diff --git a/packages/smartquote/src/ai-sdk/index.test.ts b/packages/smartquote/src/ai-sdk/index.test.ts
index 8fb2f1f..1e0b293 100644
--- a/packages/smartquote/src/ai-sdk/index.test.ts
+++ b/packages/smartquote/src/ai-sdk/index.test.ts
@@ -5,7 +5,7 @@
  * to test our transform with realistic AI streaming patterns.
  */
 import { describe, expect, it } from 'vitest';
-import { streamText } from 'ai';
+import { streamText, type StreamTextTransform, type ToolSet } from 'ai';
 import { MockLanguageModelV3, simulateReadableStream } from 'ai/test';
 
 import { smartQuoteTransform, SmartQuote } from './index.js';
@@ -294,4 +294,31 @@ describe('smartQuoteTransform with AI SDK', () => {
       expect(text).toContain(RightDouble);
     });
   });
+
+  describe('type compatibility', () => {
+    it('is compatible with streamText tools parameter', () => {
+      // Define a typed tools object - we intersect with ToolSet to satisfy
+      // the constraint since our simplified type is missing required Tool properties
+      type MyToolSet = {
+        myTool: { description: string; parameters: unknown };
+      };
+      // Create a transform with the specific tool type
+      const transform = smartQuoteTransform<MyToolSet & ToolSet>();
+      // This should compile without type errors - the transform should be assignable
+      // to experimental_transform when tools are specified
+      const config: { experimental_transform: StreamTextTransform<MyToolSet & ToolSet> } = {
+        experimental_transform: transform,
+      };
+      expect(config.experimental_transform).toBe(transform);
+    });
+
+    it('works with default ToolSet when no type parameter is specified', () => {
+      // When calling without type params, it defaults to ToolSet
+      const transform = smartQuoteTransform();
+      const config: { experimental_transform: StreamTextTransform<ToolSet> } = {
+        experimental_transform: transform,
+      };
+      expect(config.experimental_transform).toBe(transform);
+    });
+  });
 });
diff --git a/packages/smartquote/src/ai-sdk/index.ts b/packages/smartquote/src/ai-sdk/index.ts
index cdd2ed9..96b1752 100644
--- a/packages/smartquote/src/ai-sdk/index.ts
+++ b/packages/smartquote/src/ai-sdk/index.ts
@@ -45,16 +45,25 @@ export { SmartQuote, smartQuotes } from '../index.js';
  *
  * Converts straight quotes to typographically correct smart quotes
  * in streaming AI responses. See module documentation for examples.
+ *
+ * @remarks
+ * The function is generic over the tools type parameter, allowing it to be
+ * compatible with any tool configuration in `streamText()`. The transform
+ * only processes `text-delta` stream parts and passes through all other
+ * parts unchanged, including tool-related stream parts.
+ *
+ * @typeParam TOOLS - The tools type from the streamText configuration.
+ *   Defaults to ToolSet for compatibility when no tools are specified.
  */
-export function smartQuoteTransform(
+export function smartQuoteTransform<TOOLS extends ToolSet = ToolSet>(
   options?: SmartQuoteTransformOptions,
-): StreamTextTransform<ToolSet> {
+): StreamTextTransform<TOOLS> {
   return () => {
     const transform = options?.disableMarkdown
       ? createTextTransform()
       : createMarkdownTextTransform();
 
-    return new TransformStream<TextStreamPart<ToolSet>, TextStreamPart<ToolSet>>({
+    return new TransformStream<TextStreamPart<TOOLS>, TextStreamPart<TOOLS>>({
       transform(part, controller) {
         if (part.type === 'text-delta') {
           const converted = transform(part.text);