diff --git a/src/common/LanguageModelProvider/FoundryLocal/FoundryClient.cs b/src/common/LanguageModelProvider/FoundryLocal/FoundryClient.cs
index 287588a71e..a279f7389a 100644
--- a/src/common/LanguageModelProvider/FoundryLocal/FoundryClient.cs
+++ b/src/common/LanguageModelProvider/FoundryLocal/FoundryClient.cs
@@ -10,6 +10,23 @@ namespace LanguageModelProvider.FoundryLocal;
 internal sealed class FoundryClient
 {
     public static async Task<FoundryClient?> CreateAsync()
+    {
+        // First attempt with current environment
+        var client = await TryCreateClientAsync().ConfigureAwait(false);
+        if (client != null)
+        {
+            return client;
+        }
+
+        // If failed, refresh PATH from registry and retry once
+        // This handles cases where PowerToys was launched by MSI installer.
+        Logger.LogInfo("[FoundryClient] First attempt failed, refreshing PATH and retrying");
+        RefreshEnvironmentPath();
+
+        return await TryCreateClientAsync().ConfigureAwait(false);
+    }
+
+    private static async Task<FoundryClient?> TryCreateClientAsync()
     {
         try
         {
@@ -195,4 +212,68 @@ internal sealed class FoundryClient
             await _foundryManager.StartServiceAsync();
         }
     }
+
+    /// <summary>
+    /// Refreshes the PATH environment variable from the system registry.
+    /// This is necessary when tools are installed while PowerToys is running,
+    /// as the installer updates the system PATH but running processes don't see the change.
+    /// </summary>
+    private static void RefreshEnvironmentPath()
+    {
+        try
+        {
+            Logger.LogInfo("[FoundryClient] Refreshing PATH environment variable from system");
+
+            var currentPath = Environment.GetEnvironmentVariable("PATH", EnvironmentVariableTarget.Process) ?? string.Empty;
+            var machinePath = Environment.GetEnvironmentVariable("PATH", EnvironmentVariableTarget.Machine) ?? string.Empty;
+            var userPath = Environment.GetEnvironmentVariable("PATH", EnvironmentVariableTarget.User) ?? string.Empty;
+
+            var pathsToAdd = new List<string>();
+
+            if (!string.IsNullOrWhiteSpace(currentPath))
+            {
+                pathsToAdd.AddRange(currentPath.Split(Path.PathSeparator, StringSplitOptions.RemoveEmptyEntries));
+            }
+
+            if (!string.IsNullOrWhiteSpace(userPath))
+            {
+                var userPaths = userPath.Split(Path.PathSeparator, StringSplitOptions.RemoveEmptyEntries);
+                foreach (var path in userPaths)
+                {
+                    if (!pathsToAdd.Contains(path, StringComparer.OrdinalIgnoreCase))
+                    {
+                        pathsToAdd.Add(path);
+                    }
+                }
+            }
+
+            if (!string.IsNullOrWhiteSpace(machinePath))
+            {
+                var machinePaths = machinePath.Split(Path.PathSeparator, StringSplitOptions.RemoveEmptyEntries);
+                foreach (var path in machinePaths)
+                {
+                    if (!pathsToAdd.Contains(path, StringComparer.OrdinalIgnoreCase))
+                    {
+                        pathsToAdd.Add(path);
+                    }
+                }
+            }
+
+            var newPath = string.Join(Path.PathSeparator.ToString(), pathsToAdd);
+
+            if (currentPath != newPath)
+            {
+                Logger.LogInfo("[FoundryClient] Updating process PATH with latest system values");
+                Environment.SetEnvironmentVariable("PATH", newPath, EnvironmentVariableTarget.Process);
+            }
+            else
+            {
+                Logger.LogInfo("[FoundryClient] PATH is already up to date");
+            }
+        }
+        catch (Exception ex)
+        {
+            Logger.LogError($"[FoundryClient] Failed to refresh PATH: {ex.Message}");
+        }
+    }
 }