diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index 893c25683..eec18ff8a 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -15,6 +15,7 @@
 - Exposed `copyToClipboard` utility for extensions ([#926](https://github.com/badlogic/pi-mono/issues/926) by [@mitsuhiko](https://github.com/mitsuhiko))
 - Skill invocation messages are now collapsible in chat output, showing collapsed by default with skill name and expand hint ([#894](https://github.com/badlogic/pi-mono/issues/894))
 - Header values in `models.json` now support environment variables and shell commands, matching `apiKey` resolution ([#909](https://github.com/badlogic/pi-mono/issues/909))
+- Template variables (`{{tools}}`, `{{context}}`, `{{skills}}`) for custom system prompts in SYSTEM.md, allowing precise control over where dynamic content is injected
 - `markdown.codeBlockIndent` setting to customize code block indentation in rendered output
 - Extension package management with `pi install`, `pi remove`, `pi update`, and `pi list` commands ([#645](https://github.com/badlogic/pi-mono/issues/645))
 - Package filtering: selectively load resources from packages using object form in `packages` array ([#645](https://github.com/badlogic/pi-mono/issues/645))
diff --git a/packages/coding-agent/examples/sdk/12-full-control.ts b/packages/coding-agent/examples/sdk/12-full-control.ts
index 66823c83b..b1ea198a9 100644
--- a/packages/coding-agent/examples/sdk/12-full-control.ts
+++ b/packages/coding-agent/examples/sdk/12-full-control.ts
@@ -52,6 +52,7 @@ const resourceLoader: ResourceLoader = {
 	getAgentsFiles: () => ({ agentsFiles: [] }),
 	getSystemPrompt: () => `You are a minimal assistant.
 Available: read, bash. Be concise.`,
+	getSystemPromptTemplates: () => undefined,
 	getAppendSystemPrompt: () => [],
 	getPathMetadata: () => new Map(),
 	reload: async () => {},
diff --git a/packages/coding-agent/src/core/agent-session.ts b/packages/coding-agent/src/core/agent-session.ts
index 270545534..4d4931f29 100644
--- a/packages/coding-agent/src/core/agent-session.ts
+++ b/packages/coding-agent/src/core/agent-session.ts
@@ -610,7 +610,7 @@ export class AgentSession {
 		const loadedSkills = this._resourceLoader.getSkills().skills;
 		const loadedContextFiles = this._resourceLoader.getAgentsFiles().agentsFiles;
 
-		return buildSystemPrompt({
+		const result = buildSystemPrompt({
 			cwd: this._cwd,
 			skills: loadedSkills,
 			contextFiles: loadedContextFiles,
@@ -618,6 +618,8 @@ export class AgentSession {
 			appendSystemPrompt,
 			selectedTools: validToolNames,
 		});
+
+		return result.prompt;
 	}
 
 	// =========================================================================
diff --git a/packages/coding-agent/src/core/resource-loader.ts b/packages/coding-agent/src/core/resource-loader.ts
index 56a1bd6ae..c9ee2ba12 100644
--- a/packages/coding-agent/src/core/resource-loader.ts
+++ b/packages/coding-agent/src/core/resource-loader.ts
@@ -23,6 +23,13 @@ import { SettingsManager } from "./settings-manager.js";
 import type { Skill } from "./skills.js";
 import { loadSkills } from "./skills.js";
 
+/** Template variable usage in custom SYSTEM.md */
+export interface SystemPromptTemplates {
+	tools: boolean;
+	context: boolean;
+	skills: boolean;
+}
+
 export interface ResourceLoader {
 	getExtensions(): LoadExtensionsResult;
 	getSkills(): { skills: Skill[]; diagnostics: ResourceDiagnostic[] };
@@ -30,6 +37,8 @@ export interface ResourceLoader {
 	getThemes(): { themes: Theme[]; diagnostics: ResourceDiagnostic[] };
 	getAgentsFiles(): { agentsFiles: Array<{ path: string; content: string }> };
 	getSystemPrompt(): string | undefined;
+	/** Returns template variable usage if custom SYSTEM.md exists, undefined otherwise */
+	getSystemPromptTemplates(): SystemPromptTemplates | undefined;
 	getAppendSystemPrompt(): string[];
 	getPathMetadata(): Map<string, PathMetadata>;
 	reload(): Promise<void>;
@@ -258,6 +267,15 @@ export class DefaultResourceLoader implements ResourceLoader {
 		return this.systemPrompt;
 	}
 
+	getSystemPromptTemplates(): SystemPromptTemplates | undefined {
+		if (!this.systemPrompt) return undefined;
+		return {
+			tools: this.systemPrompt.includes("{{tools}}"),
+			context: this.systemPrompt.includes("{{context}}"),
+			skills: this.systemPrompt.includes("{{skills}}"),
+		};
+	}
+
 	getAppendSystemPrompt(): string[] {
 		return this.appendSystemPrompt;
 	}
diff --git a/packages/coding-agent/src/core/system-prompt.ts b/packages/coding-agent/src/core/system-prompt.ts
index dd13d3a9d..f18c4cf43 100644
--- a/packages/coding-agent/src/core/system-prompt.ts
+++ b/packages/coding-agent/src/core/system-prompt.ts
@@ -31,8 +31,17 @@ export interface BuildSystemPromptOptions {
 	skills?: Skill[];
 }
 
+export interface BuildSystemPromptResult {
+	/** The built system prompt */
+	prompt: string;
+	/** Whether context files were injected (always true for default prompt, depends on {{context}} for custom) */
+	contextInjected: boolean;
+	/** Whether skills were injected (always true for default prompt, depends on {{skills}} for custom) */
+	skillsInjected: boolean;
+}
+
 /** Build the system prompt with tools, guidelines, and context */
-export function buildSystemPrompt(options: BuildSystemPromptOptions = {}): string {
+export function buildSystemPrompt(options: BuildSystemPromptOptions = {}): BuildSystemPromptResult {
 	const {
 		customPrompt,
 		selectedTools,
@@ -63,30 +72,48 @@ export function buildSystemPrompt(options: BuildSystemPromptOptions = {}): strin
 	if (customPrompt) {
 		let prompt = customPrompt;
 
-		if (appendSection) {
-			prompt += appendSection;
+		// Template variable replacement (opt-in injection)
+		// No template variables = full replacement mode (no automatic appending)
+		const contextInjected = prompt.includes("{{context}}");
+		const skillsInjected = prompt.includes("{{skills}}");
+
+		if (prompt.includes("{{tools}}")) {
+			const tools = selectedTools || ["read", "bash", "edit", "write"];
+			const toolsList =
+				tools.length > 0
+					? tools.map((t) => `- ${t}: ${toolDescriptions[t] ?? "Custom tool"}`).join("\n")
+					: "(none)";
+			prompt = prompt.replace("{{tools}}", toolsList);
 		}
 
-		// Append project context files
-		if (contextFiles.length > 0) {
-			prompt += "\n\n# Project Context\n\n";
-			prompt += "Project-specific instructions and guidelines:\n\n";
-			for (const { path: filePath, content } of contextFiles) {
-				prompt += `## ${filePath}\n\n${content}\n\n`;
+		if (contextInjected) {
+			let contextStr = "";
+			if (contextFiles.length > 0) {
+				contextStr = "# Project Context\n\n";
+				contextStr += "Project-specific instructions and guidelines:\n\n";
+				for (const { path: filePath, content } of contextFiles) {
+					contextStr += `## ${filePath}\n\n${content}\n\n`;
+				}
 			}
+			prompt = prompt.replace("{{context}}", contextStr);
 		}
 
-		// Append skills section (only if read tool is available)
-		const customPromptHasRead = !selectedTools || selectedTools.includes("read");
-		if (customPromptHasRead && skills.length > 0) {
-			prompt += formatSkillsForPrompt(skills);
+		if (skillsInjected) {
+			const customPromptHasRead = !selectedTools || selectedTools.includes("read");
+			const skillsStr = customPromptHasRead && skills.length > 0 ? formatSkillsForPrompt(skills) : "";
+			prompt = prompt.replace("{{skills}}", skillsStr);
+		}
+
+		// Append section always applies (for --append-system-prompt)
+		if (appendSection) {
+			prompt += appendSection;
 		}
 
-		// Add date/time and working directory last
+		// Add date/time and working directory last (always)
 		prompt += `\nCurrent date and time: ${dateTime}`;
 		prompt += `\nCurrent working directory: ${resolvedCwd}`;
 
-		return prompt;
+		return { prompt, contextInjected, skillsInjected };
 	}
 
 	// Get absolute paths to documentation and examples
@@ -175,7 +202,8 @@ Pi documentation (read only when the user asks about pi itself, its SDK, extensi
 	}
 
 	// Append skills section (only if read tool is available)
-	if (hasRead && skills.length > 0) {
+	const skillsInjected = hasRead;
+	if (skillsInjected && skills.length > 0) {
 		prompt += formatSkillsForPrompt(skills);
 	}
 
@@ -183,5 +211,6 @@ Pi documentation (read only when the user asks about pi itself, its SDK, extensi
 	prompt += `\nCurrent date and time: ${dateTime}`;
 	prompt += `\nCurrent working directory: ${resolvedCwd}`;
 
-	return prompt;
+	// Default prompt always injects context, skills depend on read tool
+	return { prompt, contextInjected: true, skillsInjected };
 }
diff --git a/packages/coding-agent/src/index.ts b/packages/coding-agent/src/index.ts
index 5ababa022..ed8f84ffe 100644
--- a/packages/coding-agent/src/index.ts
+++ b/packages/coding-agent/src/index.ts
@@ -126,7 +126,12 @@ export type {
 	ResolvedPaths,
 } from "./core/package-manager.js";
 export { DefaultPackageManager } from "./core/package-manager.js";
-export type { ResourceCollision, ResourceDiagnostic, ResourceLoader } from "./core/resource-loader.js";
+export type {
+	ResourceCollision,
+	ResourceDiagnostic,
+	ResourceLoader,
+	SystemPromptTemplates,
+} from "./core/resource-loader.js";
 export { DefaultResourceLoader } from "./core/resource-loader.js";
 // SDK for programmatic usage
 export {
diff --git a/packages/coding-agent/src/modes/interactive/interactive-mode.ts b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
index 0bca4ea6b..c71068800 100644
--- a/packages/coding-agent/src/modes/interactive/interactive-mode.ts
+++ b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
@@ -866,26 +866,40 @@ export class InteractiveMode {
 		}
 
 		const metadata = this.session.resourceLoader.getPathMetadata();
+		// Check if custom SYSTEM.md uses template variables
+		// undefined = no custom prompt (default behavior, show all)
+		// defined = custom prompt, only show if template is used
+		const promptTemplates = this.session.resourceLoader.getSystemPromptTemplates();
 
 		const sectionHeader = (name: string, color: ThemeColor = "mdHeading") => theme.fg(color, `[${name}]`);
 
-		const contextFiles = this.session.resourceLoader.getAgentsFiles().agentsFiles;
-		if (contextFiles.length > 0) {
-			const contextList = contextFiles.map((f) => theme.fg("dim", `  ${this.formatDisplayPath(f.path)}`)).join("\n");
-			this.chatContainer.addChild(new Text(`${sectionHeader("Context")}\n${contextList}`, 0, 0));
-			this.chatContainer.addChild(new Spacer(1));
+		// Show context only if: no custom prompt OR custom prompt uses {{context}}
+		const showContext = !promptTemplates || promptTemplates.context;
+		if (showContext) {
+			const contextFiles = this.session.resourceLoader.getAgentsFiles().agentsFiles;
+			if (contextFiles.length > 0) {
+				const contextList = contextFiles
+					.map((f) => theme.fg("dim", `  ${this.formatDisplayPath(f.path)}`))
+					.join("\n");
+				this.chatContainer.addChild(new Text(`${sectionHeader("Context")}\n${contextList}`, 0, 0));
+				this.chatContainer.addChild(new Spacer(1));
+			}
 		}
 
-		const skills = this.session.resourceLoader.getSkills().skills;
-		if (skills.length > 0) {
-			const skillPaths = skills.map((s) => s.filePath);
-			const groups = this.buildScopeGroups(skillPaths, metadata);
-			const skillList = this.formatScopeGroups(groups, {
-				formatPath: (p) => this.formatDisplayPath(p),
-				formatPackagePath: (p, source) => this.getShortPath(p, source),
-			});
-			this.chatContainer.addChild(new Text(`${sectionHeader("Skills")}\n${skillList}`, 0, 0));
-			this.chatContainer.addChild(new Spacer(1));
+		// Show skills only if: no custom prompt OR custom prompt uses {{skills}}
+		const showSkills = !promptTemplates || promptTemplates.skills;
+		if (showSkills) {
+			const skills = this.session.resourceLoader.getSkills().skills;
+			if (skills.length > 0) {
+				const skillPaths = skills.map((s) => s.filePath);
+				const groups = this.buildScopeGroups(skillPaths, metadata);
+				const skillList = this.formatScopeGroups(groups, {
+					formatPath: (p) => this.formatDisplayPath(p),
+					formatPackagePath: (p, source) => this.getShortPath(p, source),
+				});
+				this.chatContainer.addChild(new Text(`${sectionHeader("Skills")}\n${skillList}`, 0, 0));
+				this.chatContainer.addChild(new Spacer(1));
+			}
 		}
 
 		const skillDiagnostics = this.session.resourceLoader.getSkills().diagnostics;
diff --git a/packages/coding-agent/test/sdk-skills.test.ts b/packages/coding-agent/test/sdk-skills.test.ts
index 48c96cdd7..ef4d45701 100644
--- a/packages/coding-agent/test/sdk-skills.test.ts
+++ b/packages/coding-agent/test/sdk-skills.test.ts
@@ -57,6 +57,7 @@ This is a test skill.
 			getThemes: () => ({ themes: [], diagnostics: [] }),
 			getAgentsFiles: () => ({ agentsFiles: [] }),
 			getSystemPrompt: () => undefined,
+			getSystemPromptTemplates: () => undefined,
 			getAppendSystemPrompt: () => [],
 			getPathMetadata: () => new Map(),
 			reload: async () => {},
@@ -90,6 +91,7 @@ This is a test skill.
 			getThemes: () => ({ themes: [], diagnostics: [] }),
 			getAgentsFiles: () => ({ agentsFiles: [] }),
 			getSystemPrompt: () => undefined,
+			getSystemPromptTemplates: () => undefined,
 			getAppendSystemPrompt: () => [],
 			getPathMetadata: () => new Map(),
 			reload: async () => {},
diff --git a/packages/coding-agent/test/system-prompt.test.ts b/packages/coding-agent/test/system-prompt.test.ts
index af20f1554..9a80b89de 100644
--- a/packages/coding-agent/test/system-prompt.test.ts
+++ b/packages/coding-agent/test/system-prompt.test.ts
@@ -4,37 +4,224 @@ import { buildSystemPrompt } from "../src/core/system-prompt.js";
 describe("buildSystemPrompt", () => {
 	describe("empty tools", () => {
 		test("shows (none) for empty tools list", () => {
-			const prompt = buildSystemPrompt({
+			const result = buildSystemPrompt({
 				selectedTools: [],
 				contextFiles: [],
 				skills: [],
 			});
 
-			expect(prompt).toContain("Available tools:\n(none)");
+			expect(result.prompt).toContain("Available tools:\n(none)");
 		});
 
 		test("shows file paths guideline even with no tools", () => {
-			const prompt = buildSystemPrompt({
+			const result = buildSystemPrompt({
 				selectedTools: [],
 				contextFiles: [],
 				skills: [],
 			});
 
-			expect(prompt).toContain("Show file paths clearly");
+			expect(result.prompt).toContain("Show file paths clearly");
 		});
 	});
 
 	describe("default tools", () => {
 		test("includes all default tools", () => {
-			const prompt = buildSystemPrompt({
+			const result = buildSystemPrompt({
 				contextFiles: [],
 				skills: [],
 			});
 
-			expect(prompt).toContain("- read:");
-			expect(prompt).toContain("- bash:");
-			expect(prompt).toContain("- edit:");
-			expect(prompt).toContain("- write:");
+			expect(result.prompt).toContain("- read:");
+			expect(result.prompt).toContain("- bash:");
+			expect(result.prompt).toContain("- edit:");
+			expect(result.prompt).toContain("- write:");
+		});
+	});
+
+	describe("template variables", () => {
+		test("replaces {{tools}} with tool list", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "My tools:\n{{tools}}",
+				selectedTools: ["read", "bash"],
+				contextFiles: [],
+				skills: [],
+			});
+
+			expect(result.prompt).toContain("My tools:");
+			expect(result.prompt).toContain("- read:");
+			expect(result.prompt).toContain("- bash:");
+			expect(result.prompt).not.toContain("{{tools}}");
+		});
+
+		test("replaces {{context}} with context files", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Context:\n{{context}}\nEnd context.",
+				contextFiles: [{ path: "/test/AGENTS.md", content: "Test content" }],
+				skills: [],
+			});
+
+			expect(result.prompt).toContain("Context:");
+			expect(result.prompt).toContain("# Project Context");
+			expect(result.prompt).toContain("/test/AGENTS.md");
+			expect(result.prompt).toContain("Test content");
+			expect(result.prompt).toContain("End context.");
+			expect(result.prompt).not.toContain("{{context}}");
+			expect(result.contextInjected).toBe(true);
+		});
+
+		test("replaces {{skills}} with skills section", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Skills:\n{{skills}}",
+				selectedTools: ["read"],
+				contextFiles: [],
+				skills: [
+					{
+						name: "test-skill",
+						description: "A test skill",
+						filePath: "/test/skill.md",
+						baseDir: "/test",
+						source: "project",
+						disableModelInvocation: false,
+					},
+				],
+			});
+
+			expect(result.prompt).toContain("Skills:");
+			expect(result.prompt).toContain("test-skill");
+			expect(result.prompt).not.toContain("{{skills}}");
+			expect(result.skillsInjected).toBe(true);
+		});
+
+		test("{{skills}} is empty when read tool not available", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Skills: [{{skills}}]",
+				selectedTools: ["bash"], // no read
+				contextFiles: [],
+				skills: [
+					{
+						name: "test-skill",
+						description: "A test skill",
+						filePath: "/test/skill.md",
+						baseDir: "/test",
+						source: "project",
+						disableModelInvocation: false,
+					},
+				],
+			});
+
+			expect(result.prompt).toContain("Skills: []");
+			expect(result.prompt).not.toContain("test-skill");
+			expect(result.skillsInjected).toBe(true); // Still true, just empty
+		});
+
+		test("multiple template variables work together", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Tools:\n{{tools}}\n\n{{context}}\n\n{{skills}}",
+				selectedTools: ["read", "edit"],
+				contextFiles: [{ path: "/AGENTS.md", content: "Project rules" }],
+				skills: [
+					{
+						name: "my-skill",
+						description: "My skill",
+						filePath: "/skill.md",
+						baseDir: "/",
+						source: "project",
+						disableModelInvocation: false,
+					},
+				],
+			});
+
+			expect(result.prompt).toContain("- read:");
+			expect(result.prompt).toContain("- edit:");
+			expect(result.prompt).toContain("Project rules");
+			expect(result.prompt).toContain("my-skill");
+			expect(result.prompt).not.toContain("{{tools}}");
+			expect(result.prompt).not.toContain("{{context}}");
+			expect(result.prompt).not.toContain("{{skills}}");
+			expect(result.contextInjected).toBe(true);
+			expect(result.skillsInjected).toBe(true);
+		});
+
+		test("without template vars, context and skills are NOT appended (full replacement)", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "My custom prompt",
+				contextFiles: [{ path: "/AGENTS.md", content: "Context here" }],
+				skills: [
+					{
+						name: "skill1",
+						description: "Skill 1",
+						filePath: "/skill.md",
+						baseDir: "/",
+						source: "project",
+						disableModelInvocation: false,
+					},
+				],
+			});
+
+			// Full replacement mode: no automatic appending
+			expect(result.prompt).toContain("My custom prompt");
+			expect(result.prompt).not.toContain("Context here");
+			expect(result.prompt).not.toContain("skill1");
+			expect(result.contextInjected).toBe(false);
+			expect(result.skillsInjected).toBe(false);
+		});
+
+		test("with template vars, content only appears where requested", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Only tools: {{tools}}",
+				contextFiles: [{ path: "/AGENTS.md", content: "Should not appear" }],
+				skills: [
+					{
+						name: "skill1",
+						description: "Should not appear",
+						filePath: "/skill.md",
+						baseDir: "/",
+						source: "project",
+						disableModelInvocation: false,
+					},
+				],
+			});
+
+			// Has {{tools}} so template mode, but no {{context}} or {{skills}}
+			expect(result.prompt).toContain("- read:");
+			expect(result.prompt).not.toContain("Should not appear");
+			expect(result.prompt).not.toContain("skill1");
+			expect(result.contextInjected).toBe(false);
+			expect(result.skillsInjected).toBe(false);
+		});
+
+		test("always includes datetime and cwd", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "{{tools}}",
+				cwd: "/test/dir",
+				contextFiles: [],
+				skills: [],
+			});
+
+			expect(result.prompt).toContain("Current date and time:");
+			expect(result.prompt).toContain("Current working directory: /test/dir");
+		});
+
+		test("appendSystemPrompt still works with template vars", () => {
+			const result = buildSystemPrompt({
+				customPrompt: "Main: {{tools}}",
+				appendSystemPrompt: "Extra instructions",
+				contextFiles: [],
+				skills: [],
+			});
+
+			expect(result.prompt).toContain("Main:");
+			expect(result.prompt).toContain("Extra instructions");
+		});
+
+		test("default prompt returns contextInjected and skillsInjected true", () => {
+			const result = buildSystemPrompt({
+				contextFiles: [{ path: "/AGENTS.md", content: "Context" }],
+				skills: [],
+			});
+
+			expect(result.contextInjected).toBe(true);
+			expect(result.skillsInjected).toBe(true);
 		});
 	});
 });
diff --git a/packages/coding-agent/test/utilities.ts b/packages/coding-agent/test/utilities.ts
index 6e4e60b43..46c88d29d 100644
--- a/packages/coding-agent/test/utilities.ts
+++ b/packages/coding-agent/test/utilities.ts
@@ -182,6 +182,7 @@ export function createTestResourceLoader(): ResourceLoader {
 		getThemes: () => ({ themes: [], diagnostics: [] }),
 		getAgentsFiles: () => ({ agentsFiles: [] }),
 		getSystemPrompt: () => undefined,
+		getSystemPromptTemplates: () => undefined,
 		getAppendSystemPrompt: () => [],
 		getPathMetadata: () => new Map(),
 		reload: async () => {},
diff --git a/packages/mom/src/agent.ts b/packages/mom/src/agent.ts
index 2733dbd57..ff6980979 100644
--- a/packages/mom/src/agent.ts
+++ b/packages/mom/src/agent.ts
@@ -457,6 +457,7 @@ function createRunner(sandboxConfig: SandboxConfig, channelId: string, channelDi
 		getThemes: () => ({ themes: [], diagnostics: [] }),
 		getAgentsFiles: () => ({ agentsFiles: [] }),
 		getSystemPrompt: () => systemPrompt,
+		getSystemPromptTemplates: () => undefined,
 		getAppendSystemPrompt: () => [],
 		getPathMetadata: () => new Map(),
 		reload: async () => {},