diff --git a/packages/core/src/services/chatCompressionService.ts b/packages/core/src/services/chatCompressionService.ts
new file mode 100644
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+++ b/packages/core/src/services/chatCompressionService.ts
@@ -0,0 +1,218 @@
+/**
+ * @license
+ * Copyright 2025 Google LLC
+ * SPDX-License-Identifier: Apache-2.0
+ */
+
+import type { Content } from '@google/genai';
+import type { Config } from '../config/config.js';
+import type { GeminiChat } from '../core/geminiChat.js';
+import { type ChatCompressionInfo, CompressionStatus } from '../core/turn.js';
+import { uiTelemetryService } from '../telemetry/uiTelemetry.js';
+import { tokenLimit } from '../core/tokenLimits.js';
+import { getCompressionPrompt } from '../core/prompts.js';
+import { getResponseText } from '../utils/partUtils.js';
+import { logChatCompression } from '../telemetry/loggers.js';
+import { makeChatCompressionEvent } from '../telemetry/types.js';
+import { getInitialChatHistory } from '../utils/environmentContext.js';
+
+/**
+ * Default threshold for compression token count as a fraction of the model's
+ * token limit. If the chat history exceeds this threshold, it will be compressed.
+ */
+export const DEFAULT_COMPRESSION_TOKEN_THRESHOLD = 0.2;
+
+/**
+ * The fraction of the latest chat history to keep. A value of 0.3
+ * means that only the last 30% of the chat history will be kept after compression.
+ */
+export const COMPRESSION_PRESERVE_THRESHOLD = 0.3;
+
+/**
+ * Returns the index of the oldest item to keep when compressing. May return
+ * contents.length which indicates that everything should be compressed.
+ *
+ * Exported for testing purposes.
+ */
+export function findCompressSplitPoint(
+  contents: Content[],
+  fraction: number,
+): number {
+  if (fraction <= 0 || fraction >= 1) {
+    throw new Error('Fraction must be between 0 and 1');
+  }
+
+  const charCounts = contents.map((content) => JSON.stringify(content).length);
+  const totalCharCount = charCounts.reduce((a, b) => a + b, 0);
+  const targetCharCount = totalCharCount * fraction;
+
+  let lastSplitPoint = 0; // 0 is always valid (compress nothing)
+  let cumulativeCharCount = 0;
+  for (let i = 0; i < contents.length; i++) {
+    const content = contents[i];
+    if (
+      content.role === 'user' &&
+      !content.parts?.some((part) => !!part.functionResponse)
+    ) {
+      if (cumulativeCharCount >= targetCharCount) {
+        return i;
+      }
+      lastSplitPoint = i;
+    }
+    cumulativeCharCount += charCounts[i];
+  }
+
+  // We found no split points after targetCharCount.
+  // Check if it's safe to compress everything.
+  const lastContent = contents[contents.length - 1];
+  if (
+    lastContent?.role === 'model' &&
+    !lastContent?.parts?.some((part) => part.functionCall)
+  ) {
+    return contents.length;
+  }
+
+  // Can't compress everything so just compress at last splitpoint.
+  return lastSplitPoint;
+}
+
+export class ChatCompressionService {
+  async compress(
+    chat: GeminiChat,
+    promptId: string,
+    force: boolean,
+    model: string,
+    config: Config,
+    hasFailedCompressionAttempt: boolean,
+  ): Promise<{ newHistory: Content[] | null; info: ChatCompressionInfo }> {
+    const curatedHistory = chat.getHistory(true);
+
+    // Regardless of `force`, don't do anything if the history is empty.
+    if (
+      curatedHistory.length === 0 ||
+      (hasFailedCompressionAttempt && !force)
+    ) {
+      return {
+        newHistory: null,
+        info: {
+          originalTokenCount: 0,
+          newTokenCount: 0,
+          compressionStatus: CompressionStatus.NOOP,
+        },
+      };
+    }
+
+    const originalTokenCount = uiTelemetryService.getLastPromptTokenCount();
+
+    // Don't compress if not forced and we are under the limit.
+    if (!force) {
+      const threshold =
+        config.getChatCompression()?.contextPercentageThreshold ??
+        DEFAULT_COMPRESSION_TOKEN_THRESHOLD;
+      if (originalTokenCount < threshold * tokenLimit(model)) {
+        return {
+          newHistory: null,
+          info: {
+            originalTokenCount,
+            newTokenCount: originalTokenCount,
+            compressionStatus: CompressionStatus.NOOP,
+          },
+        };
+      }
+    }
+
+    const splitPoint = findCompressSplitPoint(
+      curatedHistory,
+      1 - COMPRESSION_PRESERVE_THRESHOLD,
+    );
+
+    const historyToCompress = curatedHistory.slice(0, splitPoint);
+    const historyToKeep = curatedHistory.slice(splitPoint);
+
+    if (historyToCompress.length === 0) {
+      return {
+        newHistory: null,
+        info: {
+          originalTokenCount,
+          newTokenCount: originalTokenCount,
+          compressionStatus: CompressionStatus.NOOP,
+        },
+      };
+    }
+
+    const summaryResponse = await config.getContentGenerator().generateContent(
+      {
+        model,
+        contents: [
+          ...historyToCompress,
+          {
+            role: 'user',
+            parts: [
+              {
+                text: 'First, reason in your scratchpad. Then, generate the <state_snapshot>.',
+              },
+            ],
+          },
+        ],
+        config: {
+          systemInstruction: { text: getCompressionPrompt() },
+        },
+      },
+      promptId,
+    );
+    const summary = getResponseText(summaryResponse) ?? '';
+
+    const extraHistory: Content[] = [
+      {
+        role: 'user',
+        parts: [{ text: summary }],
+      },
+      {
+        role: 'model',
+        parts: [{ text: 'Got it. Thanks for the additional context!' }],
+      },
+      ...historyToKeep,
+    ];
+
+    // Use a shared utility to construct the initial history for an accurate token count.
+    const fullNewHistory = await getInitialChatHistory(config, extraHistory);
+
+    // Estimate token count 1 token ≈ 4 characters
+    const newTokenCount = Math.floor(
+      fullNewHistory.reduce(
+        (total, content) => total + JSON.stringify(content).length,
+        0,
+      ) / 4,
+    );
+
+    logChatCompression(
+      config,
+      makeChatCompressionEvent({
+        tokens_before: originalTokenCount,
+        tokens_after: newTokenCount,
+      }),
+    );
+
+    if (newTokenCount > originalTokenCount) {
+      return {
+        newHistory: null,
+        info: {
+          originalTokenCount,
+          newTokenCount,
+          compressionStatus:
+            CompressionStatus.COMPRESSION_FAILED_INFLATED_TOKEN_COUNT,
+        },
+      };
+    } else {
+      uiTelemetryService.setLastPromptTokenCount(newTokenCount);
+      return {
+        newHistory: extraHistory,
+        info: {
+          originalTokenCount,
+          newTokenCount,
+          compressionStatus: CompressionStatus.COMPRESSED,
+        },
+      };
+    }
+  }
+}