diff --git a/src/transport/webrtc/substream.rs b/src/transport/webrtc/substream.rs
index cf35a178..5dcf5456 100644
--- a/src/transport/webrtc/substream.rs
+++ b/src/transport/webrtc/substream.rs
@@ -118,6 +118,7 @@ impl Substream {
             shutdown_waker: Arc::clone(&shutdown_waker),
             write_waker: Arc::clone(&write_waker),
             read_closed: std::sync::atomic::AtomicBool::new(false),
+            reset_sent: false,
         };
 
         (
@@ -157,6 +158,9 @@ pub struct SubstreamHandle {
     /// Whether we've already sent RecvClosed to the inbound channel.
     /// Prevents duplicate RecvClosed events if multiple FIN messages are received.
     read_closed: std::sync::atomic::AtomicBool,
+
+    /// Whether RESET_STREAM has been sent on abrupt close.
+    reset_sent: bool,
 }
 
 impl SubstreamHandle {
@@ -272,8 +276,28 @@ impl Stream for SubstreamHandle {
         // Check if Substream has been dropped (inbound channel closed)
         // When Substream is dropped, there will be no more outbound messages
         // Since we've already tried to recv above and got Pending, we know the queue is empty
-        // Therefore, it's safe to signal closure
         if self.inbound_tx.is_closed() {
+            let state = *self.state.lock();
+
+            // If shutdown completed gracefully (FinAcked), just close
+            if matches!(state, State::FinAcked) {
+                return Poll::Ready(None);
+            }
+
+            // Abrupt close - send RESET_STREAM to notify remote peer
+            // This follows the libp2p WebRTC spec for non-graceful stream termination
+            if !self.reset_sent {
+                self.reset_sent = true;
+                tracing::debug!(
+                    target: "litep2p::webrtc::substream",
+                    "Substream dropped without graceful close, sending RESET_STREAM"
+                );
+                return Poll::Ready(Some(Event::Message {
+                    payload: vec![],
+                    flag: Some(Flag::ResetStream),
+                }));
+            }
+
             return Poll::Ready(None);
         }
 
@@ -1380,7 +1404,7 @@ mod tests {
                 }
                 other => panic!("Unexpected result: {:?}", other),
             }
-            // Substream dropped here (server closes after receiving FIN)
+            // Substream dropped here without calling shutdown() - this is an abrupt close
         });
 
         // Remote (client) sends FIN
@@ -1404,11 +1428,89 @@ mod tests {
         // Wait for server to close substream
         server_task.await.unwrap();
 
-        // Verify handle signals closure (returns None) - this is the key fix!
+        // Since server didn't call shutdown(), this is an abrupt close - RESET_STREAM is sent
+        assert_eq!(
+            handle.next().await,
+            Some(Event::Message {
+                payload: vec![],
+                flag: Some(Flag::ResetStream)
+            }),
+            "SubstreamHandle should send RESET_STREAM when server drops without shutdown"
+        );
+
+        // Then closure
+        assert_eq!(
+            handle.next().await,
+            None,
+            "SubstreamHandle should signal closure after sending RESET_STREAM"
+        );
+    }
+
+    #[tokio::test]
+    async fn abrupt_close_sends_reset_stream() {
+        use futures::StreamExt;
+
+        let (substream, mut handle) = Substream::new();
+
+        // Drop substream without calling shutdown() - this is an abrupt close
+        drop(substream);
+
+        // Verify RESET_STREAM is sent before closure
+        assert_eq!(
+            handle.next().await,
+            Some(Event::Message {
+                payload: vec![],
+                flag: Some(Flag::ResetStream)
+            }),
+            "SubstreamHandle should send RESET_STREAM on abrupt close"
+        );
+
+        // Then verify handle signals closure
+        assert_eq!(
+            handle.next().await,
+            None,
+            "SubstreamHandle should signal closure after sending RESET_STREAM"
+        );
+    }
+
+    #[tokio::test]
+    async fn graceful_close_does_not_send_reset_stream() {
+        use futures::StreamExt;
+
+        let (mut substream, mut handle) = Substream::new();
+
+        // Complete graceful shutdown
+        let shutdown_task = tokio::spawn(async move {
+            substream.shutdown().await.unwrap();
+            // Substream dropped after graceful shutdown
+        });
+
+        // Receive FIN
+        assert_eq!(
+            handle.next().await,
+            Some(Event::Message {
+                payload: vec![],
+                flag: Some(Flag::Fin)
+            })
+        );
+
+        // Send FIN_ACK to complete handshake
+        handle
+            .on_message(WebRtcMessage {
+                payload: None,
+                flag: Some(Flag::FinAck),
+            })
+            .await
+            .unwrap();
+
+        // Wait for shutdown to complete
+        shutdown_task.await.unwrap();
+
+        // Verify handle signals closure directly (no RESET_STREAM)
         assert_eq!(
             handle.next().await,
             None,
-            "SubstreamHandle should signal closure after server receives FIN and drops Substream"
+            "SubstreamHandle should NOT send RESET_STREAM after graceful close"
         );
     }