diff --git a/pkg/openai/client.go b/pkg/openai/client.go
index 42a1a39e..61a7ec77 100644
--- a/pkg/openai/client.go
+++ b/pkg/openai/client.go
@@ -2,6 +2,7 @@ package openai
 
 import (
 	"context"
+	"errors"
 	"io"
 	"log/slog"
 	"os"
@@ -24,6 +25,7 @@ import (
 const (
 	DefaultModel    = openai.GPT4o
 	BuiltinCredName = "sys.openai"
+	TooLongMessage  = "Error: tool call output is too long"
 )
 
 var (
@@ -317,6 +319,14 @@ func (c *Client) Call(ctx context.Context, messageRequest types.CompletionReques
 	}
 
 	if messageRequest.Chat {
+		// Check the last message. If it is from a tool call, and if it takes up more than 80% of the budget on its own, reject it.
+		lastMessage := msgs[len(msgs)-1]
+		if lastMessage.Role == string(types.CompletionMessageRoleTypeTool) && countMessage(lastMessage) > int(float64(getBudget(messageRequest.MaxTokens))*0.8) {
+			// We need to update it in the msgs slice for right now and in the messageRequest for future calls.
+			msgs[len(msgs)-1].Content = TooLongMessage
+			messageRequest.Messages[len(messageRequest.Messages)-1].Content = types.Text(TooLongMessage)
+		}
+
 		msgs = dropMessagesOverCount(messageRequest.MaxTokens, msgs)
 	}
 
@@ -383,6 +393,16 @@ func (c *Client) Call(ctx context.Context, messageRequest types.CompletionReques
 		return nil, err
 	} else if !ok {
 		response, err = c.call(ctx, request, id, status)
+
+		// If we got back a context length exceeded error, keep retrying and shrinking the message history until we pass.
+		var apiError *openai.APIError
+		if errors.As(err, &apiError) && apiError.Code == "context_length_exceeded" && messageRequest.Chat {
+			// Decrease maxTokens by 10% to make garbage collection more aggressive.
+			// The retry loop will further decrease maxTokens if needed.
+			maxTokens := decreaseTenPercent(messageRequest.MaxTokens)
+			response, err = c.contextLimitRetryLoop(ctx, request, id, maxTokens, status)
+		}
+
 		if err != nil {
 			return nil, err
 		}
@@ -421,6 +441,32 @@ func (c *Client) Call(ctx context.Context, messageRequest types.CompletionReques
 	return &result, nil
 }
 
+func (c *Client) contextLimitRetryLoop(ctx context.Context, request openai.ChatCompletionRequest, id string, maxTokens int, status chan<- types.CompletionStatus) ([]openai.ChatCompletionStreamResponse, error) {
+	var (
+		response []openai.ChatCompletionStreamResponse
+		err      error
+	)
+
+	for range 10 { // maximum 10 tries
+		// Try to drop older messages again, with a decreased max tokens.
+		request.Messages = dropMessagesOverCount(maxTokens, request.Messages)
+		response, err = c.call(ctx, request, id, status)
+		if err == nil {
+			return response, nil
+		}
+
+		var apiError *openai.APIError
+		if errors.As(err, &apiError) && apiError.Code == "context_length_exceeded" {
+			// Decrease maxTokens and try again
+			maxTokens = decreaseTenPercent(maxTokens)
+			continue
+		}
+		return nil, err
+	}
+
+	return nil, err
+}
+
 func appendMessage(msg types.CompletionMessage, response openai.ChatCompletionStreamResponse) types.CompletionMessage {
 	msg.Usage.CompletionTokens = types.FirstSet(msg.Usage.CompletionTokens, response.Usage.CompletionTokens)
 	msg.Usage.PromptTokens = types.FirstSet(msg.Usage.PromptTokens, response.Usage.PromptTokens)
diff --git a/pkg/openai/count.go b/pkg/openai/count.go
index 47c5c9bd..ffd902e5 100644
--- a/pkg/openai/count.go
+++ b/pkg/openai/count.go
@@ -1,20 +1,30 @@
 package openai
 
-import openai "github.com/gptscript-ai/chat-completion-client"
+import (
+	openai "github.com/gptscript-ai/chat-completion-client"
+)
+
+const DefaultMaxTokens = 128_000
+
+func decreaseTenPercent(maxTokens int) int {
+	maxTokens = getBudget(maxTokens)
+	return int(float64(maxTokens) * 0.9)
+}
+
+func getBudget(maxTokens int) int {
+	if maxTokens == 0 {
+		return DefaultMaxTokens
+	}
+	return maxTokens
+}
 
 func dropMessagesOverCount(maxTokens int, msgs []openai.ChatCompletionMessage) (result []openai.ChatCompletionMessage) {
 	var (
 		lastSystem   int
 		withinBudget int
-		budget       = maxTokens
+		budget       = getBudget(maxTokens)
 	)
 
-	if maxTokens == 0 {
-		budget = 300_000
-	} else {
-		budget *= 3
-	}
-
 	for i, msg := range msgs {
 		if msg.Role == openai.ChatMessageRoleSystem {
 			budget -= countMessage(msg)
@@ -33,6 +43,14 @@ func dropMessagesOverCount(maxTokens int, msgs []openai.ChatCompletionMessage) (
 		}
 	}
 
+	// OpenAI gets upset if there is a tool message without a tool call preceding it.
+	// Check the oldest message within budget, and if it is a tool message, just drop it.
+	// We do this in a loop because it is possible for multiple tool messages to be in a row,
+	// due to parallel tool calls.
+	for withinBudget < len(msgs) && msgs[withinBudget].Role == openai.ChatMessageRoleTool {
+		withinBudget++
+	}
+
 	if withinBudget == len(msgs)-1 {
 		// We are going to drop all non system messages, which seems useless, so just return them
 		// all and let it fail