diff --git a/sdk/CHANGELOG.md b/sdk/CHANGELOG.md
index f2629975..a7589934 100644
--- a/sdk/CHANGELOG.md
+++ b/sdk/CHANGELOG.md
@@ -12,6 +12,32 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - `getPlatformSupport()` now reports `uiCapabilities` on Windows when the
   native probe can determine which UI restrictions the host can enforce.
 
+## [0.7.0]
+
+### ⚠️ Breaking changes
+
+- **`usePty` now defaults to `false`.** `spawnSandboxFromConfig` and
+  `spawnSandboxAsync` spawn via `child_process` (pipe mode) unless called with
+  `usePty: true`, so the default path no longer requires the optional `node-pty`
+  peer dependency. `spawnSandboxFromConfig` therefore returns a `ChildProcess` by
+  default (and `IPty` only when `usePty: true`); `spawnSandboxAsync` now returns
+  real, separated `stdout`/`stderr` on the default path. `spawnSandbox` and
+  `execInSandbox` are unchanged — they always use PTY and require `node-pty`.
+- **`node-pty` moved from `dependencies` to an optional `peerDependency`.**
+  Pipe-only consumers no longer pull it in transitively; consumers that use PTY
+  mode must install `node-pty` themselves. `loadPty()` surfaces an actionable
+  error when PTY mode is requested but the peer dependency is missing.
+
+### Changed
+
+- `node-pty` is loaded lazily, only when a PTY is actually spawned. Importing the
+  SDK and spawning in pipe mode never evaluates `node-pty` or loads its native
+  addon.
+- The SDK's public PTY types (`IPty`, `IPtyForkOptions`, etc.) are now vendored
+  and exported from the package itself. Consumers no longer need `node-pty`
+  installed to type-check against the SDK (previously this failed with
+  `TS2307: Cannot find module 'node-pty'`).
+
 ## [0.3.0]
 
 ### ⚠️ Breaking changes
diff --git a/sdk/README.md b/sdk/README.md
index 8c855333..3fae95bc 100644
--- a/sdk/README.md
+++ b/sdk/README.md
@@ -8,6 +8,18 @@
 npm install @microsoft/mxc-sdk
 ```
 
+`node-pty` is an **optional peer dependency**, used only for PTY mode. PTY mode is
+opt-in: `spawnSandbox` (and `execInSandbox`) always use it, and
+`spawnSandboxFromConfig` / `spawnSandboxAsync` use it when called with
+`usePty: true`. The default path (`usePty` unset/`false`) spawns via
+`child_process` and needs no native addon. The SDK's public types are
+self-contained, so pipe-only consumers can install and type-check the SDK without
+`node-pty`. If you use PTY mode, install it alongside the SDK:
+
+```bash
+npm install node-pty
+```
+
 ```typescript
 import {
   spawnSandboxFromConfig, createConfigFromPolicy,
diff --git a/sdk/package-lock.json b/sdk/package-lock.json
index c5aff1cf..b28c78de 100644
--- a/sdk/package-lock.json
+++ b/sdk/package-lock.json
@@ -1,26 +1,34 @@
 {
   "name": "@microsoft/mxc-sdk",
-  "version": "0.6.1",
+  "version": "0.7.0",
   "lockfileVersion": 3,
   "requires": true,
   "packages": {
     "": {
       "name": "@microsoft/mxc-sdk",
-      "version": "0.6.1",
+      "version": "0.7.0",
       "license": "MIT",
       "dependencies": {
-        "node-pty": "^1.2.0-beta.12",
         "semver": "^7.7.4"
       },
       "devDependencies": {
         "@types/node": "^20.10.0",
         "@types/semver": "^7.7.1",
         "node-gyp": "^12.2.0",
+        "node-pty": "^1.2.0-beta.12",
         "rimraf": "^6.1.3",
         "typescript": "^5.3.3"
       },
       "engines": {
         "node": ">=18.0.0"
+      },
+      "peerDependencies": {
+        "node-pty": "^1.2.0-beta.12"
+      },
+      "peerDependenciesMeta": {
+        "node-pty": {
+          "optional": true
+        }
       }
     },
     "node_modules/@gar/promise-retry": {
@@ -546,6 +554,7 @@
       "version": "7.1.1",
       "resolved": "https://registry.npmjs.org/node-addon-api/-/node-addon-api-7.1.1.tgz",
       "integrity": "sha512-5m3bsyrjFWE1xf7nz7YXdN4udnVtXK6/Yfgn5qnahL6bCkf2yKt4k3nuTKAtT4r3IG8JNR2ncsIMdZuAzJjHQQ==",
+      "dev": true,
       "license": "MIT"
     },
     "node_modules/node-gyp": {
@@ -577,6 +586,7 @@
       "version": "1.2.0-beta.12",
       "resolved": "https://registry.npmjs.org/node-pty/-/node-pty-1.2.0-beta.12.tgz",
       "integrity": "sha512-uExTCG/4VmSJa4+TjxFwPXv8BfacmfFEBL6JpxCMDghcwqzvD0yTcGmZ1fKOK6HY33tp0CelLblqTECJizc+Yw==",
+      "dev": true,
       "hasInstallScript": true,
       "license": "MIT",
       "dependencies": {
diff --git a/sdk/package.json b/sdk/package.json
index 090c11d4..7b893688 100644
--- a/sdk/package.json
+++ b/sdk/package.json
@@ -1,6 +1,6 @@
 {
   "name": "@microsoft/mxc-sdk",
-  "version": "0.6.1",
+  "version": "0.7.0",
   "description": "TypeScript SDK for MXC (Microsoft eXecution Containers)",
   "type": "module",
   "types": "dist/index.d.ts",
@@ -41,13 +41,21 @@
     "@types/node": "^20.10.0",
     "@types/semver": "^7.7.1",
     "node-gyp": "^12.2.0",
+    "node-pty": "^1.2.0-beta.12",
     "rimraf": "^6.1.3",
     "typescript": "^5.3.3"
   },
   "dependencies": {
-    "node-pty": "^1.2.0-beta.12",
     "semver": "^7.7.4"
   },
+  "peerDependencies": {
+    "node-pty": "^1.2.0-beta.12"
+  },
+  "peerDependenciesMeta": {
+    "node-pty": {
+      "optional": true
+    }
+  },
   "engines": {
     "node": ">=18.0.0"
   }
diff --git a/sdk/src/index.ts b/sdk/src/index.ts
index be02c49a..c5e09e56 100644
--- a/sdk/src/index.ts
+++ b/sdk/src/index.ts
@@ -8,7 +8,7 @@
  *
  * @example
  * ```typescript
- * import { spawnSandbox, spawnSandboxWithPty, SandboxPolicy, getPlatformSupport } from '@microsoft/mxc-sdk';
+ * import { spawnSandbox, SandboxPolicy, getPlatformSupport } from '@microsoft/mxc-sdk';
  *
  * if (getPlatformSupport().isSupported) {
  *   const policy: SandboxPolicy = {
@@ -16,7 +16,7 @@
  *     network: { allowOutbound: true },
  *   };
  *
- *   const ptyProcess = spawnSandboxWithPty('python -c "print(\'Hello from sandbox\')"', policy);
+ *   const ptyProcess = spawnSandbox('python -c "print(\'Hello from sandbox\')"', policy);
  *   ptyProcess.onData((data) => console.log(data));
  *   ptyProcess.onExit((event) => console.log('Exit code:', event.exitCode));
  * }
@@ -54,6 +54,17 @@ export {
   SandboxSpawnOptions,
 } from './sandbox.js';
 
+// Export vendored node-pty type surface (so PTY-mode consumers can name these
+// types without depending on the optional `node-pty` peer dependency).
+export type {
+  IPty,
+  IPtyForkOptions,
+  IWindowsPtyForkOptions,
+  IBasePtyForkOptions,
+  IDisposable,
+  IEvent,
+} from './pty-types.js';
+
 // Export policy discovery functions
 export {
   getAvailableToolsPolicy,
diff --git a/sdk/src/lazyPty.ts b/sdk/src/lazyPty.ts
new file mode 100644
index 00000000..5397d0cc
--- /dev/null
+++ b/sdk/src/lazyPty.ts
@@ -0,0 +1,43 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+import { createRequire } from 'node:module';
+import type { NodePty } from './pty-types.js';
+
+const require = createRequire(import.meta.url);
+
+let cached: NodePty | undefined;
+
+/**
+ * Lazily loads the `node-pty` native addon.
+ *
+ * `node-pty` loads its native binary during module evaluation, so a top-level
+ * `import` would force every consumer of the SDK to ship and load the addon —
+ * even those that only ever spawn in pipe mode (`usePty: false`). Deferring the
+ * require keeps the `usePty: false` path from ever touching `node-pty`.
+ *
+ * The return type is the vendored {@link NodePty} shape rather than node-pty's
+ * own module type so the generated `.d.ts` stays self-contained and consumers
+ * without the optional peer dependency can still type-check.
+ *
+ * Uses `createRequire` because `node-pty` is CommonJS and the call sites are
+ * synchronous.
+ */
+export function loadPty(): NodePty {
+  if (cached) {
+    return cached;
+  }
+  try {
+    cached = require('node-pty') as NodePty;
+  } catch (err) {
+    const e = err as NodeJS.ErrnoException;
+    if (e?.code === 'MODULE_NOT_FOUND' && /'node-pty'/.test(e.message)) {
+      throw new Error(
+        "PTY mode requires the optional peer dependency 'node-pty', which is not " +
+          'installed. Install it (e.g. `npm install node-pty`) or spawn with `usePty: false`.',
+      );
+    }
+    throw err;
+  }
+  return cached;
+}
diff --git a/sdk/src/pty-types.ts b/sdk/src/pty-types.ts
new file mode 100644
index 00000000..98fca05e
--- /dev/null
+++ b/sdk/src/pty-types.ts
@@ -0,0 +1,109 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+/**
+ * Minimal, vendored subset of the `node-pty` public type surface.
+ *
+ * `node-pty` is an *optional* peer dependency (see {@link ./lazyPty}). If the
+ * SDK referenced `node-pty`'s own types in its public API, every consumer would
+ * need `node-pty` installed just to type-check — even pipe-only consumers that
+ * never spawn a PTY (they would otherwise hit `TS2307: Cannot find module
+ * 'node-pty'`). Re-declaring the slice we expose keeps the generated `.d.ts`
+ * self-contained.
+ *
+ * These declarations are structurally compatible with the real `node-pty`
+ * types, so values produced by the actual module satisfy them at runtime.
+ */
+
+/** An object that can be disposed via a dispose function. */
+export interface IDisposable {
+  dispose(): void;
+}
+
+/**
+ * An event that can be listened to.
+ * @returns an `IDisposable` to stop listening.
+ */
+export interface IEvent<T> {
+  (listener: (e: T) => unknown): IDisposable;
+}
+
+/** Options shared by all platforms when forking a pseudoterminal. */
+export interface IBasePtyForkOptions {
+  /** Name of the terminal to be set in environment ($TERM variable). */
+  name?: string;
+  /** Number of initial cols of the pty. */
+  cols?: number;
+  /** Number of initial rows of the pty. */
+  rows?: number;
+  /** Working directory to be set for the child program. */
+  cwd?: string;
+  /** Environment to be set for the child program. */
+  env?: { [key: string]: string | undefined };
+  /** String encoding of the underlying pty. */
+  encoding?: string | null;
+  /** (EXPERIMENTAL) Whether to enable flow control handling. */
+  handleFlowControl?: boolean;
+  /** (EXPERIMENTAL) String that pauses the pty when `handleFlowControl` is true. */
+  flowControlPause?: string;
+  /** (EXPERIMENTAL) String that resumes the pty when `handleFlowControl` is true. */
+  flowControlResume?: string;
+}
+
+/** POSIX-specific fork options. */
+export interface IPtyForkOptions extends IBasePtyForkOptions {
+  uid?: number;
+  gid?: number;
+}
+
+/** Windows-specific fork options. */
+export interface IWindowsPtyForkOptions extends IBasePtyForkOptions {
+  /** @deprecated Ignored by node-pty; retained for compatibility. */
+  useConpty?: boolean;
+  /** (EXPERIMENTAL) Use the conpty.dll shipped with node-pty. */
+  useConptyDll?: boolean;
+  /** Whether to use PSEUDOCONSOLE_INHERIT_CURSOR in conpty. */
+  conptyInheritCursor?: boolean;
+}
+
+/** An interface representing a pseudoterminal. */
+export interface IPty {
+  /** The process ID of the outer process. */
+  readonly pid: number;
+  /** The column size in characters. */
+  readonly cols: number;
+  /** The row size in characters. */
+  readonly rows: number;
+  /** The title of the active process. */
+  readonly process: string;
+  /** (EXPERIMENTAL) Whether to handle flow control at runtime. */
+  handleFlowControl: boolean;
+  /** Fires when data is returned from the pty. */
+  readonly onData: IEvent<string>;
+  /** Fires when the pty exits. */
+  readonly onExit: IEvent<{ exitCode: number; signal?: number }>;
+  /** Resizes the dimensions of the pty. */
+  resize(columns: number, rows: number, pixelSize?: { width: number; height: number }): void;
+  /** Clears the pty's internal representation of its buffer (ConPTY only). */
+  clear(): void;
+  /** Writes data to the pty. */
+  write(data: string | Buffer): void;
+  /** Kills the pty. */
+  kill(signal?: string): void;
+  /** Pauses the pty for customizable flow control. */
+  pause(): void;
+  /** Resumes the pty for customizable flow control. */
+  resume(): void;
+}
+
+/**
+ * The slice of the `node-pty` module shape that the SDK calls into. Returned by
+ * {@link ./lazyPty.loadPty}.
+ */
+export interface NodePty {
+  spawn(
+    file: string,
+    args: string[] | string,
+    options: IPtyForkOptions | IWindowsPtyForkOptions,
+  ): IPty;
+}
diff --git a/sdk/src/sandbox.ts b/sdk/src/sandbox.ts
index a031173b..19df3591 100644
--- a/sdk/src/sandbox.ts
+++ b/sdk/src/sandbox.ts
@@ -1,12 +1,13 @@
 // Copyright (c) Microsoft Corporation.
 // Licensed under the MIT License.
 
-import pty from 'node-pty';
+import type { IPty, IPtyForkOptions } from './pty-types.js';
 import * as os from 'os';
 import { spawn, ChildProcess } from 'child_process';
 import { randomBytes } from "crypto";
 import { parse as semverParse } from 'semver';
 import { SandboxPolicy, ContainerConfig, ContainmentType, ContainmentBackend } from './types.js';
+import { loadPty } from './lazyPty.js';
 import { prepareSpawn, diagLogVersion, applyLinuxNetworkPolicy } from './helper.js';
 import { diagLog } from './diagnostic.js';
 import { MxcError, mxcErrorFromCode } from './errors.js';
@@ -431,9 +432,11 @@ export interface SandboxSpawnOptions {
   skipPlatformCheck?: boolean;
 
   /**
-   * PTY options to pass to node-pty (only used by spawnSandbox)
+   * PTY options to pass to node-pty. Only used by the PTY path
+   * (`spawnSandbox`, or `spawnSandboxFromConfig`/`spawnSandboxAsync` with
+   * `usePty: true`).
    */
-  ptyOptions?: pty.IPtyForkOptions;
+  ptyOptions?: IPtyForkOptions;
 
   /**
    * Dry run mode: parse and validate config without executing.
@@ -447,9 +450,13 @@ export interface SandboxSpawnOptions {
   logDir?: string;
 
   /**
-   * When false, uses child_process.spawn instead of node-pty.
-   * Provides reliable exit codes and separate stdout/stderr streams.
-   * Defaults to true (uses PTY).
+   * Opt into PTY mode for `spawnSandboxFromConfig` / `spawnSandboxAsync`.
+   *
+   * When true, the SDK spawns via `node-pty` (which must be installed — it is
+   * an optional peer dependency) for interactive terminal I/O. When false or
+   * unset, it uses `child_process.spawn`, which needs no native addon and
+   * provides reliable exit codes and separate stdout/stderr streams.
+   * Defaults to false. (`spawnSandbox` always uses PTY regardless.)
    */
   usePty?: boolean;
 
@@ -493,12 +500,12 @@ function injectEnvIntoConfig(
 /**
  * Internal helper: resolves the executor binary path and spawns a PTY process.
  */
-function spawnWithConfig(
+function spawnPtyWithConfig(
   config: ContainerConfig,
   options: SandboxSpawnOptions,
   workingDirectory?: string,
   env?: { [key: string]: string | undefined },
-): pty.IPty {
+): IPty {
   // Inject env vars into config.process.env so they are passed explicitly to
   // the sandboxed child via the JSON config (not via process inheritance).
   if (env) {
@@ -508,7 +515,7 @@ function spawnWithConfig(
   const { executablePath, args, logger, startTime } = prepareSpawn(config, options);
 
   try {
-    const ptyOpts: pty.IPtyForkOptions = {
+    const ptyOpts: IPtyForkOptions = {
       name: "xterm-color",
       cols: 120,
       rows: 80,
@@ -516,9 +523,9 @@ function spawnWithConfig(
       cwd: workingDirectory || process.cwd(),
     };
 
-    diagLog(`spawnWithConfig: spawning PTY process, cwd=${ptyOpts.cwd}`);
+    diagLog(`spawnPtyWithConfig: spawning PTY process, cwd=${ptyOpts.cwd}`);
 
-    const ptyProcess = pty.spawn(executablePath, args, ptyOpts);
+    const ptyProcess = loadPty().spawn(executablePath, args, ptyOpts);
 
     ptyProcess.onExit((event) => {
       logger?.log('info', 'mxc.spawn.exit', {
@@ -539,6 +546,11 @@ function spawnWithConfig(
  * Spawn a sandboxed process using wxc-exec with a PTY (node-pty) for
  * interactive terminal I/O (colors, input forwarding).
  *
+ * Always uses PTY mode and therefore requires the optional `node-pty` peer
+ * dependency to be installed. For non-interactive use that doesn't need a PTY,
+ * prefer `spawnSandboxAsync` or `spawnSandboxFromConfig` (both default to pipe
+ * mode and need no native addon).
+ *
  * @param script The command line script to execute
  * @param policy The sandbox policy
  * @param options - Spawn options
@@ -546,7 +558,7 @@ function spawnWithConfig(
  * @param containerName Optional container name; if not provided, a random name will be generated
  * @param env Optional environment variables
  * @returns IPty object for interacting with the sandboxed process
- * @throws Error if platform is not supported or wxc-exec is not found
+ * @throws Error if platform is not supported, wxc-exec is not found, or `node-pty` is not installed
  *
  * @example
  * ```typescript
@@ -565,9 +577,49 @@ export function spawnSandbox(
   workingDirectory?: string,
   containerName?: string,
   env?: { [key: string]: string | undefined },
-): pty.IPty {
+): IPty {
   const config = buildSandboxPayload(script, policy, workingDirectory, containerName);
-  return spawnWithConfig(config, options, workingDirectory, env);
+  return spawnPtyWithConfig(config, options, workingDirectory, env);
+}
+
+/**
+ * Internal helper: resolves the executor binary path and spawns a pipe
+ * (`child_process`) process. Used by the default, non-PTY spawn paths so they
+ * never touch the optional `node-pty` addon.
+ */
+function spawnChildWithConfig(
+  config: ContainerConfig,
+  options: SandboxSpawnOptions,
+  workingDirectory?: string,
+  env?: { [key: string]: string | undefined },
+): ChildProcess {
+  // Inject env vars into config.process.env so they are passed explicitly to
+  // the sandboxed child via the JSON config (not via process inheritance).
+  if (env) {
+    injectEnvIntoConfig(config, env);
+  }
+
+  const { executablePath, args, logger, startTime } = prepareSpawn(config, options);
+  try {
+    const child = spawn(executablePath, args, {
+      cwd: workingDirectory || process.cwd(),
+      stdio: ['pipe', 'pipe', 'pipe'],
+    });
+    child.on('close', (code) => {
+      logger?.log('info', 'mxc.spawn.exit', {
+        exitCode: code ?? -1,
+        durationMs: Date.now() - startTime,
+      });
+      logger?.close();
+    });
+    child.on('error', () => {
+      logger?.close();
+    });
+    return child;
+  } catch (err) {
+    logger?.close();
+    throw err;
+  }
 }
 
 /**
@@ -580,7 +632,7 @@ export function spawnSandbox(
  * @param config The container configuration (from createConfigFromPolicy)
  * @param options - Spawn options
  * @param workingDirectory Optional working directory path
- * @returns IPty when usePty is true or unset; ChildProcess when usePty is false
+ * @returns ChildProcess by default (pipe mode); IPty when `usePty: true`
  *
  * @example
  * ```typescript
@@ -588,64 +640,39 @@ export function spawnSandbox(
  * config.process!.commandLine = 'echo hello';
  * config.processContainer!.ui!.isolation = "atoms";
  *
- * // PTY mode (default) — returns IPty:
- * const ptyProcess = spawnSandboxFromConfig(config);
- *
- * // Non-PTY mode — returns ChildProcess with reliable exit codes:
- * const child = spawnSandboxFromConfig(config, { usePty: false });
+ * // Pipe mode (default) — returns ChildProcess with reliable exit codes:
+ * const child = spawnSandboxFromConfig(config);
  * child.stdout?.on('data', (data) => console.log(data.toString()));
+ *
+ * // PTY mode — returns IPty (requires the optional `node-pty` peer dependency):
+ * const ptyProcess = spawnSandboxFromConfig(config, { usePty: true });
+ * ptyProcess.onData((data) => console.log(data));
  * ```
  */
 export function spawnSandboxFromConfig(
   config: ContainerConfig,
-  options: SandboxSpawnOptions & { usePty: false },
+  options: SandboxSpawnOptions & { usePty: true },
   workingDirectory?: string,
   env?: { [key: string]: string | undefined }
-): ChildProcess;
+): IPty;
 export function spawnSandboxFromConfig(
   config: ContainerConfig,
   options?: SandboxSpawnOptions,
   workingDirectory?: string,
   env?: { [key: string]: string | undefined }
-): pty.IPty;
+): ChildProcess;
 export function spawnSandboxFromConfig(
   config: ContainerConfig,
   options: SandboxSpawnOptions = {},
   workingDirectory?: string,
   env?: { [key: string]: string | undefined }
-): pty.IPty | ChildProcess {
-  if (options.usePty === false) {
-    // Inject env vars into config.process.env so they are passed explicitly to
-    // the sandboxed child via the JSON config (not via process inheritance).
-    if (env) {
-      injectEnvIntoConfig(config, env);
-    }
-
-    const { executablePath, args, logger, startTime } = prepareSpawn(config, options);
-    try {
-      const child = spawn(executablePath, args, {
-        cwd: workingDirectory || process.cwd(),
-        stdio: ['pipe', 'pipe', 'pipe'],
-      });
-      child.on('close', (code) => {
-        logger?.log('info', 'mxc.spawn.exit', {
-          exitCode: code ?? -1,
-          durationMs: Date.now() - startTime,
-        });
-        logger?.close();
-      });
-      child.on('error', () => {
-        logger?.close();
-      });
-      return child;
-    } catch (err) {
-      logger?.close();
-      throw err;
-    }
+): IPty | ChildProcess {
+  if (options.usePty === true) {
+    diagLogVersion();
+    return spawnPtyWithConfig(config, options, workingDirectory, env);
   }
 
-  diagLogVersion();
-  return spawnWithConfig(config, options, workingDirectory, env);
+  return spawnChildWithConfig(config, options, workingDirectory, env);
 }
 
 /**
@@ -672,6 +699,35 @@ export function spawnSandboxFromConfig(
  * console.log('Exit code:', result.exitCode);
  * ```
  */
+/**
+ * Spawn a sandboxed process and return a promise that resolves with output.
+ * Convenience wrapper for non-interactive use cases.
+ *
+ * Defaults to pipe mode (`child_process`), which needs no native addon and
+ * yields separate `stdout`/`stderr`. Pass `usePty: true` to run under a PTY
+ * instead (requires the optional `node-pty` peer dependency); in PTY mode the
+ * combined terminal output is returned in `stdout` and `stderr` is empty.
+ *
+ * @param script The command line script to execute
+ * @param policy The sandbox policy
+ * @param options - Spawn options
+ * @param workingDirectory Optional working directory path
+ * @param containerName Optional container name; if not provided, a random name will be generated
+ *
+ * @returns Promise that resolves with stdout/stderr and exit code
+ *
+ * @example
+ * ```typescript
+ * const policy: SandboxPolicy = {
+ *   version: '0.4.0-alpha',
+ *   filesystem: { readwritePaths: ['/workspace'] },
+ * };
+ *
+ * const result = await spawnSandboxAsync('echo hello', policy);
+ * console.log('Output:', result.stdout);
+ * console.log('Exit code:', result.exitCode);
+ * ```
+ */
 export function spawnSandboxAsync(
   script: string,
   policy: SandboxPolicy,
@@ -679,39 +735,83 @@ export function spawnSandboxAsync(
   workingDirectory?: string,
   containerName?: string,
 ): Promise<{ stdout: string; stderr: string; exitCode: number }> {
-  return new Promise((resolve, reject) => {
-    try {
-      const ptyProcess = spawnSandbox(script, policy, options, workingDirectory, containerName);
-      let output = '';
+  const config = buildSandboxPayload(script, policy, workingDirectory, containerName);
+
+  if (options.usePty === true) {
+    return new Promise((resolve, reject) => {
+      let ptyProcess: IPty;
+      try {
+        ptyProcess = spawnPtyWithConfig(config, options, workingDirectory);
+      } catch (error) {
+        reject(error);
+        return;
+      }
 
+      let output = '';
       ptyProcess.onData((data: string) => {
         output += data;
       });
-
       ptyProcess.onExit((event: { exitCode: number; signal?: number }) => {
-        // Note: wxc-exec doesn't separate stdout/stderr when using PTY
-        // All output is combined
-        //
-        // Check for structured error envelopes from wxc-exec on failure.
-        if (event.exitCode !== 0) {
-          const mxcError = tryParseErrorEnvelopeFromLines(output);
-          if (mxcError) {
-            reject(mxcError);
-            return;
-          }
+        // wxc-exec runs under a single PTY, so the OS merges stdout/stderr;
+        // all output arrives on `output` and stderr is reported empty.
+        try {
+          resolve(settleSpawnResult(output, '', event.exitCode));
+        } catch (err) {
+          reject(err);
         }
-        resolve({
-          stdout: output,
-          stderr: '',
-          exitCode: event.exitCode
-        });
       });
+    });
+  }
+
+  return new Promise((resolve, reject) => {
+    let child: ChildProcess;
+    try {
+      child = spawnChildWithConfig(config, options, workingDirectory);
     } catch (error) {
       reject(error);
+      return;
     }
+
+    let stdout = '';
+    let stderr = '';
+    child.stdout?.on('data', (d: Buffer | string) => {
+      stdout += typeof d === 'string' ? d : d.toString('utf-8');
+    });
+    child.stderr?.on('data', (d: Buffer | string) => {
+      stderr += typeof d === 'string' ? d : d.toString('utf-8');
+    });
+
+    child.on('error', (err) => {
+      reject(err);
+    });
+    child.on('close', (code) => {
+      try {
+        resolve(settleSpawnResult(stdout, stderr, code ?? -1));
+      } catch (err) {
+        reject(err);
+      }
+    });
   });
 }
 
+/**
+ * Builds the buffered spawn result, or throws the `MxcError` carried by a
+ * structured error envelope when the executor reported a non-zero exit.
+ */
+function settleSpawnResult(
+  stdout: string,
+  stderr: string,
+  exitCode: number,
+): { stdout: string; stderr: string; exitCode: number } {
+  if (exitCode !== 0) {
+    const mxcError = tryParseErrorEnvelopeFromLines(stderr) ?? tryParseErrorEnvelopeFromLines(stdout);
+    if (mxcError) {
+      throw mxcError;
+    }
+  }
+  return { stdout, stderr, exitCode };
+}
+
 /**
  * Scans a multi-line string for a JSON error envelope emitted by wxc-exec
  * on stderr. Returns the first matching envelope, or null if none found.
diff --git a/sdk/src/state-aware.ts b/sdk/src/state-aware.ts
index 307b4d61..0623fda9 100644
--- a/sdk/src/state-aware.ts
+++ b/sdk/src/state-aware.ts
@@ -1,8 +1,9 @@
 // Copyright (c) Microsoft Corporation.
 // Licensed under the MIT License.
 
-import pty from 'node-pty';
+import type { IPty } from './pty-types.js';
 import { resolveBinaryAndCommonArgs } from './helper.js';
+import { loadPty } from './lazyPty.js';
 import { SandboxSpawnOptions } from './sandbox.js';
 import { mxcErrorFromCode } from './errors.js';
 import { diagLog } from './diagnostic.js';
@@ -84,7 +85,7 @@ export function execInSandbox<C extends StateAwareContainmentBackend>(
   sandboxId: SandboxId<C>,
   config: ExecConfigFor<C>,
   options: SandboxSpawnOptions = {},
-): pty.IPty {
+): IPty {
   const backendKey = backendForSandboxId(sandboxId) as C;
   const envelope = buildStateAwareEnvelope({
     phase: 'exec',
@@ -94,7 +95,7 @@ export function execInSandbox<C extends StateAwareContainmentBackend>(
   });
   const { executablePath, args } = resolveBinaryAndCommonArgs(JSON.stringify(envelope), options);
   diagLog(`state-aware: spawning exec via PTY`);
-  const ptyProcess = pty.spawn(executablePath, args, {
+  const ptyProcess = loadPty().spawn(executablePath, args, {
     name: 'xterm-color',
     cols: 120,
     rows: 80,
diff --git a/sdk/tests/integration/common.test.ts b/sdk/tests/integration/common.test.ts
index d12b0911..32e28fed 100644
--- a/sdk/tests/integration/common.test.ts
+++ b/sdk/tests/integration/common.test.ts
@@ -67,14 +67,14 @@ for (const schemaVersion of supportedVersions) {
       assertDryRunResult(result.stdout, result.exitCode, schemaVersion.raw);
     });
 
-    it('should dry-run via spawnSandboxFromConfig', async () => {
+    it('should dry-run via spawnSandboxFromConfig (PTY)', async () => {
       const config = sdk.createConfigFromPolicy(policy);
       config.process = config.process ?? { commandLine: '' };
       config.process.commandLine = 'cmd.exe /c echo test';
       config.containerId = `dryrun-fromcfg-${schemaVersion}`;
 
       const result = await new Promise<{ exitCode: number; stdout: string }>((resolve) => {
-        const ptyProcess = sdk.spawnSandboxFromConfig(config, { dryRun: true, ...debugSpawnOptions });
+        const ptyProcess = sdk.spawnSandboxFromConfig(config, { dryRun: true, usePty: true, ...debugSpawnOptions });
         let stdout = '';
         ptyProcess.onData((data: string) => { stdout += data; });
         ptyProcess.onExit((event: { exitCode: number }) => {
diff --git a/sdk/tests/integration/macos-seatbelt.test.ts b/sdk/tests/integration/macos-seatbelt.test.ts
index 90d52032..74dd16c1 100644
--- a/sdk/tests/integration/macos-seatbelt.test.ts
+++ b/sdk/tests/integration/macos-seatbelt.test.ts
@@ -227,7 +227,7 @@ describe('macOS Seatbelt Container', {
     config.containerId = 'seatbelt-profile-override';
 
     const result = await new Promise<{ exitCode: number; stdout: string }>((resolve, reject) => {
-      const ptyProcess = sdk.spawnSandboxFromConfig(config, seatbeltSpawnOptions);
+      const ptyProcess = sdk.spawnSandboxFromConfig(config, { ...seatbeltSpawnOptions, usePty: true });
       let stdout = '';
       const timer = setTimeout(() => reject(new Error('Test timed out waiting for onExit')), 25_000);
       ptyProcess.onData((data: string) => { stdout += data; });
diff --git a/sdk/tests/integration/test-helpers.ts b/sdk/tests/integration/test-helpers.ts
index 8dd0d849..fb375680 100644
--- a/sdk/tests/integration/test-helpers.ts
+++ b/sdk/tests/integration/test-helpers.ts
@@ -242,30 +242,60 @@ export function createTempDir(prefix: string = 'mxc-test'): string {
 // specific backend build the config directly.
 //
 // Notes (kept in lockstep with spawnSandboxAsync):
-//  - stdout/stderr are merged: wxc-exec runs under node-pty (a single PTY),
-//    so the OS combines both streams. stderr: '' is structural padding.
+//  - Defaults to pipe mode (child_process): stdout/stderr are returned
+//    separately and no node-pty native addon is required. Pass `usePty: true`
+//    to run under a PTY instead, in which case the OS merges both streams into
+//    stdout and stderr is '' (structural padding).
 //  - No per-call timeout: node:test enforces test-level timeouts and the
 //    config's process.timeout is enforced by the native runner.
-//  - IPty has no onError event. Synchronous spawn failures are caught below;
-//    post-spawn failures surface as a non-zero exitCode via onExit.
+//  - Synchronous spawn failures are caught below; post-spawn failures surface
+//    as a non-zero exitCode.
 export function spawnFromConfigAsync(
   config: sdkNamespace.ContainerConfig,
   options: sdkNamespace.SandboxSpawnOptions = {},
   workingDirectory?: string,
 ): Promise<{ stdout: string; stderr: string; exitCode: number }> {
+  if (options.usePty === true) {
+    return new Promise((resolve, reject) => {
+      try {
+        const ptyProcess = sdkNamespace.spawnSandboxFromConfig(
+          config,
+          { ...options, usePty: true as const },
+          workingDirectory,
+        );
+        let output = '';
+        ptyProcess.onData((data: string) => {
+          output += data;
+        });
+        ptyProcess.onExit((event: { exitCode: number; signal?: number }) => {
+          resolve({ stdout: output, stderr: '', exitCode: event.exitCode });
+        });
+      } catch (err) {
+        reject(err);
+      }
+    });
+  }
+
   return new Promise((resolve, reject) => {
+    let child: import('child_process').ChildProcess;
     try {
-      const ptyProcess = sdkNamespace.spawnSandboxFromConfig(config, options, workingDirectory);
-      let output = '';
-      ptyProcess.onData((data: string) => {
-        output += data;
-      });
-      ptyProcess.onExit((event: { exitCode: number; signal?: number }) => {
-        resolve({ stdout: output, stderr: '', exitCode: event.exitCode });
-      });
+      child = sdkNamespace.spawnSandboxFromConfig(config, options, workingDirectory);
     } catch (err) {
       reject(err);
+      return;
     }
+    let stdout = '';
+    let stderr = '';
+    child.stdout?.on('data', (d: Buffer) => {
+      stdout += d.toString();
+    });
+    child.stderr?.on('data', (d: Buffer) => {
+      stderr += d.toString();
+    });
+    child.on('error', reject);
+    child.on('close', (code: number | null) => {
+      resolve({ stdout, stderr, exitCode: code ?? -1 });
+    });
   });
 }
 
diff --git a/src/Cargo.lock b/src/Cargo.lock
index e37cbc13..a0d33cdf 100644
--- a/src/Cargo.lock
+++ b/src/Cargo.lock
@@ -95,7 +95,7 @@ checksum = "7f202df86484c868dbad7eaa557ef785d5c66295e41b460ef922eca0723b842c"
 
 [[package]]
 name = "appcontainer_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "flatbuffers",
  "getrandom 0.2.17",
@@ -213,7 +213,7 @@ checksum = "5d20789868f4b01b2f2caec9f5c4e0213b41e3e5702a50157d699ae31ced2fcb"
 
 [[package]]
 name = "bwrap_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "lxc_common",
  "nix",
@@ -899,7 +899,7 @@ dependencies = [
 
 [[package]]
 name = "hyperlight_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "hyperlight-unikraft-host",
  "wxc_common",
@@ -1067,7 +1067,7 @@ checksum = "a6cb138bb79a146c1bd460005623e142ef0181e3d0219cb493e02f7d08a35695"
 
 [[package]]
 name = "isolation_session_bindings"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "semver",
  "windows",
@@ -1078,7 +1078,7 @@ dependencies = [
 
 [[package]]
 name = "isolation_session_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "isolation_session_bindings",
  "serde",
@@ -1242,7 +1242,7 @@ checksum = "5e5032e24019045c762d3c0f28f5b6b8bbf38563a65908389bf7978758920897"
 
 [[package]]
 name = "lxc"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "anyhow",
  "bwrap_common",
@@ -1258,7 +1258,7 @@ dependencies = [
 
 [[package]]
 name = "lxc_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "libc",
  "mxc_pty",
@@ -1371,14 +1371,14 @@ dependencies = [
 
 [[package]]
 name = "mxc_build_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "winresource",
 ]
 
 [[package]]
 name = "mxc_darwin"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "clap",
  "mxc_build_common",
@@ -1388,7 +1388,7 @@ dependencies = [
 
 [[package]]
 name = "mxc_diagnostic_console"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "clap",
  "mxc_build_common",
@@ -1401,7 +1401,7 @@ dependencies = [
 
 [[package]]
 name = "mxc_pty"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "libc",
  "nix",
@@ -1409,14 +1409,14 @@ dependencies = [
 
 [[package]]
 name = "nanvix_binaries"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "nanvix_common",
 ]
 
 [[package]]
 name = "nanvix_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "serde",
  "serde_json",
@@ -1424,7 +1424,7 @@ dependencies = [
 
 [[package]]
 name = "nanvix_runner"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "libc",
  "nanvix_common",
@@ -1830,7 +1830,7 @@ dependencies = [
 
 [[package]]
 name = "sandbox_spec"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "flatbuffers",
 ]
@@ -1863,7 +1863,7 @@ dependencies = [
 
 [[package]]
 name = "seatbelt_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "libc",
  "mxc_pty",
@@ -2691,7 +2691,7 @@ checksum = "240948bc05c5e7c6dabba28bf89d89ffce3e303022809e73deaefe4f6ec56c66"
 
 [[package]]
 name = "windows_sandbox_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "serde",
  "serde_json",
@@ -2831,7 +2831,7 @@ checksum = "1ffae5123b2d3fc086436f8834ae3ab053a283cfac8fe0a0b8eaae044768a4c4"
 
 [[package]]
 name = "wslc_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "libloading",
  "tar",
@@ -2843,7 +2843,7 @@ dependencies = [
 
 [[package]]
 name = "wxc"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "anyhow",
  "appcontainer_common",
@@ -2864,7 +2864,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_common"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "base64",
  "getrandom 0.2.17",
@@ -2885,7 +2885,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_e2e_tests"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "base64",
  "serde",
@@ -2894,7 +2894,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_host_prep"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "clap",
  "embed-manifest",
@@ -2910,7 +2910,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_test_driver"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "anyhow",
  "mxc_build_common",
@@ -2918,7 +2918,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_test_proxy"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "bytes",
  "clap",
@@ -2936,7 +2936,7 @@ version = "0.1.0"
 
 [[package]]
 name = "wxc_windows_sandbox_daemon"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "anyhow",
  "mxc_build_common",
@@ -2951,7 +2951,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_windows_sandbox_guest"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "anyhow",
  "mxc_build_common",
@@ -2963,7 +2963,7 @@ dependencies = [
 
 [[package]]
 name = "wxc_winhttp_proxy_shim"
-version = "0.6.1"
+version = "0.7.0"
 dependencies = [
  "clap",
  "mxc_build_common",
diff --git a/src/Cargo.toml b/src/Cargo.toml
index 4b83d426..73102d5a 100644
--- a/src/Cargo.toml
+++ b/src/Cargo.toml
@@ -44,7 +44,7 @@ split-debuginfo = "packed"
 strip = "debuginfo"
 
 [workspace.package]
-version = "0.6.1"
+version = "0.7.0"
 edition = "2021"
 
 [workspace.dependencies]