diff --git a/apps/server/src/terminal/Layers/Manager.test.ts b/apps/server/src/terminal/Layers/Manager.test.ts
index 8b5aa3adbc..72949905e8 100644
--- a/apps/server/src/terminal/Layers/Manager.test.ts
+++ b/apps/server/src/terminal/Layers/Manager.test.ts
@@ -1193,6 +1193,63 @@ it.layer(
     }),
   );
 
+  it.effect("strips AppImage runtime env from terminal sessions", () =>
+    Effect.gen(function* () {
+      const appDir = "/tmp/.mount_T3Codeabc123";
+      const { manager, ptyAdapter } = yield* createManager(5, {
+        env: {
+          APPIMAGE: "/home/user/T3-Code.AppImage",
+          APPDIR: appDir,
+          ARGV0: "/home/user/T3-Code.AppImage",
+          OWD: "/home/user/project",
+          PATH: `${appDir}/usr/bin:${appDir}:/usr/local/bin:/usr/bin:/bin`,
+          LD_LIBRARY_PATH: `${appDir}/usr/lib:/home/user/.local/lib`,
+          TEST_TERMINAL_KEEP: "keep-me",
+        },
+      });
+      yield* manager.open(openInput());
+      const spawnInput = ptyAdapter.spawnInputs[0];
+      expect(spawnInput).toBeDefined();
+      if (!spawnInput) return;
+
+      // AppImage runtime markers must never reach the PTY — tools inside the
+      // terminal otherwise resolve against the AppImage mount (e.g. PHP_BINARY
+      // reporting the AppImage path instead of the real binary).
+      expect(spawnInput.env.APPIMAGE).toBeUndefined();
+      expect(spawnInput.env.APPDIR).toBeUndefined();
+      expect(spawnInput.env.ARGV0).toBeUndefined();
+      expect(spawnInput.env.OWD).toBeUndefined();
+      // PATH/LD_LIBRARY_PATH keep the user's real entries but drop the AppImage
+      // mount segments that the runtime prepended.
+      expect(spawnInput.env.PATH).toBe("/usr/local/bin:/usr/bin:/bin");
+      expect(spawnInput.env.LD_LIBRARY_PATH).toBe("/home/user/.local/lib");
+      // Unrelated host vars still pass through untouched.
+      expect(spawnInput.env.TEST_TERMINAL_KEEP).toBe("keep-me");
+    }),
+  );
+
+  it.effect("leaves the environment untouched when not launched from an AppImage", () =>
+    Effect.gen(function* () {
+      const { manager, ptyAdapter } = yield* createManager(5, {
+        env: {
+          PATH: "/usr/local/bin:/usr/bin:/bin",
+          LD_LIBRARY_PATH: "/home/user/.local/lib",
+          // Without APPIMAGE/APPDIR set, OWD is an ordinary variable and must
+          // not be stripped — only an AppImage launch gives it special meaning.
+          OWD: "/home/user/keep-this",
+        },
+      });
+      yield* manager.open(openInput());
+      const spawnInput = ptyAdapter.spawnInputs[0];
+      expect(spawnInput).toBeDefined();
+      if (!spawnInput) return;
+
+      expect(spawnInput.env.PATH).toBe("/usr/local/bin:/usr/bin:/bin");
+      expect(spawnInput.env.LD_LIBRARY_PATH).toBe("/home/user/.local/lib");
+      expect(spawnInput.env.OWD).toBe("/home/user/keep-this");
+    }),
+  );
+
   it.effect("injects runtime env overrides into spawned terminals", () =>
     Effect.gen(function* () {
       const { manager, ptyAdapter } = yield* createManager();
diff --git a/apps/server/src/terminal/Layers/Manager.ts b/apps/server/src/terminal/Layers/Manager.ts
index e33d9b4b29..c3ab1c0544 100644
--- a/apps/server/src/terminal/Layers/Manager.ts
+++ b/apps/server/src/terminal/Layers/Manager.ts
@@ -945,6 +945,53 @@ function shouldExcludeTerminalEnvKey(key: string): boolean {
   return TERMINAL_ENV_BLOCKLIST.has(normalizedKey);
 }
 
+// Marker variables the AppImage runtime injects into the process it launches.
+// They describe the AppImage itself, not the user's session, so terminals must
+// not inherit them.
+const APPIMAGE_RUNTIME_ENV_KEYS = ["APPIMAGE", "APPDIR", "ARGV0", "OWD"] as const;
+// PATH-style variables the AppImage runtime prepends with its temporary mount
+// (e.g. /tmp/.mount_T3-XXXX/usr/bin). Only the mount segments are dropped; the
+// user's real entries are preserved.
+const APPIMAGE_PATH_LIKE_ENV_KEYS = ["PATH", "LD_LIBRARY_PATH"] as const;
+
+function isPathSegmentUnderAppDir(segment: string, appDir: string): boolean {
+  return segment === appDir || segment.startsWith(`${appDir}/`);
+}
+
+// On Linux AppImage builds the runtime mounts the app under a temporary dir and
+// injects APPIMAGE/APPDIR/ARGV0/OWD plus mount entries on PATH/LD_LIBRARY_PATH.
+// The integrated terminal inherits the server process environment, so without
+// this scrub those leak into the PTY and tools resolve against the AppImage
+// mount instead of the user's real environment (e.g. `php` reporting
+// PHP_BINARY as the AppImage path). See issue #1699. The scrub is gated on an
+// actual AppImage launch so non-AppImage environments are left untouched.
+function stripAppImageRuntimeEnv(env: NodeJS.ProcessEnv): NodeJS.ProcessEnv {
+  if (env.APPIMAGE === undefined && env.APPDIR === undefined) return env;
+
+  const scrubbed: NodeJS.ProcessEnv = { ...env };
+  for (const key of APPIMAGE_RUNTIME_ENV_KEYS) {
+    delete scrubbed[key];
+  }
+
+  const appDir = env.APPDIR?.replace(/\/+$/, "");
+  if (appDir) {
+    for (const key of APPIMAGE_PATH_LIKE_ENV_KEYS) {
+      const value = scrubbed[key];
+      if (value === undefined) continue;
+      const kept = value
+        .split(":")
+        .filter((segment) => segment.length > 0 && !isPathSegmentUnderAppDir(segment, appDir));
+      if (kept.length > 0) {
+        scrubbed[key] = kept.join(":");
+      } else {
+        delete scrubbed[key];
+      }
+    }
+  }
+
+  return scrubbed;
+}
+
 function createTerminalSpawnEnv(
   baseEnv: NodeJS.ProcessEnv,
   runtimeEnv?: Record<string, string> | null,
@@ -960,7 +1007,7 @@ function createTerminalSpawnEnv(
       spawnEnv[key] = value;
     }
   }
-  return spawnEnv;
+  return stripAppImageRuntimeEnv(spawnEnv);
 }
 
 function normalizedRuntimeEnv(