diff --git a/Sources/ProGhosttyApp/UI/AppModel.swift b/Sources/ProGhosttyApp/UI/AppModel.swift
index 5adc617..cf0b624 100644
--- a/Sources/ProGhosttyApp/UI/AppModel.swift
+++ b/Sources/ProGhosttyApp/UI/AppModel.swift
@@ -42,6 +42,12 @@ final class AppModel: ObservableObject {
 
   }
 
+  enum SessionClosedAction: Equatable {
+    case closePane(workspaceID: UUID, paneID: UUID)
+    case closeWorkspace(workspaceID: UUID)
+    case none
+  }
+
   @Published var workspaceRuntimes: [WorkspaceRuntime] = []
   @Published var activeWorkspaceID: UUID?
   @Published var isWorkspaceSwitcherPresented = false
@@ -1580,6 +1586,8 @@ final class AppModel: ObservableObject {
 
   private func handle(_ event: TerminalEvent) {
     switch event {
+    case .sessionClosed(let session):
+      reconcileClosedSession(session)
     case .output:
       break
     case .cwdChanged(let session, let cwd):
@@ -1624,6 +1632,61 @@ final class AppModel: ObservableObject {
     }
   }
 
+  static func sessionClosedAction(
+    for session: TerminalSessionID,
+    in runtimes: [WorkspaceRuntime]
+  ) -> SessionClosedAction {
+    guard let runtime = runtimes.first(where: { runtime in
+      PaneTreeReducer.listLeaves(in: runtime.layout.root).contains { $0.sessionId == session }
+    }) else {
+      return .none
+    }
+
+    let leaves = PaneTreeReducer.listLeaves(in: runtime.layout.root)
+    guard let pane = leaves.first(where: { $0.sessionId == session }) else {
+      return .none
+    }
+    return leaves.count > 1
+      ? .closePane(workspaceID: runtime.id, paneID: pane.paneId)
+      : .closeWorkspace(workspaceID: runtime.id)
+  }
+
+  private func reconcileClosedSession(_ session: TerminalSessionID) {
+    switch Self.sessionClosedAction(for: session, in: workspaceRuntimes) {
+    case .closePane(let workspaceID, let paneID):
+      guard let index = workspaceRuntimes.firstIndex(where: { $0.id == workspaceID }) else { return }
+      do {
+        guard let closed = try paneWorkspaceController.closePane(workspaceID: workspaceID, paneID: paneID),
+          let updatedLayout = paneWorkspaceController.workspaceLayout(id: workspaceID)
+        else {
+          return
+        }
+        var runtime = workspaceRuntimes[index]
+        runtime.layout = updatedLayout
+        runtime.cwdBySession[closed.sessionId] = nil
+        runtime.reportedTitleBySession[closed.sessionId] = nil
+        paneSplitAvailabilityController.remove(paneID: closed.paneId)
+        workspaceRuntimes[index] = runtime
+        persistWorkspaceRuntime(at: index)
+        applyTerminalWindowMinimumContentSize(for: runtime)
+        applyFocusedTerminalSurface()
+      } catch {
+        DebugLog.write("reconcileClosedSession closePane failed session=\(session) error=\(error)")
+      }
+    case .closeWorkspace(let workspaceID):
+      _ = closeWorkspaceRuntime(id: workspaceID)
+      closeTerminalWindowIfNoWorkspace()
+    case .none:
+      break
+    }
+  }
+
+  private func closeTerminalWindowIfNoWorkspace() {
+    guard workspaceRuntimes.isEmpty else { return }
+    guard let window = NSApp.windows.first(where: { !($0 is NSPanel) && $0 !== settingsWindow }) else { return }
+    window.performClose(nil)
+  }
+
   private func performNotificationActions(_ actions: [TerminalNotificationAction], session: TerminalSessionID) {
     for action in actions {
       switch action {
diff --git a/Tests/ProGhosttyAppTests/AppModelSessionClosedActionTests.swift b/Tests/ProGhosttyAppTests/AppModelSessionClosedActionTests.swift
new file mode 100644
index 0000000..a737af6
--- /dev/null
+++ b/Tests/ProGhosttyAppTests/AppModelSessionClosedActionTests.swift
@@ -0,0 +1,50 @@
+import Foundation
+import ProGhosttyCore
+import Testing
+
+@testable import ProGhosttyApp
+
+@Suite("AppModel session closed action")
+@MainActor
+struct AppModelSessionClosedActionTests {
+  @Test func choosesClosePaneWhenWorkspaceStillHasSiblingPanes() {
+    let targetSession = TerminalSessionID()
+    let targetPane = TerminalPane(sessionId: targetSession, title: "zsh")
+    let siblingPane = TerminalPane(sessionId: TerminalSessionID(), title: "zsh")
+    let runtime = runtime(
+      root: .split(SplitPane(axis: .horizontal, first: .leaf(targetPane), second: .leaf(siblingPane)))
+    )
+
+    #expect(
+      AppModel.sessionClosedAction(for: targetSession, in: [runtime])
+        == .closePane(workspaceID: runtime.id, paneID: targetPane.paneId)
+    )
+  }
+
+  @Test func choosesCloseWorkspaceWhenClosedSessionIsLastPane() {
+    let targetSession = TerminalSessionID()
+    let runtime = runtime(root: .leaf(TerminalPane(sessionId: targetSession, title: "zsh")))
+
+    #expect(
+      AppModel.sessionClosedAction(for: targetSession, in: [runtime])
+        == .closeWorkspace(workspaceID: runtime.id)
+    )
+  }
+
+  @Test func returnsNoneWhenSessionDoesNotBelongToAnyRuntime() {
+    let runtime = runtime(root: .leaf(TerminalPane(sessionId: TerminalSessionID(), title: "zsh")))
+
+    #expect(
+      AppModel.sessionClosedAction(for: TerminalSessionID(), in: [runtime])
+        == .none
+    )
+  }
+
+  private func runtime(root: PaneNode) -> AppModel.WorkspaceRuntime {
+    AppModel.WorkspaceRuntime(
+      layout: WorkspaceLayout(title: "Workspace", root: root),
+      workspace: nil,
+      cwdBySession: [:]
+    )
+  }
+}