diff --git a/aiui/packages/app/src/App.vue b/aiui/packages/app/src/App.vue
index e3865c52..b7fd6d51 100644
--- a/aiui/packages/app/src/App.vue
+++ b/aiui/packages/app/src/App.vue
@@ -30,6 +30,7 @@ import {
   generateSalt,
   setSessionKey,
 } from '@/utils/crypto'
+import { useSettingsStore } from '@/stores/settings'
 
 const { currentTheme, initTheme, setTheme } = useTheme()
 const archy = useArchy()
@@ -76,6 +77,9 @@ async function handlePassphraseSubmit(passphrase: string) {
 
     const key = await deriveKey(passphrase, salt)
     setSessionKey(key, salt)
+    // Now that a session key exists: pull the Claude key from the encrypted
+    // vault, or migrate a just-scrubbed legacy plaintext key INTO the vault.
+    await useSettingsStore().initClaudeKey()
     showPassphrase.value = false
   } catch (err) {
     console.error('[AIUI] Passphrase error:', err)
diff --git a/aiui/packages/app/src/components/settings/SettingsPanel.vue b/aiui/packages/app/src/components/settings/SettingsPanel.vue
index f2529dcf..c52d896e 100644
--- a/aiui/packages/app/src/components/settings/SettingsPanel.vue
+++ b/aiui/packages/app/src/components/settings/SettingsPanel.vue
@@ -244,12 +244,12 @@
             <div class="flex items-center gap-2 p-3 rounded-xl bg-white/[0.03] border border-white/5">
               <div
                 class="w-2 h-2 rounded-full shrink-0"
-                :class="store.settings.useOwnApiKey && store.settings.claudeApiKey
+                :class="store.settings.useOwnApiKey && store.claudeApiKey
                   ? 'bg-emerald-400 shadow-[0_0_6px_rgba(52,211,153,0.5)]'
                   : 'bg-amber-400 shadow-[0_0_6px_rgba(251,191,36,0.4)]'"
               />
               <span class="text-xs text-white/60">
-                {{ store.settings.useOwnApiKey && store.settings.claudeApiKey
+                {{ store.settings.useOwnApiKey && store.claudeApiKey
                   ? 'Using your API key'
                   : 'Using server authentication (OAuth)' }}
               </span>
@@ -291,9 +291,9 @@
                 </button>
               </div>
               <button
-                v-if="store.settings.claudeApiKey"
+                v-if="store.claudeApiKey"
                 class="text-xs px-2 py-1 rounded-md text-red-400/50 hover:text-red-400 hover:bg-red-500/10 transition-colors"
-                @click="store.settings.claudeApiKey = ''; apiKeyStatus = 'Key removed'"
+                @click="store.setClaudeApiKey(''); apiKeyStatus = 'Key removed'"
               >
                 Remove key
               </button>
@@ -311,7 +311,7 @@
                 <li>Create a new key (starts with sk-ant-api03-)</li>
                 <li>Paste it above and enable "Use my own API key"</li>
               </ol>
-              <p class="text-xs text-white/20 mt-2">Your key is stored locally on this device only. Without a key, the server's OAuth authentication is used.</p>
+              <p class="text-xs text-white/20 mt-2">Your key is stored encrypted on this device (AES-256-GCM) once you set an AIUI passphrase; without one it is held in memory for this session only — never written to disk unencrypted. Without a key, the server's OAuth authentication is used.</p>
             </div>
           </div>
 
@@ -357,7 +357,7 @@
 </template>
 
 <script setup lang="ts">
-import { ref, computed } from 'vue'
+import { ref, computed, onMounted } from 'vue'
 import { useSettingsStore } from '@/stores/settings'
 import type { ContentTab } from '@/composables/contentFiltering'
 
@@ -377,6 +377,10 @@ const tabs: { id: Tab; label: string }[] = [
 const activeTab = ref<Tab>('appearance')
 const store = useSettingsStore()
 
+// Populate the key from the encrypted vault when a passphrase session is
+// already active (standalone). Never touches localStorage (S2).
+onMounted(() => { store.initClaudeKey() })
+
 // M15.1 Accent presets
 const accentPresets = [
   { value: '#F7931A', label: 'Bitcoin Orange' },
@@ -516,18 +520,20 @@ const apiKeyStatus = ref('')
 const apiKeyStatusOk = ref(true)
 
 const apiKeyDisplay = computed(() => {
-  if (apiKeyEditing.value) return store.settings.claudeApiKey
-  if (!store.settings.claudeApiKey) return ''
-  if (showApiKey.value) return store.settings.claudeApiKey
-  const k = store.settings.claudeApiKey
+  if (apiKeyEditing.value) return store.claudeApiKey
+  if (!store.claudeApiKey) return ''
+  if (showApiKey.value) return store.claudeApiKey
+  const k = store.claudeApiKey
   return k.length > 8 ? k.slice(0, 10) + '...' + k.slice(-4) : '****'
 })
 
-function onApiKeyInput(e: Event) {
+async function onApiKeyInput(e: Event) {
   const val = (e.target as HTMLInputElement).value
-  store.settings.claudeApiKey = val
+  const held = await store.setClaudeApiKey(val)
   if (val && val.startsWith('sk-ant-api')) {
-    apiKeyStatus.value = 'Key saved'
+    apiKeyStatus.value = held === 'encrypted'
+      ? 'Key saved — stored encrypted'
+      : 'Key saved for this session only — set a passphrase to store it encrypted'
     apiKeyStatusOk.value = true
   } else if (val && !val.startsWith('sk-ant-')) {
     apiKeyStatus.value = 'Key should start with sk-ant-api03-'
diff --git a/aiui/packages/app/src/composables/useAI.ts b/aiui/packages/app/src/composables/useAI.ts
index 8fa0d852..02b17052 100644
--- a/aiui/packages/app/src/composables/useAI.ts
+++ b/aiui/packages/app/src/composables/useAI.ts
@@ -272,10 +272,14 @@ async function streamClaude(
 ): Promise<void> {
   const headers: Record<string, string> = { 'Content-Type': 'application/json' }
 
-  // Use user-provided API key from settings if enabled, then vault, then proxy fallback
+  // Use the user's own key when enabled: memory-only store ref first, then
+  // the encrypted vault. The key is never read from localStorage (S2).
   const settingsStore = useSettingsStore()
-  if (settingsStore.settings.useOwnApiKey && settingsStore.settings.claudeApiKey) {
-    headers['x-api-key'] = settingsStore.settings.claudeApiKey
+  if (settingsStore.settings.useOwnApiKey) {
+    const ownKey = settingsStore.claudeApiKey || await getApiKey('claude')
+    if (ownKey) {
+      headers['x-api-key'] = ownKey
+    }
   } else {
     const vaultKey = await getApiKey('claude')
     if (vaultKey) {
diff --git a/aiui/packages/app/src/stores/settings.ts b/aiui/packages/app/src/stores/settings.ts
index 11ff99da..fefd6d46 100644
--- a/aiui/packages/app/src/stores/settings.ts
+++ b/aiui/packages/app/src/stores/settings.ts
@@ -1,6 +1,8 @@
 import { ref, computed, watch } from 'vue'
 import { defineStore } from 'pinia'
 import type { ContentTab } from '@/composables/contentFiltering'
+import { storeApiKey, getApiKey, deleteApiKey } from '@/utils/key-vault'
+import { hasSessionKey } from '@/utils/crypto'
 
 const STORAGE_KEY = 'aiui-settings'
 
@@ -24,8 +26,10 @@ export interface AppSettings {
   defaultPersonaId: string
   defaultWebSearch: boolean
   defaultShowTokens: boolean
-  // API key management
-  claudeApiKey: string
+  // API key management — the boolean persists; the KEY NEVER does.
+  // `claudeApiKey` lives only in the memory-only ref exposed by the store
+  // below and, when a passphrase session is active, in the encrypted
+  // key-vault. It is never written to localStorage again (S2).
   useOwnApiKey: boolean
 }
 
@@ -48,17 +52,71 @@ const DEFAULT_SETTINGS: AppSettings = {
   defaultPersonaId: '',
   defaultWebSearch: false,
   defaultShowTokens: false,
-  claudeApiKey: '',
   useOwnApiKey: false,
 }
 
+/** Captured by the one-time plaintext migration inside `loadSettings`. */
+let legacyClaudeKey = ''
+
 export const useSettingsStore = defineStore('settings', () => {
   const settings = ref<AppSettings>(loadSettings())
 
+  // The Claude API key — memory-only. Persisted ENCRYPTED in the key-vault
+  // when a passphrase session is active; otherwise it lasts this session
+  // only. Seeded from the one-time plaintext migration above.
+  const claudeApiKey = ref(legacyClaudeKey)
+
+  /** Set/clear the key. Returns how it is held: 'encrypted' (vault) or 'session' (memory-only). */
+  async function setClaudeApiKey(key: string): Promise<'encrypted' | 'session'> {
+    claudeApiKey.value = key
+    if (!key) {
+      await deleteApiKey('claude').catch(() => {})
+      return 'session'
+    }
+    if (hasSessionKey()) {
+      try {
+        await storeApiKey('claude', key)
+        return 'encrypted'
+      } catch { /* fall through to memory-only */ }
+    }
+    return 'session'
+  }
+
+  /** Load the key from the vault (after a passphrase unlock), or migrate a
+   * just-scrubbed legacy key INTO the vault now that a session key exists. */
+  async function initClaudeKey(): Promise<void> {
+    if (claudeApiKey.value) {
+      await persistClaudeKeyToVault()
+      return
+    }
+    const k = await getApiKey('claude').catch(() => null)
+    if (k) claudeApiKey.value = k
+  }
+
+  /** Persist the in-memory key to the vault once a session key exists
+   *  (called after a passphrase unlock). No-op without one. */
+  async function persistClaudeKeyToVault(): Promise<void> {
+    if (claudeApiKey.value && hasSessionKey()) {
+      try { await storeApiKey('claude', claudeApiKey.value) } catch { /* stays memory-only */ }
+    }
+  }
+
   function loadSettings(): AppSettings {
     try {
       const stored = localStorage.getItem(STORAGE_KEY)
-      if (stored) return { ...DEFAULT_SETTINGS, ...JSON.parse(stored) }
+      if (stored) {
+        const parsed = JSON.parse(stored)
+        // One-time migration (S2): this object used to carry the Claude API
+        // key in plaintext. Lift it into the memory-only path and re-persist
+        // the scrubbed object immediately, so the key never sits at rest in
+        // localStorage again.
+        if (typeof parsed.claudeApiKey === 'string' && parsed.claudeApiKey) {
+          legacyClaudeKey = parsed.claudeApiKey
+          delete parsed.claudeApiKey
+          localStorage.setItem(STORAGE_KEY, JSON.stringify({ ...DEFAULT_SETTINGS, ...parsed }))
+        }
+        return { ...DEFAULT_SETTINGS, ...parsed }
+      }
     } catch { /* ignore */ }
     return { ...DEFAULT_SETTINGS }
   }
@@ -150,6 +208,10 @@ export const useSettingsStore = defineStore('settings', () => {
 
   return {
     settings,
+    claudeApiKey,
+    setClaudeApiKey,
+    initClaudeKey,
+    persistClaudeKeyToVault,
     accentColor,
     glassIntensity,
     fontSize,