diff --git a/src/services/squid-service.test.ts b/src/services/squid-service.test.ts
index 6c8c1d1ca..c2bc54add 100644
--- a/src/services/squid-service.test.ts
+++ b/src/services/squid-service.test.ts
@@ -50,4 +50,61 @@ describe('squid service', () => {
       expect(squid.entrypoint[2]).toContain('base64 -d > /etc/squid/squid.conf');
       expect(squid.entrypoint[2]).toContain('entrypoint.sh');
     });
+
+    // Regression: on split runner/Docker daemon filesystems (ARC + DinD), Docker
+    // auto-creates missing bind-mount source dirs on the daemon side as root-owned.
+    // The bind-mount then overrides the Dockerfile-baked /var/log/squid (proxy-
+    // owned), and squid (UID 13) exits 1 the first time it tries to open
+    // access.log. The squid service must therefore start as root, chown the
+    // bind-mounted dir back to the proxy user, and drop privileges before squid
+    // runs.
+    it('should run squid container as root with a chown preflight that drops privileges', () => {
+      const squidConfig = 'http_port 3128\n';
+      const result = generateDockerCompose(mockConfig, mockNetworkConfig, undefined, squidConfig);
+      const squid = result.services['squid-proxy'] as any;
+
+      // The compose service must start as root so the preflight can chown
+      // bind-mounted paths it does not own.
+      expect(squid.user).toBe('0:0');
+
+      const inlineScript: string = squid.entrypoint[2];
+      // Non-recursive chown on the dir only (NOT chown -R), so the preflight
+      // does not traverse a potentially large user-supplied proxyLogsDir.
+      expect(inlineScript).toMatch(/(^|[^R])chown proxy:proxy \/var\/log\/squid/);
+      expect(inlineScript).not.toContain('chown -R');
+      // The SSL DB chown is conditional on the dir existing so it is a no-op
+      // when SSL Bump is disabled but engages automatically when it is enabled.
+      // Falls back to chmod 0777 if chown is denied (tolerant, like config-writer.ts).
+      expect(inlineScript).toContain('if [ -d /var/spool/squid_ssl_db ]; then chown proxy:proxy /var/spool/squid_ssl_db 2>/dev/null || chmod 0777 /var/spool/squid_ssl_db; fi');
+      // Privileges must drop before squid itself starts. We use su (always
+      // present in the ubuntu/squid base) rather than gosu or runuser.
+      expect(inlineScript).toContain('exec su -s /bin/bash proxy -c');
+
+      // The chown must precede the privilege drop.
+      const chownIdx = inlineScript.indexOf('chown proxy:proxy /var/log/squid');
+      const suIdx = inlineScript.indexOf('exec su -s /bin/bash proxy -c');
+      expect(chownIdx).toBeGreaterThanOrEqual(0);
+      expect(suIdx).toBeGreaterThan(chownIdx);
+    });
+
+    // The chown preflight is required regardless of whether squid config is
+    // injected, because the daemon-side ownership problem is independent of
+    // the config-injection mechanism.
+    it('should apply the chown preflight even when no squid config content is provided', () => {
+      const result = generateDockerCompose(mockConfig, mockNetworkConfig);
+      const squid = result.services['squid-proxy'] as any;
+
+      expect(squid.user).toBe('0:0');
+      expect(squid.entrypoint).toBeDefined();
+      const inlineScript: string = squid.entrypoint[2];
+      expect(inlineScript).toContain('chown proxy:proxy /var/log/squid');
+      expect(inlineScript).not.toContain('chown -R');
+      expect(inlineScript).toContain('exec su -s /bin/bash proxy -c');
+      // Without injected config, the entrypoint should still hand off to the
+      // image's original entrypoint script (which handles IPv6 stripping etc.).
+      expect(inlineScript).toContain('/usr/local/bin/entrypoint.sh');
+      // And it should NOT attempt to decode an AWF_SQUID_CONFIG_B64 that
+      // would be unset.
+      expect(inlineScript).not.toContain('AWF_SQUID_CONFIG_B64');
+    });
 });
diff --git a/src/services/squid-service.ts b/src/services/squid-service.ts
index 89a9cf8be..0319e1bc0 100644
--- a/src/services/squid-service.ts
+++ b/src/services/squid-service.ts
@@ -99,20 +99,60 @@ export function buildSquidService(params: SquidServiceParams): any {
   // squid.conf fails because the daemon creates a directory at the missing path.
   // Passing the config as a base64-encoded env var works universally because
   // env vars are part of the container spec sent via the Docker API.
+  //
+  // The entrypoint also runs a chown preflight as root to repair the
+  // bind-mount source ownership on split runner/Docker daemon filesystems
+  // (e.g. ARC + DinD). The wrapper chowns /workDir/squid-logs to UID 13:13
+  // in config-writer.ts, but only against the runner's view of the filesystem.
+  // On DinD the daemon's view of that path starts empty and Docker auto-creates
+  // it as root-owned, overriding the Dockerfile-baked /var/log/squid (proxy-
+  // owned) inside the container. Squid (UID 13) then exits 1 the first time it
+  // tries to open access.log. The non-recursive chown here repairs the dir's
+  // own ownership before squid starts. On shared-filesystem runners it is a
+  // no-op because the dir is already 13:13. After the chown the entrypoint
+  // drops to the proxy user via 'su -s /bin/bash proxy -c ...' before the
+  // image's own entrypoint script runs (which does the IPv6 strip and execs
+  // squid as the proxy user).
+  //
+  // su is used instead of runuser/gosu because the squid base image is plain
+  // ubuntu; su is in util-linux and present without any extra install. This
+  // keeps the change wrapper-only with no rebuild of the squid container.
+  //
+  // The chown is tolerant: if chown fails (e.g. root-squash NFS, or the dir is
+  // already owned by the proxy user on a FS that denies root chown), we fall
+  // back to chmod 0777 — the same strategy as config-writer.ts — so the
+  // container does not exit when the directory is already writable.
+  // The chown is non-recursive (no -R): only the bind-mount dir's own
+  // ownership is repaired, not its (potentially large) contents.
+  //
+  // Use $$ to escape $ for Docker Compose variable interpolation.
+  // Docker Compose interprets $VAR as variable substitution in YAML values;
+  // $$ produces a literal $ that the shell inside the container will expand.
+  const SQUID_PROXY_USER = 'proxy';
+  const chownPreflight =
+    `chown ${SQUID_PROXY_USER}:${SQUID_PROXY_USER} /var/log/squid 2>/dev/null || chmod 0777 /var/log/squid` +
+    `; if [ -d /var/spool/squid_ssl_db ]; then chown ${SQUID_PROXY_USER}:${SQUID_PROXY_USER} /var/spool/squid_ssl_db 2>/dev/null || chmod 0777 /var/spool/squid_ssl_db; fi`;
+  const dropToProxy = `exec su -s /bin/bash ${SQUID_PROXY_USER} -c`;
+
+  squidService.user = '0:0';
   if (squidConfigContent) {
     const configB64 = Buffer.from(squidConfigContent).toString('base64');
     squidService.environment = {
       ...squidService.environment,
       AWF_SQUID_CONFIG_B64: configB64,
     };
-    // Override entrypoint to decode the config before starting squid.
-    // The original entrypoint (/usr/local/bin/entrypoint.sh) is called after decoding.
-    // Use $$ to escape $ for Docker Compose variable interpolation.
-    // Docker Compose interprets $VAR as variable substitution in YAML values;
-    // $$ produces a literal $ that the shell inside the container will expand.
+    // After the chown, drop to proxy and decode the config there (so the
+    // resulting /etc/squid/squid.conf is proxy-owned and the image
+    // entrypoint's later sed -i succeeds), then exec the image entrypoint.
+    squidService.entrypoint = [
+      '/bin/bash', '-c',
+      `${chownPreflight} && ${dropToProxy} 'echo "$$AWF_SQUID_CONFIG_B64" | base64 -d > /etc/squid/squid.conf && exec /usr/local/bin/entrypoint.sh'`,
+    ];
+  } else {
+    // No config injection — just chown + drop + run the image entrypoint.
     squidService.entrypoint = [
       '/bin/bash', '-c',
-      'echo "$$AWF_SQUID_CONFIG_B64" | base64 -d > /etc/squid/squid.conf && exec /usr/local/bin/entrypoint.sh',
+      `${chownPreflight} && ${dropToProxy} 'exec /usr/local/bin/entrypoint.sh'`,
     ];
   }