diff --git a/.changeset/fix-silent-agent-md-skip.md b/.changeset/fix-silent-agent-md-skip.md
new file mode 100644
index 000000000..349139fcb
--- /dev/null
+++ b/.changeset/fix-silent-agent-md-skip.md
@@ -0,0 +1,6 @@
+---
+'@bradygaster/squad-cli': patch
+'@bradygaster/squad-sdk': patch
+---
+
+Warn when squad.agent.md template is missing during upgrade or init instead of silently skipping file creation. Adds `warnings` field to `InitResult` for structured error reporting.
diff --git a/packages/squad-cli/src/cli/core/upgrade.ts b/packages/squad-cli/src/cli/core/upgrade.ts
index 2d280f1e1..0e9dc1172 100644
--- a/packages/squad-cli/src/cli/core/upgrade.ts
+++ b/packages/squad-cli/src/cli/core/upgrade.ts
@@ -501,6 +501,8 @@ export async function runUpgrade(dest: string, options: UpgradeOptions = {}): Pr
       stampVersion(agentDest, cliVersion);
       success('upgraded squad.agent.md');
       filesUpdated.push('squad.agent.md');
+    } else {
+      warn('squad.agent.md.template not found — squad.agent.md was not refreshed. Reinstall or repair the CLI to restore the missing template.');
     }
     
     // Run infrastructure ensure checks even when already current
diff --git a/packages/squad-sdk/src/config/init.ts b/packages/squad-sdk/src/config/init.ts
index 2b957765c..8dd85cdef 100644
--- a/packages/squad-sdk/src/config/init.ts
+++ b/packages/squad-sdk/src/config/init.ts
@@ -133,6 +133,8 @@ export interface InitResult {
   createdFiles: string[];
   /** List of skipped file paths (already existed) */
   skippedFiles: string[];
+  /** Warnings for degraded operations (e.g. missing templates) */
+  warnings?: string[];
   /** Configuration file path */
   configPath: string;
   /** Agent directory paths */
@@ -625,6 +627,7 @@ export async function initSquad(options: InitOptions, storage: StorageProvider =
   
   const createdFiles: string[] = [];
   const skippedFiles: string[] = [];
+  const warnings: string[] = [];
   const agentDirs: string[] = [];
   
   // Validate inputs
@@ -1035,6 +1038,8 @@ ${projectDescription ? `- **Description:** ${projectDescription}\n` : ''}- **Cre
       agentContent = stampVersionInContent(agentContent, version);
       await storage.write(agentFile, agentContent);
       createdFiles.push(toRelativePath(agentFile));
+    } else {
+      warnings.push(`squad.agent.md template not found (${join(templatesDir || '.squad/templates', 'squad.agent.md.template')}) — Copilot agent file was not created or not refreshed`);
     }
   } else {
     skippedFiles.push(toRelativePath(agentFile));
@@ -1187,6 +1192,7 @@ ${projectDescription ? `- **Description:** ${projectDescription}\n` : ''}- **Cre
   return {
     createdFiles,
     skippedFiles,
+    warnings,
     configPath,
     agentDirs,
     agentFile,
diff --git a/test/cli/upgrade.test.ts b/test/cli/upgrade.test.ts
index 4094e9968..1ccd89a7c 100644
--- a/test/cli/upgrade.test.ts
+++ b/test/cli/upgrade.test.ts
@@ -115,6 +115,27 @@ describe('CLI: upgrade command', () => {
     expect(result.toVersion).toBe(currentVersion);
   });
 
+  it('refreshes squad.agent.md when already at current version (happy-path regression)', async () => {
+    const agentPath = join(TEST_ROOT, '.github', 'agents', 'squad.agent.md');
+    const currentVersion = getPackageVersion();
+
+    // Verify initial state — already at current version
+    const before = await readFile(agentPath, 'utf-8');
+    expect(before).toContain(`<!-- version: ${currentVersion} -->`);
+
+    // Run upgrade (takes version-current path)
+    const result = await runUpgrade(TEST_ROOT);
+
+    expect(result.fromVersion).toBe(currentVersion);
+    expect(result.toVersion).toBe(currentVersion);
+    // squad.agent.md should still be refreshed in the version-current path
+    expect(result.filesUpdated).toContain('squad.agent.md');
+
+    // File should still have the correct version stamp
+    const after = await readFile(agentPath, 'utf-8');
+    expect(after).toContain(`<!-- version: ${currentVersion} -->`);
+  });
+
   it('should preserve version stamp after manifest loop (issue #195)', async () => {
     const agentPath = join(TEST_ROOT, '.github', 'agents', 'squad.agent.md');
     const currentVersion = getPackageVersion();
diff --git a/test/init-scaffolding.test.ts b/test/init-scaffolding.test.ts
index a5d9d5816..c73411488 100644
--- a/test/init-scaffolding.test.ts
+++ b/test/init-scaffolding.test.ts
@@ -305,3 +305,76 @@ describe('doctor passes after init (#579)', () => {
     expect(registryCheck?.status).toBe('fail');
   });
 });
+
+// ─── squad.agent.md template handling (#730) ───────────────────────────
+
+describe('squad.agent.md template handling (#730)', () => {
+  beforeEach(async () => {
+    if (existsSync(TEST_ROOT)) {
+      await rm(TEST_ROOT, { recursive: true, force: true });
+    }
+    await mkdir(TEST_ROOT, { recursive: true });
+  });
+
+  afterEach(async () => {
+    if (existsSync(TEST_ROOT)) {
+      await rm(TEST_ROOT, { recursive: true, force: true });
+    }
+  });
+
+  it('initSquad creates squad.agent.md when template exists (happy-path regression)', async () => {
+    const result = await initSquad(sdkOptions(TEST_ROOT));
+
+    // squad.agent.md should be in createdFiles
+    const agentEntry = result.createdFiles.find(f => f.includes('squad.agent.md'));
+    expect(agentEntry).toBeDefined();
+
+    // File should exist on disk
+    const agentPath = join(TEST_ROOT, '.github', 'agents', 'squad.agent.md');
+    expect(existsSync(agentPath)).toBe(true);
+
+    // No warnings should be emitted
+    expect(result.warnings).toEqual([]);
+  });
+
+  it('initSquad returns warning when squad.agent.md template is missing', async () => {
+    const { FSStorageProvider } = await import('@bradygaster/squad-sdk');
+    const realStorage = new FSStorageProvider();
+
+    // Create a proxy storage that hides squad.agent.md.template
+    const maskedStorage = new Proxy(realStorage, {
+      get(target, prop, receiver) {
+        if (prop === 'existsSync') {
+          return (filePath: string) => {
+            if (filePath.endsWith('squad.agent.md.template')) {
+              return false;
+            }
+            return target.existsSync(filePath);
+          };
+        }
+        if (prop === 'readSync') {
+          return (filePath: string) => {
+            if (filePath.endsWith('squad.agent.md.template')) {
+              return undefined;
+            }
+            return target.readSync(filePath);
+          };
+        }
+        return Reflect.get(target, prop, receiver);
+      },
+    });
+
+    const result = await initSquad(sdkOptions(TEST_ROOT), maskedStorage as typeof realStorage);
+
+    // Warning should be present
+    expect(result.warnings.length).toBe(1);
+    expect(result.warnings[0]).toContain('squad.agent.md template not found');
+
+    // squad.agent.md should NOT be in createdFiles
+    const agentEntry = result.createdFiles.find(f => f.includes('squad.agent.md'));
+    expect(agentEntry).toBeUndefined();
+
+    // Other files should still be created
+    expect(result.createdFiles.length).toBeGreaterThan(0);
+  });
+});