diff --git a/src/cli.ts b/src/cli.ts
index 24a6c740d..08e1e0452 100644
--- a/src/cli.ts
+++ b/src/cli.ts
@@ -342,7 +342,7 @@ const modelsJsonPath = resolveModelsJsonPath()
 
 const modelRegistry = new ModelRegistry(authStorage, modelsJsonPath)
 markStartup('ModelRegistry')
-const settingsManager = SettingsManager.create(agentDir)
+const settingsManager = SettingsManager.create(process.cwd(), agentDir)
 applySecurityOverrides(settingsManager)
 markStartup('SettingsManager.create')
 
diff --git a/src/tests/cli-onboarding-custom-provider.test.ts b/src/tests/cli-onboarding-custom-provider.test.ts
new file mode 100644
index 000000000..3f7644d53
--- /dev/null
+++ b/src/tests/cli-onboarding-custom-provider.test.ts
@@ -0,0 +1,37 @@
+import test from "node:test";
+import assert from "node:assert/strict";
+import { mkdirSync, mkdtempSync, readFileSync, rmSync, writeFileSync } from "node:fs";
+import { join } from "node:path";
+import { tmpdir } from "node:os";
+
+import { SettingsManager } from "../../packages/pi-coding-agent/src/core/settings-manager.ts";
+
+test("SettingsManager reads defaultProvider/defaultModel from the explicit agentDir used by CLI (#3860)", () => {
+  const root = mkdtempSync(join(tmpdir(), "gsd-cli-settings-"));
+  const cwd = join(root, "project");
+  const agentDir = join(root, ".gsd", "agent");
+
+  try {
+    mkdirSync(cwd, { recursive: true });
+    mkdirSync(agentDir, { recursive: true });
+    writeFileSync(
+      join(agentDir, "settings.json"),
+      JSON.stringify({
+        defaultProvider: "example-provider",
+        defaultModel: "gpt-5.4",
+      }),
+      "utf-8",
+    );
+
+    const settingsManager = SettingsManager.create(cwd, agentDir);
+    assert.equal(settingsManager.getDefaultProvider(), "example-provider");
+    assert.equal(settingsManager.getDefaultModel(), "gpt-5.4");
+  } finally {
+    rmSync(root, { recursive: true, force: true });
+  }
+});
+
+test("cli.ts wires SettingsManager.create with both cwd and agentDir (#3860)", () => {
+  const cliSource = readFileSync(join(import.meta.dirname, "..", "cli.ts"), "utf-8");
+  assert.match(cliSource, /SettingsManager\.create\(process\.cwd\(\),\s*agentDir\)/);
+});