diff --git a/src/escrow/escrow.service.spec.ts b/src/escrow/escrow.service.spec.ts
new file mode 100644
index 0000000..f9ae8c2
--- /dev/null
+++ b/src/escrow/escrow.service.spec.ts
@@ -0,0 +1,132 @@
+import { Test, TestingModule } from '@nestjs/testing';
+import { EscrowService } from './escrow.service';
+import { PrismaService } from '../prisma/prisma.service';
+import { EventsService } from '../events/events.service';
+import { NotFoundException } from '@nestjs/common';
+import { EscrowStatus, AdoptionStatus, EventType, EventEntityType } from '@prisma/client';
+
+describe('EscrowService', () => {
+    let service: EscrowService;
+    let prismaService: PrismaService;
+    let eventsService: EventsService;
+
+    const mockPrismaService = {
+        escrow: {
+            create: jest.fn(),
+            findUnique: jest.fn(),
+            update: jest.fn(),
+        },
+        adoption: {
+            update: jest.fn(),
+        },
+        pet: {
+            update: jest.fn(),
+        },
+        $transaction: jest.fn((callback) => callback(mockPrismaService)),
+    };
+
+    const mockEventsService = {
+        logEvent: jest.fn(),
+    };
+
+    beforeEach(async () => {
+        const module: TestingModule = await Test.createTestingModule({
+            providers: [
+                EscrowService,
+                { provide: PrismaService, useValue: mockPrismaService },
+                { provide: EventsService, useValue: mockEventsService },
+            ],
+        }).compile();
+
+        service = module.get<EscrowService>(EscrowService);
+        prismaService = module.get<PrismaService>(PrismaService);
+        eventsService = module.get<EventsService>(EventsService);
+    });
+
+    afterEach(() => {
+        jest.clearAllMocks();
+    });
+
+    it('should be defined', () => {
+        expect(service).toBeDefined();
+    });
+
+    describe('releaseEscrow', () => {
+        const escrowId = 'escrow-123';
+        const txHash = 'tx-hash-abc';
+
+        it('should throw NotFoundException if escrow does not exist', async () => {
+            mockPrismaService.escrow.findUnique.mockResolvedValueOnce(null);
+
+            await expect(service.releaseEscrow(escrowId, txHash)).rejects.toThrow(NotFoundException);
+        });
+
+        it('should release escrow and not update adoption if no adoption is attached', async () => {
+            const mockEscrow = {
+                id: escrowId,
+                amount: 100,
+                status: EscrowStatus.CREATED,
+            };
+
+            mockPrismaService.escrow.findUnique.mockResolvedValueOnce(mockEscrow);
+            mockPrismaService.escrow.update.mockResolvedValueOnce({ ...mockEscrow, status: EscrowStatus.RELEASED });
+
+            const result = await service.releaseEscrow(escrowId, txHash);
+
+            expect(mockPrismaService.escrow.update).toHaveBeenCalledWith({
+                where: { id: escrowId },
+                data: { status: EscrowStatus.RELEASED, releaseTxHash: txHash },
+            });
+
+            expect(mockEventsService.logEvent).toHaveBeenCalledWith({
+                entityType: EventEntityType.ESCROW,
+                entityId: escrowId,
+                eventType: EventType.ESCROW_RELEASED,
+                txHash,
+                payload: { amount: 100 },
+            });
+
+            expect(mockPrismaService.adoption.update).not.toHaveBeenCalled();
+            expect(result.status).toBe(EscrowStatus.RELEASED);
+        });
+
+        it('should release escrow and update adoption and pet if adoption is attached', async () => {
+            const mockAdoption = {
+                id: 'adoption-123',
+                petId: 'pet-123',
+                adopterId: 'adopter-123',
+            };
+
+            const mockEscrow = {
+                id: escrowId,
+                amount: 100,
+                status: EscrowStatus.CREATED,
+                adoption: mockAdoption,
+            };
+
+            mockPrismaService.escrow.findUnique.mockResolvedValueOnce(mockEscrow);
+            mockPrismaService.escrow.update.mockResolvedValueOnce({ ...mockEscrow, status: EscrowStatus.RELEASED });
+
+            const result = await service.releaseEscrow(escrowId, txHash);
+
+            expect(mockPrismaService.adoption.update).toHaveBeenCalledWith({
+                where: { id: mockAdoption.id },
+                data: { status: AdoptionStatus.COMPLETED },
+            });
+
+            expect(mockPrismaService.pet.update).toHaveBeenCalledWith({
+                where: { id: mockAdoption.petId },
+                data: { currentOwnerId: mockAdoption.adopterId },
+            });
+
+            expect(mockEventsService.logEvent).toHaveBeenCalledWith({
+                entityType: EventEntityType.ADOPTION,
+                entityId: mockAdoption.id,
+                eventType: EventType.ADOPTION_COMPLETED,
+                payload: { escrowId, petId: mockAdoption.petId },
+            });
+
+            expect(result.status).toBe(EscrowStatus.RELEASED);
+        });
+    });
+});
diff --git a/src/escrow/escrow.service.ts b/src/escrow/escrow.service.ts
index 2d8e459..80293e3 100644
--- a/src/escrow/escrow.service.ts
+++ b/src/escrow/escrow.service.ts
@@ -1,9 +1,14 @@
-import { Injectable } from '@nestjs/common';
+import { Injectable, NotFoundException } from '@nestjs/common';
 import { PrismaService } from '../prisma/prisma.service';
+import { EventsService } from '../events/events.service';
+import { EscrowStatus, AdoptionStatus, EventEntityType, EventType } from '@prisma/client';
 
 @Injectable()
 export class EscrowService {
-  constructor(private readonly prisma: PrismaService) {}
+  constructor(
+    private readonly prisma: PrismaService,
+    private readonly events: EventsService,
+  ) { }
 
   async createEscrow(amount: number, tx?: any) {
     const prismaClient = tx || this.prisma;
@@ -22,4 +27,60 @@ export class EscrowService {
       },
     });
   }
+
+  async releaseEscrow(escrowId: string, txHash?: string) {
+    return this.prisma.$transaction(async (tx) => {
+      const escrow = await tx.escrow.findUnique({
+        where: { id: escrowId },
+        include: { adoption: true },
+      });
+
+      if (!escrow) {
+        throw new NotFoundException('Escrow not found');
+      }
+
+      // 1. Update Escrow Status
+      const updatedEscrow = await tx.escrow.update({
+        where: { id: escrowId },
+        data: {
+          status: EscrowStatus.RELEASED,
+          releaseTxHash: txHash,
+        },
+      });
+
+      await this.events.logEvent({
+        entityType: EventEntityType.ESCROW,
+        entityId: escrowId,
+        eventType: EventType.ESCROW_RELEASED,
+        txHash,
+        payload: { amount: Number(escrow.amount) },
+      });
+
+      // 2. If escrow is tied to an Adoption, update Adoption and Pet
+      if (escrow.adoption) {
+        const adoption = escrow.adoption;
+
+        await tx.adoption.update({
+          where: { id: adoption.id },
+          data: { status: AdoptionStatus.COMPLETED },
+        });
+
+        await tx.pet.update({
+          where: { id: adoption.petId },
+          data: {
+            currentOwnerId: adoption.adopterId,
+          },
+        });
+
+        await this.events.logEvent({
+          entityType: EventEntityType.ADOPTION,
+          entityId: adoption.id,
+          eventType: EventType.ADOPTION_COMPLETED,
+          payload: { escrowId, petId: adoption.petId },
+        });
+      }
+
+      return updatedEscrow;
+    });
+  }
 }