diff --git a/structkit/commands/generate.py b/structkit/commands/generate.py
index 00729fe..3e07137 100644
--- a/structkit/commands/generate.py
+++ b/structkit/commands/generate.py
@@ -2,7 +2,7 @@
 import os
 import yaml
 import argparse
-from structkit.file_item import FileItem
+from structkit.file_item import FileItem, ContentFetchError
 from structkit.completers import file_strategy_completer, structures_completer
 from structkit.template_renderer import TemplateRenderer, TemplateVariableError
 from structkit.sources import SourceError, resolve_structures_path
@@ -207,7 +207,7 @@ def execute(self, args):
     # Actually generate structure
     try:
       self._create_structure(args, mappings)
-    except (GenerateConfigError, TemplateVariableError) as exc:
+    except (GenerateConfigError, TemplateVariableError, ContentFetchError) as exc:
       self.logger.error(f"❗ {exc}")
       raise SystemExit(1) from None
 
diff --git a/structkit/file_item.py b/structkit/file_item.py
index 87cecd1..64fa17b 100644
--- a/structkit/file_item.py
+++ b/structkit/file_item.py
@@ -11,6 +11,10 @@
 load_dotenv()
 
 
+class ContentFetchError(Exception):
+  """Raised when remote or local file: content cannot be fetched."""
+
+
 class FileItem:
     def __init__(self, properties):
       self.logger = logging.getLogger(__name__)
@@ -89,7 +93,9 @@ def fetch_content(self):
               raw_content, template_vars)
           self.logger.debug(f"Rendered content: {self.content}")
         except Exception as e:
-          self.logger.error(f"❗ Failed to fetch content from {self.content_location}: {e}")
+          raise ContentFetchError(
+              f"Failed to fetch content from {self.content_location}: {e}"
+          ) from e
 
     def _merge_default_template_vars(self, template_vars):
       default_vars = {
diff --git a/tests/test_commands_more.py b/tests/test_commands_more.py
index 2109e0b..9a370e4 100644
--- a/tests/test_commands_more.py
+++ b/tests/test_commands_more.py
@@ -9,6 +9,7 @@
 from structkit.commands.list import ListCommand
 from structkit.commands.mcp import MCPCommand
 from structkit.commands.validate import ValidateCommand
+from structkit.file_item import ContentFetchError
 from structkit.template_renderer import TemplateVariableError
 
 
@@ -341,3 +342,74 @@ def test_validate_variables_config_errors(parser):
         v._validate_variables_config([{ 'name': { 'type': 'bad' } }])
     with pytest.raises(ValueError):
         v._validate_variables_config([{ 'name': { 'type': 'boolean', 'default': 'yes' } }])
+
+
+def test_generate_missing_local_file_ref_exits_cleanly(parser, tmp_path, caplog):
+    """Missing file:// target exits 1 with root-cause message and no Traceback."""
+    command = GenerateCommand(parser)
+    out_dir = tmp_path / 'out'
+    out_dir.mkdir()
+
+    struct_yaml = tmp_path / 'struct.yaml'
+    struct_yaml.write_text(
+        'files:\n'
+        '  - out.txt:\n'
+        '      file: file:///tmp/does-not-exist-structkit-test.txt\n'
+    )
+
+    args = parser.parse_args(['--non-interactive', str(struct_yaml), str(out_dir)])
+
+    with pytest.raises(SystemExit) as excinfo:
+        command.execute(args)
+
+    assert excinfo.value.code == 1
+    assert 'Failed to fetch content from' in caplog.text
+    assert 'does-not-exist-structkit-test.txt' in caplog.text
+    assert 'Traceback' not in caplog.text
+    # The output file must NOT have been created
+    assert not (out_dir / 'out.txt').exists()
+
+
+def test_generate_remote_fetch_failure_exits_cleanly(parser, tmp_path, caplog):
+    """Mocked remote fetch failure exits 1 with root-cause message and no Traceback."""
+    command = GenerateCommand(parser)
+    out_dir = tmp_path / 'out'
+    out_dir.mkdir()
+
+    config = {
+        'files': [{'out.txt': {'file': 'https://example.com/no-such-file.txt'}}],
+        'folders': [],
+    }
+
+    store_dir = tmp_path / 'store'
+    store_dir.mkdir(parents=True, exist_ok=True)
+    (store_dir / 'input.json').write_text('{}')
+
+    with patch.object(command, '_load_yaml_config', return_value=config), \
+         patch(
+             'structkit.content_fetcher.ContentFetcher._fetch_http_url',
+             side_effect=ConnectionError('network unreachable'),
+         ):
+        args = argparse.Namespace(
+            structure_definition='dummy',
+            base_path=str(out_dir),
+            structures_path=None,
+            dry_run=False,
+            diff=False,
+            output='file',
+            vars=None,
+            backup=None,
+            file_strategy='overwrite',
+            global_system_prompt=None,
+            input_store=str(store_dir / 'input.json'),
+            non_interactive=True,
+            mappings_file=None,
+            source=None,
+        )
+        with pytest.raises(SystemExit) as excinfo:
+            command.execute(args)
+
+    assert excinfo.value.code == 1
+    assert 'Failed to fetch content from' in caplog.text
+    assert 'Traceback' not in caplog.text
+    assert not (out_dir / 'out.txt').exists()