diff --git a/openhands_cli/tui/widgets/richlog_visualizer.py b/openhands_cli/tui/widgets/richlog_visualizer.py
index f24adde1b..f2cd35bfb 100644
--- a/openhands_cli/tui/widgets/richlog_visualizer.py
+++ b/openhands_cli/tui/widgets/richlog_visualizer.py
@@ -416,7 +416,7 @@ def render_refinement_message(self, content: str) -> None:
         self._render_message_widget(content)
 
     def _update_widget_in_ui(
-        self, collapsible: Collapsible, new_title: str, new_content: str
+        self, collapsible: Collapsible, new_title: str | Text, new_content: str | Text
     ) -> None:
         """Update an existing widget in the UI (must be called from main thread)."""
         collapsible.update_title(new_title)
@@ -514,14 +514,13 @@ def _build_action_title(self, event: ActionEvent) -> str:
 
     def _build_observation_content(
         self, event: ObservationEvent | UserRejectObservation | AgentErrorEvent
-    ) -> str:
-        """Build content string from an observation event.
+    ) -> str | Text:
+        """Build content from an observation event.
 
-        Returns the Rich-formatted content to preserve colors and styling.
+        Returns the Rich Text object directly to preserve colors and styling
+        (e.g., red/green diff highlighting from FileEditorObservation).
         """
-        # Return the visualize content directly (Rich Text object)
-        # The Collapsible widget can handle Rich renderables
-        return str(event.visualize)
+        return event.visualize
 
     def _escape_rich_markup(self, text: str) -> str:
         """Escape Rich markup characters in text to prevent markup errors.
@@ -770,9 +769,9 @@ def _create_titled_collapsible(
     ) -> Collapsible:
         """Create a standard titled collapsible for non-action events."""
         title = self._extract_meaningful_title(event, fallback_title)
-        content_string = self._escape_rich_markup(str(event.visualize))
+        content = event.visualize
         return self._make_collapsible(
-            content_string,
+            content,
             f"{self._get_agent_prefix()}{title}",
             event,
         )
@@ -816,7 +815,7 @@ def _create_event_collapsible(self, event: Event) -> Collapsible | None:
         if isinstance(event, ActionEvent):
             title = self._build_action_title(event)
             collapsible = self._make_collapsible(
-                self._escape_rich_markup(str(content)),
+                content,
                 title,
                 event,
             )
@@ -838,11 +837,9 @@ def _create_event_collapsible(self, event: Event) -> Collapsible | None:
         title = self._extract_meaningful_title(
             event, f"UNKNOWN Event: {event.__class__.__name__}"
         )
-        content_string = (
-            f"{self._escape_rich_markup(str(content))}\n\nSource: {event.source}"
-        )
+        full_content = Text.assemble(content, f"\n\nSource: {event.source}")
         return self._make_collapsible(
-            content_string,
+            full_content,
             f"{self._get_agent_prefix()}{title}",
             event,
         )
diff --git a/tests/tui/widgets/test_richlog_visualizer.py b/tests/tui/widgets/test_richlog_visualizer.py
index acf5c455c..426b89269 100644
--- a/tests/tui/widgets/test_richlog_visualizer.py
+++ b/tests/tui/widgets/test_richlog_visualizer.py
@@ -1500,3 +1500,70 @@ def test_action_title_has_prefix_for_non_default_agent(self, mock_cli_settings):
         assert "(Code Reviewer Agent)" in title
         # Should contain the command
         assert "git diff" in title
+
+
+class TestRichTextPreservation:
+    """Tests that Rich Text styling is preserved through the rendering pipeline.
+
+    Relates to: https://github.com/OpenHands/OpenHands-CLI/issues/308
+    """
+
+    def test_build_observation_content_returns_text_object(self, visualizer):
+        """_build_observation_content should return Text, not str."""
+        event = AgentErrorEvent(
+            tool_name="terminal",
+            tool_call_id="call_1",
+            error="test error",
+        )
+        result = visualizer._build_observation_content(event)
+        assert isinstance(result, Text)
+
+    def test_build_observation_content_preserves_styles(self, visualizer):
+        """_build_observation_content should preserve Rich Text spans/styles."""
+        event = AgentErrorEvent(
+            tool_name="terminal",
+            tool_call_id="call_1",
+            error="test error",
+        )
+        result = visualizer._build_observation_content(event)
+        # The Text object should have style spans (bold "Tool:", etc.)
+        assert isinstance(result, Text)
+        assert len(result._spans) > 0, "Text object should have style spans"
+
+    def test_create_titled_collapsible_passes_text_object(
+        self, visualizer, mock_cli_settings
+    ):
+        """_create_titled_collapsible should pass Text to collapsible, not str."""
+        event = ConversationErrorEvent(
+            source="agent",
+            code="test_error",
+            detail="Test error",
+        )
+        with mock_cli_settings(visualizer=visualizer):
+            collapsible = visualizer._create_titled_collapsible(event, "Test Error")
+        # Content widget should have received a Text object, not plain str
+        content = collapsible._content_widget._Static__content
+        assert isinstance(content, Text)
+
+    def test_create_event_collapsible_action_preserves_text(
+        self, visualizer, mock_cli_settings
+    ):
+        """Action collapsible content should be Text, not escaped str."""
+        action = RichLogMockAction(command="test")
+        tool_call = create_tool_call("call_1", "test")
+        event = ActionEvent(
+            thought=[TextContent(text="testing")],
+            action=action,
+            tool_name="test",
+            tool_call_id="call_1",
+            tool_call=tool_call,
+            llm_response_id="resp_1",
+        )
+        with mock_cli_settings(visualizer=visualizer):
+            collapsible = visualizer._create_event_collapsible(event)
+        assert collapsible is not None
+        # Verify content is a Text object, not plain str
+        content = collapsible._content_widget._Static__content
+        assert isinstance(content, Text)
+        # Verify it was stored in pending actions
+        assert "call_1" in visualizer._pending_actions