diff --git a/libs/remix-ai-core/src/agents/workspaceAgent.ts b/libs/remix-ai-core/src/agents/workspaceAgent.ts
index 22734832c63..32cb10b02c6 100644
--- a/libs/remix-ai-core/src/agents/workspaceAgent.ts
+++ b/libs/remix-ai-core/src/agents/workspaceAgent.ts
@@ -93,16 +93,51 @@ export class workspaceAgent {
       if (typeof payload === 'string') {
         payload = JSON.parse(payload)
       }
-      let modifiedFilesMarkdown = '### List of Modified Files\n'
+      let modifiedFilesMarkdown = '#### **List of Modified Files**\n'
+      let createdFilesMarkdown = '#### **List of Created Files**\n'
+      let hasCreatedFiles = false
+
       for (const file of payload.files) {
         if (!Object.values(SupportedFileExtensions).some(ext => file.fileName.endsWith(ext))) continue;
-        // const fileContent = await this.plugin.call('codeFormatter', 'format', file.fileName, file.content, true);
-        await statusCallback?.(`Showing diff for ${file.fileName}...`)
-        await this.plugin.call('editor', 'showCustomDiff', file.fileName, file.content)
-        modifiedFilesMarkdown += `- ${file.fileName}\n`
+
+        try {
+          const fileExists = await this.plugin.call('fileManager', 'exists', file.fileName)
+
+          if (fileExists) {
+            await this.plugin.call('editor', 'showCustomDiff', file.fileName, file.content)
+            modifiedFilesMarkdown += `- ${file.fileName}\n`
+          } else {
+            await statusCallback?.(`Creating file ${file.fileName}...`)
+
+            const dirPath = file.fileName.substring(0, file.fileName.lastIndexOf('/'))
+            if (dirPath && dirPath.length > 0) {
+              try {
+                await this.plugin.call('fileManager', 'mkdir', dirPath)
+              } catch (mkdirError) {
+                // Directory already exist, just continue
+              }
+            }
+
+            await this.plugin.call('fileManager', 'writeFile', file.fileName, "")
+            await new Promise(resolve => setTimeout(resolve, 2000)) // wait so the content is written before diffing
+            await this.plugin.call('editor', 'showCustomDiff', file.fileName, file.content)
+            createdFilesMarkdown += `- ${file.fileName}\n`
+            hasCreatedFiles = true
+          }
+        } catch (fileError) {
+          console.warn(`Error processing file ${file.fileName}:`, fileError)
+        }
       }
+
       await statusCallback?.('Workspace modifications complete!')
-      return modifiedFilesMarkdown
+
+      // Build result markdown
+      let result = modifiedFilesMarkdown
+      if (hasCreatedFiles) {
+        result += '\n' + createdFilesMarkdown
+      }
+
+      return result || 'No files modified'
     } catch (error) {
       console.warn('Error writing generation results:', error);
       return 'No files modified'
diff --git a/libs/remix-ui/remix-ai-assistant/src/components/chat.tsx b/libs/remix-ui/remix-ai-assistant/src/components/chat.tsx
index a41f84407f1..18a49a6848a 100644
--- a/libs/remix-ui/remix-ai-assistant/src/components/chat.tsx
+++ b/libs/remix-ui/remix-ai-assistant/src/components/chat.tsx
@@ -9,7 +9,7 @@ import { CustomTooltip } from "@remix-ui/helper"
 
 const DEFAULT_SUGGESTIONS = [
   'What is a modifier?',
-  'What is a UniSwap hook?',
+  'What is a Uniswap hook?',
   'What is a ZKP?'
 ]
 
@@ -31,20 +31,6 @@ const AiChatIntro = (props) => {
             RemixAI provides you personalized guidance as you build. It can break down concepts,
             answer questions about blockchain technology and assist you with your smart contracts.
       </p>
-      <div className="d-flex flex-column" style={{ fontSize: '0.9rem' }}>
-        <div className="d-flex flex-row align-items-center">
-          <span className="font-italic m-1">{`<prompt>: `}</span>
-          <span>ask your question</span></div>
-        <div className="d-flex flex-row align-items-center">
-          <span className="font-italic m-1">{`/w <prompt>: `}</span>
-          <span>modify your code</span></div>
-        <div className="d-flex flex-row align-items-center">
-          <span className="font-italic m-1">{`/c <prompt>: `}</span>
-          <span>continue fixing compilation</span></div>
-        <div className="d-flex flex-row align-items-center">
-          <span className="font-italic m-1">{`/g <prompt>: `}</span>
-          <span>generate a new workspace</span></div>
-      </div>
       <div className="d-flex flex-column mt-3">
         {DEFAULT_SUGGESTIONS.map((s, index) => (
           <button
diff --git a/libs/remix-ui/remix-ai-assistant/src/components/prompt.tsx b/libs/remix-ui/remix-ai-assistant/src/components/prompt.tsx
index 802ce6744e7..b319793a4a3 100644
--- a/libs/remix-ui/remix-ai-assistant/src/components/prompt.tsx
+++ b/libs/remix-ui/remix-ai-assistant/src/components/prompt.tsx
@@ -38,6 +38,8 @@ export interface PromptAreaProps {
   aiAssistantGroupList: groupListType[]
   textareaRef?: React.RefObject<HTMLTextAreaElement>
   maximizePanel: () => Promise<void>
+  aiMode: 'ask' | 'edit'
+  setAiMode: React.Dispatch<React.SetStateAction<'ask' | 'edit'>>
 }
 
 const _paq = (window._paq = window._paq || [])
@@ -73,7 +75,9 @@ export const PromptArea: React.FC<PromptAreaProps> = ({
   aiContextGroupList,
   aiAssistantGroupList,
   textareaRef,
-  maximizePanel
+  maximizePanel,
+  aiMode,
+  setAiMode
 }) => {
 
   return (
@@ -103,22 +107,38 @@ export const PromptArea: React.FC<PromptAreaProps> = ({
             className="btn btn-dim btn-sm text-secondary small fw-light border border-text rounded"
             ref={contextBtnRef}
           >
-            <span>{}</span>{contextChoice === 'none' && <span data-id="aiContext-file">{'@ Add Context'}</span>}
+            <span>{}</span>{contextChoice === 'none' && <span data-id="aiContext-file">{'Select Context'}</span>}
             {contextChoice === 'workspace' && <span data-id="aiContext-workspace">{'Workspace'}</span>}
             {contextChoice === 'opened' && <span data-id="aiContext-opened">{'Open Files'}</span>}
             {contextChoice === 'current' && <span data-id="aiContext-current">{'Current File'}</span>}
           </button>
 
-          <div className="d-flex justify-content-center align-items-center">
-            <CustomTooltip
-              tooltipText={<TooltipContent />}
-              delay={{ show: 1000, hide: 0 }}
-            >
-              <span
-                className="far fa-circle-info text-ai me-1"
-                onMouseEnter={() => _paq.push(['trackEvent', 'remixAI', 'AICommandTooltip', 'User clicked on AI command info'])}
-              ></span>
-            </CustomTooltip>
+          <div className="d-flex justify-content-center align-items-center gap-2">
+            {/* Ask/Edit Mode Toggle */}
+            <div className="btn-group btn-group-sm" role="group">
+              <button
+                type="button"
+                className={`btn ${aiMode === 'ask' ? 'btn-primary' : 'btn-outline-secondary'} px-2`}
+                onClick={() => {
+                  setAiMode('ask')
+                  _paq.push(['trackEvent', 'remixAI', 'ModeSwitch', 'ask'])
+                }}
+                title="Ask mode - Chat with AI"
+              >
+                Ask
+              </button>
+              <button
+                type="button"
+                className={`btn ${aiMode === 'edit' ? 'btn-primary' : 'btn-outline-secondary'} px-2`}
+                onClick={() => {
+                  setAiMode('edit')
+                  _paq.push(['trackEvent', 'remixAI', 'ModeSwitch', 'edit'])
+                }}
+                title="Edit mode - Edit workspace code"
+              >
+                Edit
+              </button>
+            </div>
             <span
               className="badge align-self-center text-bg-info fw-light rounded"
             >
@@ -145,7 +165,11 @@ export const PromptArea: React.FC<PromptAreaProps> = ({
             onKeyDown={e => {
               if (e.key === 'Enter' && !isStreaming) handleSend()
             }}
-            placeholder="Ask me anything, add workspace files..."
+            placeholder={
+              aiMode === 'ask'
+                ? "Select context and ask me anything!"
+                : "Edit my codebase, generate new contracts ..."
+            }
           />
 
           <div className="d-flex justify-content-between">
@@ -182,7 +206,7 @@ export const PromptArea: React.FC<PromptAreaProps> = ({
               className="btn btn-text btn-sm small fw-light text-secondary mt-2 align-self-end border border-text rounded"
               onClick={handleGenerateWorkspace}
             >
-              {'@Generate'}
+              {'Create new workspace with AI'}
             </button>
             {/* <button
               className={input.length > 0 ? 'btn bg-ai border-text border btn-sm fw-light text-secondary mt-2 align-self-end' : 'btn btn-text border-text border btn-sm fw-light text-secondary mt-2 align-self-end disabled'}
@@ -225,18 +249,3 @@ export const PromptArea: React.FC<PromptAreaProps> = ({
   )
 }
 
-function TooltipContent () {
-  return (
-    <ul className="list-unstyled p-2 me-3">
-      <li className="">
-        {'- Use /w <prompt> : To manage or edit files within your workspace'}
-      </li>
-      <li className="">
-        {'- Alternatively, you may type your question directly below.'}
-      </li>
-      <li className="">
-        {'-See Ollama Setup Guide'}
-      </li>
-    </ul>
-  )
-}
diff --git a/libs/remix-ui/remix-ai-assistant/src/components/remix-ui-remix-ai-assistant.tsx b/libs/remix-ui/remix-ai-assistant/src/components/remix-ui-remix-ai-assistant.tsx
index 272ec80b6c7..d5b0d804812 100644
--- a/libs/remix-ui/remix-ai-assistant/src/components/remix-ui-remix-ai-assistant.tsx
+++ b/libs/remix-ui/remix-ai-assistant/src/components/remix-ui-remix-ai-assistant.tsx
@@ -51,6 +51,7 @@ export const RemixUiRemixAiAssistant = React.forwardRef<
   const [availableModels, setAvailableModels] = useState<string[]>([])
   const [selectedModel, setSelectedModel] = useState<string | null>(null)
   const [isOllamaFailureFallback, setIsOllamaFailureFallback] = useState(false)
+  const [aiMode, setAiMode] = useState<'ask' | 'edit'>('ask')
 
   const historyRef = useRef<HTMLDivElement | null>(null)
   const modelBtnRef = useRef(null)
@@ -416,11 +417,23 @@ export const RemixUiRemixAiAssistant = React.forwardRef<
     },
     [isStreaming, props.plugin]
   )
+  const handleGenerateWorkspaceWithPrompt = useCallback(async (prompt: string) => {
+    dispatchActivity('button', 'generateWorkspace')
+    if (prompt && prompt.trim()) {
+      await sendPrompt(`/workspace ${prompt.trim()}`)
+      _paq.push(['trackEvent', 'remixAI', 'GenerateNewAIWorkspaceFromEditMode', prompt])
+    }
+  }, [sendPrompt])
 
   const handleSend = useCallback(async () => {
-    await sendPrompt(input)
+    if (aiMode === 'ask') {
+      await sendPrompt(input)
+    } else if (aiMode === 'edit') {
+      // Call generateWorkspace for edit mode with the current input
+      await handleGenerateWorkspaceWithPrompt(input)
+    }
     setInput('')
-  }, [input, sendPrompt])
+  }, [input, sendPrompt, aiMode, handleGenerateWorkspaceWithPrompt])
 
   // Added handlers for special command buttons (assumed to exist)
   const handleAddContext = useCallback(() => {
@@ -734,6 +747,8 @@ export const RemixUiRemixAiAssistant = React.forwardRef<
           aiContextGroupList={aiContextGroupList}
           aiAssistantGroupList={aiAssistantGroupList}
           textareaRef={textareaRef}
+          aiMode={aiMode}
+          setAiMode={setAiMode}
         />
       </section>
     </div>