diff --git a/mcp/src/__tests__/staktrak/playwright-replay.test.ts b/mcp/src/__tests__/staktrak/playwright-replay.test.ts
index 056669cc9..083934f50 100644
--- a/mcp/src/__tests__/staktrak/playwright-replay.test.ts
+++ b/mcp/src/__tests__/staktrak/playwright-replay.test.ts
@@ -345,7 +345,7 @@ test.describe('Playwright Replay Integration', () => {
       });
     });
 
-    test('should continue replay on action errors', async ({ page }) => {
+    test('should halt replay on action errors (does not run later steps)', async ({ page }) => {
       const html = createTestPage({ includeStaktrak: true });
       await page.setContent(html);
 
@@ -355,7 +355,7 @@ test.describe('Playwright Replay Integration', () => {
         });
       });
 
-      // Test code with invalid selector that will fail
+      // First step fails; the second step must NOT run because replay halts.
       const testCode = `
         test('test', async ({ page }) => {
           await page.click('[data-testid="nonexistent-button"]');
@@ -369,16 +369,19 @@ test.describe('Playwright Replay Integration', () => {
         }
       }, testCode);
 
-      const completed = await waitForCondition(
-        () => messages.some(m => m.type === 'staktrak-playwright-replay-completed'),
+      const errored = await waitForCondition(
+        () => messages.some(m => m.type === 'staktrak-playwright-replay-error'),
         5000
       );
+      expect(errored).toBe(true);
 
-      // Should complete despite error
-      expect(completed).toBe(true);
-
+      // The failing step is index 0, so replay must stop there and never
+      // reach — or complete — the second step.
       const errorMsgs = messages.filter(m => m.type === 'staktrak-playwright-replay-error');
-      expect(errorMsgs.length).toBeGreaterThan(0);
+      expect(errorMsgs.length).toBe(1);
+      expect(errorMsgs[0].fatal).toBe(true);
+      expect(errorMsgs[0].actionIndex).toBe(0);
+      expect(messages.some(m => m.type === 'staktrak-playwright-replay-completed')).toBe(false);
     });
 
     test('should report error details in error messages', async ({ page }) => {
@@ -416,7 +419,7 @@ test.describe('Playwright Replay Integration', () => {
       expect(typeof errorMsg.error).toBe('string');
     });
 
-    test('should continue capturing screenshots after action errors', async ({ page }) => {
+    test('should capture a screenshot of the failure frame when a step errors', async ({ page }) => {
       const html = createTestPage({ includeStaktrak: true, includeConfig: true });
       await page.setContent(html);
 
@@ -429,7 +432,7 @@ test.describe('Playwright Replay Integration', () => {
       const testCode = `
         test('test', async ({ page }) => {
           await page.click('[data-testid="nonexistent"]');
-          await page.waitForURL('http://localhost:3000');
+          await page.click('[data-testid="test-button"]');
         });
       `;
 
@@ -440,16 +443,20 @@ test.describe('Playwright Replay Integration', () => {
       }, testCode);
 
       await waitForCondition(
-        () => messages.some(m => m.type === 'staktrak-playwright-replay-completed'),
+        () => messages.some(m => m.type === 'staktrak-playwright-replay-error'),
         8000
       );
 
-      const screenshotMsgs = extractScreenshotMessages(messages.map(m => ({ data: m })));
       const errorMsgs = messages.filter(m => m.type === 'staktrak-playwright-replay-error');
+      expect(errorMsgs.length).toBe(1);
+      expect(errorMsgs[0].fatal).toBe(true);
 
-      // Should have error and still capture screenshot
-      expect(errorMsgs.length).toBeGreaterThan(0);
-      // Screenshot may or may not be captured depending on implementation
+      // A failure screenshot should have been captured and referenced by id on
+      // the error message.
+      const screenshotMsgs = extractScreenshotMessages(messages.map(m => ({ data: m })));
+      expect(screenshotMsgs.length).toBeGreaterThan(0);
+      expect(errorMsgs[0].screenshotId).toBeTruthy();
+      expect(messages.some(m => m.type === 'staktrak-playwright-replay-completed')).toBe(false);
     });
   });
 
diff --git a/mcp/tests/hooks.js b/mcp/tests/hooks.js
index fefce074b..369118d4f 100644
--- a/mcp/tests/hooks.js
+++ b/mcp/tests/hooks.js
@@ -674,12 +674,26 @@ export function usePlaywrightReplay(iframeRef) {
             },
           ]);
 
-          // Don't stop replay on error, just log it
           console.warn("Playwright replay error:", errorMsg);
+
+          // A fatal error halts the replay (issue #756): tear down the replaying
+          // state just like a normal stop so the UI doesn't look stuck "playing".
+          if (data.fatal) {
+            setIsPlaywrightReplaying(false);
+            setIsPlaywrightPaused(false);
+            setPlaywrightStatus("error");
+            setCurrentAction(null);
+
+            const errContainer = document.querySelector(".iframe-container");
+            if (errContainer) {
+              errContainer.classList.remove("playwright-replaying");
+            }
+          }
+
           if (data.actionIndex !== undefined) {
             showPopup(
-              `Error at action ${data.actionIndex + 1}: ${errorMsg}`,
-              "warning"
+              `Replay stopped at action ${data.actionIndex + 1}: ${errorMsg}`,
+              "error"
             );
           }
           break;
diff --git a/mcp/tests/staktrak/dist/staktrak.js b/mcp/tests/staktrak/dist/staktrak.js
index ad8932e8c..20295077b 100644
--- a/mcp/tests/staktrak/dist/staktrak.js
+++ b/mcp/tests/staktrak/dist/staktrak.js
@@ -3573,8 +3573,10 @@ var userBehaviour = (() => {
         },
         getParentOrigin()
       );
+      return id;
     } catch (error) {
       console.error(`[Screenshot] Error capturing for actionIndex=${actionIndex}:`, error);
+      return null;
     }
   }
   function beginReplay(actions, testCode) {
@@ -3649,20 +3651,26 @@ var userBehaviour = (() => {
         executeNextPlaywrightAction();
       }, 500);
     } catch (error) {
-      state.errors.push(
-        `Action ${state.currentActionIndex + 1}: ${error instanceof Error ? error.message : "Unknown error"}`
+      const message = error instanceof Error ? error.message : "Unknown error";
+      state.errors.push(`Action ${state.currentActionIndex + 1}: ${message}`);
+      state.status = "error" /* ERROR */;
+      state.timeouts.forEach((id) => clearTimeout(id));
+      state.timeouts = [];
+      const screenshotId = await captureScreenshot(
+        state.currentActionIndex,
+        window.location.href
       );
-      state.currentActionIndex++;
       window.parent.postMessage(
         {
           type: "staktrak-playwright-replay-error",
-          error: error instanceof Error ? error.message : "Unknown error",
-          actionIndex: state.currentActionIndex - 1,
-          action
+          error: message,
+          actionIndex: state.currentActionIndex,
+          action,
+          fatal: true,
+          screenshotId
         },
         getParentOrigin()
       );
-      executeNextPlaywrightAction();
     }
   }
   function pausePlaywrightReplay() {
diff --git a/mcp/tests/staktrak/src/playwright-replay/index.ts b/mcp/tests/staktrak/src/playwright-replay/index.ts
index ce0f832da..afcd3bee5 100644
--- a/mcp/tests/staktrak/src/playwright-replay/index.ts
+++ b/mcp/tests/staktrak/src/playwright-replay/index.ts
@@ -45,7 +45,7 @@ function getParentOrigin(): string {
 /**
  * Capture screenshot and send to parent window
  */
-async function captureScreenshot(actionIndex: number, url: string): Promise<void> {
+async function captureScreenshot(actionIndex: number, url: string): Promise<string | null> {
   try {
     // Get screenshot config from STAKTRAK_CONFIG or use defaults
     // Note: In cross-origin iframes, STAKTRAK_CONFIG may not be accessible
@@ -80,8 +80,11 @@ async function captureScreenshot(actionIndex: number, url: string): Promise<void
       },
       getParentOrigin()
     );
+
+    return id;
   } catch (error) {
     console.error(`[Screenshot] Error capturing for actionIndex=${actionIndex}:`, error);
+    return null;
   }
 }
 
@@ -175,23 +178,34 @@ async function executeNextPlaywrightAction(): Promise<void> {
       executeNextPlaywrightAction();
     }, 500);
   } catch (error) {
-    state.errors.push(
-      `Action ${state.currentActionIndex + 1}: ${error instanceof Error ? error.message : "Unknown error"}`
-    );
+    const message = error instanceof Error ? error.message : "Unknown error";
+    state.errors.push(`Action ${state.currentActionIndex + 1}: ${message}`);
 
-    state.currentActionIndex++;
+    // Halt the replay: a failed step means everything after it runs against an
+    // unexpected page state, so continuing produces misleading results. Stop here
+    // and let the host surface the failure. (See stakgraph issue #756.)
+    state.status = ReplayStatus.ERROR;
+    state.timeouts.forEach((id) => clearTimeout(id as any));
+    state.timeouts = [];
+
+    // Capture the screen at the point of failure so the host can show *where* it
+    // broke — not just the error text.
+    const screenshotId = await captureScreenshot(
+      state.currentActionIndex,
+      window.location.href
+    );
 
     window.parent.postMessage(
       {
         type: "staktrak-playwright-replay-error",
-        error: error instanceof Error ? error.message : "Unknown error",
-        actionIndex: state.currentActionIndex - 1,
+        error: message,
+        actionIndex: state.currentActionIndex,
         action: action,
+        fatal: true,
+        screenshotId,
       },
       getParentOrigin()
     );
-
-    executeNextPlaywrightAction();
   }
 }
 
diff --git a/mcp/tests/staktrak/src/types.ts b/mcp/tests/staktrak/src/types.ts
index bd3abd209..155491972 100644
--- a/mcp/tests/staktrak/src/types.ts
+++ b/mcp/tests/staktrak/src/types.ts
@@ -147,6 +147,7 @@ export enum ReplayStatus {
   PLAYING = "playing",
   PAUSED = "paused",
   COMPLETED = "completed",
+  ERROR = "error",
 }
 
 export interface ReplayAction {