diff --git a/src/vs/workbench/contrib/inlineChat/browser/inlineChatOverlayWidget.ts b/src/vs/workbench/contrib/inlineChat/browser/inlineChatOverlayWidget.ts
index e256be7a65c..9585c9972d0 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/inlineChatOverlayWidget.ts
+++ b/src/vs/workbench/contrib/inlineChat/browser/inlineChatOverlayWidget.ts
@@ -51,15 +51,15 @@ export class InlineChatInputWidget extends Disposable {
 	private readonly _input: IActiveCodeEditor;
 	private readonly _position = observableValue<IOverlayWidgetPosition | null>(this, null);
 	readonly position: IObservable<IOverlayWidgetPosition | null> = this._position;
-	readonly minContentWidthInPx = constObservable(0);
+
 
 	private readonly _showStore = this._store.add(new DisposableStore());
+	private readonly _stickyScrollHeight: IObservable<number>;
 	private _inlineStartAction: IAction | undefined;
 	private _anchorLineNumber: number = 0;
 	private _anchorLeft: number = 0;
 	private _anchorAbove: boolean = false;
 
-	readonly allowEditorOverflow = true;
 
 	constructor(
 		private readonly _editorObs: ObservableCodeEditor,
@@ -108,6 +108,10 @@ export class InlineChatInputWidget extends Disposable {
 		this._input.setModel(model);
 		this._input.layout({ width: 200, height: 18 });
 
+		// Initialize sticky scroll height observable
+		const stickyScrollController = StickyScrollController.get(this._editorObs.editor);
+		this._stickyScrollHeight = stickyScrollController ? observableFromEvent(stickyScrollController.onDidChangeStickyScrollHeight, () => stickyScrollController.stickyScrollWidgetHeight) : constObservable(0);
+
 		// Update placeholder based on selection state
 		this._store.add(autorun(r => {
 			const selection = this._editorObs.cursorSelection.read(r);
@@ -216,8 +220,8 @@ export class InlineChatInputWidget extends Disposable {
 		this._showStore.add(this._editorObs.createOverlayWidget({
 			domNode: this._domNode,
 			position: this._position,
-			minContentWidthInPx: this.minContentWidthInPx,
-			allowEditorOverflow: this.allowEditorOverflow,
+			minContentWidthInPx: constObservable(0),
+			allowEditorOverflow: true,
 		}));
 
 		// If anchoring above, adjust position after render to account for widget height
@@ -225,13 +229,14 @@ export class InlineChatInputWidget extends Disposable {
 			this._updatePosition();
 		}
 
-		// Update position on scroll, hide if anchor line is out of view
+		// Update position on scroll, hide if anchor line is out of view (only when input is empty)
 		this._showStore.add(this._editorObs.editor.onDidScrollChange(() => {
 			const visibleRanges = this._editorObs.editor.getVisibleRanges();
 			const isLineVisible = visibleRanges.some(range =>
 				this._anchorLineNumber >= range.startLineNumber && this._anchorLineNumber <= range.endLineNumber
 			);
-			if (!isLineVisible) {
+			const hasContent = !!this._input.getModel().getValue();
+			if (!isLineVisible && !hasContent) {
 				this._hide();
 			} else {
 				this._updatePosition();
@@ -244,6 +249,7 @@ export class InlineChatInputWidget extends Disposable {
 
 	private _updatePosition(): void {
 		const editor = this._editorObs.editor;
+		const lineHeight = editor.getOption(EditorOption.lineHeight);
 		const top = editor.getTopForLineNumber(this._anchorLineNumber) - editor.getScrollTop();
 		let adjustedTop = top;
 
@@ -251,12 +257,22 @@ export class InlineChatInputWidget extends Disposable {
 			const widgetHeight = this._domNode.offsetHeight;
 			adjustedTop = top - widgetHeight;
 		} else {
-			const lineHeight = editor.getOption(EditorOption.lineHeight);
 			adjustedTop = top + lineHeight;
 		}
 
+		// Clamp to viewport bounds when anchor line is out of view
+		const stickyScrollHeight = this._stickyScrollHeight.get();
+		const layoutInfo = editor.getLayoutInfo();
+		const widgetHeight = this._domNode.offsetHeight;
+		const minTop = stickyScrollHeight;
+		const maxTop = layoutInfo.height - widgetHeight;
+
+		const clampedTop = Math.max(minTop, Math.min(adjustedTop, maxTop));
+		const isClamped = clampedTop !== adjustedTop;
+		this._domNode.classList.toggle('clamped', isClamped);
+
 		this._position.set({
-			preference: { top: adjustedTop, left: this._anchorLeft },
+			preference: { top: clampedTop, left: this._anchorLeft },
 			stackOrdinal: 10000,
 		}, undefined);
 	}
diff --git a/src/vs/workbench/contrib/inlineChat/browser/media/inlineChatOverlayWidget.css b/src/vs/workbench/contrib/inlineChat/browser/media/inlineChatOverlayWidget.css
index 864a19e8ede..1af3ff339a1 100644
--- a/src/vs/workbench/contrib/inlineChat/browser/media/inlineChatOverlayWidget.css
+++ b/src/vs/workbench/contrib/inlineChat/browser/media/inlineChatOverlayWidget.css
@@ -3,6 +3,10 @@
  *  Licensed under the MIT License. See License.txt in the project root for license information.
  *--------------------------------------------------------------------------------------------*/
 
+.inline-chat-gutter-menu.clamped {
+	transition: top 100ms;
+}
+
 .inline-chat-gutter-menu .input .monaco-editor-background {
 	background-color: var(--vscode-menu-background);
 }