diff --git a/Makefile b/Makefile
index 6ab2fba96e..9d57cd2bca 100644
--- a/Makefile
+++ b/Makefile
@@ -32,10 +32,10 @@ check-uv-version:
 build: check-uv-version
 	@echo "$(CYAN)Setting up OpenHands V1 development environment...$(RESET)"
 	@echo "$(YELLOW)Installing dependencies with uv sync --dev...$(RESET)"
-	@uv sync --dev
+	@env -u VIRTUAL_ENV uv sync --dev
 	@echo "$(GREEN)Dependencies installed successfully.$(RESET)"
 	@echo "$(YELLOW)Setting up pre-commit hooks...$(RESET)"
-	@uv run pre-commit install
+	@env -u VIRTUAL_ENV uv run pre-commit install
 	@echo "$(GREEN)Pre-commit hooks installed successfully.$(RESET)"
 	@echo "$(GREEN)Build complete! Development environment is ready.$(RESET)"
 
diff --git a/docs/responses-api.md b/docs/responses-api.md
new file mode 100644
index 0000000000..91f6459ddc
--- /dev/null
+++ b/docs/responses-api.md
@@ -0,0 +1,93 @@
+Title: OpenAI Responses API via LiteLLM (gpt-5) — Inputs, Tools, Reasoning, Stateful vs Stateless
+
+Overview
+- This doc explains how the OpenAI Responses API works when called natively through LiteLLM in this project.
+- You’ll find concrete JSON examples under examples/responses_api/ and guidance on stateless/stateful usage, images, tool calls, and reasoning (including encrypted reasoning).
+
+Install and build
+1) make build
+   - Uses uv to create a local .venv and install dependencies (including litellm and openai)
+   - Installs pre-commit hooks
+
+Key packages present in .venv
+- litellm (responses support lives under litellm/responses/)
+- openai (official types for Responses API)
+
+How LiteLLM wires to the OpenAI Responses API
+- Entrypoints: litellm/responses/main.py
+  - responses(...) and aresponses(...) implement the OpenAI Responses API surface.
+  - If the provider supports native Responses, LiteLLM uses BaseLLMHTTPHandler.response_api_handler to call it.
+  - If a provider lacks native Responses, LiteLLM transforms to a compatible flow via litellm.responses.litellm_completion_transformation.
+- Utilities: litellm/responses/utils.py
+  - ResponsesAPIRequestUtils.get_optional_params_responses_api(...) maps/filters optional params per provider.
+  - convert_text_format_to_text_param(...) converts a Pydantic/dict schema to the text.format payload.
+  - _build/_decode_responses_api_response_id(...) encodes provider+model into response ids; previous_response_id is decoded before sending upstream.
+  - ResponseAPILoggingUtils._transform_response_api_usage_to_chat_usage maps Responses usage to common Usage.
+- MCP integration: aresponses_api_with_mcp(...) in main.py handles MCP tools, auto-exec if configured, and merges events into streamed output.
+
+Core OpenAI Responses API types (from openai-python)
+- Input items: response_input_item.py and response_input_content.py
+  - Message: { type: "message", role: "user"|"system"|"developer", content: [ ... ] }
+  - Content list items include:
+    - input_text { type: "input_text", text }
+    - input_image { type: "input_image", image_url | file_id, detail }
+    - input_file, input_audio
+- Tools: tool.py
+  - Variants include function, file_search, computer, web_search, mcp, code_interpreter, image_generation, local_shell, custom_tool (and preview variants)
+  - Function tool calls are ResponseFunctionToolCall objects; follow-ups use function_call_output items
+- Reasoning: shared/reasoning.py and responses/response_reasoning_item.py
+  - request.reasoning: { effort: minimal|low|medium|high, summary: auto|concise|detailed }
+  - response contains reasoning items: { type: "reasoning", summary: [...], content?: [...], encrypted_content?: string }
+  - To receive encrypted reasoning text, include: ["reasoning.encrypted_content"]
+
+Stateless vs. stateful
+- Stateless: You send full context in input each call. No previous_response_id.
+- Stateful: Set store: true and reuse previous_response_id from the prior response. LiteLLM encodes provider+model into ids; it decodes before hitting OpenAI upstream but you pass the encoded id back in subsequent calls.
+
+Examples in this repo (JSON)
+1) System + User with images (stateless)
+   - examples/responses_api/01_system_user_images.json
+2) Tool call (function); then follow-up with tool output
+   - examples/responses_api/02_tool_call_and_output.json
+   - examples/responses_api/02b_tool_call_followup_with_output_item.json
+   - Two tools, model returns two tool calls + a reasoning item (stateless, no encrypted reasoning): examples/responses_api/02c_two_tool_calls_with_reasoning.json
+   - Follow-up sending both tool outputs back, including a reasoning item: examples/responses_api/02d_two_tool_call_outputs_followup_with_reasoning_item.json
+3) Reasoning (stateless)
+   - Plain reasoning (no encrypted content): examples/responses_api/03_stateless_reasoning_plain.json
+   - Encrypted reasoning included: examples/responses_api/03b_stateless_reasoning_encrypted.json
+   - Follow-up including the returned reasoning item (plain): examples/responses_api/03c_stateless_reasoning_plain_followup.json
+   - Follow-up including the returned reasoning item (encrypted): examples/responses_api/03d_stateless_reasoning_encrypted_followup.json
+4) Reasoning (stateful)
+   - Plain: examples/responses_api/04_stateful_reasoning_plain.json
+   - Encrypted reasoning included: examples/responses_api/04b_stateful_reasoning_encrypted.json
+   - Follow-up including the returned reasoning item (plain): examples/responses_api/04c_stateful_reasoning_plain_followup.json
+   - Follow-up including the returned reasoning item (encrypted): examples/responses_api/04d_stateful_reasoning_encrypted_followup.json
+5) Reasoning response snapshots (shape returned by API)
+   - examples/responses_api/05_reasoning_response_examples.json
+
+Notes on correctness
+- Content discriminator fields must match the OpenAI types (e.g., input_text, input_image).
+- For function call follow-up, use type: "function_call_output" with the prior call_id and an output that MUST be a JSON string (per OpenAI types).
+- To request encrypted reasoning, add "reasoning.encrypted_content" to include. The API then returns reasoning items with encrypted_content.
+- previous_response_id should be the id returned from the prior Responses call. When using LiteLLM, that id includes encoded provider/model info; return it as-is in the next call.
+
+Minimal Python usage sketch
+"""
+from openai import OpenAI
+
+client = OpenAI()
+resp = client.responses.create(
+    model="gpt-5",
+    input=[
+        {"type": "message", "role": "user", "content": [
+            {"type": "input_text", "text": "Hello"}
+        ]},
+    ],
+    reasoning={"effort": "low", "summary": "concise"},
+    include=["reasoning.encrypted_content"],
+)
+print(resp.id, resp.output_text)
+"""
+
+Troubleshooting
+- VIRTUAL_ENV mismatch: use uv run commands (e.g., uv run pytest, uv run python) or activate the project .venv explicitly. LiteLLM/OpenAI should import from /agent-sdk/.venv.
diff --git a/examples/responses_api/01_system_user_images.json b/examples/responses_api/01_system_user_images.json
new file mode 100644
index 0000000000..af8a65cd6b
--- /dev/null
+++ b/examples/responses_api/01_system_user_images.json
@@ -0,0 +1,30 @@
+{
+  "model": "gpt-5",
+  "instructions": "You are a precise assistant.",
+  "input": [
+    {
+      "type": "message",
+      "role": "system",
+      "content": [
+        { "type": "input_text", "text": "Answer concisely in under 20 words." }
+      ]
+    },
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        { "type": "input_text", "text": "What's in these images?" },
+        {
+          "type": "input_image",
+          "detail": "auto",
+          "image_url": "https://upload.wikimedia.org/wikipedia/commons/9/99/Black_square.jpg"
+        },
+        {
+          "type": "input_image",
+          "detail": "high",
+          "image_url": "data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAEAAAABCAYAAAAfFcSJAAAAEklEQVR42mP8/5+hHgMDAwMABRYC2r8v8bEAAAAASUVORK5CYII="
+        }
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/02_tool_call_and_output.json b/examples/responses_api/02_tool_call_and_output.json
new file mode 100644
index 0000000000..a94425fb3d
--- /dev/null
+++ b/examples/responses_api/02_tool_call_and_output.json
@@ -0,0 +1,34 @@
+{
+  "model": "gpt-5",
+  "instructions": "You are a helpful assistant.",
+  "tools": [
+    {
+      "type": "function",
+      "function": {
+        "name": "get_weather",
+        "description": "Get the weather for a city",
+        "parameters": {
+          "type": "object",
+          "properties": {
+            "city": {"type": "string"},
+            "unit": {"type": "string", "enum": ["c", "f"]}
+          },
+          "required": ["city"]
+        },
+        "strict": true
+      }
+    }
+  ],
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "What's the weather in Paris in Celsius?"}
+      ]
+    }
+  ],
+  "include": ["message.output_text.logprobs"],
+  "max_output_tokens": 300,
+  "tool_choice": {"type": "function", "function": {"name": "get_weather"}}
+}
diff --git a/examples/responses_api/02b_tool_call_followup_with_output_item.json b/examples/responses_api/02b_tool_call_followup_with_output_item.json
new file mode 100644
index 0000000000..4728513b30
--- /dev/null
+++ b/examples/responses_api/02b_tool_call_followup_with_output_item.json
@@ -0,0 +1,11 @@
+{
+  "model": "gpt-5",
+  "previous_response_id": "resp_abc123",
+  "input": [
+    {
+      "type": "function_call_output",
+      "call_id": "call_12345",
+      "output": "{\"temperature\":15,\"unit\":\"c\",\"description\":\"sunny\"}"
+    }
+  ]
+}
diff --git a/examples/responses_api/02c_two_tool_calls_with_reasoning.json b/examples/responses_api/02c_two_tool_calls_with_reasoning.json
new file mode 100644
index 0000000000..a5a7d0028e
--- /dev/null
+++ b/examples/responses_api/02c_two_tool_calls_with_reasoning.json
@@ -0,0 +1,48 @@
+{
+  "model": "gpt-5",
+  "instructions": "Use the available tools. Return a reasoning item as needed.",
+  "tools": [
+    {
+      "type": "function",
+      "function": {
+        "name": "get_weather",
+        "description": "Get weather for a city",
+        "parameters": {
+          "type": "object",
+          "properties": {
+            "city": {"type": "string"},
+            "unit": {"type": "string", "enum": ["c", "f"]}
+          },
+          "required": ["city"]
+        },
+        "strict": true
+      }
+    },
+    {
+      "type": "function",
+      "function": {
+        "name": "get_local_time",
+        "description": "Get local time for a city",
+        "parameters": {
+          "type": "object",
+          "properties": {
+            "city": {"type": "string"}
+          },
+          "required": ["city"]
+        },
+        "strict": true
+      }
+    }
+  ],
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "Is it a good time to go for a walk in Paris?"}
+      ]
+    }
+  ],
+  "reasoning": {"effort": "medium", "summary": "concise"},
+  "tool_choice": "auto"
+}
diff --git a/examples/responses_api/02d_two_tool_call_outputs_followup_with_reasoning_item.json b/examples/responses_api/02d_two_tool_call_outputs_followup_with_reasoning_item.json
new file mode 100644
index 0000000000..bc7d01b62e
--- /dev/null
+++ b/examples/responses_api/02d_two_tool_call_outputs_followup_with_reasoning_item.json
@@ -0,0 +1,26 @@
+{
+  "model": "gpt-5",
+  "previous_response_id": "resp_two_tools_prev_id",
+  "input": [
+    {
+      "type": "function_call_output",
+      "call_id": "call_weather_1",
+      "output": "{\"temperature\":18,\"unit\":\"c\",\"description\":\"partly cloudy\"}"
+    },
+    {
+      "type": "function_call_output",
+      "call_id": "call_local_time_1",
+      "output": "{\"local_time\":\"2025-10-03T15:45:00+02:00\"}"
+    },
+    {
+      "type": "reasoning",
+      "id": "rsn_tools_01",
+      "summary": [
+        {"type": "summary_text", "text": "Combined weather and local time to decide suitability."}
+      ],
+      "content": [
+        {"type": "reasoning_text", "text": "18C and partly cloudy at mid-afternoon; generally favorable for a walk."}
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/03_stateless_reasoning_plain.json b/examples/responses_api/03_stateless_reasoning_plain.json
new file mode 100644
index 0000000000..73518b2371
--- /dev/null
+++ b/examples/responses_api/03_stateless_reasoning_plain.json
@@ -0,0 +1,18 @@
+{
+  "model": "gpt-5",
+  "instructions": "Reason step by step, but only include the final answer in output text.",
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "Prove that the sum of two even numbers is even."}
+      ]
+    }
+  ],
+  "include": [],
+  "reasoning": {
+    "effort": "medium",
+    "summary": "concise"
+  }
+}
diff --git a/examples/responses_api/03b_stateless_reasoning_encrypted.json b/examples/responses_api/03b_stateless_reasoning_encrypted.json
new file mode 100644
index 0000000000..ecdfa2dc88
--- /dev/null
+++ b/examples/responses_api/03b_stateless_reasoning_encrypted.json
@@ -0,0 +1,18 @@
+{
+  "model": "gpt-5",
+  "instructions": "Use hidden chain-of-thought; do not reveal intermediate steps unless included.",
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "Compute 1234 * 5678 and explain briefly."}
+      ]
+    }
+  ],
+  "include": ["reasoning.encrypted_content"],
+  "reasoning": {
+    "effort": "high",
+    "summary": "detailed"
+  }
+}
diff --git a/examples/responses_api/03c_stateless_reasoning_plain_followup.json b/examples/responses_api/03c_stateless_reasoning_plain_followup.json
new file mode 100644
index 0000000000..7db9443875
--- /dev/null
+++ b/examples/responses_api/03c_stateless_reasoning_plain_followup.json
@@ -0,0 +1,23 @@
+{
+  "model": "gpt-5",
+  "previous_response_id": "resp_rsn_plain_prev_id",
+  "input": [
+    {
+      "type": "reasoning",
+      "id": "rsn_001",
+      "summary": [
+        { "type": "summary_text", "text": "Outlined that even + even = even by factoring 2." }
+      ],
+      "content": [
+        { "type": "reasoning_text", "text": "Let even numbers be 2a and 2b. Then 2a+2b=2(a+b), which is even." }
+      ]
+    },
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        { "type": "input_text", "text": "Using your previous reasoning, generalize to sum of two multiples of 3." }
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/03d_stateless_reasoning_encrypted_followup.json b/examples/responses_api/03d_stateless_reasoning_encrypted_followup.json
new file mode 100644
index 0000000000..5896a6c8d8
--- /dev/null
+++ b/examples/responses_api/03d_stateless_reasoning_encrypted_followup.json
@@ -0,0 +1,22 @@
+{
+  "model": "gpt-5",
+  "previous_response_id": "resp_rsn_encrypted_prev_id",
+  "include": ["reasoning.encrypted_content"],
+  "input": [
+    {
+      "type": "reasoning",
+      "id": "rsn_100",
+      "summary": [
+        { "type": "summary_text", "text": "Computed product and formed concise explanation." }
+      ],
+      "encrypted_content": "A1B2C3D4E5F6...encrypted bytes..."
+    },
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        { "type": "input_text", "text": "Please square 4321 now, using the same approach." }
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/04_stateful_reasoning_plain.json b/examples/responses_api/04_stateful_reasoning_plain.json
new file mode 100644
index 0000000000..a6e9a24b82
--- /dev/null
+++ b/examples/responses_api/04_stateful_reasoning_plain.json
@@ -0,0 +1,16 @@
+{
+  "model": "gpt-5",
+  "store": true,
+  "instructions": "Continue the conversation from the previous response.",
+  "previous_response_id": "resp_litellm_encoded_prev_id",
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "Why is the sky blue?"}
+      ]
+    }
+  ],
+  "reasoning": {"effort": "minimal", "summary": "concise"}
+}
diff --git a/examples/responses_api/04b_stateful_reasoning_encrypted.json b/examples/responses_api/04b_stateful_reasoning_encrypted.json
new file mode 100644
index 0000000000..07ef8f3750
--- /dev/null
+++ b/examples/responses_api/04b_stateful_reasoning_encrypted.json
@@ -0,0 +1,17 @@
+{
+  "model": "gpt-5",
+  "store": true,
+  "instructions": "Continue with hidden reasoning included for debugging.",
+  "previous_response_id": "resp_litellm_encoded_prev_id",
+  "include": ["reasoning.encrypted_content"],
+  "input": [
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        {"type": "input_text", "text": "Summarize our last discussion in one sentence."}
+      ]
+    }
+  ],
+  "reasoning": {"effort": "medium", "summary": "concise"}
+}
diff --git a/examples/responses_api/04c_stateful_reasoning_plain_followup.json b/examples/responses_api/04c_stateful_reasoning_plain_followup.json
new file mode 100644
index 0000000000..d91f6d4a1f
--- /dev/null
+++ b/examples/responses_api/04c_stateful_reasoning_plain_followup.json
@@ -0,0 +1,24 @@
+{
+  "model": "gpt-5",
+  "store": true,
+  "previous_response_id": "resp_litellm_encoded_prev_id",
+  "input": [
+    {
+      "type": "reasoning",
+      "id": "rsn_stateful_plain_01",
+      "summary": [
+        { "type": "summary_text", "text": "Outlined Rayleigh scattering mechanism briefly." }
+      ],
+      "content": [
+        { "type": "reasoning_text", "text": "Short wavelength light scatters more; blue dominates sky color." }
+      ]
+    },
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        { "type": "input_text", "text": "Extend the explanation to twilight colors." }
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/04d_stateful_reasoning_encrypted_followup.json b/examples/responses_api/04d_stateful_reasoning_encrypted_followup.json
new file mode 100644
index 0000000000..27c954eff9
--- /dev/null
+++ b/examples/responses_api/04d_stateful_reasoning_encrypted_followup.json
@@ -0,0 +1,23 @@
+{
+  "model": "gpt-5",
+  "store": true,
+  "previous_response_id": "resp_litellm_encoded_prev_id",
+  "include": ["reasoning.encrypted_content"],
+  "input": [
+    {
+      "type": "reasoning",
+      "id": "rsn_stateful_enc_01",
+      "summary": [
+        { "type": "summary_text", "text": "Summarized prior discussion into one sentence." }
+      ],
+      "encrypted_content": "ZZYYXX...encrypted bytes..."
+    },
+    {
+      "type": "message",
+      "role": "user",
+      "content": [
+        { "type": "input_text", "text": "Continue with a 2-sentence summary including key causes and effects." }
+      ]
+    }
+  ]
+}
diff --git a/examples/responses_api/05_reasoning_response_examples.json b/examples/responses_api/05_reasoning_response_examples.json
new file mode 100644
index 0000000000..17df8b0df0
--- /dev/null
+++ b/examples/responses_api/05_reasoning_response_examples.json
@@ -0,0 +1,65 @@
+{
+  "stateless_plain": {
+    "id": "resp_stateless_plain_001",
+    "object": "response",
+    "created_at": 1738531200,
+    "model": "gpt-5",
+    "status": "completed",
+    "output": [
+      {
+        "type": "reasoning",
+        "id": "rsn_001",
+        "status": "completed",
+        "summary": [
+          { "type": "summary_text", "text": "Outlined that even + even = even by factoring 2." }
+        ],
+        "content": [
+          { "type": "reasoning_text", "text": "Let even numbers be 2a and 2b. Then 2a+2b=2(a+b), which is even." }
+        ]
+      },
+      {
+        "type": "message",
+        "id": "msg_001",
+        "status": "completed",
+        "role": "assistant",
+        "content": [
+          { "type": "output_text", "text": "Because 2a+2b = 2(a+b), the sum is even." }
+        ]
+      }
+    ],
+    "parallel_tool_calls": true,
+    "tool_choice": "auto",
+    "tools": []
+  },
+  "stateful_encrypted": {
+    "id": "resp_stateful_encrypted_001",
+    "object": "response",
+    "created_at": 1738531300,
+    "model": "gpt-5",
+    "status": "completed",
+    "previous_response_id": "resp_litellm_encoded_prev_id",
+    "output": [
+      {
+        "type": "reasoning",
+        "id": "rsn_100",
+        "status": "completed",
+        "summary": [
+          { "type": "summary_text", "text": "Computed product and formed concise explanation." }
+        ],
+        "encrypted_content": "A1B2C3D4E5F6...encrypted bytes..."
+      },
+      {
+        "type": "message",
+        "id": "msg_100",
+        "status": "completed",
+        "role": "assistant",
+        "content": [
+          { "type": "output_text", "text": "1234 × 5678 = 7,006,652. It's the product of the two inputs." }
+        ]
+      }
+    ],
+    "parallel_tool_calls": true,
+    "tool_choice": "auto",
+    "tools": []
+  }
+}