diff --git a/python/packages/core/agent_framework/_tools.py b/python/packages/core/agent_framework/_tools.py
index 065324289f..82957e4a65 100644
--- a/python/packages/core/agent_framework/_tools.py
+++ b/python/packages/core/agent_framework/_tools.py
@@ -3,6 +3,7 @@
 from __future__ import annotations
 
 import asyncio
+import contextvars
 import inspect
 import json
 import logging
@@ -1820,9 +1821,16 @@ async def invoke_with_termination_handling(
                 False,
             )
 
-    execution_results = await asyncio.gather(*[
-        invoke_with_termination_handling(function_call, seq_idx) for seq_idx, function_call in enumerate(function_calls)
-    ])
+    # Create each task inside a copied context so the active agent span is
+    # preserved for every parallel tool invocation.
+    execution_tasks = [
+        contextvars.copy_context().run(
+            asyncio.create_task,
+            invoke_with_termination_handling(function_call, seq_idx),
+        )
+        for seq_idx, function_call in enumerate(function_calls)
+    ]
+    execution_results = await asyncio.gather(*execution_tasks)
 
     # Unpack results - each is (Content, terminate_flag)
     contents: list[Content] = [result[0] for result in execution_results]
diff --git a/python/packages/core/tests/core/test_observability.py b/python/packages/core/tests/core/test_observability.py
index 46f6e2c151..03347d0359 100644
--- a/python/packages/core/tests/core/test_observability.py
+++ b/python/packages/core/tests/core/test_observability.py
@@ -1,5 +1,6 @@
 # Copyright (c) Microsoft. All rights reserved.
 
+import asyncio
 import logging
 from collections.abc import AsyncIterable, Awaitable, MutableSequence, Sequence
 from typing import Any
@@ -4239,6 +4240,92 @@ async def _get() -> ChatResponse:
         assert inner.context.trace_id == agent_span.context.trace_id
 
 
+@pytest.mark.parametrize("enable_sensitive_data", [False], indirect=True)
+async def test_parallel_function_call_spans_nested_under_agent_span(span_exporter: InMemorySpanExporter):
+    """Parallel execute_tool spans should preserve the active agent span context."""
+    from agent_framework._tools import FunctionInvocationLayer
+
+    @tool(name="first_tool", description="First parallel tool", approval_mode="never_require")
+    async def first_tool() -> str:
+        await asyncio.sleep(0)
+        return "first"
+
+    @tool(name="second_tool", description="Second parallel tool", approval_mode="never_require")
+    async def second_tool() -> str:
+        await asyncio.sleep(0)
+        return "second"
+
+    class ParallelToolChatClient(FunctionInvocationLayer, ChatTelemetryLayer, BaseChatClient[Any]):
+        def __init__(self) -> None:
+            super().__init__()
+            self.call_count = 0
+
+        def service_url(self):
+            return "https://test.example.com"
+
+        def _inner_get_response(
+            self, *, messages: MutableSequence[Message], stream: bool, options: dict[str, Any], **kwargs: Any
+        ) -> Awaitable[ChatResponse] | ResponseStream[ChatResponseUpdate, ChatResponse]:
+            del stream, messages, options, kwargs
+            self.call_count += 1
+            if self.call_count == 1:
+
+                async def _get_tool_calls() -> ChatResponse:
+                    return ChatResponse(
+                        messages=[
+                            Message(
+                                role="assistant",
+                                contents=[
+                                    Content.from_function_call(
+                                        call_id="call_first",
+                                        name="first_tool",
+                                        arguments="{}",
+                                    ),
+                                    Content.from_function_call(
+                                        call_id="call_second",
+                                        name="second_tool",
+                                        arguments="{}",
+                                    ),
+                                ],
+                            )
+                        ],
+                    )
+
+                return _get_tool_calls()
+
+            async def _get_final() -> ChatResponse:
+                return ChatResponse(
+                    messages=[Message(role="assistant", contents=["Both tools completed."])],
+                    finish_reason="stop",
+                )
+
+            return _get_final()
+
+    agent = Agent(
+        client=ParallelToolChatClient(),
+        id="parallel_tool_agent_id",
+        name="parallel_tool_agent",
+        default_options={"model": "ToolModel", "tools": [first_tool, second_tool], "tool_choice": "auto"},
+    )
+
+    span_exporter.clear()
+    await agent.run("Call both tools.")
+
+    spans = span_exporter.get_finished_spans()
+    invoke_spans = [s for s in spans if s.attributes.get(OtelAttr.OPERATION.value) == OtelAttr.AGENT_INVOKE_OPERATION]
+    tool_spans = [s for s in spans if s.attributes.get(OtelAttr.OPERATION.value) == OtelAttr.TOOL_EXECUTION_OPERATION]
+
+    assert len(invoke_spans) == 1
+    assert len(tool_spans) == 2
+    assert {s.attributes.get(OtelAttr.TOOL_NAME.value) for s in tool_spans} == {"first_tool", "second_tool"}
+
+    agent_span = invoke_spans[0]
+    for tool_span in tool_spans:
+        assert tool_span.parent is not None, f"Span {tool_span.name} has no parent"
+        assert tool_span.parent.span_id == agent_span.context.span_id
+        assert tool_span.context.trace_id == agent_span.context.trace_id
+
+
 @pytest.mark.parametrize("stream", [False, True])
 async def test_chat_span_nested_under_explicit_outer_span(
     span_exporter: InMemorySpanExporter, mock_chat_client, stream: bool