diff --git a/.changeset/fix-thinking-block-handling.md b/.changeset/fix-thinking-block-handling.md
new file mode 100644
index 0000000..087dbc8
--- /dev/null
+++ b/.changeset/fix-thinking-block-handling.md
@@ -0,0 +1,29 @@
+---
+"@centralinc/browseragent": patch
+---
+
+Fix thinking block handling to prevent 400 errors when using extended thinking
+
+**Problem:** Using `thinkingBudget` caused 400 errors from Anthropic's API with the message: "Expected thinking or redacted_thinking, but found text. When thinking is enabled, a final assistant message must start with a thinking block."
+
+**Root Cause:** The `BetaThinkingBlock` type incorrectly defined `thinking` as a config object instead of a string containing the actual thinking content.
+
+**Changes:**
+- Fixed `BetaThinkingBlock` type: `thinking` is now correctly typed as `string`
+- Added `BetaRedactedThinkingBlock` type for handling redacted thinking responses
+- Updated `responseToParams` to properly parse both `thinking` and `redacted_thinking` blocks
+- Added explicit block ordering when constructing assistant messages to ensure thinking blocks always come first (API requirement)
+- Added test examples for extended thinking validation
+
+**Usage:** Extended thinking now works correctly across multi-turn conversations:
+
+```typescript
+const result = await agent.execute(
+  "Complex task requiring reasoning",
+  undefined,
+  {
+    thinkingBudget: 4096,
+    maxTokens: 16384,
+  }
+);
+```
diff --git a/examples/test-extended-thinking-multi-turn.ts b/examples/test-extended-thinking-multi-turn.ts
new file mode 100644
index 0000000..b2ba3d2
--- /dev/null
+++ b/examples/test-extended-thinking-multi-turn.ts
@@ -0,0 +1,111 @@
+/**
+ * Test Extended Thinking with Multi-Turn Tool Use
+ * 
+ * This test exercises the thinking block handling across multiple tool calls,
+ * which is where the original 400 error would occur (issue #12).
+ * 
+ * The agent needs to:
+ * 1. Navigate to a page (tool use)
+ * 2. Take screenshot and analyze (tool use) 
+ * 3. Click on something (tool use)
+ * 4. Verify the result (tool use)
+ * 
+ * Each turn with thinking enabled requires proper thinking block ordering.
+ */
+
+import { config } from "dotenv";
+config({ path: "./examples/.env" });
+
+import { chromium } from "playwright";
+import { ComputerUseAgent } from "../index";
+import { SimpleLogger } from "../utils/logger";
+
+async function main() {
+  console.log("=== Extended Thinking Multi-Turn Test ===\n");
+
+  if (!process.env.ANTHROPIC_API_KEY) {
+    console.error("ERROR: ANTHROPIC_API_KEY environment variable is required");
+    process.exit(1);
+  }
+
+  console.log("1. Launching browser...");
+  const browser = await chromium.launch({ headless: false });
+  const context = await browser.newContext({
+    viewport: { width: 1280, height: 800 },
+  });
+  const page = await context.newPage();
+  console.log("   ✓ Browser launched\n");
+
+  console.log("2. Navigating to Wikipedia...");
+  await page.goto("https://en.wikipedia.org/wiki/Main_Page");
+  await page.waitForLoadState("networkidle");
+  console.log("   ✓ Page loaded\n");
+
+  console.log("3. Creating agent with extended thinking...");
+  const logger = new SimpleLogger();
+  const agent = new ComputerUseAgent({
+    apiKey: process.env.ANTHROPIC_API_KEY!,
+    page,
+    logger,
+  });
+  console.log("   ✓ Agent created\n");
+
+  console.log("4. Executing multi-step task with thinkingBudget...\n");
+  console.log("   Task: Find and click the 'Random article' link, then report the article title\n");
+  console.log("=" .repeat(70));
+
+  const startTime = Date.now();
+
+  try {
+    const result = await agent.execute(
+      `You are on Wikipedia's main page. Please do the following:
+       1. First, take a screenshot to see the current page
+       2. Find and click on the "Random article" link (it's usually in the left sidebar)
+       3. Wait for the new page to load
+       4. Take another screenshot
+       5. Tell me the title of the random article you landed on
+       
+       Be thorough in your reasoning.`,
+      undefined,
+      {
+        thinkingBudget: 4096,
+        maxTokens: 16384,
+      }
+    );
+
+    const elapsed = ((Date.now() - startTime) / 1000).toFixed(2);
+    
+    console.log("=" .repeat(70));
+    console.log(`\n5. Result (completed in ${elapsed}s):\n`);
+    console.log(result);
+    console.log("\n✅ Multi-turn extended thinking test PASSED!");
+    
+  } catch (error) {
+    console.log("=" .repeat(70));
+    console.error("\n❌ Multi-turn extended thinking test FAILED!");
+    console.error("\nError details:");
+    if (error instanceof Error) {
+      console.error(`  Message: ${error.message}`);
+      
+      // Check for the specific thinking block error
+      if (error.message.includes("thinking") || error.message.includes("redacted_thinking")) {
+        console.error("\n  🔴 This is a THINKING BLOCK HANDLING issue!");
+        console.error("  The fix in issue #12 may not be complete.");
+      }
+      
+      if (error.message.includes("400")) {
+        console.error("\n  🔴 400 error from Anthropic API");
+        console.error("  This usually indicates improper message construction.");
+      }
+    } else {
+      console.error(error);
+    }
+    process.exit(1);
+  } finally {
+    console.log("\n6. Closing browser...");
+    await browser.close();
+    console.log("   ✓ Browser closed");
+  }
+}
+
+main().catch(console.error);
diff --git a/examples/test-extended-thinking.ts b/examples/test-extended-thinking.ts
new file mode 100644
index 0000000..3e42d83
--- /dev/null
+++ b/examples/test-extended-thinking.ts
@@ -0,0 +1,82 @@
+/**
+ * Test Extended Thinking / thinkingBudget functionality
+ * 
+ * This example verifies that extended thinking works correctly
+ * without causing 400 errors from improper thinking block handling.
+ */
+
+import { config } from "dotenv";
+config({ path: "./examples/.env" });
+import { chromium } from "playwright";
+import { ComputerUseAgent } from "../index";
+import { SimpleLogger } from "../utils/logger";
+
+const logger = new SimpleLogger();
+
+async function main() {
+  console.log("=== Extended Thinking Test ===\n");
+
+  if (!process.env.ANTHROPIC_API_KEY) {
+    console.error("ERROR: ANTHROPIC_API_KEY environment variable is required");
+    process.exit(1);
+  }
+
+  console.log("1. Launching browser...");
+  const browser = await chromium.launch({ headless: false });
+  const context = await browser.newContext({
+    viewport: { width: 1280, height: 800 },
+  });
+  const page = await context.newPage();
+  console.log("   ✓ Browser launched\n");
+
+  console.log("2. Navigating to test page...");
+  await page.goto("https://example.com");
+  console.log("   ✓ Page loaded\n");
+
+  console.log("3. Creating agent with extended thinking enabled...");
+  const agent = new ComputerUseAgent({
+    apiKey: process.env.ANTHROPIC_API_KEY!,
+    page,
+    logger,
+  });
+  console.log("   ✓ Agent created\n");
+
+  console.log("4. Executing task with thinkingBudget...\n");
+  console.log("=" .repeat(60));
+
+  try {
+    const result = await agent.execute(
+      "Look at this page and tell me: What is the title of the page and what is the main heading? Provide a brief summary.",
+      undefined,
+      {
+        thinkingBudget: 2048,
+        maxTokens: 8192,
+      }
+    );
+
+    console.log("=" .repeat(60));
+    console.log("\n5. Result:\n");
+    console.log(result);
+    console.log("\n✅ Extended thinking test PASSED!");
+  } catch (error) {
+    console.log("=" .repeat(60));
+    console.error("\n❌ Extended thinking test FAILED!");
+    console.error("\nError details:");
+    if (error instanceof Error) {
+      console.error(`  Message: ${error.message}`);
+      if (error.message.includes("thinking")) {
+        console.error("\n  This appears to be a thinking block handling issue.");
+        console.error("  The fix may not be complete.");
+      }
+    } else {
+      console.error(error);
+    }
+    process.exit(1);
+  } finally {
+    console.log("\n6. Closing browser...");
+    await browser.close();
+    console.log("   ✓ Browser closed");
+  }
+}
+
+main().catch(console.error);
diff --git a/loop.ts b/loop.ts
index 5cca527..d5c9240 100644
--- a/loop.ts
+++ b/loop.ts
@@ -272,9 +272,23 @@ ${capabilityDocs}`,
     // Log LLM response
     logger.llmResponse(response.stop_reason ?? "unknown", stepIndex, loggableContent);
 
+    // Ensure proper block ordering for extended thinking:
+    // thinking/redacted_thinking blocks must come first in assistant messages
+    const orderedContent = [...responseParams].sort((a, b) => {
+      const order: Record<string, number> = {
+        thinking: 0,
+        redacted_thinking: 1,
+        text: 2,
+        tool_use: 3,
+      };
+      const aOrder = order[a.type] ?? 99;
+      const bOrder = order[b.type] ?? 99;
+      return aOrder - bOrder;
+    });
+
     messages.push({
       role: "assistant",
-      content: responseParams,
+      content: orderedContent,
     });
 
     if (response.stop_reason === "end_turn") {
diff --git a/types/beta.ts b/types/beta.ts
index 4caa9f1..d26f6c6 100644
--- a/types/beta.ts
+++ b/types/beta.ts
@@ -47,15 +47,15 @@ export interface BetaToolUseBlock {
 
 export interface BetaThinkingBlock {
   type: "thinking";
-  thinking:
-    | {
-        type: "enabled";
-        budget_tokens: number;
-      }
-    | {
-        type: "disabled";
-      };
-  signature?: string;
+  thinking: string;
+  signature: string;
+  id?: string;
+  cache_control?: { type: "ephemeral" };
+}
+
+export interface BetaRedactedThinkingBlock {
+  type: "redacted_thinking";
+  data: string;
   id?: string;
   cache_control?: { type: "ephemeral" };
 }
@@ -74,4 +74,5 @@ export type BetaLocalContentBlock =
   | BetaImageBlock
   | BetaToolUseBlock
   | BetaThinkingBlock
+  | BetaRedactedThinkingBlock
   | BetaToolResultBlock;
diff --git a/utils/message-processing.ts b/utils/message-processing.ts
index 58cae8b..7bee476 100644
--- a/utils/message-processing.ts
+++ b/utils/message-processing.ts
@@ -16,8 +16,17 @@ export function responseToParams(response: BetaMessage): BetaContentBlock[] {
       };
     }
     if (block.type === "thinking") {
-      const { thinking, signature, ...rest } = block;
-      return { ...rest, thinking, signature: signature || "" };
+      return {
+        type: "thinking" as const,
+        thinking: block.thinking,
+        signature: block.signature,
+      };
+    }
+    if (block.type === "redacted_thinking") {
+      return {
+        type: "redacted_thinking" as const,
+        data: block.data,
+      };
     }
     return block as BetaContentBlock;
   });