diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index 09ccb878..62c2b506 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -2,6 +2,10 @@
 
 ## [Unreleased]
 
+### Breaking Changes
+
+- Changed package startup behavior so installed unpinned packages are no longer checked or updated during startup. Use `pi update` to apply npm/git package updates, while interactive mode now checks for available package updates in the background and notifies you when updates are available ([#1963](https://github.com/badlogic/pi-mono/issues/1963))
+
 ## [0.59.0] - 2026-03-17
 
 ### New Features
diff --git a/packages/coding-agent/src/core/package-manager.ts b/packages/coding-agent/src/core/package-manager.ts
index 78b4f12d..4277785e 100644
--- a/packages/coding-agent/src/core/package-manager.ts
+++ b/packages/coding-agent/src/core/package-manager.ts
@@ -10,6 +10,7 @@ import { type GitSource, parseGitUrl } from "../utils/git.js";
 import type { PackageSource, SettingsManager } from "./settings-manager.js";
 
 const NETWORK_TIMEOUT_MS = 10000;
+const UPDATE_CHECK_CONCURRENCY = 4;
 
 function isOfflineModeEnabled(): boolean {
 	const value = process.env.PI_OFFLINE;
@@ -48,6 +49,13 @@ export interface ProgressEvent {
 
 export type ProgressCallback = (event: ProgressEvent) => void;
 
+export interface PackageUpdate {
+	source: string;
+	displayName: string;
+	type: "npm" | "git";
+	scope: Exclude<SourceScope, "temporary">;
+}
+
 export interface PackageManager {
 	resolve(onMissing?: (source: string) => Promise<MissingSourceAction>): Promise<ResolvedPaths>;
 	install(source: string, options?: { local?: boolean }): Promise<void>;
@@ -886,6 +894,71 @@ export class DefaultPackageManager implements PackageManager {
 		}
 	}
 
+	async checkForAvailableUpdates(): Promise<PackageUpdate[]> {
+		if (isOfflineModeEnabled()) {
+			return [];
+		}
+
+		const globalSettings = this.settingsManager.getGlobalSettings();
+		const projectSettings = this.settingsManager.getProjectSettings();
+		const allPackages: Array<{ pkg: PackageSource; scope: SourceScope }> = [];
+		for (const pkg of projectSettings.packages ?? []) {
+			allPackages.push({ pkg, scope: "project" });
+		}
+		for (const pkg of globalSettings.packages ?? []) {
+			allPackages.push({ pkg, scope: "user" });
+		}
+
+		const packageSources = this.dedupePackages(allPackages);
+		const checks = packageSources
+			.filter(
+				(entry): entry is { pkg: PackageSource; scope: Exclude<SourceScope, "temporary"> } =>
+					entry.scope !== "temporary",
+			)
+			.map((entry) => async (): Promise<PackageUpdate | undefined> => {
+				const source = typeof entry.pkg === "string" ? entry.pkg : entry.pkg.source;
+				const parsed = this.parseSource(source);
+				if (parsed.type === "local" || parsed.pinned) {
+					return undefined;
+				}
+
+				if (parsed.type === "npm") {
+					const installedPath = this.getNpmInstallPath(parsed, entry.scope);
+					if (!existsSync(installedPath)) {
+						return undefined;
+					}
+					const hasUpdate = await this.npmHasAvailableUpdate(parsed, installedPath);
+					if (!hasUpdate) {
+						return undefined;
+					}
+					return {
+						source,
+						displayName: parsed.name,
+						type: "npm",
+						scope: entry.scope,
+					};
+				}
+
+				const installedPath = this.getGitInstallPath(parsed, entry.scope);
+				if (!existsSync(installedPath)) {
+					return undefined;
+				}
+				const hasUpdate = await this.gitHasAvailableUpdate(installedPath);
+				if (!hasUpdate) {
+					return undefined;
+				}
+				return {
+					source,
+					displayName: `${parsed.host}/${parsed.path}`,
+					type: "git",
+					scope: entry.scope,
+				};
+			});
+
+		const results = await this.runWithConcurrency(checks, UPDATE_CHECK_CONCURRENCY);
+		return results.filter((result): result is PackageUpdate => result !== undefined);
+	}
+
 	private async resolvePackageSources(
 		sources: Array<{ pkg: PackageSource; scope: SourceScope }>,
 		accumulator: ResourceAccumulator,
@@ -920,7 +993,9 @@ export class DefaultPackageManager implements PackageManager {
 
 			if (parsed.type === "npm") {
 				const installedPath = this.getNpmInstallPath(parsed, scope);
-				const needsInstall = !existsSync(installedPath) || (await this.npmNeedsUpdate(parsed, installedPath));
+				const needsInstall =
+					!existsSync(installedPath) ||
+					(parsed.pinned && !(await this.installedNpmMatchesPinnedVersion(parsed, installedPath)));
 				if (needsInstall) {
 					const installed = await installMissing();
 					if (!installed) continue;
@@ -1063,31 +1138,34 @@ export class DefaultPackageManager implements PackageManager {
 		return { type: "local", path: source };
 	}
 
-	/**
-	 * Check if an npm package needs to be updated.
-	 * - For unpinned packages: check if registry has a newer version
-	 * - For pinned packages: check if installed version matches the pinned version
-	 */
-	private async npmNeedsUpdate(source: NpmSource, installedPath: string): Promise<boolean> {
+	private async installedNpmMatchesPinnedVersion(source: NpmSource, installedPath: string): Promise<boolean> {
+		const installedVersion = this.getInstalledNpmVersion(installedPath);
+		if (!installedVersion) {
+			return false;
+		}
+
+		const { version: pinnedVersion } = this.parseNpmSpec(source.spec);
+		if (!pinnedVersion) {
+			return true;
+		}
+
+		return installedVersion === pinnedVersion;
+	}
+
+	private async npmHasAvailableUpdate(source: NpmSource, installedPath: string): Promise<boolean> {
 		if (isOfflineModeEnabled()) {
 			return false;
 		}
 
 		const installedVersion = this.getInstalledNpmVersion(installedPath);
-		if (!installedVersion) return true;
-
-		const { version: pinnedVersion } = this.parseNpmSpec(source.spec);
-		if (pinnedVersion) {
-			// Pinned: check if installed matches pinned (exact match for now)
-			return installedVersion !== pinnedVersion;
+		if (!installedVersion) {
+			return false;
 		}
 
-		// Unpinned: check registry for latest version
 		try {
 			const latestVersion = await this.getLatestNpmVersion(source.name);
 			return latestVersion !== installedVersion;
 		} catch {
-			// If we can't check registry, assume it's fine
 			return false;
 		}
 	}
@@ -1113,6 +1191,92 @@ export class DefaultPackageManager implements PackageManager {
 		return data.version;
 	}
 
+	private async gitHasAvailableUpdate(installedPath: string): Promise<boolean> {
+		if (isOfflineModeEnabled()) {
+			return false;
+		}
+
+		try {
+			const localHead = await this.runCommandCapture("git", ["rev-parse", "HEAD"], {
+				cwd: installedPath,
+				timeoutMs: NETWORK_TIMEOUT_MS,
+			});
+			const remoteHead = await this.getRemoteGitHead(installedPath);
+			return localHead.trim() !== remoteHead.trim();
+		} catch {
+			return false;
+		}
+	}
+
+	private async getRemoteGitHead(installedPath: string): Promise<string> {
+		const upstreamRef = await this.getGitUpstreamRef(installedPath);
+		if (upstreamRef) {
+			const remoteHead = await this.runGitRemoteCommand(installedPath, ["ls-remote", "origin", upstreamRef]);
+			const match = remoteHead.match(/^([0-9a-f]{40})\s+/m);
+			if (match?.[1]) {
+				return match[1];
+			}
+		}
+
+		const remoteHead = await this.runGitRemoteCommand(installedPath, ["ls-remote", "origin", "HEAD"]);
+		const match = remoteHead.match(/^([0-9a-f]{40})\s+HEAD$/m);
+		if (!match?.[1]) {
+			throw new Error("Failed to determine remote HEAD");
+		}
+		return match[1];
+	}
+
+	private async getGitUpstreamRef(installedPath: string): Promise<string | undefined> {
+		try {
+			const upstream = await this.runCommandCapture("git", ["rev-parse", "--abbrev-ref", "@{upstream}"], {
+				cwd: installedPath,
+				timeoutMs: NETWORK_TIMEOUT_MS,
+			});
+			const trimmed = upstream.trim();
+			if (!trimmed.startsWith("origin/")) {
+				return undefined;
+			}
+			const branch = trimmed.slice("origin/".length);
+			return branch ? `refs/heads/${branch}` : undefined;
+		} catch {
+			return undefined;
+		}
+	}
+
+	private runGitRemoteCommand(installedPath: string, args: string[]): Promise<string> {
+		return this.runCommandCapture("git", args, {
+			cwd: installedPath,
+			timeoutMs: NETWORK_TIMEOUT_MS,
+			env: {
+				GIT_TERMINAL_PROMPT: "0",
+			},
+		});
+	}
+
+	private async runWithConcurrency<T>(tasks: Array<() => Promise<T>>, limit: number): Promise<T[]> {
+		if (tasks.length === 0) {
+			return [];
+		}
+
+		const results: T[] = new Array(tasks.length);
+		let nextIndex = 0;
+		const workerCount = Math.max(1, Math.min(limit, tasks.length));
+
+		const worker = async () => {
+			while (true) {
+				const index = nextIndex;
+				nextIndex += 1;
+				if (index >= tasks.length) {
+					return;
+				}
+				results[index] = await tasks[index]();
+			}
+		};
+
+		await Promise.all(Array.from({ length: workerCount }, () => worker()));
+		return results;
+	}
+
 	/**
 	 * Get a unique identity for a package, ignoring version/ref.
 	 * Used to detect when the same package is in both global and project settings.
@@ -1803,6 +1967,54 @@ export class DefaultPackageManager implements PackageManager {
 		};
 	}
 
+	private runCommandCapture(
+		command: string,
+		args: string[],
+		options?: { cwd?: string; timeoutMs?: number; env?: Record<string, string> },
+	): Promise<string> {
+		return new Promise((resolvePromise, reject) => {
+			const child = spawn(command, args, {
+				cwd: options?.cwd,
+				stdio: ["ignore", "pipe", "pipe"],
+				shell: process.platform === "win32",
+				env: options?.env ? { ...process.env, ...options.env } : process.env,
+			});
+			let stdout = "";
+			let stderr = "";
+			let timedOut = false;
+			const timeout =
+				typeof options?.timeoutMs === "number"
+					? setTimeout(() => {
+							timedOut = true;
+							child.kill();
+						}, options.timeoutMs)
+					: undefined;
+
+			child.stdout?.on("data", (data) => {
+				stdout += data.toString();
+			});
+			child.stderr?.on("data", (data) => {
+				stderr += data.toString();
+			});
+			child.on("error", (error) => {
+				if (timeout) clearTimeout(timeout);
+				reject(error);
+			});
+			child.on("exit", (code) => {
+				if (timeout) clearTimeout(timeout);
+				if (timedOut) {
+					reject(new Error(`${command} ${args.join(" ")} timed out after ${options?.timeoutMs}ms`));
+					return;
+				}
+				if (code === 0) {
+					resolvePromise(stdout.trim());
+					return;
+				}
+				reject(new Error(`${command} ${args.join(" ")} failed with code ${code}: ${stderr || stdout}`));
+			});
+		});
+	}
+
 	private runCommand(command: string, args: string[], options?: { cwd?: string }): Promise<void> {
 		return new Promise((resolvePromise, reject) => {
 			const child = spawn(command, args, {
diff --git a/packages/coding-agent/src/modes/interactive/interactive-mode.ts b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
index fcf73c9f..89a6cde7 100644
--- a/packages/coding-agent/src/modes/interactive/interactive-mode.ts
+++ b/packages/coding-agent/src/modes/interactive/interactive-mode.ts
@@ -38,6 +38,7 @@ import {
 import { spawn, spawnSync } from "child_process";
 import {
 	APP_NAME,
+	getAgentDir,
 	getAuthPath,
 	getDebugLogPath,
 	getShareViewerUrl,
@@ -57,6 +58,7 @@ import { FooterDataProvider, type ReadonlyFooterDataProvider } from "../../core/
 import { type AppAction, KeybindingsManager } from "../../core/keybindings.js";
 import { createCompactionSummaryMessage } from "../../core/messages.js";
 import { findExactModelReferenceMatch, resolveModelScope } from "../../core/model-resolver.js";
+import { DefaultPackageManager } from "../../core/package-manager.js";
 import type { ResourceDiagnostic } from "../../core/resource-loader.js";
 import { type SessionContext, SessionManager } from "../../core/session-manager.js";
 import { BUILTIN_SLASH_COMMANDS } from "../../core/slash-commands.js";
@@ -512,6 +514,13 @@ export class InteractiveMode {
 			}
 		});
 
+		// Start package update check asynchronously
+		this.checkForPackageUpdates().then((updates) => {
+			if (updates.length > 0) {
+				this.showPackageUpdateNotification(updates);
+			}
+		});
+
 		// Check tmux keyboard setup asynchronously
 		this.checkTmuxKeyboardSetup().then((warning) => {
 			if (warning) {
@@ -593,6 +602,24 @@ export class InteractiveMode {
 		}
 	}
 
+	private async checkForPackageUpdates(): Promise<string[]> {
+		if (process.env.PI_OFFLINE) {
+			return [];
+		}
+
+		try {
+			const packageManager = new DefaultPackageManager({
+				cwd: process.cwd(),
+				agentDir: getAgentDir(),
+				settingsManager: this.settingsManager,
+			});
+			const updates = await packageManager.checkForAvailableUpdates();
+			return updates.map((update) => update.displayName);
+		} catch {
+			return [];
+		}
+	}
+
 	private async checkTmuxKeyboardSetup(): Promise<string | undefined> {
 		if (!process.env.TMUX) return undefined;
 
@@ -2887,6 +2914,24 @@ export class InteractiveMode {
 		this.ui.requestRender();
 	}
 
+	showPackageUpdateNotification(packages: string[]): void {
+		const action = theme.fg("accent", `${APP_NAME} update`);
+		const updateInstruction = theme.fg("muted", "Package updates are available. Run ") + action;
+		const packageLines = packages.map((pkg) => `- ${pkg}`).join("\n");
+
+		this.chatContainer.addChild(new Spacer(1));
+		this.chatContainer.addChild(new DynamicBorder((text) => theme.fg("warning", text)));
+		this.chatContainer.addChild(
+			new Text(
+				`${theme.bold(theme.fg("warning", "Package Updates Available"))}\n${updateInstruction}\n${theme.fg("muted", "Packages:")}\n${packageLines}`,
+				1,
+				0,
+			),
+		);
+		this.chatContainer.addChild(new DynamicBorder((text) => theme.fg("warning", text)));
+		this.ui.requestRender();
+	}
+
 	/**
 	 * Get all queued messages (read-only).
 	 * Combines session queue and compaction queue.
diff --git a/packages/coding-agent/test/package-manager.test.ts b/packages/coding-agent/test/package-manager.test.ts
index f0410d03..385342f0 100644
--- a/packages/coding-agent/test/package-manager.test.ts
+++ b/packages/coding-agent/test/package-manager.test.ts
@@ -1321,23 +1321,84 @@ export default function(api) { api.registerTool({ name: "test", description: "te
 			expect(refreshTemporaryGitSourceSpy).not.toHaveBeenCalled();
 		});
 
-		it("should not call fetch in npmNeedsUpdate when offline", async () => {
-			process.env.PI_OFFLINE = "1";
-			const installedPath = join(tempDir, "installed-package");
-			mkdirSync(installedPath, { recursive: true });
-			writeFileSync(join(installedPath, "package.json"), JSON.stringify({ version: "1.0.0" }));
+		it("should not fetch npm registry during resolve for installed unpinned packages", async () => {
+			const installedPath = join(tempDir, ".pi", "npm", "node_modules", "example");
+			mkdirSync(join(installedPath, "extensions"), { recursive: true });
+			writeFileSync(join(installedPath, "package.json"), JSON.stringify({ name: "example", version: "1.0.0" }));
+			writeFileSync(join(installedPath, "extensions", "index.ts"), "export default function() {};");
+			settingsManager.setProjectPackages(["npm:example"]);
 
 			const fetchSpy = vi.spyOn(globalThis, "fetch");
 
-			const needsUpdate = await (packageManager as any).npmNeedsUpdate(
-				{ type: "npm", spec: "example", name: "example", pinned: false },
-				installedPath,
-			);
-
-			expect(needsUpdate).toBe(false);
+			const result = await packageManager.resolve();
+			expect(result.extensions.some((r) => pathEndsWith(r.path, "extensions/index.ts") && r.enabled)).toBe(true);
 			expect(fetchSpy).not.toHaveBeenCalled();
 		});
 
+		it("should reinstall pinned npm packages when installed version does not match", async () => {
+			const installedPath = join(tempDir, ".pi", "npm", "node_modules", "example");
+			mkdirSync(installedPath, { recursive: true });
+			writeFileSync(join(installedPath, "package.json"), JSON.stringify({ name: "example", version: "1.0.0" }));
+			settingsManager.setProjectPackages(["npm:example@2.0.0"]);
+
+			const installParsedSourceSpy = vi
+				.spyOn(packageManager as any, "installParsedSource")
+				.mockResolvedValue(undefined);
+
+			await packageManager.resolve();
+			expect(installParsedSourceSpy).toHaveBeenCalledTimes(1);
+		});
+
+		it("should not check package updates when offline", async () => {
+			process.env.PI_OFFLINE = "1";
+			const fetchSpy = vi.spyOn(globalThis, "fetch");
+
+			const updates = await packageManager.checkForAvailableUpdates();
+			expect(updates).toEqual([]);
+			expect(fetchSpy).not.toHaveBeenCalled();
+		});
+
+		it("should report updates for installed unpinned npm packages", async () => {
+			const installedPath = join(tempDir, ".pi", "npm", "node_modules", "example");
+			mkdirSync(installedPath, { recursive: true });
+			writeFileSync(join(installedPath, "package.json"), JSON.stringify({ name: "example", version: "1.0.0" }));
+			settingsManager.setProjectPackages(["npm:example"]);
+
+			const fetchMock = vi.fn().mockResolvedValue({
+				ok: true,
+				json: async () => ({ version: "1.2.3" }),
+			});
+			vi.stubGlobal("fetch", fetchMock);
+
+			const updates = await packageManager.checkForAvailableUpdates();
+			expect(updates).toEqual([
+				{
+					source: "npm:example",
+					displayName: "example",
+					type: "npm",
+					scope: "project",
+				},
+			]);
+		});
+
+		it("should skip pinned packages when checking for updates", async () => {
+			const installedNpmPath = join(tempDir, ".pi", "npm", "node_modules", "example");
+			mkdirSync(installedNpmPath, { recursive: true });
+			writeFileSync(join(installedNpmPath, "package.json"), JSON.stringify({ name: "example", version: "1.0.0" }));
+			const parsedGitSource = (packageManager as any).parseSource("git:github.com/example/repo@v1");
+			const installedGitPath = (packageManager as any).getGitInstallPath(parsedGitSource, "project") as string;
+			mkdirSync(installedGitPath, { recursive: true });
+			settingsManager.setProjectPackages(["npm:example@1.0.0", "git:github.com/example/repo@v1"]);
+
+			const fetchSpy = vi.spyOn(globalThis, "fetch");
+			const gitUpdateSpy = vi.spyOn(packageManager as any, "gitHasAvailableUpdate");
+
+			const updates = await packageManager.checkForAvailableUpdates();
+			expect(updates).toEqual([]);
+			expect(fetchSpy).not.toHaveBeenCalled();
+			expect(gitUpdateSpy).not.toHaveBeenCalled();
+		});
+
 		it("should pass an AbortSignal timeout when fetching npm latest version", async () => {
 			const fetchMock = vi.fn().mockResolvedValue({
 				ok: true,