diff --git a/src/app_controller.py b/src/app_controller.py
index 9856cf6..8aeb244 100644
--- a/src/app_controller.py
+++ b/src/app_controller.py
@@ -1,5 +1,6 @@
 import threading
 import time
+import copy
 import sys
 import os
 import re
@@ -1062,12 +1063,31 @@ class AppController:
    sys.stderr.flush()
    self.event_queue.put("response", {"text": f"ERROR: {e}", "status": "error", "role": "System"})
 
+ def _offload_entry_payload(self, entry: Dict[str, Any]) -> Dict[str, Any]:
+  optimized = copy.deepcopy(entry)
+  kind = optimized.get("kind")
+  payload = optimized.get("payload", {})
+  if kind == "tool_result" and "output" in payload:
+   output = payload["output"]
+   ref_path = session_logger.log_tool_output(output)
+   if ref_path:
+    filename = Path(ref_path).name
+    payload["output"] = f"[REF:{filename}]"
+  if kind == "tool_call" and "script" in payload:
+   script = payload["script"]
+   ref_path = session_logger.log_tool_call(script, "LOG_ONLY", None)
+   if ref_path:
+    filename = Path(ref_path).name
+    payload["script"] = f"[REF:{filename}]"
+  return optimized
+
  def _on_ai_stream(self, text: str) -> None:
   """Handles streaming text from the AI."""
   self.event_queue.put("response", {"text": text, "status": "streaming...", "role": "AI"})
 
  def _on_comms_entry(self, entry: Dict[str, Any]) -> None:
-  session_logger.log_comms(entry)
+  optimized_entry = self._offload_entry_payload(entry)
+  session_logger.log_comms(optimized_entry)
   entry["local_ts"] = time.time()
   kind = entry.get("kind")
   payload = entry.get("payload", {})
@@ -1128,6 +1148,7 @@ class AppController:
 
  def _on_tool_log(self, script: str, result: str) -> None:
   session_logger.log_tool_call(script, result, None)
+  session_logger.log_tool_output(result)
   source_tier = ai_client.get_current_tier()
   with self._pending_tool_calls_lock:
    self._pending_tool_calls.append({"script": script, "result": result, "ts": time.time(), "source_tier": source_tier})
diff --git a/src/session_logger.py b/src/session_logger.py
index 0751ebf..6a97257 100644
--- a/src/session_logger.py
+++ b/src/session_logger.py
@@ -29,7 +29,9 @@ _ts: str = ""            # session timestamp string  e.g. "20260301_142233"
 _session_id: str = ""    # YYYYMMDD_HHMMSS[_Label]
 _session_dir: Optional[Path] = None # Path to the sub-directory for this session
 _seq: int = 0            # monotonic counter for script files this session
+_output_seq: int = 0     # monotonic counter for output files this session
 _seq_lock: threading.Lock = threading.Lock()
+_output_seq_lock: threading.Lock = threading.Lock()
 
 _comms_fh: Optional[TextIO] = None # file handle: logs/sessions/<session_id>/comms.log
 _tool_fh: Optional[TextIO] = None  # file handle: logs/sessions/<session_id>/toolcalls.log
@@ -44,7 +46,7 @@ def open_session(label: Optional[str] = None) -> None:
     Called once at GUI startup.  Creates the log directories if needed and
     opens the log files for this session within a sub-directory.
     """
- global _ts, _session_id, _session_dir, _comms_fh, _tool_fh, _api_fh, _cli_fh, _seq
+ global _ts, _session_id, _session_dir, _comms_fh, _tool_fh, _api_fh, _cli_fh, _seq, _output_seq
  if _comms_fh is not None:
   return
 
@@ -56,9 +58,13 @@ def open_session(label: Optional[str] = None) -> None:
 
  _session_dir = paths.get_logs_dir() / _session_id
  _session_dir.mkdir(parents=True, exist_ok=True)
+ (_session_dir / "scripts").mkdir(exist_ok=True)
+ (_session_dir / "outputs").mkdir(exist_ok=True)
+ 
  paths.get_scripts_dir().mkdir(parents=True, exist_ok=True)
 
  _seq = 0
+ _output_seq = 0
  _comms_fh = open(_session_dir / "comms.log", "w", encoding="utf-8", buffering=1)
  _tool_fh = open(_session_dir / "toolcalls.log", "w", encoding="utf-8", buffering=1)
  _api_fh = open(_session_dir / "apihooks.log", "w", encoding="utf-8", buffering=1)
@@ -132,7 +138,7 @@ def log_comms(entry: dict[str, Any]) -> None:
 def log_tool_call(script: str, result: str, script_path: Optional[str]) -> Optional[str]:
  """
     Append a tool-call record to the toolcalls log and write the PS1 script to
-    scripts/generated/.  Returns the path of the written script file.
+    the session's scripts directory. Returns the path of the written script file.
     """
  global _seq
  if _tool_fh is None:
@@ -143,8 +149,12 @@ def log_tool_call(script: str, result: str, script_path: Optional[str]) -> Optio
   seq = _seq
 
  ts_entry = datetime.datetime.now().strftime("%H:%M:%S")
- ps1_name = f"{_ts}_{seq:04d}.ps1"
- ps1_path: Optional[Path] = paths.get_scripts_dir() / ps1_name
+ ps1_name = f"script_{seq:04d}.ps1"
+ 
+ if _session_dir:
+  ps1_path: Optional[Path] = _session_dir / "scripts" / ps1_name
+ else:
+  ps1_path = paths.get_scripts_dir() / f"{_ts}_{seq:04d}.ps1"
 
  try:
   if ps1_path:
@@ -167,6 +177,28 @@ def log_tool_call(script: str, result: str, script_path: Optional[str]) -> Optio
 
  return str(ps1_path) if ps1_path else None
 
+def log_tool_output(content: str) -> Optional[str]:
+ """
+    Save tool output content to a unique file in the session's outputs directory.
+    Returns the path of the written file.
+    """
+ global _output_seq
+ if _session_dir is None:
+  return None
+
+ with _output_seq_lock:
+  _output_seq += 1
+  seq = _output_seq
+
+ out_name = f"output_{seq:04d}.txt"
+ out_path = _session_dir / "outputs" / out_name
+
+ try:
+  out_path.write_text(content, encoding="utf-8")
+  return str(out_path)
+ except Exception:
+  return None
+
 def log_cli_call(command: str, stdin_content: Optional[str], stdout_content: Optional[str], stderr_content: Optional[str], latency: float) -> None:
  """Log details of a CLI subprocess execution."""
  if _cli_fh is None:
diff --git a/tests/test_app_controller_offloading.py b/tests/test_app_controller_offloading.py
new file mode 100644
index 0000000..26d6182
--- /dev/null
+++ b/tests/test_app_controller_offloading.py
@@ -0,0 +1,110 @@
+import pytest
+import json
+import time
+import copy
+from pathlib import Path
+from unittest.mock import MagicMock, patch
+from src.app_controller import AppController
+from src import session_logger, paths, ai_client, project_manager
+
+@pytest.fixture
+def tmp_session_dir(tmp_path, monkeypatch):
+ """Set up a temporary session directory for session_logger."""
+ logs_dir = tmp_path / "logs"
+ scripts_dir = tmp_path / "scripts"
+ logs_dir.mkdir()
+ scripts_dir.mkdir()
+ 
+ monkeypatch.setenv("SLOP_LOGS_DIR", str(logs_dir))
+ monkeypatch.setenv("SLOP_SCRIPTS_DIR", str(scripts_dir))
+ paths.reset_resolved()
+ 
+ # Ensure session_logger is clean
+ with patch("src.session_logger._comms_fh", None):
+  session_logger.open_session("test_offloading")
+  yield logs_dir / session_logger._session_id
+  session_logger.close_session()
+
+@pytest.fixture
+def app_controller(tmp_session_dir):
+ """Create an AppController instance for testing."""
+ with patch("src.app_controller.performance_monitor.PerformanceMonitor"):
+  ctrl = AppController()
+  # Minimal setup to avoid complex initialization
+  ctrl.ui_auto_add_history = True
+  return ctrl
+
+def test_on_comms_entry_tool_result_offloading(app_controller, tmp_session_dir):
+ """
+ Test that _on_comms_entry offloads tool_result output to a separate file.
+ """
+ output_content = "This is a large tool output that should be offloaded."
+ entry = {
+  "kind": "tool_result",
+  "payload": {
+   "output": output_content
+  },
+  "ts": "12:00:00"
+ }
+ 
+ # Track calls to session_logger.log_comms
+ with patch("src.session_logger.log_comms") as mock_log_comms:
+  app_controller._on_comms_entry(entry)
+  
+  # 1. Verify log_comms was called with an optimized entry
+  assert mock_log_comms.called
+  optimized_entry = mock_log_comms.call_args[0][0]
+  assert optimized_entry["kind"] == "tool_result"
+  assert "output" in optimized_entry["payload"]
+  # The output should be a reference like [REF:output_0001.txt]
+  ref_text = optimized_entry["payload"]["output"]
+  assert ref_text.startswith("[REF:output_")
+  assert ref_text.endswith(".txt]")
+  
+  # 2. Verify the original entry was NOT modified in terms of its payload content
+  # Wait, the tool uses deepcopy so it should be fine.
+  assert entry["payload"]["output"] == output_content
+  
+  # 3. Verify the offloaded file exists and contains the correct content
+  ref_filename = ref_text[5:-1] # Strip [REF: and ]
+  offloaded_path = tmp_session_dir / "outputs" / ref_filename
+  assert offloaded_path.exists()
+  assert offloaded_path.read_text(encoding="utf-8") == output_content
+  
+  # 4. Verify that effects on internal state (like history adds) use the original output
+  # _on_comms_entry appends to _pending_history_adds
+  with app_controller._pending_history_adds_lock:
+   assert len(app_controller._pending_history_adds) > 0
+   history_entry = next(e for e in app_controller._pending_history_adds if e["role"] == "Tool")
+   assert output_content in history_entry["content"]
+   assert "[TOOL RESULT]" in history_entry["content"]
+
+def test_on_tool_log_offloading(app_controller, tmp_session_dir):
+ """
+ Test that _on_tool_log calls session_logger.log_tool_call and log_tool_output.
+ """
+ script = "Get-Process"
+ result = "Process list..."
+ 
+ with patch("src.ai_client.get_current_tier", return_value="Tier 3"):
+  app_controller._on_tool_log(script, result)
+  
+  # Verify files were created in session directory
+  scripts_dir = tmp_session_dir / "scripts"
+  outputs_dir = tmp_session_dir / "outputs"
+  
+  script_files = list(scripts_dir.glob("script_*.ps1"))
+  assert len(script_files) == 1
+  assert script_files[0].read_text(encoding="utf-8") == script
+  
+  output_files = list(outputs_dir.glob("output_*.txt"))
+  # We expect at least one output file for the result
+  assert len(output_files) >= 1
+  assert any(f.read_text(encoding="utf-8") == result for f in output_files)
+  
+  # Verify AppController internal state
+  with app_controller._pending_tool_calls_lock:
+   assert len(app_controller._pending_tool_calls) == 1
+   assert app_controller._pending_tool_calls[0]["script"] == script
+   assert app_controller._pending_tool_calls[0]["result"] == result
+   assert app_controller._pending_tool_calls[0]["source_tier"] == "Tier 3"
diff --git a/tests/test_session_logger_optimization.py b/tests/test_session_logger_optimization.py
new file mode 100644
index 0000000..02b78f9
--- /dev/null
+++ b/tests/test_session_logger_optimization.py
@@ -0,0 +1,95 @@
+import pytest
+from pathlib import Path
+from typing import Generator
+from src import session_logger
+from src import paths
+
+@pytest.fixture
+def temp_session_setup(tmp_path: Path, monkeypatch: pytest.MonkeyPatch) -> Generator[tuple[Path, Path], None, None]:
+ # Ensure session is closed and state is reset
+ session_logger.close_session()
+ monkeypatch.setattr(session_logger, "_comms_fh", None)
+ monkeypatch.setattr(session_logger, "_session_dir", None)
+ monkeypatch.setattr(session_logger, "_seq", 0)
+ monkeypatch.setattr(session_logger, "_output_seq", 0)
+ 
+ log_dir = tmp_path / "logs"
+ scripts_dir = tmp_path / "scripts" / "generated"
+ log_dir.mkdir(parents=True, exist_ok=True)
+ scripts_dir.mkdir(parents=True, exist_ok=True)
+ 
+ monkeypatch.setattr(paths, "get_logs_dir", lambda: log_dir)
+ monkeypatch.setattr(paths, "get_scripts_dir", lambda: scripts_dir)
+ 
+ yield log_dir, scripts_dir
+ 
+ # Cleanup
+ session_logger.close_session()
+
+def test_session_directory_and_subdirectories_creation(temp_session_setup: tuple[Path, Path]) -> None:
+ log_dir, _ = temp_session_setup
+ session_logger.open_session(label="opt-test")
+ 
+ # Find the session directory
+ session_dirs = [d for d in log_dir.iterdir() if d.is_dir()]
+ assert len(session_dirs) == 1
+ session_dir = session_dirs[0]
+ 
+ assert (session_dir / "scripts").exists()
+ assert (session_dir / "outputs").exists()
+ assert (session_dir / "comms.log").exists()
+ assert (session_dir / "toolcalls.log").exists()
+
+def test_log_tool_call_saves_in_session_scripts(temp_session_setup: tuple[Path, Path]) -> None:
+ log_dir, _ = temp_session_setup
+ session_logger.open_session(label="tool-call-test")
+ 
+ # Find the session directory
+ session_dir = next(d for d in log_dir.iterdir() if d.is_dir())
+ scripts_subdir = session_dir / "scripts"
+ 
+ script_content = "Write-Host 'Hello from test'"
+ result_content = "Success"
+ 
+ # Call log_tool_call with script_path=None
+ ps1_path_str = session_logger.log_tool_call(script_content, result_content, None)
+ assert ps1_path_str is not None
+ 
+ ps1_path = Path(ps1_path_str)
+ assert ps1_path.parent == scripts_subdir
+ assert ps1_path.name == "script_0001.ps1"
+ assert ps1_path.read_text(encoding="utf-8") == script_content
+ 
+ # Verify second call increments sequence
+ ps1_path_str_2 = session_logger.log_tool_call("Get-Date", "2026-03-08", None)
+ assert ps1_path_str_2 is not None
+ assert Path(ps1_path_str_2).name == "script_0002.ps1"
+
+def test_log_tool_output_saves_in_session_outputs(temp_session_setup: tuple[Path, Path]) -> None:
+ log_dir, _ = temp_session_setup
+ session_logger.open_session(label="output-test")
+ 
+ # Find the session directory
+ session_dir = next(d for d in log_dir.iterdir() if d.is_dir())
+ outputs_subdir = session_dir / "outputs"
+ 
+ output_content = "This is some tool output content."
+ 
+ # Call log_tool_output
+ output_path_str = session_logger.log_tool_output(output_content)
+ assert output_path_str is not None
+ 
+ output_path = Path(output_path_str)
+ assert output_path.parent == outputs_subdir
+ assert output_path.name == "output_0001.txt"
+ assert output_path.read_text(encoding="utf-8") == output_content
+ 
+ # Verify second call increments sequence
+ output_path_str_2 = session_logger.log_tool_output("More content")
+ assert output_path_str_2 is not None
+ assert Path(output_path_str_2).name == "output_0002.txt"
+
+def test_log_tool_output_returns_none_if_no_session(temp_session_setup: tuple[Path, Path]) -> None:
+ # We don't call open_session here
+ output_path_str = session_logger.log_tool_output("Should not save")
+ assert output_path_str is None