabel("project-file-query:empty"));
-function optimisticFileAtom(environmentId: EnvironmentId, cwd: string, relativePath: string) {
+/** A pending in-app write to the file, overlaying the query until confirmed. */
+export function optimisticFileAtom(
+  environmentId: EnvironmentId,
+  cwd: string,
+  relativePath: string,
+) {
   return projectEnvironment.optimisticFile({ environmentId, cwd, relativePath });
 }
 
diff --git a/apps/web/src/components/settings/ProjectDefaultsSettings.tsx b/apps/web/src/components/settings/ProjectDefaultsSettings.tsx
index a08b918be4c5..d49eaa5cbf85 100644
--- a/apps/web/src/components/settings/ProjectDefaultsSettings.tsx
+++ b/apps/web/src/components/settings/ProjectDefaultsSettings.tsx
@@ -1,13 +1,12 @@
 import {
   DEFAULT_SERVER_SETTINGS,
-  EnvironmentId,
   type ModelSelection,
   type ProviderInstanceId,
 } from "@t3tools/contracts";
 import { createModelSelection } from "@t3tools/shared/model";
+import { resolveProjectSettings } from "@t3tools/shared/projectSettings";
 import { useNavigate } from "@tanstack/react-router";
 
-import { useT3ProjectFileState } from "../../hooks/useT3ProjectFileScripts";
 import { getCustomModelOptionsByInstance } from "../../modelSelection";
 import {
   applyProviderInstanceSettings,
@@ -75,25 +74,16 @@ export function ProjectDefaultsSettings({ category }: { category: ProjectSetting
   const mixedAutoPull = useScopedSettingsMixed(["defaultAutoPull"]);
   const mixedMergeMethod = useScopedSettingsMixed(["pullRequestMergeMethod"]);
   const modelSource = useScopedSettingSource(["defaultModelSelection"]);
-  const workspaceSource = useScopedSettingSource(["defaultThreadEnvMode"]);
   const isProjectScope = scope.kind === "project" || scope.kind === "checkout";
   const unavailable = connectedEnvironments.length === 0;
-
-  // A checkout's t3.json wins over the environment default when the project
-  // has no override of its own; show which one "inherit" resolves to.
-  const checkout = scope.kind === "checkout" ? scope.checkout : null;
-  // The query is disabled without a checkout, so any id satisfies the hook.
-  const t3File = useT3ProjectFileState(
-    checkout?.environmentId ?? EnvironmentId.make("none"),
-    category === "general" && checkout ? checkout.workspaceRoot : null,
-  );
-  const repositoryEnvMode = t3File.file?.defaultThreadEnvMode ?? null;
-  const inheritedEnvModeLabel =
-    workspaceSource === "project"
-      ? null
-      : repositoryEnvMode
-        ? `${resolveEnvModeLabel(repositoryEnvMode)} (t3.json)`
-        : null;
+  // File-backed keys show their effective value; the target already carries
+  // the checkout's t3.json, and a null file here only fills the built-in.
+  // The reset arrow beside the title clears the tier (SettingsRow handles a
+  // project override, the environment value is cleared here), so the picker
+  // has no "inherit" item.
+  const effective = target
+    ? resolveProjectSettings(target.settings, null, null, null).settings
+    : null;
 
   function modelDisabledReason(instanceId: ProviderInstanceId, model: string): string | null {
     const sourceEntry = entries.find((entry) => entry.instanceId === instanceId);
@@ -292,27 +282,20 @@ export function ProjectDefaultsSettings({ category }: { category: ProjectSetting
             title="Workspace"
             description={
               isProjectScope
-                ? "Where new threads in this project start. A t3.json preference applies when the project has no override."
-                : "Where new threads start, unless overridden by the project or t3.json."
-            }
-            status={
-              inheritedEnvModeLabel ? `Repository default: ${inheritedEnvModeLabel}` : undefined
+                ? "Where new threads in this project start."
+                : "Where new threads start. Projects and their t3.json can override it."
             }
             resetAction={
-              settings.defaultThreadEnvMode !== DEFAULT_SERVER_SETTINGS.defaultThreadEnvMode ? (
+              !isProjectScope && settings.defaultThreadEnvMode !== null ? (
                 <SettingResetButton
                   label="default workspace"
-                  onClick={() =>
-                    updateSettings({
-                      defaultThreadEnvMode: DEFAULT_SERVER_SETTINGS.defaultThreadEnvMode,
-                    })
-                  }
+                  onClick={() => updateSettings({ defaultThreadEnvMode: null })}
                 />
               ) : null
             }
             control={
               <Select
-                value={mixedWorkspace ? null : settings.defaultThreadEnvMode}
+                value={mixedWorkspace ? null : (effective?.defaultThreadEnvMode ?? null)}
                 onValueChange={(value) => {
                   if (value === "local" || value === "worktree")
                     updateSettings({ defaultThreadEnvMode: value });
diff --git a/apps/web/src/components/settings/SettingInheritance.test.ts b/apps/web/src/components/settings/SettingInheritance.test.ts
index 384dc353cb95..3b3d28e01a26 100644
--- a/apps/web/src/components/settings/SettingInheritance.test.ts
+++ b/apps/web/src/components/settings/SettingInheritance.test.ts
@@ -54,4 +54,41 @@ describe("settingInheritanceLayers", () => {
       ["Off", false],
     ]);
   });
+
+  it("shows the checkout's t3.json as a layer for file-backed keys", () => {
+    const file = { defaultThreadEnvMode: "worktree" as const };
+    const fromFile = settingInheritanceLayers(
+      {
+        environmentId,
+        label: "Laptop",
+        projectId,
+        ...resolveProjectSettings(DEFAULT_SERVER_SETTINGS, projectId, null, file),
+      },
+      DEFAULT_SERVER_SETTINGS,
+      "defaultThreadEnvMode",
+    );
+    expect(fromFile.map((layer) => [layer.label, layer.value, layer.effective])).toEqual([
+      ["Project", "Inherits", false],
+      ["Laptop", "Inherits", false],
+      ["t3.json", "New worktree", true],
+      ["Default", "Current checkout", false],
+    ]);
+    const settings = { ...DEFAULT_SERVER_SETTINGS, defaultThreadEnvMode: "local" as const };
+    const fromEnvironment = settingInheritanceLayers(
+      {
+        environmentId,
+        label: "Laptop",
+        projectId,
+        ...resolveProjectSettings(settings, projectId, null, file),
+      },
+      settings,
+      "defaultThreadEnvMode",
+    );
+    expect(fromEnvironment.map((layer) => [layer.value, layer.effective])).toEqual([
+      ["Inherits", false],
+      ["Current checkout", true],
+      ["Inherits", false],
+      ["Current checkout", false],
+    ]);
+  });
 });
diff --git a/apps/web/src/components/settings/SettingInheritance.tsx b/apps/web/src/components/settings/SettingInheritance.tsx
index 7e0ed7edfca4..623e83056155 100644
--- a/apps/web/src/components/settings/SettingInheritance.tsx
+++ b/apps/web/src/components/settings/SettingInheritance.tsx
@@ -1,5 +1,7 @@
 import {
   DEFAULT_SERVER_SETTINGS,
+  PROJECT_FILE_BACKED_SETTINGS,
+  type ProjectFileBackedSettingKey,
   resolveEnvironmentMachineKind,
   type ServerSettings,
 } from "@t3tools/contracts";
@@ -18,7 +20,7 @@ import type { ProjectOverrideEntry, ScopedSettingsTarget } from "./scopedSetting
 import { isProjectScopedSettingKey } from "./scopedSettings";
 
 interface InheritanceLayer {
-  readonly key: "project" | "environment" | "built-in";
+  readonly key: "project" | "environment" | "t3.json" | "built-in";
   readonly label: string;
   readonly value: string;
   readonly effective: boolean;
@@ -42,7 +44,9 @@ function formatValue(key: keyof ServerSettings, value: unknown): string {
           ? "Automatic"
           : key === "sourceControlWriterModelSelection"
             ? "Text generation model"
-            : "Not set";
+            : key === "defaultThreadEnvMode"
+              ? "Inherit"
+              : "Not set";
   }
   if (typeof value === "boolean") return value ? "On" : "Off";
   if (typeof value === "number") {
@@ -74,44 +78,65 @@ function formatValue(key: keyof ServerSettings, value: unknown): string {
 /**
  * The layers a setting resolves through for one target, top-down: the
  * project override when the target is a project, the environment's value,
- * and the built-in default. The first layer that is set wins.
+ * the checkout's t3.json for file-backed keys, and the built-in default. The
+ * first layer that is set wins. Same order as `resolveProjectSettings`.
  */
 export function settingInheritanceLayers(
   target: ScopedSettingsTarget,
   environmentSettings: ServerSettings,
   key: keyof ServerSettings,
 ): readonly InheritanceLayer[] {
-  const builtIn = DEFAULT_SERVER_SETTINGS[key];
   const environmentValue = environmentSettings[key];
-  const projectSource = isProjectScopedSettingKey(key) ? target.sources[key] : "environment";
-  const environmentSet = !Equal.equals(environmentValue, builtIn);
+  const source = isProjectScopedSettingKey(key) ? target.sources[key] : "environment";
+  const environmentSet = !Equal.equals(environmentValue, DEFAULT_SERVER_SETTINGS[key]);
+  const fileBacked = isProjectFileBackedSettingKey(key);
   const layers: InheritanceLayer[] = [];
   if (target.projectId !== null && isProjectScopedSettingKey(key)) {
     layers.push({
       key: "project",
       label: "Project",
-      value: projectSource === "project" ? formatValue(key, target.settings[key]) : "Inherits",
-      effective: projectSource === "project",
-      set: projectSource === "project",
+      value: source === "project" ? formatValue(key, target.settings[key]) : "Inherits",
+      effective: source === "project",
+      set: source === "project",
     });
   }
   layers.push({
     key: "environment",
     label: target.label,
     value: environmentSet ? formatValue(key, environmentValue) : "Inherits",
-    effective: projectSource !== "project" && environmentSet,
+    effective: source === "environment" && environmentSet,
     set: environmentSet,
   });
+  if (fileBacked && target.projectId !== null) {
+    layers.push({
+      key: "t3.json",
+      label: "t3.json",
+      value: source === "t3.json" ? formatValue(key, target.settings[key]) : "Inherits",
+      effective: source === "t3.json",
+      set: source === "t3.json",
+    });
+  }
+  // For a file-backed key the built-in is what the resolver produced with
+  // nothing set, not the null the schema decodes to.
+  const builtIn = fileBacked
+    ? PROJECT_FILE_BACKED_SETTINGS[key].builtIn
+    : DEFAULT_SERVER_SETTINGS[key];
   layers.push({
     key: "built-in",
     label: "Default",
     value: formatValue(key, builtIn),
-    effective: projectSource !== "project" && !environmentSet,
+    effective: source === "environment" && !environmentSet,
     set: true,
   });
   return layers;
 }
 
+function isProjectFileBackedSettingKey(
+  key: keyof ServerSettings,
+): key is ProjectFileBackedSettingKey {
+  return Object.hasOwn(PROJECT_FILE_BACKED_SETTINGS, key);
+}
+
 export type SettingInheritanceState =
   | "default"
   | "environment"
diff --git a/apps/web/src/components/settings/SettingsScopeContext.tsx b/apps/web/src/components/settings/SettingsScopeContext.tsx
index c758b29272dd..1602c29d76e2 100644
--- a/apps/web/src/components/settings/SettingsScopeContext.tsx
+++ b/apps/web/src/components/settings/SettingsScopeContext.tsx
@@ -1,22 +1,78 @@
+import { T3_PROJECT_FILE_NAME, type T3ProjectFile } from "@t3tools/contracts";
+import { parseT3ProjectFile } from "@t3tools/shared/t3ProjectFile";
+import { useAtomValue } from "@effect/atom-react";
+import * as Option from "effect/Option";
+import { AsyncResult, Atom } from "effect/unstable/reactivity";
 import { createContext, type ReactNode, useContext, useMemo } from "react";
 
 import { useEnvironments, usePrimaryEnvironmentId } from "../../state/environments";
+import { getProjectFileQueryAtom, optimisticFileAtom } from "../files/projectFilesQueryState";
 import { useSettingsProjectGroups } from "./useSettingsProjectGroups";
 import { resolveScopedSettingsTargets, selectScopedSettingsEnvironments } from "./scopedSettings";
 import { resolveSettingsScope, type SettingsScopeSearch } from "./settingsScope";
 
+/**
+ * Each member's decoded t3.json, so file-backed settings show the file as a
+ * layer in the inheritance chain. A member is only present once its read has
+ * settled; the query atom caches per (environment, cwd).
+ */
+function useMemberProjectFiles(scope: ReturnType<typeof resolveSettingsScope>) {
+  const members = scope.kind === "project" || scope.kind === "checkout" ? scope.members : [];
+  return useAtomValue(
+    useMemo(
+      () =>
+        Atom.make((get) => {
+          const files = new Map<string, T3ProjectFile | null>();
+          for (const member of members) {
+            const result = get(
+              getProjectFileQueryAtom(
+                member.environmentId,
+                member.workspaceRoot,
+                T3_PROJECT_FILE_NAME,
+              ),
+            );
+            if (result.waiting) continue;
+            // A pending in-app save overlays the query, like useProjectFileQuery.
+            const data =
+              get(
+                optimisticFileAtom(
+                  member.environmentId,
+                  member.workspaceRoot,
+                  T3_PROJECT_FILE_NAME,
+                ),
+              )?.data ?? Option.getOrNull(AsyncResult.value(result));
+            files.set(
+              member.physicalProjectKey,
+              data === null || data.truncated ? null : parseT3ProjectFile(data.contents),
+            );
+          }
+          return files;
+        }),
+      [members],
+    ),
+  );
+}
+
 function useResolvedSettingsScope(search: SettingsScopeSearch) {
   const groups = useSettingsProjectGroups();
   const { environments: availableEnvironments } = useEnvironments();
   const primaryEnvironmentId = usePrimaryEnvironmentId();
+  const scope = useMemo(
+    () => resolveSettingsScope(search, groups, availableEnvironments),
+    [availableEnvironments, groups, search],
+  );
+  const projectFiles = useMemberProjectFiles(scope);
   return useMemo(() => {
-    const scope = resolveSettingsScope(search, groups, availableEnvironments);
     const selected = selectScopedSettingsEnvironments(
       scope,
       availableEnvironments,
       primaryEnvironmentId,
     );
-    const targets = resolveScopedSettingsTargets(scope, selected.connectedEnvironments);
+    const targets = resolveScopedSettingsTargets(
+      scope,
+      selected.connectedEnvironments,
+      projectFiles,
+    );
     // The representative target supplies display values; project scopes
     // prefer the member on the primary environment, like environments do.
     const target =
@@ -26,7 +82,7 @@ function useResolvedSettingsScope(search: SettingsScopeSearch) {
       targets[0] ??
       null;
     return { scope, groups, ...selected, targets, target };
-  }, [availableEnvironments, groups, primaryEnvironmentId, search]);
+  }, [availableEnvironments, groups, primaryEnvironmentId, projectFiles, scope]);
 }
 
 const SettingsScopeContext = createContext<
diff --git a/apps/web/src/components/settings/scopedSettings.test.ts b/apps/web/src/components/settings/scopedSettings.test.ts
index ceb615d3511e..7e15b4e5a26f 100644
--- a/apps/web/src/components/settings/scopedSettings.test.ts
+++ b/apps/web/src/components/settings/scopedSettings.test.ts
@@ -510,6 +510,53 @@ describe("project overrides at environment scope", () => {
   });
 });
 
+describe("null patches at project scope", () => {
+  it("removes the override for keys that cannot store null and keeps it for keys that can", () => {
+    const environmentId = EnvironmentId.make("laptop");
+    const projectId = ProjectId.make("fleet");
+    const scope = {
+      kind: "project" as const,
+      group: {} as never,
+      environmentId: null,
+      label: "fleet",
+      members: [{ id: projectId, environmentId } as never],
+      environmentIds: [environmentId],
+    };
+    const environments = [
+      {
+        environmentId,
+        label: "Laptop",
+        connection: { phase: "connected" as const },
+        serverConfig: {
+          settings: {
+            ...DEFAULT_SERVER_SETTINGS,
+            projectSettingsOverrides: {
+              [projectId]: { defaultThreadEnvMode: "worktree" as const, defaultAutoPull: true },
+            },
+          },
+          environment: { capabilities: { projectSettingsOverrides: true } },
+        },
+      },
+    ];
+    expect(
+      planScopedSettingsPatch(scope, environments, { defaultThreadEnvMode: null }).serverWrites[0]
+        ?.patch,
+    ).toEqual({ projectSettingsOverrides: { [projectId]: { defaultAutoPull: true } } });
+    expect(
+      planScopedSettingsPatch(scope, environments, { defaultModelSelection: null }).serverWrites[0]
+        ?.patch,
+    ).toEqual({
+      projectSettingsOverrides: {
+        [projectId]: {
+          defaultThreadEnvMode: "worktree",
+          defaultAutoPull: true,
+          defaultModelSelection: null,
+        },
+      },
+    });
+  });
+});
+
 describe("partial object patches at project scope", () => {
   it("completes a writing style field patch from the target's effective value", () => {
     const environmentId = EnvironmentId.make("laptop");
diff --git a/apps/web/src/components/settings/scopedSettings.ts b/apps/web/src/components/settings/scopedSettings.ts
index 0ef90dbacd4f..e1e884632358 100644
--- a/apps/web/src/components/settings/scopedSettings.ts
+++ b/apps/web/src/components/settings/scopedSettings.ts
@@ -2,11 +2,13 @@ import {
   ClientSettingsSchema,
   type ClientSettingsPatch,
   type EnvironmentId,
+  isNullableProjectSettingsOverride,
   PROJECT_SCOPED_SERVER_SETTING_KEYS,
   type ProjectId,
   type ProjectScopedServerSettingKey,
   type ProjectSettingsOverrides,
   ServerSettings,
+  type T3ProjectFile,
   type ServerSettingsPatch,
 } from "@t3tools/contracts";
 import type { EnvironmentConnectionPhase } from "@t3tools/client-runtime/connection";
@@ -85,6 +87,9 @@ export interface ScopedSettingsTarget {
 export function resolveScopedSettingsTargets(
   scope: ResolvedSettingsScope,
   connectedEnvironments: readonly ScopedSettingsEnvironment[],
+  // Each member's decoded t3.json, keyed by physical project key, once read.
+  // A member absent here has no file tier yet; null is a missing or invalid file.
+  projectFiles?: ReadonlyMap<string, T3ProjectFile | null>,
 ): readonly ScopedSettingsTarget[] {
   const byId = new Map(
     connectedEnvironments.map((environment) => [environment.environmentId, environment]),
@@ -93,7 +98,11 @@ export function resolveScopedSettingsTargets(
     return scope.members.flatMap((member) => {
       const environment = byId.get(member.environmentId);
       if (!environment?.serverConfig) return [];
-      const resolved = resolveProjectSettings(environment.serverConfig.settings, member.id);
+      const projectFile = projectFiles?.get(member.physicalProjectKey);
+      const resolved =
+        projectFile === undefined
+          ? resolveProjectSettings(environment.serverConfig.settings, member.id)
+          : resolveProjectSettings(environment.serverConfig.settings, member.id, null, projectFile);
       return [
         {
           environmentId: member.environmentId,
@@ -143,7 +152,13 @@ export function scopedSettingsSource(
   const scoped = keys.filter(isProjectScopedSettingKey);
   if (scoped.length === 0 || targets.length === 0) return "environment";
   const sources = new Set(targets.flatMap((target) => scoped.map((key) => target.sources[key])));
-  return sources.size > 1 ? "mixed" : sources.has("project") ? "project" : "environment";
+  return sources.size > 1
+    ? "mixed"
+    : sources.has("project")
+      ? "project"
+      : sources.has("t3.json")
+        ? "t3.json"
+        : "environment";
 }
 
 interface ScopedServerWrite {
@@ -234,6 +249,15 @@ export function planScopedSettingsPatch(
                   };
                   continue;
                 }
+                // A picker's "Inherit" sends null; for keys whose override
+                // cannot store null that means remove the override.
+                if (
+                  value === null &&
+                  !isNullableProjectSettingsOverride(key as ProjectScopedServerSettingKey)
+                ) {
+                  delete next[key];
+                  continue;
+                }
                 const base = effective[key as keyof ServerSettings];
                 next[key] =
                   isPlainObject(value) && isPlainObject(base) ? { ...base, ...value } : value;
diff --git a/apps/web/src/components/settings/settingsLayout.tsx b/apps/web/src/components/settings/settingsLayout.tsx
index c805e37f1bbd..6691b93a7242 100644
--- a/apps/web/src/components/settings/settingsLayout.tsx
+++ b/apps/web/src/components/settings/settingsLayout.tsx
@@ -407,11 +407,13 @@ export function SettingsRow({
     ? { state: "mixed", summary: "Mixed across selected environments" }
     : source === "project"
       ? { state: "overridden", summary: "Overridden for this project" }
-      : source === "environment" && scopedKeys.length > 0
-        ? { state: "inherited", summary: `Inherited from ${inheritedFrom}` }
-        : customized
-          ? { state: "environment", summary: "Set on the environment" }
-          : { state: "default", summary: "Built-in default" };
+      : source === "t3.json"
+        ? { state: "inherited", summary: "Inherited from the repository's t3.json" }
+        : source === "environment" && scopedKeys.length > 0
+          ? { state: "inherited", summary: `Inherited from ${inheritedFrom}` }
+          : customized
+            ? { state: "environment", summary: "Set on the environment" }
+            : { state: "default", summary: "Built-in default" };
   const renderedInheritance =
     context && serverScoped && settingKeys.length > 0 ? (
       <SettingInheritance
diff --git a/apps/web/src/hooks/useHandleNewThread.test.ts b/apps/web/src/hooks/useHandleNewThread.test.ts
index 6cae988e87c6..3a29155bda6d 100644
--- a/apps/web/src/hooks/useHandleNewThread.test.ts
+++ b/apps/web/src/hooks/useHandleNewThread.test.ts
@@ -100,18 +100,25 @@ vi.mock("@t3tools/contracts", () => ({
 vi.mock("@t3tools/shared/projectSettings", () => ({
   // Environment settings pass through; the tests set project fields on the
   // project record, which the hook still honors until the server folds them.
-  resolveProjectSettings: (settings: Record<string, unknown>) => ({
-    settings,
+  // With a file argument the env mode resolves like the real chain.
+  resolveProjectSettings: (
+    settings: Record<string, unknown>,
+    _projectId: unknown,
+    _project: unknown,
+    projectFile?: { defaultThreadEnvMode?: "local" | "worktree" } | null,
+  ) => ({
+    settings:
+      projectFile === undefined
+        ? settings
+        : {
+            ...settings,
+            defaultThreadEnvMode:
+              settings.defaultThreadEnvMode ?? projectFile?.defaultThreadEnvMode ?? "local",
+          },
     sources: { defaultModelSelection: "environment", defaultThreadEnvMode: "environment" },
     overrides: {},
   }),
 }));
-vi.mock("@t3tools/shared/threadEnvMode", () => ({
-  resolveDefaultThreadEnvMode: (input: {
-    readonly projectFile: "local" | "worktree" | null;
-    readonly globalDefault: "local" | "worktree";
-  }) => input.projectFile ?? input.globalDefault,
-}));
 vi.mock("@tanstack/react-router", () => ({
   useParams: () => null,
   useRouter: () => testState.router,
@@ -137,7 +144,7 @@ vi.mock("../lib/chatThreadActions", async (importOriginal) => ({
   resolveNewThreadModelSelectionOverride: () => null,
 }));
 vi.mock("../lib/t3ProjectFileDefaults", () => ({
-  readT3ProjectFileDefaultThreadEnvMode: () => testState.projectFileRead,
+  readT3ProjectFile: () => testState.projectFileRead,
 }));
 vi.mock("../lib/utils", () => ({
   newDraftId: () => "draft-delayed",
diff --git a/apps/web/src/hooks/useHandleNewThread.ts b/apps/web/src/hooks/useHandleNewThread.ts
index 65ac2307ce89..327f18080008 100644
--- a/apps/web/src/hooks/useHandleNewThread.ts
+++ b/apps/web/src/hooks/useHandleNewThread.ts
@@ -23,14 +23,13 @@ import {
   selectProjectGroupingSettings,
 } from "../logicalProject";
 import { resolveProjectSettings } from "@t3tools/shared/projectSettings";
-import { resolveDefaultThreadEnvMode } from "@t3tools/shared/threadEnvMode";
 import { readProjects, readThreadShell, useProjects, useThread } from "../state/entities";
 import {
   hasExplicitComposerModelSelection,
   resolveNewDraftStartFromOrigin,
   resolveNewThreadModelSelectionOverride,
 } from "../lib/chatThreadActions";
-import { readT3ProjectFileDefaultThreadEnvMode } from "../lib/t3ProjectFileDefaults";
+import { readT3ProjectFile } from "../lib/t3ProjectFileDefaults";
 import { environmentServerConfigsAtom } from "../state/server";
 import { resolveThreadRouteTarget } from "../threadRoutes";
 import { legacyProjectCwdPreferenceKey, useUiStateStore } from "../uiStateStore";
@@ -138,10 +137,6 @@ export function useNewThreadHandler() {
       );
       const projectDefaultModelSelection = projectSettings.settings.defaultModelSelection;
       const defaultRuntimeMode = projectSettings.settings.defaultRuntimeMode;
-      const projectThreadEnvMode =
-        projectSettings.sources.defaultThreadEnvMode === "project"
-          ? projectSettings.settings.defaultThreadEnvMode
-          : undefined;
       const resolveModelSelectionOverride = (destinationDraftId: DraftId) =>
         resolveNewThreadModelSelectionOverride({
           projectDefaultSelection: projectDefaultModelSelection ?? null,
@@ -154,17 +149,17 @@ export function useNewThreadHandler() {
       // skipped entirely when a higher-priority source decides, and its
       // query atom caches per project after the first call.
       const resolveDefaultEnvMode = async (): Promise<DraftThreadEnvMode> => {
-        const consultProjectFile = project !== undefined && projectThreadEnvMode == null;
-        return resolveDefaultThreadEnvMode({
-          projectSetting: projectThreadEnvMode,
-          projectFile: consultProjectFile
-            ? await readT3ProjectFileDefaultThreadEnvMode(
-                project.environmentId,
-                project.workspaceRoot,
-              )
-            : null,
-          globalDefault: projectSettings.settings.defaultThreadEnvMode,
-        });
+        const consultProjectFile =
+          project !== undefined && projectSettings.settings.defaultThreadEnvMode === null;
+        const projectFile = consultProjectFile
+          ? await readT3ProjectFile(project.environmentId, project.workspaceRoot)
+          : null;
+        return resolveProjectSettings(
+          targetServerSettings,
+          project?.id ?? null,
+          project,
+          projectFile,
+        ).settings.defaultThreadEnvMode;
       };
       const logicalProjectKey = project
         ? deriveLogicalProjectKeyFromSettings(project, projectGroupingSettings)
diff --git a/apps/web/src/lib/t3ProjectFileDefaults.ts b/apps/web/src/lib/t3ProjectFileDefaults.ts
index b6a1b7484b9e..543519ed488a 100644
--- a/apps/web/src/lib/t3ProjectFileDefaults.ts
+++ b/apps/web/src/lib/t3ProjectFileDefaults.ts
@@ -1,4 +1,4 @@
-import { T3_PROJECT_FILE_NAME, type EnvironmentId, type ThreadEnvMode } from "@t3tools/contracts";
+import { T3_PROJECT_FILE_NAME, type EnvironmentId, type T3ProjectFile } from "@t3tools/contracts";
 import { parseT3ProjectFile } from "@t3tools/shared/t3ProjectFile";
 import { executeAtomQuery } from "@t3tools/client-runtime/state/runtime";
 
@@ -9,19 +9,19 @@ import {
 import { appAtomRegistry } from "~/rpc/atomRegistry";
 
 /**
- * Read `defaultThreadEnvMode` from the project's checked-in `t3.json`.
+ * Read and decode the project's checked-in `t3.json`.
  *
- * Imperative counterpart to `useT3ProjectFileScripts` for the new-thread
- * path, which resolves defaults at call time rather than render time. The
- * file query atom caches per (environment, cwd), so repeat calls don't
- * re-fetch. Optimistic in-app writes overlay the query result, matching what
+ * Imperative counterpart to `useT3ProjectFileState` for the new-thread path,
+ * which resolves defaults at call time rather than render time. The file
+ * query atom caches per (environment, cwd), so repeat calls don't re-fetch.
+ * Optimistic in-app writes overlay the query result, matching what
  * `useProjectFileQuery` renders. Missing, truncated, or invalid files
  * resolve to null.
  */
-export async function readT3ProjectFileDefaultThreadEnvMode(
+export async function readT3ProjectFile(
   environmentId: EnvironmentId,
   workspaceRoot: string,
-): Promise<ThreadEnvMode | null> {
+): Promise<T3ProjectFile | null> {
   const result = await executeAtomQuery(
     appAtomRegistry,
     getProjectFileQueryAtom(environmentId, workspaceRoot, T3_PROJECT_FILE_NAME),
@@ -34,5 +34,5 @@ export async function readT3ProjectFileDefaultThreadEnvMode(
     result._tag === "Success" ? result.value : null,
   );
   if (data === null || data.truncated) return null;
-  return parseT3ProjectFile(data.contents)?.defaultThreadEnvMode ?? null;
+  return parseT3ProjectFile(data.contents);
 }
diff --git a/docs/user/project-settings.md b/docs/user/project-settings.md
index 6144bd960100..363b2a4583a4 100644
--- a/docs/user/project-settings.md
+++ b/docs/user/project-settings.md
@@ -49,7 +49,9 @@ checkouts and removal. Actions belong to a project: editing them creates the pro
 on each selected environment, and reset returns to the environment's shared list. A project's
 `t3.json` actions can be imported there.
 
-For workspace mode, a project's `t3.json` preference applies when the project has no override.
+Settings a repository can also declare in `t3.json`, such as the workspace for new threads,
+resolve in one order: a project override, then the environment setting, then `t3.json`, then the
+built-in default. Leave a setting on **Inherit** to let the next tier decide.
 Browser access changes apply when an agent session next starts.
 
 New worktrees initialize git submodules recursively. If that step is slow because the repository
diff --git a/packages/contracts/src/baseSchemas.ts b/packages/contracts/src/baseSchemas.ts
index 602515843651..2d40b92e526b 100644
--- a/packages/contracts/src/baseSchemas.ts
+++ b/packages/contracts/src/baseSchemas.ts
@@ -82,6 +82,31 @@ export const ForwardCompatibleNullable = <Value extends Schema.Top>(value: Value
   );
 };
 
+/**
+ * A nullable setting whose null is "unset" and never crosses the wire: it
+ * decodes from a missing or unknown key and encodes back to a missing key.
+ * For a field that older clients decode as a required literal, so a null
+ * on the wire would fail their whole settings snapshot.
+ */
+export const OmittedWhenNull = <Value extends Schema.Top>(value: Value) => {
+  const decodeValue = Schema.decodeUnknownOption(value as never);
+  return Schema.optionalKey(Schema.Unknown).pipe(
+    Schema.decodeTo(
+      Schema.NullOr(value),
+      SchemaTransformation.transformOptional<Value["Encoded"] | null, unknown>({
+        decode: (raw) =>
+          Option.some(
+            Option.isSome(raw) && Option.isSome(decodeValue(raw.value))
+              ? (raw.value as Value["Encoded"])
+              : null,
+          ),
+        encode: (raw) =>
+          Option.isSome(raw) && raw.value !== null ? Option.some(raw.value) : Option.none(),
+      }),
+    ),
+  );
+};
+
 export const ForwardCompatibleArray = <Element extends Schema.Top>(element: Element) => {
   const decodeElement = Schema.decodeUnknownOption(element as never);
   return Schema.Array(Schema.Unknown).pipe(
diff --git a/packages/contracts/src/settings.test.ts b/packages/contracts/src/settings.test.ts
index ff54b6c0aa53..007d04505c86 100644
--- a/packages/contracts/src/settings.test.ts
+++ b/packages/contracts/src/settings.test.ts
@@ -805,6 +805,27 @@ describe("provider enabled defaults", () => {
 });
 
 describe("ServerSettings worktree defaults", () => {
+  it("defaults the thread env mode to inherit and keeps stored values", () => {
+    expect(decodeServerSettings({}).defaultThreadEnvMode).toBeNull();
+    expect(decodeServerSettings({ defaultThreadEnvMode: "worktree" }).defaultThreadEnvMode).toBe(
+      "worktree",
+    );
+    expect(
+      decodeServerSettings({ defaultThreadEnvMode: "remote" }).defaultThreadEnvMode,
+    ).toBeNull();
+    expect(
+      decodeServerSettingsPatch({ defaultThreadEnvMode: null }).defaultThreadEnvMode,
+    ).toBeNull();
+  });
+
+  it("keeps an inherited thread env mode off the wire for older clients", () => {
+    const encode = Schema.encodeSync(ServerSettings);
+    expect("defaultThreadEnvMode" in encode(decodeServerSettings({}))).toBe(false);
+    expect(
+      encode(decodeServerSettings({ defaultThreadEnvMode: "worktree" })).defaultThreadEnvMode,
+    ).toBe("worktree");
+  });
+
   it("defaults start-from-origin on for legacy configs", () => {
     expect(decodeServerSettings({}).newWorktreesStartFromOrigin).toBe(true);
   });
diff --git a/packages/contracts/src/settings.ts b/packages/contracts/src/settings.ts
index 73a2a2517d05..4a57f6680fb1 100644
--- a/packages/contracts/src/settings.ts
+++ b/packages/contracts/src/settings.ts
@@ -5,6 +5,7 @@ import * as Schema from "effect/Schema";
 import * as SchemaTransformation from "effect/SchemaTransformation";
 import {
   ForwardCompatibleNullable,
+  OmittedWhenNull,
   ProjectId,
   TrimmedNonEmptyString,
   TrimmedString,
@@ -1041,6 +1042,26 @@ export const ProjectSettingsOverrides = Schema.Struct({
 } satisfies Record<ProjectScopedServerSettingKey, unknown>);
 export type ProjectSettingsOverrides = typeof ProjectSettingsOverrides.Type;
 
+/**
+ * Whether `null` is a stored override value for this key rather than "unset".
+ * Clients writing a project override treat null for every other key as a
+ * request to remove the override, so a picker's "Inherit" item and the row's
+ * reset do the same thing.
+ */
+export function isNullableProjectSettingsOverride(key: ProjectScopedServerSettingKey): boolean {
+  return NULLABLE_PROJECT_SETTINGS_OVERRIDES.has(key);
+}
+const NULLABLE_PROJECT_SETTINGS_OVERRIDES: ReadonlySet<ProjectScopedServerSettingKey> = new Set<
+  {
+    [K in ProjectScopedServerSettingKey]: null extends ProjectSettingsOverrides[K] ? K : never;
+  }[ProjectScopedServerSettingKey]
+>([
+  "defaultModelSelection",
+  "sourceControlWriterModelSelection",
+  "pullRequestMergeMethod",
+  "sidebarAutoSettleAfterDays",
+]);
+
 export const StorageCleanupSettings = Schema.Struct({
   worktreeAfterDays: StorageRetentionDays.pipe(Schema.withDecodingDefault(Effect.succeed(null))),
   worktreeOnMerge: Schema.Boolean.pipe(Schema.withDecodingDefault(Effect.succeed(false))),
@@ -1176,9 +1197,14 @@ export const ServerSettings = Schema.Struct({
   environmentIcon: ForwardCompatibleNullable(EnvironmentMachineKind).pipe(
     Schema.withDecodingDefault(Effect.succeed(null)),
   ),
-  defaultThreadEnvMode: ThreadEnvMode.pipe(
-    Schema.withDecodingDefault(Effect.succeed("local" as const satisfies ThreadEnvMode)),
-  ),
+  /**
+   * Null means inherit: the repository's t3.json, then "local". The old
+   * default "local" was never persisted (defaults are stripped on write), so
+   * it now decodes as inherit, which resolves the same way because the old
+   * chain also let t3.json outrank the environment. Null stays off the wire
+   * so older clients, which require a literal here, keep decoding.
+   */
+  defaultThreadEnvMode: OmittedWhenNull(ThreadEnvMode),
   newWorktreesStartFromOrigin: Schema.Boolean.pipe(
     Schema.withDecodingDefault(Effect.succeed(true)),
   ),
@@ -1471,7 +1497,7 @@ export const ServerSettingsPatch = Schema.Struct({
   providerHealthRefreshInterval: Schema.optionalKey(Schema.DurationFromMillis),
   backgroundActivityProfile: Schema.optionalKey(BackgroundActivityProfile),
   environmentIcon: Schema.optionalKey(Schema.NullOr(EnvironmentMachineKind)),
-  defaultThreadEnvMode: Schema.optionalKey(ThreadEnvMode),
+  defaultThreadEnvMode: Schema.optionalKey(Schema.NullOr(ThreadEnvMode)),
   newWorktreesStartFromOrigin: Schema.optionalKey(Schema.Boolean),
   addProjectBaseDirectory: Schema.optionalKey(TrimmedString),
   textGenerationModelSelection: Schema.optionalKey(ModelSelectionPatch),
diff --git a/packages/contracts/src/t3ProjectFile.ts b/packages/contracts/src/t3ProjectFile.ts
index 2e31e5271f7d..53294a9759b3 100644
--- a/packages/contracts/src/t3ProjectFile.ts
+++ b/packages/contracts/src/t3ProjectFile.ts
@@ -3,6 +3,7 @@ import * as SchemaTransformation from "effect/SchemaTransformation";
 
 import { ThreadEnvMode, WorktreeSubmodules } from "./environment.ts";
 import { ProjectScriptIcon } from "./orchestration.ts";
+import type { ProjectScopedServerSettingKey, ServerSettings } from "./settings.ts";
 
 /** File name of the checked-in T3 project file, resolved at the workspace root. */
 export const T3_PROJECT_FILE_NAME = "t3.json";
@@ -105,3 +106,37 @@ export const T3ProjectFile = Schema.Struct({
     "Checked-in project configuration for T3 Code (t3.json at the repository root). See https://t3.codes for documentation.",
 });
 export type T3ProjectFile = typeof T3ProjectFile.Type;
+
+/**
+ * Settings a repository can also declare in t3.json. A key here must be
+ * nullable on `ServerSettings` (null means inherit) so both the project
+ * override and the environment value can defer to the file; `field` names
+ * the t3.json field carrying the same value and `builtIn` is what applies
+ * when every tier is unset. `resolveProjectSettings` walks project override,
+ * environment value, file, built-in, so listing a key here is the whole
+ * change for a new file-backed setting.
+ */
+export const PROJECT_FILE_BACKED_SETTINGS = {
+  defaultThreadEnvMode: { field: "defaultThreadEnvMode", builtIn: "local" },
+} as const satisfies {
+  readonly [K in ProjectScopedServerSettingKey]?: {
+    readonly field: {
+      readonly [F in keyof T3ProjectFile]: T3ProjectFile[F] extends
+        | Exclude<ServerSettings[K], null>
+        | undefined
+        ? F
+        : never;
+    }[keyof T3ProjectFile];
+    readonly builtIn: Exclude<ServerSettings[K], null>;
+  };
+};
+export type ProjectFileBackedSettingKey = keyof typeof PROJECT_FILE_BACKED_SETTINGS;
+
+/**
+ * `ServerSettings` with every file-backed key resolved to a concrete value.
+ * What `resolveProjectSettings(...).settings` produces once a t3.json (or
+ * its absence) has been accounted for.
+ */
+export type ResolvedServerSettings = Omit<ServerSettings, ProjectFileBackedSettingKey> & {
+  readonly [K in ProjectFileBackedSettingKey]: Exclude<ServerSettings[K], null>;
+};
diff --git a/packages/shared/package.json b/packages/shared/package.json
index 1cd162593160..9e929325a5d4 100644
--- a/packages/shared/package.json
+++ b/packages/shared/package.json
@@ -127,10 +127,6 @@
       "types": "./src/projectSettings.ts",
       "import": "./src/projectSettings.ts"
     },
-    "./threadEnvMode": {
-      "types": "./src/threadEnvMode.ts",
-      "import": "./src/threadEnvMode.ts"
-    },
     "./t3ProjectFile": {
       "types": "./src/t3ProjectFile.ts",
       "import": "./src/t3ProjectFile.ts"
diff --git a/packages/shared/src/projectSettings.test.ts b/packages/shared/src/projectSettings.test.ts
index e08be45807cb..c4c02660a311 100644
--- a/packages/shared/src/projectSettings.test.ts
+++ b/packages/shared/src/projectSettings.test.ts
@@ -30,6 +30,24 @@ describe("resolveProjectSettings", () => {
     );
   });
 
+  it("ignores an override left undefined by a forward-compatible decode", () => {
+    const resolved = resolveProjectSettings(
+      {
+        ...DEFAULT_SERVER_SETTINGS,
+        defaultRuntimeMode: "full-access",
+        projectSettingsOverrides: { [projectId]: { defaultRuntimeMode: undefined } as never },
+      },
+      projectId,
+    );
+    expect(resolved.settings.defaultRuntimeMode).toBe("full-access");
+    expect(resolved.sources.defaultRuntimeMode).toBe("environment");
+    expect(
+      hasProjectSettingsOverrides({
+        projectSettingsOverrides: { [projectId]: { defaultRuntimeMode: undefined } as never },
+      }),
+    ).toBe(false);
+  });
+
   it("treats a null project like an absent one before the shell snapshot arrives", () => {
     // The mobile new-task flow resolves settings while its selected project is
     // still null; reading the aggregate's legacy fields off null crashed launch.
@@ -118,6 +136,64 @@ describe("resolveProjectSettings", () => {
   });
 });
 
+describe("resolveProjectSettings with a t3.json", () => {
+  it("walks project override, environment value, file, then built-in for file-backed keys", () => {
+    const file = { defaultThreadEnvMode: "worktree" as const };
+    const fromOverride = resolveProjectSettings(
+      {
+        ...DEFAULT_SERVER_SETTINGS,
+        projectSettingsOverrides: { [projectId]: { defaultThreadEnvMode: "local" } },
+      },
+      projectId,
+      null,
+      file,
+    );
+    expect(fromOverride.settings.defaultThreadEnvMode).toBe("local");
+    expect(fromOverride.sources.defaultThreadEnvMode).toBe("project");
+
+    const fromEnvironment = resolveProjectSettings(
+      { ...DEFAULT_SERVER_SETTINGS, defaultThreadEnvMode: "local" },
+      projectId,
+      null,
+      file,
+    );
+    expect(fromEnvironment.settings.defaultThreadEnvMode).toBe("local");
+    expect(fromEnvironment.sources.defaultThreadEnvMode).toBe("environment");
+
+    const fromFile = resolveProjectSettings(DEFAULT_SERVER_SETTINGS, projectId, null, file);
+    expect(fromFile.settings.defaultThreadEnvMode).toBe("worktree");
+    expect(fromFile.sources.defaultThreadEnvMode).toBe("t3.json");
+
+    const builtIn = resolveProjectSettings(DEFAULT_SERVER_SETTINGS, projectId, null, null);
+    expect(builtIn.settings.defaultThreadEnvMode).toBe("local");
+    expect(builtIn.sources.defaultThreadEnvMode).toBe("environment");
+    // A stored null override defers like an unset one and is not reported
+    // as the project's value.
+    const nullOverride = resolveProjectSettings(
+      {
+        ...DEFAULT_SERVER_SETTINGS,
+        projectSettingsOverrides: { [projectId]: { defaultThreadEnvMode: null } as never },
+      },
+      projectId,
+      null,
+      file,
+    );
+    expect(nullOverride.settings.defaultThreadEnvMode).toBe("worktree");
+    expect(nullOverride.sources.defaultThreadEnvMode).toBe("t3.json");
+    // A file that does not mention the key leaves the source alone too.
+    expect(
+      resolveProjectSettings(DEFAULT_SERVER_SETTINGS, projectId, null, {}).sources
+        .defaultThreadEnvMode,
+    ).toBe("environment");
+  });
+
+  it("leaves settings untouched when no file is passed", () => {
+    expect(resolveProjectSettings(DEFAULT_SERVER_SETTINGS, projectId).settings).toBe(
+      DEFAULT_SERVER_SETTINGS,
+    );
+  });
+});
+
 describe("projectSettingsOverrides patches", () => {
   it("replaces a project's entry, removes it with null, and drops empty entries", () => {
     const first = applyServerSettingsPatch(DEFAULT_SERVER_SETTINGS, {
diff --git a/packages/shared/src/projectSettings.ts b/packages/shared/src/projectSettings.ts
index fd137545666f..967f3bc6b0c5 100644
--- a/packages/shared/src/projectSettings.ts
+++ b/packages/shared/src/projectSettings.ts
@@ -1,24 +1,34 @@
 import {
   type ModelSelection,
+  PROJECT_FILE_BACKED_SETTINGS,
   PROJECT_SCOPED_SERVER_SETTING_KEYS,
   type ProjectId,
   type ProjectScopedServerSettingKey,
   type ProjectSettingsOverrides,
+  type ResolvedServerSettings,
   type ServerSettings,
+  type T3ProjectFile,
   type ThreadEnvMode,
   type WorktreeCleanupRules,
 } from "@t3tools/contracts";
 import { isModelSelectionProviderEnabled } from "./serverSettings.ts";
 
-export type ProjectSettingSource = "environment" | "project";
+/**
+ * Where a project-scoped value came from. The order is the priority order:
+ * a project override, then the environment value, then the repository's
+ * t3.json for keys in `PROJECT_FILE_BACKED_SETTINGS`, then the built-in
+ * default (reported as "environment", since that is what the environment
+ * value is when nothing set it).
+ */
+export type ProjectSettingSource = "environment" | "project" | "t3.json";
 
 export type ProjectSettingSources = Readonly<
   Record<ProjectScopedServerSettingKey, ProjectSettingSource>
 >;
 
-export interface ResolvedProjectSettings {
+export interface ResolvedProjectSettings<Settings extends ServerSettings = ServerSettings> {
   /** Environment settings with the project's overrides applied. */
-  readonly settings: ServerSettings;
+  readonly settings: Settings;
   /** Where each scopable key's effective value came from. */
   readonly sources: ProjectSettingSources;
   /** The project's raw override entry; `{}` when it has none. */
@@ -36,7 +46,9 @@ export function hasProjectSettingsOverrides(
   settings: Pick<ServerSettings, "projectSettingsOverrides">,
 ): boolean {
   for (const entry of Object.values(settings.projectSettingsOverrides)) {
-    if (Object.keys(entry).length > 0) return true;
+    // A forward-compatible decode can leave an unknown value as a present
+    // undefined; that is not an override.
+    if (Object.values(entry).some((value) => value !== undefined)) return true;
   }
   return false;
 }
@@ -63,6 +75,55 @@ export function resolveProjectSettings(
   // Nullable, not just optional: the mobile new-task flow passes its selected
   // project straight through, and that is null until the shell snapshot lands.
   project?: LegacyProjectSettingsFields | null,
+): ResolvedProjectSettings;
+/**
+ * With the checkout's decoded t3.json (or null for a missing or invalid
+ * one), every file-backed key resolves to a concrete value: the file fills
+ * keys whose project and environment tiers are both unset, and the built-in
+ * default fills what is left.
+ */
+export function resolveProjectSettings(
+  settings: ServerSettings,
+  projectId: ProjectId | null,
+  project: LegacyProjectSettingsFields | null | undefined,
+  projectFile: T3ProjectFile | null,
+): ResolvedProjectSettings<ResolvedServerSettings>;
+export function resolveProjectSettings(
+  settings: ServerSettings,
+  projectId: ProjectId | null,
+  project?: LegacyProjectSettingsFields | null,
+  projectFile?: T3ProjectFile | null,
+): ResolvedProjectSettings {
+  const resolved = resolveProjectOverrides(settings, projectId, project);
+  return projectFile === undefined ? resolved : applyProjectFile(resolved, projectFile);
+}
+
+function applyProjectFile(
+  resolved: ResolvedProjectSettings,
+  projectFile: T3ProjectFile | null,
+): ResolvedProjectSettings {
+  let effective: Record<string, unknown> | null = null;
+  let sources: Record<ProjectScopedServerSettingKey, ProjectSettingSource> | null = null;
+  for (const [key, { field, builtIn }] of Object.entries(PROJECT_FILE_BACKED_SETTINGS)) {
+    const settingKey = key as ProjectScopedServerSettingKey;
+    if (resolved.settings[settingKey] !== null) continue;
+    const fromFile = projectFile?.[field];
+    effective ??= { ...resolved.settings };
+    sources ??= { ...resolved.sources };
+    effective[settingKey] = fromFile ?? builtIn;
+    // A project override of null defers like an unset one, so the value did
+    // not come from the project either way.
+    sources[settingKey] = fromFile === undefined ? "environment" : "t3.json";
+  }
+  return effective === null || sources === null
+    ? resolved
+    : { ...resolved, settings: effective as ServerSettings, sources };
+}
+
+function resolveProjectOverrides(
+  settings: ServerSettings,
+  projectId: ProjectId | null,
+  project?: LegacyProjectSettingsFields | null,
 ): ResolvedProjectSettings {
   const stored = projectId === null ? undefined : settings.projectSettingsOverrides[projectId];
   const overrides: ProjectSettingsOverrides =
@@ -87,6 +148,9 @@ export function resolveProjectSettings(
   for (const key of PROJECT_SCOPED_SERVER_SETTING_KEYS) {
     if (!Object.hasOwn(overrides, key)) continue;
     const value = overrides[key];
+    // A forward-compatible decode leaves an unknown value as a present
+    // undefined; that is not an override.
+    if (value === undefined) continue;
     // A model on a disabled provider falls back to the environment, like the
     // environment-level guards do for these keys.
     if (
diff --git a/packages/shared/src/threadEnvMode.test.ts b/packages/shared/src/threadEnvMode.test.ts
deleted file mode 100644
index 4cf22c248868..000000000000
--- a/packages/shared/src/threadEnvMode.test.ts
+++ /dev/null
@@ -1,65 +0,0 @@
-import { describe, expect, it } from "vite-plus/test";
-
-import { isDefaultThreadEnvModeSettled, resolveDefaultThreadEnvMode } from "./threadEnvMode.ts";
-
-describe("resolveDefaultThreadEnvMode", () => {
-  it("prefers the project setting over t3.json over the global default", () => {
-    expect(
-      resolveDefaultThreadEnvMode({
-        projectSetting: "local",
-        projectFile: "worktree",
-        globalDefault: "worktree",
-      }),
-    ).toBe("local");
-    expect(
-      resolveDefaultThreadEnvMode({
-        projectSetting: null,
-        projectFile: "local",
-        globalDefault: "worktree",
-      }),
-    ).toBe("local");
-    expect(
-      resolveDefaultThreadEnvMode({
-        projectSetting: undefined,
-        projectFile: null,
-        globalDefault: "worktree",
-      }),
-    ).toBe("worktree");
-  });
-});
-
-describe("isDefaultThreadEnvModeSettled", () => {
-  it("settles on an explicit pick or project setting even while the file loads", () => {
-    expect(
-      isDefaultThreadEnvModeSettled({
-        explicitMode: "local",
-        projectSetting: null,
-        projectFilePending: true,
-      }),
-    ).toBe(true);
-    expect(
-      isDefaultThreadEnvModeSettled({
-        explicitMode: undefined,
-        projectSetting: "worktree",
-        projectFilePending: true,
-      }),
-    ).toBe(true);
-  });
-
-  it("stays unsettled only while a consulted file read is pending", () => {
-    expect(
-      isDefaultThreadEnvModeSettled({
-        explicitMode: undefined,
-        projectSetting: null,
-        projectFilePending: true,
-      }),
-    ).toBe(false);
-    expect(
-      isDefaultThreadEnvModeSettled({
-        explicitMode: undefined,
-        projectSetting: null,
-        projectFilePending: false,
-      }),
-    ).toBe(true);
-  });
-});
diff --git a/packages/shared/src/threadEnvMode.ts b/packages/shared/src/threadEnvMode.ts
deleted file mode 100644
index 4c01c0f27b91..000000000000
--- a/packages/shared/src/threadEnvMode.ts
+++ /dev/null
@@ -1,36 +0,0 @@
-import type { ThreadEnvMode } from "@t3tools/contracts";
-
-/**
- * Canonical priority order for a project's default thread env mode:
- * per-project setting > checked-in t3.json > global server setting.
- *
- * An explicit composer pick outranks all of these; callers apply it before
- * consulting the defaults. Web resolves the sources imperatively at draft
- * creation, mobile reactively — both must route through this function so the
- * platforms cannot disagree on the order.
- */
-export function resolveDefaultThreadEnvMode(sources: {
-  readonly projectSetting: ThreadEnvMode | null | undefined;
-  readonly projectFile: ThreadEnvMode | null | undefined;
-  readonly globalDefault: ThreadEnvMode;
-}): ThreadEnvMode {
-  return sources.projectSetting ?? sources.projectFile ?? sources.globalDefault;
-}
-
-/**
- * True once the resolved default can no longer change: an explicit pick or a
- * source that outranks t3.json decided, or the file read settled. While
- * false, nothing may persist the provisional default (for example into a
- * draft's workspace selection) — it could differ from the final value.
- */
-export function isDefaultThreadEnvModeSettled(sources: {
-  readonly explicitMode: ThreadEnvMode | undefined;
-  readonly projectSetting: ThreadEnvMode | null | undefined;
-  readonly projectFilePending: boolean;
-}): boolean {
-  return (
-    sources.explicitMode !== undefined ||
-    sources.projectSetting != null ||
-    !sources.projectFilePending
-  );
-}