diff --git a/ui/src/components/InlineEntitySelector.test.tsx b/ui/src/components/InlineEntitySelector.test.tsx
new file mode 100644
index 00000000000..f127f41c330
--- /dev/null
+++ b/ui/src/components/InlineEntitySelector.test.tsx
@@ -0,0 +1,80 @@
+// @vitest-environment jsdom
+
+import { act } from "react";
+import { createRoot } from "react-dom/client";
+import { afterEach, beforeEach, describe, expect, it, vi } from "vitest";
+import { InlineEntitySelector } from "./InlineEntitySelector";
+
+// eslint-disable-next-line @typescript-eslint/no-explicit-any
+(globalThis as any).IS_REACT_ACT_ENVIRONMENT = true;
+
+describe("InlineEntitySelector", () => {
+  let container: HTMLDivElement;
+
+  beforeEach(() => {
+    container = document.createElement("div");
+    document.body.appendChild(container);
+  });
+
+  afterEach(() => {
+    container.remove();
+    document.body.innerHTML = "";
+  });
+
+  it("keeps handled search navigation keys inside the popover", async () => {
+    const root = createRoot(container);
+    const onChange = vi.fn();
+    const documentKeyDown = vi.fn();
+    document.addEventListener("keydown", documentKeyDown);
+
+    act(() => {
+      root.render(
+        <InlineEntitySelector
+          value=""
+          options={[
+            { id: "agent:agent-1", label: "CodexCoder" },
+            { id: "agent:agent-2", label: "DesignBot" },
+          ]}
+          placeholder="Assignee"
+          noneLabel="No assignee"
+          searchPlaceholder="Search assignees..."
+          emptyMessage="No assignees found."
+          onChange={onChange}
+        />,
+      );
+    });
+
+    const trigger = container.querySelector("button") as HTMLButtonElement | null;
+    expect(trigger).not.toBeNull();
+
+    await act(async () => {
+      trigger?.dispatchEvent(new MouseEvent("click", { bubbles: true }));
+    });
+
+    const searchInput = document.querySelector('input[placeholder="Search assignees..."]') as HTMLInputElement | null;
+    expect(searchInput).not.toBeNull();
+    searchInput?.focus();
+
+    await act(async () => {
+      await Promise.resolve();
+    });
+
+    await act(async () => {
+      searchInput?.dispatchEvent(new KeyboardEvent("keydown", { bubbles: true, key: "ArrowDown" }));
+    });
+
+    expect(documentKeyDown).not.toHaveBeenCalled();
+
+    await act(async () => {
+      searchInput?.dispatchEvent(new KeyboardEvent("keydown", { bubbles: true, key: "Enter" }));
+    });
+
+    expect(documentKeyDown).not.toHaveBeenCalled();
+    expect(onChange).toHaveBeenCalledWith("agent:agent-1");
+
+    document.removeEventListener("keydown", documentKeyDown);
+    act(() => {
+      root.unmount();
+    });
+  });
+});
diff --git a/ui/src/components/InlineEntitySelector.tsx b/ui/src/components/InlineEntitySelector.tsx
index 6bbcf64940f..cae1897712e 100644
--- a/ui/src/components/InlineEntitySelector.tsx
+++ b/ui/src/components/InlineEntitySelector.tsx
@@ -29,6 +29,8 @@ interface InlineEntitySelectorProps {
   openOnFocus?: boolean;
 }
 
+const EMPTY_RECENT_OPTION_IDS: string[] = [];
+
 export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySelectorProps>(
   function InlineEntitySelector(
     {
@@ -43,7 +45,7 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
       className,
       renderTriggerValue,
       renderOption,
-      recentOptionIds = [],
+      recentOptionIds = EMPTY_RECENT_OPTION_IDS,
       disablePortal,
       openOnFocus = true,
     },
@@ -52,6 +54,7 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
     const [open, setOpen] = useState(false);
     const [query, setQuery] = useState("");
     const [highlightedIndex, setHighlightedIndex] = useState(0);
+    const highlightedIndexRef = useRef(0);
     const inputRef = useRef<HTMLInputElement>(null);
     const shouldPreventCloseAutoFocusRef = useRef(false);
     const isPointerDownRef = useRef(false);
@@ -72,10 +75,16 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
 
     const currentOption = options.find((option) => option.id === value) ?? null;
 
+    function setHighlightedIndexValue(next: number | ((current: number) => number)) {
+      const resolved = typeof next === "function" ? next(highlightedIndexRef.current) : next;
+      highlightedIndexRef.current = resolved;
+      setHighlightedIndex(resolved);
+    }
+
     useEffect(() => {
       if (!open) return;
       const selectedIndex = filteredOptions.findIndex((option) => option.id === value);
-      setHighlightedIndex(selectedIndex >= 0 ? selectedIndex : 0);
+      setHighlightedIndexValue(selectedIndex >= 0 ? selectedIndex : 0);
     }, [filteredOptions, open, value]);
 
     const commitSelection = (index: number, moveNext: boolean) => {
@@ -153,14 +162,16 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
             onKeyDown={(event) => {
               if (event.key === "ArrowDown") {
                 event.preventDefault();
-                setHighlightedIndex((current) =>
+                event.stopPropagation();
+                setHighlightedIndexValue((current) =>
                   filteredOptions.length === 0 ? 0 : (current + 1) % filteredOptions.length,
                 );
                 return;
               }
               if (event.key === "ArrowUp") {
                 event.preventDefault();
-                setHighlightedIndex((current) => {
+                event.stopPropagation();
+                setHighlightedIndexValue((current) => {
                   if (filteredOptions.length === 0) return 0;
                   return current <= 0 ? filteredOptions.length - 1 : current - 1;
                 });
@@ -168,16 +179,19 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
               }
               if (event.key === "Enter") {
                 event.preventDefault();
-                commitSelection(highlightedIndex, true);
+                event.stopPropagation();
+                commitSelection(highlightedIndexRef.current, true);
                 return;
               }
               if (event.key === "Tab" && !event.shiftKey) {
                 event.preventDefault();
-                commitSelection(highlightedIndex, true);
+                event.stopPropagation();
+                commitSelection(highlightedIndexRef.current, true);
                 return;
               }
               if (event.key === "Escape") {
                 event.preventDefault();
+                event.stopPropagation();
                 setOpen(false);
               }
             }}
@@ -197,7 +211,7 @@ export const InlineEntitySelector = forwardRef<HTMLButtonElement, InlineEntitySe
                       "flex w-full items-center gap-2 rounded px-2 py-1.5 text-left text-sm touch-manipulation",
                       isHighlighted && "bg-accent",
                     )}
-                    onMouseEnter={() => setHighlightedIndex(index)}
+                    onMouseEnter={() => setHighlightedIndexValue(index)}
                     onClick={() => commitSelection(index, true)}
                   >
                     {renderOption ? renderOption(option, isSelected) : <span className="truncate">{option.label}</span>}