diff --git a/macos/Sources/Features/Update/UpdateDelegate.swift b/macos/Sources/Features/Update/UpdateDelegate.swift
index 26242b49e..619540851 100644
--- a/macos/Sources/Features/Update/UpdateDelegate.swift
+++ b/macos/Sources/Features/Update/UpdateDelegate.swift
@@ -22,7 +22,13 @@ extension UpdateDriver: SPUUpdaterDelegate {
     /// When `auto-update = check`, Sparkle will call the corresponding
     /// delegate method on the responsible driver instead.
     func updater(_ updater: SPUUpdater, willInstallUpdateOnQuit item: SUAppcastItem, immediateInstallationBlock immediateInstallHandler: @escaping () -> Void) -> Bool {
-        viewModel.state = .installing(.init(isAutoUpdate: true, retryTerminatingApplication: immediateInstallHandler))
+        viewModel.state = .installing(.init(
+            isAutoUpdate: true,
+            retryTerminatingApplication: immediateInstallHandler,
+            dismiss: { [weak viewModel] in
+                viewModel?.state = .idle
+            }
+        ))
         return true
     }
 
diff --git a/macos/Sources/Features/Update/UpdateDriver.swift b/macos/Sources/Features/Update/UpdateDriver.swift
index 94b43a3f3..3beb4c9be 100644
--- a/macos/Sources/Features/Update/UpdateDriver.swift
+++ b/macos/Sources/Features/Update/UpdateDriver.swift
@@ -172,7 +172,12 @@ class UpdateDriver: NSObject, SPUUserDriver {
     }
     
     func showInstallingUpdate(withApplicationTerminated applicationTerminated: Bool, retryTerminatingApplication: @escaping () -> Void) {
-        viewModel.state = .installing(.init(retryTerminatingApplication: retryTerminatingApplication))
+        viewModel.state = .installing(.init(
+            retryTerminatingApplication: retryTerminatingApplication,
+            dismiss: { [weak viewModel] in
+                viewModel?.state = .idle
+            }
+        ))
         
         if !hasUnobtrusiveTarget {
             standard.showInstallingUpdate(withApplicationTerminated: applicationTerminated, retryTerminatingApplication: retryTerminatingApplication)
diff --git a/macos/Sources/Features/Update/UpdatePopoverView.swift b/macos/Sources/Features/Update/UpdatePopoverView.swift
index 08d25a4d1..87d76f801 100644
--- a/macos/Sources/Features/Update/UpdatePopoverView.swift
+++ b/macos/Sources/Features/Update/UpdatePopoverView.swift
@@ -291,7 +291,15 @@ fileprivate struct InstallingView: View {
             }
             
             HStack {
+                Button("Restart Later") {
+                    installing.dismiss()
+                    dismiss()
+                }
+                .keyboardShortcut(.cancelAction)
+                .controlSize(.small)
+                
                 Spacer()
+                
                 Button("Restart Now") {
                     installing.retryTerminatingApplication()
                     dismiss()
diff --git a/macos/Sources/Features/Update/UpdateSimulator.swift b/macos/Sources/Features/Update/UpdateSimulator.swift
index cb4383a00..bf168d9fc 100644
--- a/macos/Sources/Features/Update/UpdateSimulator.swift
+++ b/macos/Sources/Features/Update/UpdateSimulator.swift
@@ -31,6 +31,9 @@ enum UpdateSimulator {
     /// Shows the installing state with restart button: installing (stays until dismissed)
     case installing
     
+    /// Simulates auto-update flow: goes directly to installing state without showing intermediate UI
+    case autoUpdate
+    
     func simulate(with viewModel: UpdateViewModel) {
         switch self {
         case .happyPath:
@@ -49,6 +52,8 @@ enum UpdateSimulator {
             simulateCancelDuringChecking(viewModel)
         case .installing:
             simulateInstalling(viewModel)
+        case .autoUpdate:
+            simulateAutoUpdate(viewModel)
         }
     }
     
@@ -270,9 +275,27 @@ enum UpdateSimulator {
     }
     
     private func simulateInstalling(_ viewModel: UpdateViewModel) {
-        viewModel.state = .installing(.init(retryTerminatingApplication: {
-            print("Restart button clicked in simulator - resetting to idle")
-            viewModel.state = .idle
-        }))
+        viewModel.state = .installing(.init(
+            retryTerminatingApplication: {
+                print("Restart button clicked in simulator - resetting to idle")
+                viewModel.state = .idle
+            },
+            dismiss: {
+                viewModel.state = .idle
+            }
+        ))
+    }
+    
+    private func simulateAutoUpdate(_ viewModel: UpdateViewModel) {
+        viewModel.state = .installing(.init(
+            isAutoUpdate: true,
+            retryTerminatingApplication: {
+                print("Restart button clicked in simulator - resetting to idle")
+                viewModel.state = .idle
+            },
+            dismiss: {
+                viewModel.state = .idle
+            }
+        ))
     }
 }
diff --git a/macos/Sources/Features/Update/UpdateViewModel.swift b/macos/Sources/Features/Update/UpdateViewModel.swift
index 96cbe7c3d..1f9304616 100644
--- a/macos/Sources/Features/Update/UpdateViewModel.swift
+++ b/macos/Sources/Features/Update/UpdateViewModel.swift
@@ -367,5 +367,6 @@ enum UpdateState: Equatable {
         /// True if this state is triggered by ``Ghostty/UpdateDriver/updater(_:willInstallUpdateOnQuit:immediateInstallationBlock:)``
         var isAutoUpdate = false
         let retryTerminatingApplication: () -> Void
+        let dismiss: () -> Void
     }
 }
diff --git a/macos/Tests/Update/UpdateStateTests.swift b/macos/Tests/Update/UpdateStateTests.swift
index 1d1d7b37d..354d371c5 100644
--- a/macos/Tests/Update/UpdateStateTests.swift
+++ b/macos/Tests/Update/UpdateStateTests.swift
@@ -25,10 +25,10 @@ struct UpdateStateTests {
     }
     
     @Test func testInstallingEquality() {
-        let state1: UpdateState = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}))
-        let state2: UpdateState = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}))
+        let state1: UpdateState = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}, dismiss: {}))
+        let state2: UpdateState = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}, dismiss: {}))
         #expect(state1 == state2)
-        let state3: UpdateState = .installing(.init(isAutoUpdate: true, retryTerminatingApplication: {}))
+        let state3: UpdateState = .installing(.init(isAutoUpdate: true, retryTerminatingApplication: {}, dismiss: {}))
         #expect(state3 != state2)
     }
     
diff --git a/macos/Tests/Update/UpdateViewModelTests.swift b/macos/Tests/Update/UpdateViewModelTests.swift
index 5b223c59d..529c2bc52 100644
--- a/macos/Tests/Update/UpdateViewModelTests.swift
+++ b/macos/Tests/Update/UpdateViewModelTests.swift
@@ -52,9 +52,9 @@ struct UpdateViewModelTests {
     
     @Test func testInstallingText() {
         let viewModel = UpdateViewModel()
-        viewModel.state = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}))
+        viewModel.state = .installing(.init(isAutoUpdate: false, retryTerminatingApplication: {}, dismiss: {}))
         #expect(viewModel.text == "Installing…")
-        viewModel.state = .installing(.init(isAutoUpdate: true, retryTerminatingApplication: {}))
+        viewModel.state = .installing(.init(isAutoUpdate: true, retryTerminatingApplication: {}, dismiss: {}))
         #expect(viewModel.text == "Restart to Complete Update")
     }