diff --git a/src/textual_webterm/local_server.py b/src/textual_webterm/local_server.py
index 110c86d..6a2a58b 100644
--- a/src/textual_webterm/local_server.py
+++ b/src/textual_webterm/local_server.py
@@ -14,7 +14,6 @@ from pathlib import Path
 from typing import TYPE_CHECKING
 
 import aiohttp
-import pyte
 from aiohttp import WSMsgType, web
 from rich.ansi import AnsiDecoder
 from rich.console import Console
@@ -34,8 +33,6 @@ log = logging.getLogger("textual-web")
 
 DISCONNECT_RESIZE = (132, 45)
 
-# Avoid heavy screenshot rendering from processing unbounded output.
-SCREENSHOT_MAX_BYTES = 65536
 SCREENSHOT_CACHE_SECONDS = 1.0
 SCREENSHOT_MAX_CACHE_SECONDS = 60.0
 
@@ -108,19 +105,6 @@ def _rewrite_svg_fonts(svg: str) -> str:
     return svg
 
 
-def _apply_carriage_returns(text: str, width: int = 80, height: int = 24) -> list[str]:
-    """Use pyte terminal emulator to properly interpret ANSI escape sequences.
-
-    This handles cursor positioning, screen clearing, and other terminal control
-    codes that cause issues like tmux status bars "creeping up" in screenshots.
-    """
-    screen = pyte.Screen(width, height)
-    stream = pyte.Stream(screen)
-    stream.feed(text)
-    # Return lines from the display, stripping trailing whitespace
-    return [line.rstrip() for line in screen.display]
-
-
 class LocalServer:
     def mark_route_activity(self, route_key: str) -> None:
         self._route_last_activity[route_key] = asyncio.get_event_loop().time()
@@ -473,7 +457,7 @@ class LocalServer:
             )
             session_process = self.session_manager.get_session_by_route_key(RouteKey(route_key))
 
-        if session_process is None or not hasattr(session_process, "get_replay_buffer"):
+        if session_process is None or not hasattr(session_process, "get_screen_lines"):
             raise web.HTTPNotFound(text="Session not found")
 
         # If nothing has changed since the last render, serve cached screenshot without
@@ -485,10 +469,10 @@ class LocalServer:
             if cached_response is not None:
                 return cached_response
 
-        replay_data = await session_process.get_replay_buffer()  # type: ignore[func-returns-value]
-        if len(replay_data) > SCREENSHOT_MAX_BYTES:
-            replay_data = replay_data[-SCREENSHOT_MAX_BYTES:]
-        ansi_text = replay_data.decode("utf-8", errors="replace")
+        # Get screen lines directly from the terminal session's pyte screen
+        # This provides accurate terminal state without replay buffer truncation issues
+        lines = await session_process.get_screen_lines()  # type: ignore[union-attr]
+        screen_text = "\n".join(lines)
 
         try:
             width = int(request.query.get("width", "120"))
@@ -502,10 +486,6 @@ class LocalServer:
             height = DISCONNECT_RESIZE[1]
         height = max(5, min(200, height))
 
-        # Use pyte terminal emulator to get clean screen state
-        lines = _apply_carriage_returns(ansi_text, width, height)
-        ansi_text = "\n".join(lines)
-
         now = asyncio.get_event_loop().time()
         ttl = self._get_screenshot_cache_ttl(route_key, now)
         cached = self._screenshot_cache.get(route_key)
@@ -539,7 +519,7 @@ class LocalServer:
             def _render_svg() -> str:
                 console = Console(record=True, width=width, height=height, file=io.StringIO())
                 decoder = AnsiDecoder()
-                for renderable in decoder.decode(ansi_text):
+                for renderable in decoder.decode(screen_text):
                     console.print(renderable)
 
                 return console.export_svg(
diff --git a/src/textual_webterm/terminal_session.py b/src/textual_webterm/terminal_session.py
index a5cac14..86ad039 100644
--- a/src/textual_webterm/terminal_session.py
+++ b/src/textual_webterm/terminal_session.py
@@ -13,6 +13,7 @@ import termios
 from collections import deque
 from typing import TYPE_CHECKING
 
+import pyte
 import rich.repr
 from importlib_metadata import version
 
@@ -27,6 +28,10 @@ log = logging.getLogger("textual-web")
 # Maximum bytes to keep in replay buffer for reconnection
 REPLAY_BUFFER_SIZE = 64 * 1024  # 64KB
 
+# Default screen size for pyte emulator
+DEFAULT_SCREEN_WIDTH = 132
+DEFAULT_SCREEN_HEIGHT = 45
+
 
 @rich.repr.auto
 class TerminalSession(Session):
@@ -47,6 +52,10 @@ class TerminalSession(Session):
         self._replay_buffer: deque[bytes] = deque()
         self._replay_buffer_size = 0
         self._replay_lock = asyncio.Lock()
+        # pyte screen for accurate terminal state tracking
+        self._screen = pyte.Screen(DEFAULT_SCREEN_WIDTH, DEFAULT_SCREEN_HEIGHT)
+        self._stream = pyte.Stream(self._screen)
+        self._screen_lock = asyncio.Lock()
         super().__init__()
 
     def __rich_repr__(self) -> rich.repr.Result:
@@ -55,6 +64,10 @@ class TerminalSession(Session):
 
     async def open(self, width: int = 80, height: int = 24) -> None:
         log.info("Opening terminal session %s with command: %s", self.session_id, self.command)
+        # Initialize pyte screen with the requested size
+        self._screen = pyte.Screen(width, height)
+        self._stream = pyte.Stream(self._screen)
+
         pid, master_fd = pty.fork()
         self.pid = pid
         self.master_fd = master_fd
@@ -88,6 +101,9 @@ class TerminalSession(Session):
     async def set_terminal_size(self, width: int, height: int) -> None:
         loop = asyncio.get_running_loop()
         await loop.run_in_executor(None, self._set_terminal_size, width, height)
+        # Resize pyte screen to match
+        async with self._screen_lock:
+            self._screen.resize(height, width)
 
     async def _add_to_replay_buffer(self, data: bytes) -> None:
         """Add data to replay buffer, maintaining size limit."""
@@ -98,11 +114,30 @@ class TerminalSession(Session):
                 old_data = self._replay_buffer.popleft()
                 self._replay_buffer_size -= len(old_data)
 
+    async def _update_screen(self, data: bytes) -> None:
+        """Update the pyte screen with new terminal data."""
+        async with self._screen_lock:
+            try:
+                text = data.decode("utf-8", errors="replace")
+                self._stream.feed(text)
+            except Exception:
+                # Don't let pyte errors crash the session
+                pass
+
     async def get_replay_buffer(self) -> bytes:
         """Get the contents of the replay buffer."""
         async with self._replay_lock:
             return b"".join(self._replay_buffer)
 
+    async def get_screen_lines(self) -> list[str]:
+        """Get the current screen state as a list of lines.
+
+        Returns properly rendered terminal content with all escape sequences
+        interpreted, suitable for screenshot generation.
+        """
+        async with self._screen_lock:
+            return [line.rstrip() for line in self._screen.display]
+
     def update_connector(self, connector: SessionConnector) -> None:
         """Update the connector for reconnection without restarting the session."""
         self._connector = connector
@@ -127,6 +162,8 @@ class TerminalSession(Session):
                     break
                 # Store in replay buffer for reconnection
                 await self._add_to_replay_buffer(data)
+                # Update pyte screen state for screenshots
+                await self._update_screen(data)
                 # Send to current connector
                 if self._connector:
                     await self._connector.on_data(data)
diff --git a/tests/test_local_server_unit.py b/tests/test_local_server_unit.py
index 51aa57d..893504c 100644
--- a/tests/test_local_server_unit.py
+++ b/tests/test_local_server_unit.py
@@ -9,7 +9,6 @@ from textual_webterm.config import App, Config
 from textual_webterm.local_server import (
     LocalClientConnector,
     LocalServer,
-    _apply_carriage_returns,
     _rewrite_svg_fonts,
 )
 
@@ -110,26 +109,6 @@ class TestLocalServer:
 class TestLocalServerHelpers:
     """Tests for LocalServer helper methods."""
 
-    def test_apply_carriage_returns_overwrites_line(self):
-        text = "hello\rworld\r\nnext"
-        # pyte terminal emulator interprets CR properly - overwrites hello with world
-        lines = _apply_carriage_returns(text, width=80, height=24)
-        # First line should have "world" (overwritten), second line "next"
-        assert lines[0] == "world"
-        assert lines[1] == "next"
-
-    def test_apply_carriage_returns_handles_cursor_positioning(self):
-        # Simulate tmux-style cursor positioning to row 5, column 1 (\x1b[5;1H)
-        # Then clear to end of line (\x1b[K) and write new content
-        # Use \r\n for proper line endings
-        text = "line1\r\nline2\r\nline3\r\nline4\r\nline5\x1b[5;1H\x1b[Kupdated"
-        lines = _apply_carriage_returns(text, width=80, height=10)
-        # Line 5 (index 4) should be overwritten with "updated"
-        assert lines[4] == "updated"
-        # Previous lines should remain
-        assert lines[0] == "line1"
-        assert lines[1] == "line2"
-
     @pytest.mark.asyncio
     async def test_keyboard_interrupt_closes_sessions_and_websockets(self, server, monkeypatch):
         ws1 = MagicMock()
@@ -215,7 +194,7 @@ class TestLocalServerHelpers:
         request.query = {"route_key": "rk", "width": "80"}
 
         session = MagicMock()
-        session.get_replay_buffer = AsyncMock(return_value=b"hello\r\n")
+        session.get_screen_lines = AsyncMock(return_value=["hello", ""])
 
         monkeypatch.setattr(server.session_manager, "get_session_by_route_key", lambda _rk: session)
 
@@ -233,7 +212,7 @@ class TestLocalServerHelpers:
         request.query = {"route_key": "known", "width": "90"}
 
         session = MagicMock()
-        session.get_replay_buffer = AsyncMock(return_value=b"world\r\n")
+        session.get_screen_lines = AsyncMock(return_value=["world", ""])
 
         # Pretend app exists for slug "known"
         server.session_manager.apps_by_slug["known"] = App(
@@ -565,7 +544,7 @@ class TestLocalServerMoreCoverage:
         request.headers = {}
 
         session = MagicMock()
-        session.get_replay_buffer = AsyncMock(return_value=b"SHOULD_NOT_BE_READ")
+        session.get_screen_lines = AsyncMock(return_value=["SHOULD_NOT_BE_READ"])
         monkeypatch.setattr(server_with_no_apps.session_manager, "get_session_by_route_key", lambda _rk: session)
 
         server_with_no_apps._screenshot_cache["rk"] = (0.0, "<svg>cached</svg>")
@@ -575,7 +554,7 @@ class TestLocalServerMoreCoverage:
 
         resp = await server_with_no_apps._handle_screenshot(request)
         assert "cached" in resp.text
-        session.get_replay_buffer.assert_not_awaited()
+        session.get_screen_lines.assert_not_awaited()
 
     @pytest.mark.asyncio
     async def test_handle_screenshot_invalid_width_height_defaults(self, server_with_no_apps, monkeypatch):
@@ -584,7 +563,7 @@ class TestLocalServerMoreCoverage:
         request.headers = {}
 
         session = MagicMock()
-        session.get_replay_buffer = AsyncMock(return_value=b"hello\n")
+        session.get_screen_lines = AsyncMock(return_value=["hello", ""])
         monkeypatch.setattr(server_with_no_apps.session_manager, "get_session_by_route_key", lambda _rk: session)
 
         resp = await server_with_no_apps._handle_screenshot(request)
@@ -756,32 +735,19 @@ class TestLocalServerMoreCoverage:
         assert created is True
 
     @pytest.mark.asyncio
-    async def test_handle_screenshot_truncates_replay_buffer_before_decode(self, server_with_no_apps, monkeypatch):
-        from textual_webterm.local_server import SCREENSHOT_MAX_BYTES
-
+    async def test_handle_screenshot_uses_get_screen_lines(self, server_with_no_apps, monkeypatch):
+        """Test that screenshot uses get_screen_lines() from terminal session."""
         request = MagicMock()
         request.query = {"route_key": "rk"}
         request.headers = {}
 
         session = MagicMock()
-        session.get_replay_buffer = AsyncMock(return_value=b"x" * (SCREENSHOT_MAX_BYTES + 10))
+        session.get_screen_lines = AsyncMock(return_value=["line1", "line2", ""])
         monkeypatch.setattr(server_with_no_apps.session_manager, "get_session_by_route_key", lambda _rk: session)
 
         server_with_no_apps._route_last_activity["rk"] = 1.0
 
-        captured = {"len": None}
-
-        def apply_cr(text: str, width: int = 80, height: int = 24):
-            captured["len"] = len(text)
-            return ["x"]
-
-        async def fake_to_thread(_fn):
-            return "<svg></svg>"
-
-        monkeypatch.setattr("textual_webterm.local_server._apply_carriage_returns", apply_cr)
-        monkeypatch.setattr("textual_webterm.local_server.asyncio.to_thread", AsyncMock(side_effect=fake_to_thread))
-        monkeypatch.setattr("textual_webterm.local_server._rewrite_svg_fonts", lambda s: s)
-
         resp = await server_with_no_apps._handle_screenshot(request)
         assert resp.content_type == "image/svg+xml"
-        assert captured["len"] == SCREENSHOT_MAX_BYTES
+        assert "<svg" in resp.text
+        session.get_screen_lines.assert_awaited_once()
diff --git a/tests/test_terminal_session.py b/tests/test_terminal_session.py
index 31f49bc..be2f355 100644
--- a/tests/test_terminal_session.py
+++ b/tests/test_terminal_session.py
@@ -96,6 +96,40 @@ class TestTerminalSession:
         # Buffer should be trimmed
         assert session._replay_buffer_size <= REPLAY_BUFFER_SIZE + chunk_size
 
+    @pytest.mark.asyncio
+    async def test_screen_state_updates_with_data(self):
+        """Test that pyte screen updates when data is received."""
+        from textual_webterm.terminal_session import TerminalSession
+
+        mock_poller = MagicMock()
+        session = TerminalSession(mock_poller, "test-session", "bash")
+
+        # Feed some terminal data
+        await session._update_screen(b"Hello World\r\n")
+        lines = await session.get_screen_lines()
+
+        # First line should contain the text
+        assert "Hello World" in lines[0]
+
+    @pytest.mark.asyncio
+    async def test_screen_handles_cursor_positioning(self):
+        """Test that pyte screen correctly handles cursor positioning (tmux-style)."""
+        from textual_webterm.terminal_session import TerminalSession
+
+        mock_poller = MagicMock()
+        session = TerminalSession(mock_poller, "test-session", "bash")
+
+        # Feed content then reposition cursor and overwrite
+        await session._update_screen(b"Line 1\r\nLine 2\r\nLine 3\r\n")
+        # Move cursor to line 2, column 1 and clear line, then write new content
+        await session._update_screen(b"\x1b[2;1H\x1b[KUpdated Line 2")
+
+        lines = await session.get_screen_lines()
+
+        assert lines[0] == "Line 1"
+        assert lines[1] == "Updated Line 2"
+        assert lines[2] == "Line 3"
+
     def test_update_connector(self):
         """Test updating connector."""
         from textual_webterm.terminal_session import TerminalSession