diff --git a/lib/chat/setupToolsForRequest.ts b/lib/chat/setupToolsForRequest.ts
index f46e3371..a5fac3d0 100644
--- a/lib/chat/setupToolsForRequest.ts
+++ b/lib/chat/setupToolsForRequest.ts
@@ -2,16 +2,15 @@ import { ToolSet } from "ai";
 import { filterExcludedTools } from "./filterExcludedTools";
 import { ChatRequestBody } from "./validateChatRequest";
 import { experimental_createMCPClient as createMCPClient } from "@ai-sdk/mcp";
-import { StreamableHTTPClientTransport } from "@modelcontextprotocol/sdk/client/streamableHttp.js";
+import { McpServer } from "@modelcontextprotocol/sdk/server/mcp.js";
+import { InMemoryTransport } from "@modelcontextprotocol/sdk/inMemory.js";
+import { registerAllTools } from "@/lib/mcp/tools";
 import { getGoogleSheetsTools } from "@/lib/agents/googleSheetsAgent";
 
-/** Base URL for the MCP server */
-const MCP_BASE_URL = process.env.MCP_BASE_URL || "https://recoup-api.vercel.app";
-
 /**
  * Sets up and filters tools for a chat request.
  * Aggregates tools from:
- * - MCP client (remote tools via MCP protocol)
+ * - MCP server (in-process via in-memory transport, no HTTP overhead)
  * - Google Sheets (via Composio integration)
  *
  * @param body - The chat request body
@@ -20,10 +19,17 @@ const MCP_BASE_URL = process.env.MCP_BASE_URL || "https://recoup-api.vercel.app"
 export async function setupToolsForRequest(body: ChatRequestBody): Promise<ToolSet> {
   const { excludeTools } = body;
 
-  // Fetch MCP tools
-  const mcpClient = await createMCPClient({
-    transport: new StreamableHTTPClientTransport(new URL("/mcp", MCP_BASE_URL)),
+  // Create in-memory MCP server and client (no HTTP call needed)
+  const [clientTransport, serverTransport] = InMemoryTransport.createLinkedPair();
+
+  const server = new McpServer({
+    name: "recoup-mcp",
+    version: "0.0.1",
   });
+  registerAllTools(server);
+  await server.connect(serverTransport);
+
+  const mcpClient = await createMCPClient({ transport: clientTransport });
   const mcpClientTools = (await mcpClient.tools()) as ToolSet;
 
   // Fetch Google Sheets tools (authenticated tools or login tool)