diff --git a/loop/statemachine.go b/loop/statemachine.go
index 284c13f..f8d6cc9 100644
--- a/loop/statemachine.go
+++ b/loop/statemachine.go
@@ -47,6 +47,8 @@
 	StateBudgetExceeded
 	// StateError occurs when an error occurred during processing
 	StateError
+	// StateCompacting occurs when the agent is compacting the conversation
+	StateCompacting
 )
 
 // TransitionEvent represents an event that causes a state transition
@@ -189,7 +191,7 @@
 	addTransition(StateReady, StateWaitingForUserInput)
 
 	// Main flow
-	addTransition(StateWaitingForUserInput, StateSendingToLLM, StateError)
+	addTransition(StateWaitingForUserInput, StateSendingToLLM, StateCompacting, StateError)
 	addTransition(StateSendingToLLM, StateProcessingLLMResponse, StateError)
 	addTransition(StateProcessingLLMResponse, StateEndOfTurn, StateToolUseRequested, StateError)
 	addTransition(StateEndOfTurn, StateWaitingForUserInput)
@@ -204,6 +206,9 @@
 	addTransition(StateGatheringAdditionalMessages, StateSendingToolResults, StateError)
 	addTransition(StateSendingToolResults, StateProcessingLLMResponse, StateError)
 
+	// Compaction flow
+	addTransition(StateCompacting, StateWaitingForUserInput, StateError)
+
 	// Terminal states to new turn
 	addTransition(StateCancelled, StateWaitingForUserInput)
 	addTransition(StateBudgetExceeded, StateWaitingForUserInput)