diff --git a/TUnit.Engine.Tests/CanCancelTests.cs b/TUnit.Engine.Tests/CanCancelTests.cs
new file mode 100644
index 0000000000..693d0d747b
--- /dev/null
+++ b/TUnit.Engine.Tests/CanCancelTests.cs
@@ -0,0 +1,38 @@
+using Shouldly;
+using TUnit.Core.Enums;
+using TUnit.Engine.Tests.Enums;
+
+namespace TUnit.Engine.Tests;
+
+/// <summary>
+/// Tests that verify test cancellation works correctly when graceful cancellation is requested.
+/// Skipped on Windows because CliWrap's graceful cancellation uses GenerateConsoleCtrlEvent,
+/// which doesn't work properly for subprocess control.
+/// </summary>
+[ExcludeOn(OS.Windows)]
+public class CanCancelTests(TestMode testMode) : InvokableTestBase(testMode)
+{
+    private const int GracefulCancellationDelaySeconds = 5;
+    private const int MaxExpectedDurationSeconds = 30;
+    // Test timeout must be higher than MaxExpectedDurationSeconds to allow for subprocess startup and assertions
+    private const int TestTimeoutMs = 60_000;
+
+    [Test, Timeout(TestTimeoutMs), Explicit("Graceful cancellation via SIGINT is unreliable in CI environments")]
+    public async Task GracefulCancellation_ShouldTerminateTestBeforeTimeout(CancellationToken ct)
+    {
+        // Send graceful cancellation (SIGINT) after delay - tests that engine reacts to cancellation
+        // even for tests that don't explicitly accept a CancellationToken parameter
+        using var gracefulCts = CancellationTokenSource.CreateLinkedTokenSource(ct);
+        gracefulCts.CancelAfter(TimeSpan.FromSeconds(GracefulCancellationDelaySeconds));
+
+        await RunTestsWithFilter(
+            "/*/*/CanCancelTests/*",
+            [
+                // A cancelled test is reported as "Failed" in TRX because it was terminated before completion.
+                // This is the expected behavior - the test did not pass, so it's marked as failed.
+                result => result.ResultSummary.Outcome.ShouldBe("Failed"),
+                result => TimeSpan.Parse(result.Duration).ShouldBeLessThan(TimeSpan.FromSeconds(MaxExpectedDurationSeconds))
+            ],
+            new RunOptions().WithGracefulCancellationToken(gracefulCts.Token));
+    }
+}
diff --git a/TUnit.Engine.Tests/InvokableTestBase.cs b/TUnit.Engine.Tests/InvokableTestBase.cs
index 1e264449bc..d63ea664ac 100644
--- a/TUnit.Engine.Tests/InvokableTestBase.cs
+++ b/TUnit.Engine.Tests/InvokableTestBase.cs
@@ -1,4 +1,5 @@
 using System.Runtime.CompilerServices;
+using System.Text;
 using CliWrap;
 using CliWrap.Buffered;
 using TrxTools.TrxParser;
@@ -72,7 +73,7 @@ private async Task RunWithoutAot(string filter,
             .WithWorkingDirectory(testProject.DirectoryName!)
             .WithValidation(CommandResultValidation.None);
 
-        await RunWithFailureLogging(command, trxFilename, assertions, assertionExpression);
+        await RunWithFailureLogging(command, runOptions, trxFilename, assertions, assertionExpression);
     }
 
     private async Task RunWithAot(string filter, List<Action<TestRun>> assertions,
@@ -106,7 +107,7 @@ private async Task RunWithAot(string filter, List<Action<TestRun>> assertions,
             )
             .WithValidation(CommandResultValidation.None);
 
-        await RunWithFailureLogging(command, trxFilename, assertions, assertionExpression);
+        await RunWithFailureLogging(command, runOptions, trxFilename, assertions, assertionExpression);
     }
 
     private async Task RunWithSingleFile(string filter,
@@ -140,7 +141,7 @@ private async Task RunWithSingleFile(string filter,
             )
             .WithValidation(CommandResultValidation.None);
 
-        await RunWithFailureLogging(command, trxFilename, assertions, assertionExpression);
+        await RunWithFailureLogging(command, runOptions, trxFilename, assertions, assertionExpression);
     }
 
     protected static FileInfo? FindFile(Func<FileInfo, bool> predicate)
@@ -153,13 +154,27 @@ private async Task RunWithSingleFile(string filter,
         return FileSystemHelpers.FindFolder(predicate);
     }
 
-    private async Task RunWithFailureLogging(Command command, string trxFilename, List<Action<TestRun>> assertions, string assertionExpression)
+    private async Task<CommandTask<BufferedCommandResult>> RunWithFailureLogging(Command command, RunOptions runOptions,
+        string trxFilename, List<Action<TestRun>> assertions, string assertionExpression)
     {
+        var commandTask = command.ExecuteBufferedAsync
+        (
+            gracefulCancellationToken: runOptions.GracefulCancellationToken,
+            forcefulCancellationToken: runOptions.ForcefulCancellationToken,
+            standardOutputEncoding: runOptions.StandardOutputEncoding,
+            standardErrorEncoding: runOptions.StandardErrorEncoding
+        );
+
         BufferedCommandResult? commandResult = null;
 
         try
         {
-            commandResult = await command.ExecuteBufferedAsync();
+            foreach (var onExecutingDelegate in runOptions.OnExecutingDelegates)
+            {
+                await onExecutingDelegate(commandTask);
+            }
+
+            commandResult = await commandTask;
 
             await TrxAsserter.AssertTrx(testMode, command, commandResult, assertions, trxFilename, assertionExpression: assertionExpression);
         }
@@ -176,16 +191,38 @@ private async Task RunWithFailureLogging(Command command, string trxFilename, Li
                                  Expression: {assertionExpression}
                                  """);
         }
+
+        return commandTask;
     }
 }
 
 public record RunOptions
 {
+    public CancellationToken GracefulCancellationToken { get; set; } = CancellationToken.None;
+    public CancellationToken ForcefulCancellationToken { get; set; } = CancellationToken.None;
+
+    public Encoding StandardOutputEncoding { get; set; } = Encoding.UTF8;
+    public Encoding StandardErrorEncoding { get; set; } = Encoding.UTF8;
+
     public List<string> AdditionalArguments { get; init; } = [];
 
+    public List<Func<CommandTask<BufferedCommandResult>, Task>> OnExecutingDelegates { get; init; } = [];
+
     public RunOptions WithArgument(string argument)
     {
         AdditionalArguments.Add(argument);
         return this;
     }
+
+    public RunOptions WithGracefulCancellationToken(CancellationToken token)
+    {
+        GracefulCancellationToken = token;
+        return this;
+    }
+
+    public RunOptions WithForcefulCancellationToken(CancellationToken token)
+    {
+        ForcefulCancellationToken = token;
+        return this;
+    }
 }
diff --git a/TUnit.Engine/Helpers/TimeoutHelper.cs b/TUnit.Engine/Helpers/TimeoutHelper.cs
index c02cd45b27..5e6a0bd9fd 100644
--- a/TUnit.Engine/Helpers/TimeoutHelper.cs
+++ b/TUnit.Engine/Helpers/TimeoutHelper.cs
@@ -1,5 +1,3 @@
-using System.Diagnostics.CodeAnalysis;
-
 namespace TUnit.Engine.Helpers;
 
 /// <summary>
@@ -7,129 +5,128 @@ namespace TUnit.Engine.Helpers;
 /// </summary>
 internal static class TimeoutHelper
 {
+    /// <summary>
+    /// Grace period to allow tasks to handle cancellation before throwing timeout exception.
+    /// </summary>
+    private static readonly TimeSpan GracePeriod = TimeSpan.FromSeconds(1);
+
     /// <summary>
     /// Executes a task with an optional timeout. If the timeout elapses before the task completes,
     /// control is returned to the caller immediately with a TimeoutException.
     /// </summary>
-    /// <param name="taskFactory">Factory function that creates the task to execute</param>
-    /// <param name="timeout">Optional timeout duration. If null, no timeout is applied</param>
-    /// <param name="cancellationToken">Cancellation token for the operation</param>
-    /// <param name="timeoutMessage">Optional custom timeout message. If null, uses default message</param>
-    /// <returns>The completed task</returns>
-    /// <exception cref="TimeoutException">Thrown when the timeout elapses before task completion</exception>
+    /// <param name="taskFactory">Factory function that creates the task to execute.</param>
+    /// <param name="timeout">Optional timeout duration. If null, no timeout is applied.</param>
+    /// <param name="cancellationToken">Cancellation token for the operation.</param>
+    /// <param name="timeoutMessage">Optional custom timeout message. If null, uses default message.</param>
+    /// <returns>A task representing the asynchronous operation.</returns>
+    /// <exception cref="TimeoutException">Thrown when the timeout elapses before task completion.</exception>
+    /// <exception cref="OperationCanceledException">Thrown when cancellation is requested.</exception>
     public static async Task ExecuteWithTimeoutAsync(
         Func<CancellationToken, Task> taskFactory,
         TimeSpan? timeout,
         CancellationToken cancellationToken,
         string? timeoutMessage = null)
     {
-        if (!timeout.HasValue)
-        {
-            await taskFactory(cancellationToken).ConfigureAwait(false);
-            return;
-        }
-
-        using var timeoutCts = CancellationTokenSource.CreateLinkedTokenSource(cancellationToken);
-        timeoutCts.CancelAfter(timeout.Value);
-
-        var executionTask = taskFactory(timeoutCts.Token);
-        
-        // Use a cancellable timeout task to avoid leaving Task.Delay running in the background
-        using var timeoutTaskCts = new CancellationTokenSource();
-        var timeoutTask = Task.Delay(timeout.Value, timeoutTaskCts.Token);
-
-        var completedTask = await Task.WhenAny(executionTask, timeoutTask).ConfigureAwait(false);
-
-        if (completedTask == timeoutTask)
-        {
-            // Timeout occurred - cancel the execution task and wait briefly for cleanup
-            timeoutCts.Cancel();
-            
-            // Give the execution task a chance to handle cancellation gracefully
-            try
-            {
-                await executionTask.ConfigureAwait(false);
-            }
-            catch (OperationCanceledException)
+        await ExecuteWithTimeoutAsync(
+            async ct =>
             {
-                // Expected when cancellation is properly handled
-            }
-            catch
-            {
-                // Ignore other exceptions from the cancelled task
-            }
-            
-            var message = timeoutMessage ?? $"Operation timed out after {timeout.Value}";
-            throw new TimeoutException(message);
-        }
-
-        // Task completed normally - cancel the timeout task to free resources immediately
-        timeoutTaskCts.Cancel();
-
-        // Await the result to propagate any exceptions
-        await executionTask.ConfigureAwait(false);
+                await taskFactory(ct).ConfigureAwait(false);
+                return true;
+            },
+            timeout,
+            cancellationToken,
+            timeoutMessage).ConfigureAwait(false);
     }
 
     /// <summary>
     /// Executes a task with an optional timeout and returns a result. If the timeout elapses before the task completes,
     /// control is returned to the caller immediately with a TimeoutException.
     /// </summary>
-    /// <typeparam name="T">The type of result returned by the task</typeparam>
-    /// <param name="taskFactory">Factory function that creates the task to execute</param>
-    /// <param name="timeout">Optional timeout duration. If null, no timeout is applied</param>
-    /// <param name="cancellationToken">Cancellation token for the operation</param>
-    /// <param name="timeoutMessage">Optional custom timeout message. If null, uses default message</param>
-    /// <returns>The result of the completed task</returns>
-    /// <exception cref="TimeoutException">Thrown when the timeout elapses before task completion</exception>
+    /// <typeparam name="T">The type of result returned by the task.</typeparam>
+    /// <param name="taskFactory">Factory function that creates the task to execute.</param>
+    /// <param name="timeout">Optional timeout duration. If null, no timeout is applied.</param>
+    /// <param name="cancellationToken">Cancellation token for the operation.</param>
+    /// <param name="timeoutMessage">Optional custom timeout message. If null, uses default message.</param>
+    /// <returns>The result of the completed task.</returns>
+    /// <exception cref="TimeoutException">Thrown when the timeout elapses before task completion.</exception>
+    /// <exception cref="OperationCanceledException">Thrown when cancellation is requested.</exception>
     public static async Task<T> ExecuteWithTimeoutAsync<T>(
         Func<CancellationToken, Task<T>> taskFactory,
         TimeSpan? timeout,
         CancellationToken cancellationToken,
         string? timeoutMessage = null)
     {
+        // Fast path: no timeout specified
         if (!timeout.HasValue)
         {
-            return await taskFactory(cancellationToken).ConfigureAwait(false);
+            var task = taskFactory(cancellationToken);
+
+            // If the token can't be cancelled, just await directly (avoid allocations)
+            if (!cancellationToken.CanBeCanceled)
+            {
+                return await task.ConfigureAwait(false);
+            }
+
+            // Race against cancellation - TrySetCanceled makes the TCS throw OperationCanceledException when awaited
+            var tcs = new TaskCompletionSource<T>(TaskCreationOptions.RunContinuationsAsynchronously);
+            using var reg = cancellationToken.Register(
+                static state => ((TaskCompletionSource<T>)state!).TrySetCanceled(),
+                tcs);
+
+            // await await: first gets winning task, then awaits it (propagates result or exception)
+            return await await Task.WhenAny(task, tcs.Task).ConfigureAwait(false);
         }
 
+        // Timeout path: create linked token so task can observe both timeout and external cancellation.
         using var timeoutCts = CancellationTokenSource.CreateLinkedTokenSource(cancellationToken);
+
+        // Set up cancellation detection BEFORE scheduling timeout to avoid race condition
+        // where timeout fires before registration completes (with very small timeouts)
+        var cancelledTcs = new TaskCompletionSource<T>(TaskCreationOptions.RunContinuationsAsynchronously);
+        using var registration = timeoutCts.Token.Register(
+            static state => ((TaskCompletionSource<T>)state!).TrySetCanceled(),
+            cancelledTcs);
+
+        // Now schedule the timeout - registration is guaranteed to catch it
         timeoutCts.CancelAfter(timeout.Value);
 
         var executionTask = taskFactory(timeoutCts.Token);
-        
-        // Use a cancellable timeout task to avoid leaving Task.Delay running in the background
-        using var timeoutTaskCts = new CancellationTokenSource();
-        var timeoutTask = Task.Delay(timeout.Value, timeoutTaskCts.Token);
 
-        var completedTask = await Task.WhenAny(executionTask, timeoutTask).ConfigureAwait(false);
+        var winner = await Task.WhenAny(executionTask, cancelledTcs.Task).ConfigureAwait(false);
 
-        if (completedTask == timeoutTask)
+        if (winner == cancelledTcs.Task)
         {
-            // Timeout occurred - cancel the execution task and wait briefly for cleanup
-            timeoutCts.Cancel();
-            
-            // Give the execution task a chance to handle cancellation gracefully
-            try
+            // Determine if it was external cancellation or timeout
+            if (cancellationToken.IsCancellationRequested)
             {
-                await executionTask.ConfigureAwait(false);
+                throw new OperationCanceledException(cancellationToken);
             }
-            catch (OperationCanceledException)
+
+            // Timeout occurred - give the execution task a brief grace period to clean up
+            try
             {
-                // Expected when cancellation is properly handled
+#if NET8_0_OR_GREATER
+                await executionTask.WaitAsync(GracePeriod, CancellationToken.None).ConfigureAwait(false);
+#else
+                // Use cancellable delay to avoid leaked tasks when executionTask completes first
+                using var graceCts = new CancellationTokenSource();
+                var delayTask = Task.Delay(GracePeriod, graceCts.Token);
+                var graceWinner = await Task.WhenAny(executionTask, delayTask).ConfigureAwait(false);
+                if (graceWinner == executionTask)
+                {
+                    graceCts.Cancel();
+                }
+#endif
             }
             catch
             {
-                // Ignore other exceptions from the cancelled task
+                // Ignore all exceptions - task was cancelled, we're just giving it time to clean up
             }
-            
-            var message = timeoutMessage ?? $"Operation timed out after {timeout.Value}";
-            throw new TimeoutException(message);
-        }
 
-        // Task completed normally - cancel the timeout task to free resources immediately
-        timeoutTaskCts.Cancel();
+            // Even if task completed during grace period, timeout already elapsed so we throw
+            throw new TimeoutException(timeoutMessage ?? $"Operation timed out after {timeout.Value}");
+        }
 
-        // Await the result to propagate any exceptions
         return await executionTask.ConfigureAwait(false);
     }
-}
\ No newline at end of file
+}
diff --git a/TUnit.Engine/TestSessionCoordinator.cs b/TUnit.Engine/TestSessionCoordinator.cs
index db303b1cf1..bcecb5e828 100644
--- a/TUnit.Engine/TestSessionCoordinator.cs
+++ b/TUnit.Engine/TestSessionCoordinator.cs
@@ -87,10 +87,14 @@ private async Task PrepareTestOrchestrator(List<AbstractExecutableTest> testList
     #endif
     private async Task ExecuteTestsCore(List<AbstractExecutableTest> testList, CancellationToken cancellationToken)
     {
-        // Combine cancellation tokens
+        // Combine cancellation tokens from multiple sources:
+        // - cancellationToken: Per-request cancellation from test platform
+        // - FailFastCancellationSource: Triggered when fail-fast is enabled and a test fails
+        // - CancellationToken: Engine-level graceful shutdown (e.g., Ctrl+C)
         using var linkedCts = CancellationTokenSource.CreateLinkedTokenSource(
             cancellationToken,
-            _serviceProvider.FailFastCancellationSource.Token);
+            _serviceProvider.FailFastCancellationSource.Token,
+            _serviceProvider.CancellationToken.Token);
 
         // Schedule and execute tests (batch approach to preserve ExecutionContext)
         var success = await _testScheduler.ScheduleAndExecuteAsync(testList, linkedCts.Token);
diff --git a/TUnit.TestProject/CanCancelTests.cs b/TUnit.TestProject/CanCancelTests.cs
new file mode 100644
index 0000000000..1634b2e8df
--- /dev/null
+++ b/TUnit.TestProject/CanCancelTests.cs
@@ -0,0 +1,10 @@
+namespace TUnit.TestProject;
+
+public class CanCancelTests
+{
+    [Test, Explicit]
+    public async Task CanCancel()
+    {
+        await Task.Delay(TimeSpan.FromMinutes(5));
+    }
+}