diff --git a/gui/main.qml b/gui/main.qml
index 6d149d9..6b0af3c 100644
--- a/gui/main.qml
+++ b/gui/main.qml
@@ -118,8 +118,37 @@ ApplicationWindow {
         sessionTreeModel.clear()
         modelCache = {}
         var sessions = ollie.sessions
+        
+        // Sessions are already sorted: active first, paused last.
+        // Insert group headers when paused state changes.
+        var lastPaused = null
         for (var i = 0; i < sessions.length; ++i) {
             var sess = sessions[i]
+            var isPaused = sess.paused || false
+            
+            // Insert header on transition
+            if (lastPaused === null && !isPaused) {
+                sessionTreeModel.append({
+                    type: "header",
+                    level: 0,
+                    displayName: "Active"
+                })
+            } else if (lastPaused === false && isPaused) {
+                sessionTreeModel.append({
+                    type: "header",
+                    level: 0,
+                    displayName: "Inactive"
+                })
+            } else if (lastPaused === null && isPaused) {
+                // All sessions are paused - show Inactive header
+                sessionTreeModel.append({
+                    type: "header",
+                    level: 0,
+                    displayName: "Inactive"
+                })
+            }
+            lastPaused = isPaused
+            
             appendSessionToModel(sess)
         }
         if (hadFocus)
@@ -168,7 +197,8 @@ ApplicationWindow {
                 level: 1,
                 state: agent.state || "idle",
                 connected: agent.connected,
-                displayName: agent.name
+                displayName: agent.name,
+                parentExpanded: wasExpanded
             })
             agentIds.push(agent.id)
         }
@@ -319,11 +349,41 @@ ApplicationWindow {
 
     function toggleExpand(index) {
         var item = sessionTreeModel.get(index)
-        if (item.type === "session") {
-            var newExpanded = !item.expanded
-            sessionTreeModel.set(index, { expanded: newExpanded })
+        if (!item.expanded === undefined) return // only expandable items
+        
+        var newExpanded = !item.expanded
+        var itemLevel = item.level || 0
+        sessionTreeModel.setProperty(index, "expanded", newExpanded)
+        
+        // Cache for sessions (by id)
+        if (item.type === "session" && item.id) {
             sessionExpandedCache[item.id] = newExpanded
         }
+        
+        // Update all descendants: items with level > itemLevel until we hit same or lower level
+        for (var i = index + 1; i < sessionTreeModel.count; ++i) {
+            var child = sessionTreeModel.get(i)
+            var childLevel = child.level || 0
+            if (childLevel <= itemLevel) break // end of descendants
+            
+            // Determine visibility: walk up to find if any ancestor is collapsed
+            var visible = newExpanded
+            if (visible) {
+                // Check all ancestors between this item and the child
+                for (var j = i - 1; j >= index; --j) {
+                    var ancestor = sessionTreeModel.get(j)
+                    var ancestorLevel = ancestor.level || 0
+                    if (ancestorLevel < childLevel && ancestor.expanded === false) {
+                        visible = false
+                        break
+                    }
+                    if (ancestorLevel < childLevel) {
+                        childLevel = ancestorLevel // track the level we've checked up to
+                    }
+                }
+            }
+            sessionTreeModel.setProperty(i, "parentExpanded", visible)
+        }
     }
 
     function activateAgent(parentId, agentId) {
@@ -378,12 +438,8 @@ ApplicationWindow {
     Connections {
         target: ollie
         function onSessionsChanged() {
-            // Use incremental update if model exists, full rebuild otherwise
-            if (sessionTreeModel.count > 0 && Object.keys(modelCache).length > 0) {
-                updateSessionTree()
-            } else {
-                buildSessionTree()
-            }
+            // Always do full rebuild since headers complicate incremental updates
+            buildSessionTree()
         }
         function onAgentStateChanged(sessionId, agentId, state) {
             // Update only the specific agent in the model
@@ -889,17 +945,23 @@ ApplicationWindow {
                     // Guard against undefined during initial render
                     height: {
                         if (!type) return 0
-                        if (type === "agent" && !parentSessionExpanded(parentId))
+                        if (type === "header") return 24
+                        if (type === "agent" && !parentExpanded)
                             return 0
                         return 28
                     }
                     visible: height > 0
                     property int modelIndex: index
+                    property bool isHeader: type === "header"
+                    
+                    // Headers are not interactive
+                    enabled: !isHeader
 
                     MouseArea {
                         anchors.fill: parent
                         acceptedButtons: Qt.LeftButton | Qt.RightButton
                         hoverEnabled: false
+                        enabled: !parent.isHeader
                         onClicked: function(mouse) {
                             if (mouse.button === Qt.RightButton) {
                                 if (type === "session") {
@@ -995,8 +1057,8 @@ ApplicationWindow {
 
                         // Indent + expand/collapse indicator
                         Item {
-                            Layout.preferredWidth: (level || 0) * 16 + 16
-                            Layout.preferredHeight: 28
+                            Layout.preferredWidth: type === "header" ? 8 : (level || 0) * 16 + 16
+                            Layout.preferredHeight: type === "header" ? 24 : 28
 
                             Label {
                                 anchors.centerIn: parent
@@ -1004,13 +1066,14 @@ ApplicationWindow {
                                 font.pixelSize: theme.fontSize > 0 ? theme.fontSize * 0.7 : 10
                                 color: theme.textColor
                                 opacity: 0.6
+                                visible: type !== "header"
                             }
                         }
 
                         // Name area
                         Item {
                             Layout.fillWidth: true
-                            Layout.preferredHeight: 28
+                            Layout.preferredHeight: type === "header" ? 24 : 28
 
                             TextField {
                                 anchors.fill: parent
@@ -1043,20 +1106,23 @@ ApplicationWindow {
                             Label {
                                 anchors.fill: parent
                                 text: displayName || ""
-                                color: theme.textColor
-                                font.pointSize: theme.fontSize > 0 ? theme.fontSize : Qt.application.font.pointSize
+                                color: type === "header" ? theme.midColor : theme.textColor
+                                font.pointSize: theme.fontSize > 0 ? theme.fontSize * (type === "header" ? 0.85 : 1) : Qt.application.font.pointSize
+                                font.bold: type === "header"
+                                font.capitalization: type === "header" ? Font.AllUppercase : Font.MixedCase
                                 verticalAlignment: Text.AlignVCenter
                                 visible: modelIndex !== renamingIndex
                             }
                         }
 
-                        // State dot
+                        // State dot (hidden for headers)
                         Rectangle {
                             id: stateDot
                             Layout.preferredWidth: 8
                             Layout.preferredHeight: 8
                             Layout.alignment: Qt.AlignVCenter
                             radius: 4
+                            visible: type !== "header"
                             color: {
                                 if (type === "session") {
                                     // Session: RPC connection health
@@ -1076,11 +1142,6 @@ ApplicationWindow {
                     }
 
                     highlighted: (type === "agent" && agentId === ollie.activeAgentId && parentId === ollie.activeSessionId)
-
-                    function parentSessionExpanded(pid) {
-                        // O(1) lookup using cache instead of O(n) model scan
-                        return sessionExpandedCache[pid] !== undefined ? sessionExpandedCache[pid] : true
-                    }
                 }
             }
         }