diff --git a/apps/portal/src/components/CreateCriterionDialog.stories.tsx b/apps/portal/src/components/CreateCriterionDialog.stories.tsx
new file mode 100644
index 000000000..ddaab78bc
--- /dev/null
+++ b/apps/portal/src/components/CreateCriterionDialog.stories.tsx
@@ -0,0 +1,86 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+import { useState } from "react";
+import type { Meta, StoryObj } from "@storybook/react-vite";
+import { expect, fn, userEvent, waitFor, within } from "storybook/test";
+import { http, HttpResponse } from "msw";
+import { setSelectedProjectIdHolder } from "@/lib/project-scope";
+import { CreateCriterionDialog } from "./CreateCriterionDialog";
+
+const meta = {
+  title: "Components/CreateCriterionDialog",
+  component: CreateCriterionDialog,
+  tags: ["ai-generated", "needs-work"],
+  args: { open: true, onOpenChange: fn(), onCreated: fn() },
+  decorators: [(Story) => {
+    setSelectedProjectIdHolder("demo-project");
+    return <Story />;
+  }],
+  render: (args) => {
+    const [open, setOpen] = useState(args.open);
+    return <CreateCriterionDialog {...args} open={open} onOpenChange={setOpen} />;
+  },
+  parameters: {
+    msw: {
+      handlers: [
+        http.get("*/api/v1/criteria", () => HttpResponse.json([])),
+        http.post("*/api/v1/criteria/generate-prompt", () => HttpResponse.json({
+          prompt: "Record whether the codebase contains unit tests.",
+          suggestedId: "has_unit_tests",
+          suggestedParents: [],
+          suggestedChildren: [],
+          suggestedSubject: "run",
+        })),
+        http.post("*/api/v1/criteria", () => HttpResponse.json({
+          id: "has_unit_tests", prompt: "Record whether the codebase contains unit tests.", createdAt: "",
+        })),
+      ],
+    },
+  },
+} satisfies Meta<typeof CreateCriterionDialog>;
+
+export default meta;
+type Story = StoryObj<typeof meta>;
+
+export const GenericCriteria: Story = {
+  play: async ({ canvasElement, args }) => {
+    const page = within(canvasElement.ownerDocument.body);
+    await waitFor(() => expect(page.getByRole("heading", { name: "New Criteria" })).toBeVisible());
+    await expect(page.getByLabelText("Criteria kind")).toBeVisible();
+    await userEvent.type(page.getByLabelText(/What behavior do you want to track/), "Has unit tests");
+    await userEvent.click(page.getByRole("button", { name: "Continue" }));
+    await expect(await page.findByText("Criteria Prompt (AI Generated)")).toBeVisible();
+    await expect(page.getByText("Gate compatibility")).toBeVisible();
+    await userEvent.click(page.getByRole("button", { name: "Create" }));
+    await waitFor(() => expect(args.onCreated).toHaveBeenCalledWith("has_unit_tests"));
+  },
+};
+
+export const ObservationCreation: Story = {
+  args: { mode: "observation" },
+  play: async ({ canvasElement, args }) => {
+    const page = within(canvasElement.ownerDocument.body);
+    await waitFor(() => expect(page.getByRole("heading", { name: "New Observation" })).toBeVisible());
+    await expect(page.queryByLabelText("Criteria kind")).not.toBeInTheDocument();
+    await expect(page.getByLabelText("Evaluation subject")).toHaveTextContent("Whole run");
+    await expect(page.getByText("Observation dimension")).toBeVisible();
+    await userEvent.type(page.getByLabelText(/What behavior do you want to observe/), "Has unit tests");
+    await userEvent.click(page.getByRole("button", { name: "Continue" }));
+    await expect(await page.findByText("Observation Prompt (AI Generated)")).toBeVisible();
+    await expect(page.getAllByPlaceholderText("Search observations…")).toHaveLength(2);
+    await expect(page.queryByText(/No gate-compatible criteria/)).not.toBeInTheDocument();
+    await userEvent.click(page.getByRole("button", { name: "Create Observation" }));
+    await waitFor(() => expect(args.onCreated).toHaveBeenCalledWith("has_unit_tests"));
+  },
+};
+
+export const LegacyObservationDefault: Story = {
+  args: { defaultKind: "observation" },
+  play: async ({ canvasElement }) => {
+    const page = within(canvasElement.ownerDocument.body);
+    await waitFor(() => expect(page.getByRole("heading", { name: "New Criteria" })).toBeVisible());
+    await expect(page.getByLabelText("Criteria kind")).toHaveTextContent("Observation");
+    await expect(page.getByLabelText("Evaluation subject")).toBeVisible();
+  },
+};
diff --git a/apps/portal/src/components/CreateCriterionDialog.test.tsx b/apps/portal/src/components/CreateCriterionDialog.test.tsx
new file mode 100644
index 000000000..0e478935d
--- /dev/null
+++ b/apps/portal/src/components/CreateCriterionDialog.test.tsx
@@ -0,0 +1,139 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+// @vitest-environment happy-dom
+import { QueryClient, QueryClientProvider } from "@tanstack/react-query";
+import { cleanup, fireEvent, render, screen, waitFor } from "@testing-library/react";
+import { afterEach, beforeEach, describe, expect, it, vi } from "vitest";
+import type { ComponentProps } from "react";
+import { CreateCriterionDialog } from "./CreateCriterionDialog";
+import { api } from "@/lib/api";
+
+vi.mock("@/lib/api", () => ({
+  api: {
+    listCriteria: vi.fn(),
+    generateCriteriaPrompt: vi.fn(),
+    createCriterion: vi.fn(),
+  },
+}));
+
+beforeEach(() => {
+  vi.mocked(api.listCriteria).mockResolvedValue([]);
+  vi.mocked(api.generateCriteriaPrompt).mockResolvedValue({
+    prompt: "Record whether the codebase contains unit tests.",
+    suggestedId: "ai_suggested_id",
+    suggestedParents: [],
+    suggestedChildren: [],
+  });
+  vi.mocked(api.createCriterion).mockImplementation(async (input) => ({
+    ...input,
+    createdAt: "",
+  }));
+});
+
+afterEach(() => {
+  cleanup();
+  vi.resetAllMocks();
+});
+
+function renderDialog(props: Partial<ComponentProps<typeof CreateCriterionDialog>> = {}) {
+  const queryClient = new QueryClient({
+    defaultOptions: {
+      queries: { retry: false },
+      mutations: { retry: false },
+    },
+  });
+  const onCreated = vi.fn();
+  const onOpenChange = vi.fn();
+
+  render(
+    <QueryClientProvider client={queryClient}>
+      <CreateCriterionDialog
+        open
+        onOpenChange={onOpenChange}
+        onCreated={onCreated}
+        {...props}
+      />
+    </QueryClientProvider>,
+  );
+
+  return { onCreated, onOpenChange };
+}
+
+describe("CreateCriterionDialog modes", () => {
+  it("keeps generic Criteria creation and locked gates unchanged by default", async () => {
+    renderDialog({ defaultGates: ["build"], lockedGates: ["build"] });
+
+    expect(screen.getByRole("heading", { name: "New Criteria" })).toBeTruthy();
+    expect(screen.getByLabelText("Criteria kind")).toBeTruthy();
+    expect(screen.getByText(/Gate criteria steer the agent/)).toBeTruthy();
+    expect(screen.getByText(/Criteria ID/)).toBeTruthy();
+
+    fireEvent.change(screen.getByLabelText(/What behavior do you want to track/), {
+      target: { value: "Has unit tests" },
+    });
+    await waitFor(() => expect(screen.getByRole("button", { name: /Continue/ }).hasAttribute("disabled")).toBe(false));
+    fireEvent.click(screen.getByRole("button", { name: /Continue/ }));
+    await screen.findByText("Criteria Prompt (AI Generated)");
+    fireEvent.click(screen.getByRole("button", { name: "Create" }));
+
+    await waitFor(() => expect(vi.mocked(api.createCriterion).mock.calls[0]?.[0]).toEqual({
+      id: "has_unit_tests",
+      prompt: "Record whether the codebase contains unit tests.",
+      dependsOn: undefined,
+      kind: "gate",
+      gates: ["build"],
+    }));
+  });
+
+  it("retains defaultKind without opting into specialized Observation copy", () => {
+    renderDialog({ defaultKind: "observation" });
+
+    expect(screen.getByRole("heading", { name: "New Criteria" })).toBeTruthy();
+    expect(screen.getByLabelText("Criteria kind").textContent).toContain("Observation");
+    expect(screen.getByLabelText("Evaluation subject")).toBeTruthy();
+  });
+
+  it("fixes the Observation kind and creates a run-subject observation without gates", async () => {
+    const { onCreated, onOpenChange } = renderDialog({
+      mode: "observation",
+      defaultKind: "gate",
+      defaultGates: ["build"],
+    });
+
+    expect(screen.getByRole("heading", { name: "New Observation" })).toBeTruthy();
+    expect(screen.getByText(/Observation ID/)).toBeTruthy();
+    expect(screen.getByText("Observation dimension")).toBeTruthy();
+    expect(screen.getByLabelText("Evaluation subject").textContent).toContain("Whole run");
+    expect(screen.queryByLabelText("Criteria kind")).toBeNull();
+    expect(screen.queryByText(/Gate criteria steer the agent/)).toBeNull();
+    expect(screen.queryByText("Gate compatibility")).toBeNull();
+
+    fireEvent.change(screen.getByLabelText(/What behavior do you want to observe/), {
+      target: { value: "Has unit tests" },
+    });
+    await waitFor(() => expect(screen.getByRole("button", { name: /Continue/ }).hasAttribute("disabled")).toBe(false));
+    fireEvent.click(screen.getByRole("button", { name: /Continue/ }));
+
+    await screen.findByText("Observation Prompt (AI Generated)");
+    expect(screen.getByRole("heading", { name: "Review & Create Observation" })).toBeTruthy();
+    expect(screen.getAllByPlaceholderText("Search observations…")).toHaveLength(2);
+    expect(screen.queryByText(/Criteria Prompt/)).toBeNull();
+    expect(screen.queryByText(/observation criteria/)).toBeNull();
+
+    fireEvent.click(screen.getByRole("button", { name: "Create Observation" }));
+
+    await waitFor(() => {
+      expect(vi.mocked(api.createCriterion).mock.calls[0]?.[0]).toEqual({
+        dependsOn: undefined,
+        id: "has_unit_tests",
+        prompt: "Record whether the codebase contains unit tests.",
+        kind: "observation",
+        subject: "run",
+      });
+      expect(onCreated).toHaveBeenCalledWith("has_unit_tests");
+      expect(onOpenChange).toHaveBeenCalledWith(false);
+    });
+    expect(api.generateCriteriaPrompt).toHaveBeenCalledWith("Has unit tests", undefined, undefined);
+  });
+});
diff --git a/apps/portal/src/components/CreateCriterionDialog.tsx b/apps/portal/src/components/CreateCriterionDialog.tsx
index be51969f3..7e550bfe3 100644
--- a/apps/portal/src/components/CreateCriterionDialog.tsx
+++ b/apps/portal/src/components/CreateCriterionDialog.tsx
@@ -28,13 +28,25 @@ interface CreateCriterionDialogProps {
   lockedGates?: GateId[];
   /** Pre-populated criteria kind (defaults to gate) */
   defaultKind?: CriterionKind;
+  /** Specialized creation experience for inline observation entry points. */
+  mode?: "criteria" | "observation";
 }
 
-export function CreateCriterionDialog({ open, onOpenChange, onCreated, defaultGates, lockedGates, defaultKind }: CreateCriterionDialogProps) {
+export function CreateCriterionDialog({
+  open,
+  onOpenChange,
+  onCreated,
+  defaultGates,
+  lockedGates,
+  defaultKind,
+  mode = "criteria",
+}: CreateCriterionDialogProps) {
+  const observationMode = mode === "observation";
   const wizard = useCriteriaWizard({
     initialGates: defaultGates,
     lockedGates,
-    initialKind: defaultKind,
+    initialKind: observationMode ? "observation" : defaultKind,
+    entityLabel: observationMode ? "Observation" : "Criterion",
     onSuccess: (id) => {
       onCreated(id);
       handleOpenChange(false);
@@ -65,14 +77,20 @@ export function CreateCriterionDialog({ open, onOpenChange, onCreated, defaultGa
         {wizard.step === 1 ? (
           <>
             <DialogHeader>
-              <DialogTitle>New Criteria</DialogTitle>
+              <DialogTitle>{observationMode ? "New Observation" : "New Criteria"}</DialogTitle>
               <DialogDescription>
-                Describe the behavior to evaluate
+                {observationMode
+                  ? "Describe the behavior to observe"
+                  : "Describe the behavior to evaluate"}
               </DialogDescription>
             </DialogHeader>
 
             <div className="py-2">
-              <CriteriaWizardStep1 wizard={wizard} idPrefix="dialog-" />
+              <CriteriaWizardStep1
+                wizard={wizard}
+                idPrefix="dialog-"
+                observationMode={observationMode}
+              />
             </div>
 
             <DialogFooter>
@@ -90,14 +108,16 @@ export function CreateCriterionDialog({ open, onOpenChange, onCreated, defaultGa
         ) : (
           <>
             <DialogHeader>
-              <DialogTitle>Review & Create</DialogTitle>
+              <DialogTitle>
+                {observationMode ? "Review & Create Observation" : "Review & Create"}
+              </DialogTitle>
               <DialogDescription>
                 {wizard.behavior}
               </DialogDescription>
             </DialogHeader>
 
             <div className="py-2">
-              <CriteriaWizardStep2 wizard={wizard} />
+              <CriteriaWizardStep2 wizard={wizard} observationMode={observationMode} />
             </div>
 
             <DialogFooter className="flex-row justify-between sm:justify-between">
@@ -120,7 +140,7 @@ export function CreateCriterionDialog({ open, onOpenChange, onCreated, defaultGa
                 ) : (
                   <Sparkles className="h-4 w-4" />
                 )}
-                Create
+                {observationMode ? "Create Observation" : "Create"}
               </Button>
             </DialogFooter>
           </>
diff --git a/apps/portal/src/components/CriteriaPicker.stories.tsx b/apps/portal/src/components/CriteriaPicker.stories.tsx
new file mode 100644
index 000000000..1972ab668
--- /dev/null
+++ b/apps/portal/src/components/CriteriaPicker.stories.tsx
@@ -0,0 +1,57 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+import { useState } from "react";
+import type { Meta, StoryObj } from "@storybook/react-vite";
+import { expect, userEvent, within } from "storybook/test";
+import { http, HttpResponse } from "msw";
+import { setSelectedProjectIdHolder } from "@/lib/project-scope";
+import { CriteriaPicker } from "./CriteriaPicker";
+
+const meta = {
+  title: "Components/CriteriaPicker",
+  component: CriteriaPicker,
+  tags: ["ai-generated", "needs-work"],
+  args: { selected: [], onChange: () => undefined },
+  decorators: [(Story) => {
+    setSelectedProjectIdHolder("demo-project");
+    return <div className="max-w-xl p-6"><Story /></div>;
+  }],
+  render: (args) => {
+    const [selected, setSelected] = useState<string[]>([]);
+    return <CriteriaPicker {...args} selected={selected} onChange={setSelected} />;
+  },
+  parameters: {
+    msw: {
+      handlers: [http.get("*/api/v1/criteria", () => HttpResponse.json([
+        { id: "gate_requirement", prompt: "The project builds.", kind: "gate", createdAt: "" },
+        { id: "has_tests", prompt: "Record whether tests exist.", kind: "observation", createdAt: "" },
+      ]))],
+    },
+  },
+} satisfies Meta<typeof CriteriaPicker>;
+
+export default meta;
+type Story = StoryObj<typeof meta>;
+
+export const GenericCriteria: Story = {
+  play: async ({ canvas, canvasElement }) => {
+    const input = await canvas.findByPlaceholderText("Type to search criteria…");
+    await userEvent.type(input, "missing");
+    await expect(await within(canvasElement.ownerDocument.body).findByText("No matching criteria")).toBeVisible();
+  },
+};
+
+export const ObservationDependencies: Story = {
+  args: { kind: "observation", entityLabel: "observations" },
+  play: async ({ canvas, canvasElement }) => {
+    const page = within(canvasElement.ownerDocument.body);
+    const input = await canvas.findByPlaceholderText("Search observations…");
+    await userEvent.click(input);
+    await expect(page.queryByRole("button", { name: /gate_requirement/ })).not.toBeInTheDocument();
+    await userEvent.click(await page.findByRole("button", { name: /has_tests/ }));
+    await expect(canvas.getByText("has_tests")).toBeVisible();
+    await userEvent.type(input, "missing");
+    await expect(await page.findByText("No matching observations")).toBeVisible();
+  },
+};
diff --git a/apps/portal/src/components/CriteriaPicker.test.tsx b/apps/portal/src/components/CriteriaPicker.test.tsx
index 7c488c1f8..2f4bea56e 100644
--- a/apps/portal/src/components/CriteriaPicker.test.tsx
+++ b/apps/portal/src/components/CriteriaPicker.test.tsx
@@ -9,8 +9,9 @@ import { CriteriaPicker } from "./CriteriaPicker";
 import type { CriteriaDocument } from "@/types";
 
 const CRITERIA: CriteriaDocument[] = [
-  { id: "crit_a", prompt: "a" } as CriteriaDocument,
-  { id: "crit_b", prompt: "b" } as CriteriaDocument,
+  { id: "crit_a", prompt: "a", createdAt: "" },
+  { id: "crit_b", prompt: "b", createdAt: "" },
+  { id: "observation_a", prompt: "record a", kind: "observation", createdAt: "" },
 ];
 
 vi.mock("@/lib/api", () => ({
@@ -60,4 +61,22 @@ describe("CriteriaPicker dropdown", () => {
     fireEvent.click(option);
     expect(selected).toEqual(["crit_a"]);
   });
+
+  it("uses specialized copy without admitting gate criteria to observation suggestions", async () => {
+    const onChange = vi.fn();
+    const qc = new QueryClient({ defaultOptions: { queries: { retry: false } } });
+    render(
+      <QueryClientProvider client={qc}>
+        <CriteriaPicker selected={[]} onChange={onChange} kind="observation" entityLabel="observations" />
+      </QueryClientProvider>,
+    );
+    const input = await screen.findByPlaceholderText("Search observations…");
+    fireEvent.focus(input);
+    expect(screen.queryByRole("button", { name: /crit_a/ })).toBeNull();
+    fireEvent.click(screen.getByRole("button", { name: /observation_a/ }));
+    expect(onChange).toHaveBeenCalledWith(["observation_a"]);
+
+    fireEvent.change(input, { target: { value: "missing" } });
+    expect(screen.getByText("No matching observations")).toBeTruthy();
+  });
 });
diff --git a/apps/portal/src/components/CriteriaPicker.tsx b/apps/portal/src/components/CriteriaPicker.tsx
index 19ed40767..25b68fb4f 100644
--- a/apps/portal/src/components/CriteriaPicker.tsx
+++ b/apps/portal/src/components/CriteriaPicker.tsx
@@ -25,6 +25,8 @@ interface CriteriaPickerProps {
   gate?: GateId;
   /** Restrict suggestions by criterion kind. Missing kind is treated as "gate". */
   kind?: CriterionKind;
+  /** User-facing noun used by specialized creation flows. */
+  entityLabel?: "criteria" | "observations";
   /**
    * Additional predicate restricting which criteria are offered as suggestions.
    * Used to enforce gate-compatibility invariants (e.g. only show criteria that
@@ -33,7 +35,17 @@ interface CriteriaPickerProps {
   filter?: (criterion: CriteriaDocument) => boolean;
 }
 
-export function CriteriaPicker({ selected, onChange, aiSuggested = [], inputId, trailingAction, gate, kind, filter }: CriteriaPickerProps) {
+export function CriteriaPicker({
+  selected,
+  onChange,
+  aiSuggested = [],
+  inputId,
+  trailingAction,
+  gate,
+  kind,
+  entityLabel,
+  filter,
+}: CriteriaPickerProps) {
   const [query, setQuery] = useState("");
   const [open, setOpen] = useState(false);
   const [highlightIdx, setHighlightIdx] = useState(0);
@@ -215,7 +227,15 @@ export function CriteriaPicker({ selected, onChange, aiSuggested = [], inputId,
           }}
           onFocus={() => setOpen(true)}
           onKeyDown={handleKeyDown}
-          placeholder={kind === "observation" ? "Search observation criteria…" : gate ? `Search ${GATE_METADATA[gate].label} criteria…` : "Type to search criteria…"}
+          placeholder={
+            entityLabel
+              ? `Search ${entityLabel}…`
+              : kind === "observation"
+                ? "Search observation criteria…"
+                : gate
+                  ? `Search ${GATE_METADATA[gate].label} criteria…`
+                  : "Type to search criteria…"
+          }
           className="h-9 font-mono text-sm"
         />
         {trailingAction}
@@ -249,7 +269,7 @@ export function CriteriaPicker({ selected, onChange, aiSuggested = [], inputId,
 
       {open && query && suggestions.length === 0 && createPortal(
         <div ref={dropdownRef} data-criteria-picker-portal style={dropdownStyle} className="rounded-md border bg-popover shadow-md p-3 text-sm text-muted-foreground text-center">
-          No matching criteria
+          No matching {entityLabel ?? "criteria"}
         </div>,
         document.body,
       )}
diff --git a/apps/portal/src/components/CriteriaWizardStep1.tsx b/apps/portal/src/components/CriteriaWizardStep1.tsx
index 3cda0d8e3..09b545c51 100644
--- a/apps/portal/src/components/CriteriaWizardStep1.tsx
+++ b/apps/portal/src/components/CriteriaWizardStep1.tsx
@@ -13,9 +13,14 @@ interface CriteriaWizardStep1Props {
   wizard: CriteriaWizardState;
   /** HTML id prefix to avoid collisions when rendered in different contexts */
   idPrefix?: string;
+  observationMode?: boolean;
 }
 
-export function CriteriaWizardStep1({ wizard, idPrefix = "" }: CriteriaWizardStep1Props) {
+export function CriteriaWizardStep1({
+  wizard,
+  idPrefix = "",
+  observationMode = false,
+}: CriteriaWizardStep1Props) {
   const {
     behavior,
     handleBehaviorChange,
@@ -41,27 +46,34 @@ export function CriteriaWizardStep1({ wizard, idPrefix = "" }: CriteriaWizardSte
       {/* Behavior description */}
       <div className="space-y-2">
         <Label htmlFor={`${idPrefix}behavior`} className="text-sm font-semibold">
-          What behavior do you want to track?
+          {observationMode
+            ? "What behavior do you want to observe?"
+            : "What behavior do you want to track?"}
         </Label>
         <Textarea
           id={`${idPrefix}behavior`}
-          placeholder="Describe the behavior or pattern you want to detect (e.g., 'uses Azure Bicep for IaC', 'has unit tests', 'follows REST conventions')"
+          placeholder={
+            observationMode
+              ? "Describe the behavior or pattern you want to observe (e.g., 'uses Azure Bicep for IaC', 'has unit tests', 'follows REST conventions')"
+              : "Describe the behavior or pattern you want to detect (e.g., 'uses Azure Bicep for IaC', 'has unit tests', 'follows REST conventions')"
+          }
           value={behavior}
           onChange={(e) => handleBehaviorChange(e.target.value)}
           rows={4}
           className="resize-none"
         />
         <p className="text-xs text-muted-foreground">
-          Describe what you want the judge to detect in your codebase
+          {observationMode
+            ? "Describe the evidence you want the judge to record"
+            : "Describe what you want the judge to detect in your codebase"}
         </p>
       </div>
 
-      {/* Criteria ID */}
       <div className="space-y-2">
         <Label htmlFor={`${idPrefix}criteria-id`} className="text-sm font-semibold">
-          Criteria ID{" "}
+          {observationMode ? "Observation ID" : "Criteria ID"}{" "}
           <span className="font-normal text-muted-foreground">
-            (when judge returns true)
+            ({observationMode ? "when the observation is true" : "when judge returns true"})
           </span>
         </Label>
         <Input
@@ -82,7 +94,7 @@ export function CriteriaWizardStep1({ wizard, idPrefix = "" }: CriteriaWizardSte
         )}
         {id && idValid && idExists && (
           <p className="text-xs text-destructive">
-            Criteria "{id}" already exists — choose a different ID
+            {observationMode ? "Observation" : "Criteria"} "{id}" already exists — choose a different ID
           </p>
         )}
         {id && idValid && criteriaLoading && (
@@ -93,30 +105,33 @@ export function CriteriaWizardStep1({ wizard, idPrefix = "" }: CriteriaWizardSte
         <p className="text-xs text-muted-foreground">
           {id && !wizard.idManuallyEdited
             ? "Auto-generated from behavior — edit to customize"
-            : "This ID will be attached to evaluations when the judge evaluates them as positive"}
+            : observationMode
+              ? "This ID will be attached to results when the observation is true"
+              : "This ID will be attached to evaluations when the judge evaluates them as positive"}
         </p>
       </div>
 
-      {/* Criteria kind */}
-      <div className="space-y-2">
-        <Label htmlFor={`${idPrefix}criteria-kind`} className="text-sm font-semibold">
-          Criteria kind
-        </Label>
-        <Select value={kind} onValueChange={(value) => setKind(value as typeof kind)}>
-          <SelectTrigger id={`${idPrefix}criteria-kind`}>
-            <SelectValue />
-          </SelectTrigger>
-          <SelectContent>
-            <SelectItem value="gate">Gate — steers the agent (pass/fail feedback shapes its next iteration)</SelectItem>
-            <SelectItem value="observation">Observation — records evidence; never shown to the agent</SelectItem>
-          </SelectContent>
-        </Select>
-        <p className="text-xs text-muted-foreground">
-          Gate criteria steer the agent — their pass/fail verdict is fed back into the coding
-          session and shapes what it does next. Observations are recorded for analysis only:
-          never shown to the agent and never change its behavior.
-        </p>
-      </div>
+      {!observationMode && (
+        <div className="space-y-2">
+          <Label htmlFor={`${idPrefix}criteria-kind`} className="text-sm font-semibold">
+            Criteria kind
+          </Label>
+          <Select value={kind} onValueChange={(value) => setKind(value as typeof kind)}>
+            <SelectTrigger id={`${idPrefix}criteria-kind`}>
+              <SelectValue />
+            </SelectTrigger>
+            <SelectContent>
+              <SelectItem value="gate">Gate — steers the agent (pass/fail feedback shapes its next iteration)</SelectItem>
+              <SelectItem value="observation">Observation — records evidence; never shown to the agent</SelectItem>
+            </SelectContent>
+          </Select>
+          <p className="text-xs text-muted-foreground">
+            Gate criteria steer the agent — their pass/fail verdict is fed back into the coding
+            session and shapes what it does next. Observations are recorded for analysis only:
+            never shown to the agent and never change its behavior.
+          </p>
+        </div>
+      )}
 
       {/* Gate compatibility */}
       {kind === "gate" ? (
diff --git a/apps/portal/src/components/CriteriaWizardStep2.test.tsx b/apps/portal/src/components/CriteriaWizardStep2.test.tsx
index 62ed70aa0..24d581ca9 100644
--- a/apps/portal/src/components/CriteriaWizardStep2.test.tsx
+++ b/apps/portal/src/components/CriteriaWizardStep2.test.tsx
@@ -16,6 +16,8 @@ const CRITERIA: CriteriaDocument[] = [
   { id: "crit_a", prompt: "criterion a" } as CriteriaDocument,
   { id: "crit_b", prompt: "criterion b" } as CriteriaDocument,
   { id: "crit_c", prompt: "criterion c" } as CriteriaDocument,
+  { id: "observation_a", prompt: "record a", kind: "observation", createdAt: "" },
+  { id: "observation_b", prompt: "record b", kind: "observation", createdAt: "" },
 ];
 
 vi.mock("@/lib/api", () => ({
@@ -39,12 +41,14 @@ function Harness({
   parentCandidates = true,
   childCandidates = true,
   generationError,
+  observationMode = false,
 }: {
   initialParents?: string[];
   initialChildren?: string[];
   parentCandidates?: boolean;
   childCandidates?: boolean;
   generationError?: unknown;
+  observationMode?: boolean;
 }) {
   const [dependsOn, setDependsOn] = useState<string[]>(initialParents);
   const [acceptedChildren, setAcceptedChildren] = useState<string[]>(initialChildren);
@@ -57,6 +61,7 @@ function Harness({
     // undefined gates = universal, so the gate-compat filter admits every
     // candidate and cross-exclusion is the only thing removing ids.
     gates: undefined,
+    kind: observationMode ? "observation" : "gate",
     prompt: "p",
     setPrompt: () => {},
     aiGenerated: false,
@@ -74,7 +79,7 @@ function Harness({
     createMutation: noopMutation,
   } as unknown as CriteriaWizardState;
 
-  return <CriteriaWizardStep2 wizard={wizard} />;
+  return <CriteriaWizardStep2 wizard={wizard} observationMode={observationMode} />;
 }
 
 function renderStep2(props: Parameters<typeof Harness>[0]) {
@@ -186,3 +191,22 @@ describe("CriteriaWizardStep2 — generation errors", () => {
     ).toBeTruthy();
   });
 });
+
+describe("CriteriaWizardStep2 — Observation mode", () => {
+  it("restricts dependency choices to observations and preserves cross-exclusion", async () => {
+    renderStep2({
+      observationMode: true,
+      initialParents: ["observation_a"],
+      parentCandidates: false,
+      childCandidates: false,
+    });
+    const inputs = await screen.findAllByPlaceholderText("Search observations…");
+    fireEvent.focus(inputs[1]);
+    expect(openDropdownText()).toContain("observation_b");
+    expect(openDropdownText()).not.toContain("observation_a");
+    expect(openDropdownText()).not.toContain("crit_a");
+    expect(screen.queryByText(/No gate-compatible criteria/)).toBeNull();
+    expect(screen.getByText("Observation Prompt")).toBeTruthy();
+    expect(screen.queryByText("Kind", { exact: true })).toBeNull();
+  });
+});
diff --git a/apps/portal/src/components/CriteriaWizardStep2.tsx b/apps/portal/src/components/CriteriaWizardStep2.tsx
index 7dcf8b192..429191b2b 100644
--- a/apps/portal/src/components/CriteriaWizardStep2.tsx
+++ b/apps/portal/src/components/CriteriaWizardStep2.tsx
@@ -16,9 +16,13 @@ import type { CriteriaWizardState } from "@/hooks/useCriteriaWizard";
 
 interface CriteriaWizardStep2Props {
   wizard: CriteriaWizardState;
+  observationMode?: boolean;
 }
 
-export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
+export function CriteriaWizardStep2({
+  wizard,
+  observationMode = false,
+}: CriteriaWizardStep2Props) {
   const {
     behavior,
     id,
@@ -48,28 +52,30 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
       <div className="space-y-3">
         <div>
           <p className="text-sm font-semibold">
-            Criteria for: {behavior}
+            {observationMode ? "Observation" : "Criteria"} for: {behavior}
           </p>
           <p className="text-xs text-muted-foreground uppercase tracking-wide mt-1">
-            Behavior to track
+            {observationMode ? "Behavior observed" : "Behavior to track"}
           </p>
         </div>
         <div>
           <p className="text-xs text-muted-foreground uppercase tracking-wide mb-1">
-            Criteria ID
+            {observationMode ? "Observation ID" : "Criteria ID"}
           </p>
           <Badge variant="secondary" className="font-mono">
             {id}
           </Badge>
         </div>
-        <div>
-          <p className="text-xs text-muted-foreground uppercase tracking-wide mb-1">
-            Kind
-          </p>
-          <Badge variant={kind === "observation" ? "outline" : "secondary"}>
-            {kind === "observation" ? "Observation" : "Gate"}
-          </Badge>
-        </div>
+        {!observationMode && (
+          <div>
+            <p className="text-xs text-muted-foreground uppercase tracking-wide mb-1">
+              Kind
+            </p>
+            <Badge variant={kind === "observation" ? "outline" : "secondary"}>
+              {kind === "observation" ? "Observation" : "Gate"}
+            </Badge>
+          </div>
+        )}
         {kind === "gate" ? (
         <div>
           <p className="text-xs text-muted-foreground uppercase tracking-wide mb-1">
@@ -101,7 +107,6 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
 
       <Separator />
 
-      {/* Parents */}
       <div className="space-y-2">
         <Label className="text-xs text-muted-foreground uppercase tracking-wide font-semibold">
           Parents
@@ -110,13 +115,15 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
           selected={dependsOn}
           onChange={setDependsOn}
           aiSuggested={suggestedParents}
+          kind={observationMode ? "observation" : undefined}
+          entityLabel={observationMode ? "observations" : undefined}
           filter={(c) =>
             (c.kind ?? "gate") === kind &&
             (kind === "observation" || gatesSatisfyInvariant(c.gates, gates)) &&
             !acceptedChildren.includes(c.id)
           }
         />
-        {!hasCompatibleParentCandidates && (
+        {!observationMode && !hasCompatibleParentCandidates && (
           <div className="flex items-center gap-1 text-xs font-medium text-amber-600" role="note">
             <span>No gate-compatible criteria available as parents.</span>
             <HelpTooltip
@@ -127,7 +134,9 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
           </div>
         )}
         <p className="text-xs text-muted-foreground">
-          Criteria that must pass before this one is evaluated. {kind === "gate" ? "Only criteria compatible with every selected gate are shown." : "Only observation criteria are shown."} List only direct parents —
+          {observationMode
+            ? "Observations that must be evaluated before this one. Only observations are shown."
+            : `Criteria that must pass before this one is evaluated. ${kind === "gate" ? "Only criteria compatible with every selected gate are shown." : "Only observation criteria are shown."}`} List only direct parents —
           the judge automatically evaluates all transitive ancestors in topological order,
           so you don't need to repeat a parent's own dependencies here.
         </p>
@@ -135,7 +144,6 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
 
       <Separator />
 
-      {/* Children */}
       <div className="space-y-2">
         <Label className="text-xs text-muted-foreground uppercase tracking-wide font-semibold">
           Children
@@ -144,13 +152,15 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
           selected={acceptedChildren}
           onChange={setAcceptedChildren}
           aiSuggested={suggestedChildren}
+          kind={observationMode ? "observation" : undefined}
+          entityLabel={observationMode ? "observations" : undefined}
           filter={(c) =>
             (c.kind ?? "gate") === kind &&
             (kind === "observation" || gatesSatisfyInvariant(gates, c.gates)) &&
             !dependsOn.includes(c.id)
           }
         />
-        {!hasCompatibleChildCandidates && (
+        {!observationMode && !hasCompatibleChildCandidates && (
           <div className="flex items-center gap-1 text-xs font-medium text-amber-600" role="note">
             <span>No gate-compatible criteria available as children.</span>
             <HelpTooltip
@@ -161,21 +171,28 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
           </div>
         )}
         <p className="text-xs text-muted-foreground">
-          These criteria will be updated to depend on <span className="font-mono">{id || "this criterion"}</span> after creation.
-          {kind === "gate" ? " Only criteria compatible with a subset of the selected gates are shown." : " Only observation criteria are shown."}
+          {observationMode ? "These observations" : "These criteria"} will be updated to depend on{" "}
+          <span className="font-mono">
+            {id || (observationMode ? "this observation" : "this criterion")}
+          </span>{" "}
+          after creation.
+          {observationMode
+            ? " Only observations are shown."
+            : kind === "gate"
+              ? " Only criteria compatible with a subset of the selected gates are shown."
+              : " Only observation criteria are shown."}
         </p>
       </div>
 
       <Separator />
 
-      {/* Criteria Prompt */}
       <div className="space-y-2">
         <Label className="text-xs text-muted-foreground uppercase tracking-wide font-semibold">
           {generateMutation.isPending
-            ? "Generating criteria prompt…"
+            ? `Generating ${observationMode ? "observation" : "criteria"} prompt…`
             : aiGenerated
-              ? "Criteria Prompt (AI Generated)"
-              : "Criteria Prompt"}
+              ? `${observationMode ? "Observation" : "Criteria"} Prompt (AI Generated)`
+              : `${observationMode ? "Observation" : "Criteria"} Prompt`}
         </Label>
 
         {generateMutation.isPending ? (
@@ -191,7 +208,11 @@ export function CriteriaWizardStep2({ wizard }: CriteriaWizardStep2Props) {
               if (aiGenerated) setAiGenerated(false);
             }}
             rows={6}
-            placeholder="Write your evaluation prompt here. Describe what the judge should check for in the codebase…"
+            placeholder={
+              observationMode
+                ? "Write the observation prompt here. Describe what evidence the judge should record…"
+                : "Write your evaluation prompt here. Describe what the judge should check for in the codebase…"
+            }
             className="font-mono text-sm"
           />
         )}
diff --git a/apps/portal/src/hooks/useCriteriaWizard.test.tsx b/apps/portal/src/hooks/useCriteriaWizard.test.tsx
index e0551acc4..95b4a2092 100644
--- a/apps/portal/src/hooks/useCriteriaWizard.test.tsx
+++ b/apps/portal/src/hooks/useCriteriaWizard.test.tsx
@@ -289,6 +289,7 @@ describe("useCriteriaWizard surfaces child-link failures", () => {
       createdAt: "",
       dependents: [],
     });
+
     updateCriterion.mockRejectedValue(new Error("would create a cycle"));
 
     const onSuccess = vi.fn();
@@ -348,3 +349,88 @@ describe("useCriteriaWizard surfaces child-link failures", () => {
     expect(toastWarning).not.toHaveBeenCalled();
   });
 });
+
+describe("useCriteriaWizard Observation creation", () => {
+  afterEach(() => {
+    generateCriteriaPrompt.mockResolvedValue({
+      prompt: "generated",
+      suggestedId: "",
+      suggestedParents: [],
+      suggestedChildren: [],
+    });
+  });
+
+  it.each(["run", "iteration"] as const)("preserves the %s subject without gate fields", async (subject) => {
+    createCriterion.mockResolvedValue({ id: "has_tests", prompt: "p", createdAt: "" });
+    const { result } = renderHook(
+      () => useCriteriaWizard({
+        initialKind: "observation",
+        entityLabel: "Observation",
+        onSuccess: vi.fn(),
+      }),
+      { wrapper },
+    );
+    act(() => {
+      result.current.handleBehaviorChange("Has tests");
+      result.current.setPrompt("p");
+      result.current.setSubject(subject);
+    });
+    act(() => result.current.handleCreate());
+
+    await waitFor(() => expect(createCriterion.mock.calls[0]?.[0]).toEqual({
+      id: "has_tests",
+      prompt: "p",
+      dependsOn: undefined,
+      kind: "observation",
+      subject,
+    }));
+    await waitFor(() => expect(toast.success).toHaveBeenCalledWith('Observation "has_tests" created'));
+    act(() => result.current.reset());
+    expect(result.current.kind).toBe("observation");
+    expect(result.current.subject).toBe("run");
+    expect(result.current.step).toBe(1);
+  });
+
+  it("retains the existing AI subject suggestion and manual override", async () => {
+    generateCriteriaPrompt.mockResolvedValue({
+      prompt: "generated",
+      suggestedId: "",
+      suggestedParents: [],
+      suggestedChildren: [],
+      suggestedSubject: "iteration",
+    });
+    const { result } = renderHook(
+      () => useCriteriaWizard({ initialKind: "observation", onSuccess: vi.fn() }),
+      { wrapper },
+    );
+    act(() => result.current.handleBehaviorChange("Has tests"));
+    act(() => result.current.handleContinue());
+    await waitFor(() => expect(result.current.subject).toBe("iteration"));
+    expect(generateCriteriaPrompt).toHaveBeenCalledWith("Has tests", undefined, undefined);
+    act(() => result.current.setSubject("run"));
+    expect(result.current.subject).toBe("run");
+  });
+
+  it("uses Observation copy when reporting child-link failures", async () => {
+    createCriterion.mockResolvedValue({ id: "new_observation", prompt: "p", createdAt: "" });
+    getCriterion.mockResolvedValue({
+      id: "child_observation", kind: "observation", prompt: "c", createdAt: "", dependents: [],
+    });
+    updateCriterion.mockRejectedValue(new Error("would create a cycle"));
+    const onSuccess = vi.fn();
+    const { result } = renderHook(
+      () => useCriteriaWizard({ initialKind: "observation", entityLabel: "Observation", onSuccess }),
+      { wrapper },
+    );
+    act(() => result.current.setAcceptedChildren(["child_observation"]));
+    await act(async () => {
+      await result.current.createMutation.mutateAsync({
+        id: "new_observation", prompt: "p", kind: "observation", subject: "run",
+      });
+    });
+    expect(toastWarning).toHaveBeenCalledWith(
+      'Created "new_observation", but couldn\'t link 1 child observation (child_observation). Add the dependency manually.',
+    );
+    expect(onSuccess).toHaveBeenCalledWith("new_observation");
+  });
+});
diff --git a/apps/portal/src/hooks/useCriteriaWizard.ts b/apps/portal/src/hooks/useCriteriaWizard.ts
index 8d6264e73..3ae004f34 100644
--- a/apps/portal/src/hooks/useCriteriaWizard.ts
+++ b/apps/portal/src/hooks/useCriteriaWizard.ts
@@ -22,6 +22,8 @@ export interface UseCriteriaWizardOptions {
   initialSubject?: CriterionSubject;
   /** Called with the new criterion ID after successful creation */
   onSuccess: (id: string) => void;
+  /** User-facing entity name for notifications. */
+  entityLabel?: "Criterion" | "Observation";
 }
 
 export function useCriteriaWizard({
@@ -32,6 +34,7 @@ export function useCriteriaWizard({
   initialTaxonomyElementId,
   initialSubject = "run",
   onSuccess,
+  entityLabel = "Criterion",
 }: UseCriteriaWizardOptions) {
   const queryClient = useQueryClient();
 
@@ -202,11 +205,14 @@ export function useCriteriaWizard({
         }),
       );
       queryClient.invalidateQueries({ queryKey: ["criteria"] });
-      toast.success(`Criterion "${data.id}" created`);
+      toast.success(`${entityLabel} "${data.id}" created`);
       if (failedChildren.length > 0) {
+        const childLabel = entityLabel === "Observation"
+          ? failedChildren.length === 1 ? "observation" : "observations"
+          : failedChildren.length === 1 ? "criterion" : "criteria";
         toast.warning(
           `Created "${data.id}", but couldn't link ${failedChildren.length} child ` +
-            `${failedChildren.length === 1 ? "criterion" : "criteria"} ` +
+            `${childLabel} ` +
             `(${failedChildren.join(", ")}). Add the dependency manually.`,
         );
       }
diff --git a/apps/portal/src/pages/SubmitRun.stories.tsx b/apps/portal/src/pages/SubmitRun.stories.tsx
new file mode 100644
index 000000000..7a4f31746
--- /dev/null
+++ b/apps/portal/src/pages/SubmitRun.stories.tsx
@@ -0,0 +1,53 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+import type { Meta, StoryObj } from "@storybook/react-vite";
+import { expect, userEvent, waitFor, within } from "storybook/test";
+import { http, HttpResponse } from "msw";
+import { setSelectedProjectIdHolder } from "@/lib/project-scope";
+import { SubmitRun } from "./SubmitRun";
+
+const meta = {
+  title: "Pages/Submit Run",
+  component: SubmitRun,
+  tags: ["ai-generated", "needs-work"],
+  decorators: [(Story) => {
+    setSelectedProjectIdHolder("demo-project");
+    return <Story />;
+  }],
+  parameters: {
+    layout: "fullscreen",
+    msw: {
+      handlers: [
+        http.get("*/api/v1/agents", () => HttpResponse.json([])),
+        http.get("*/api/v1/requests", () => HttpResponse.json({ data: [] })),
+        http.get("*/api/v1/*", () => HttpResponse.json([])),
+        http.post("*/api/v1/criteria/generate-prompt", () => HttpResponse.json({
+          prompt: "Record whether the codebase contains unit tests.",
+          suggestedId: "has_unit_tests",
+          suggestedParents: [],
+          suggestedChildren: [],
+          suggestedSubject: "run",
+        })),
+        http.post("*/api/v1/criteria", () => HttpResponse.json({
+          id: "has_unit_tests", prompt: "Record whether the codebase contains unit tests.", createdAt: "",
+        })),
+      ],
+    },
+  },
+} satisfies Meta<typeof SubmitRun>;
+
+export default meta;
+type Story = StoryObj<typeof meta>;
+
+export const RunObservationCreation: Story = {
+  play: async ({ canvas, canvasElement }) => {
+    await userEvent.click(await canvas.findByRole("button", { name: "New Observation" }));
+    const page = within(canvasElement.ownerDocument.body);
+    await waitFor(() => expect(page.getByRole("heading", { name: "New Observation" })).toBeVisible());
+    await expect(page.queryByLabelText("Criteria kind")).not.toBeInTheDocument();
+    await expect(page.getByText(/Observation ID/)).toBeVisible();
+    await expect(page.getByLabelText("Evaluation subject")).toHaveTextContent("Whole run");
+    await expect(page.queryByText(/Gate criteria steer the agent/)).not.toBeInTheDocument();
+  },
+};
diff --git a/apps/portal/src/pages/SubmitRun.test.tsx b/apps/portal/src/pages/SubmitRun.test.tsx
new file mode 100644
index 000000000..f4248d5a2
--- /dev/null
+++ b/apps/portal/src/pages/SubmitRun.test.tsx
@@ -0,0 +1,115 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+// @vitest-environment happy-dom
+import { afterEach, describe, expect, it, vi } from "vitest";
+import { cleanup, fireEvent, render, screen, within } from "@testing-library/react";
+import { QueryClient, QueryClientProvider } from "@tanstack/react-query";
+import { MemoryRouter } from "react-router-dom";
+import type { ComponentProps, ReactNode } from "react";
+import type { CreateCriterionDialog } from "@/components/CreateCriterionDialog";
+
+vi.mock("@/lib/api", () => ({
+  api: {
+    listAgents: vi.fn(async () => []),
+    listMcpServers: vi.fn(async () => []),
+    listProfiles: vi.fn(async () => []),
+    listProfileVersions: vi.fn(async () => []),
+    listRuns: vi.fn(async () => ({ data: [] })),
+    listModels: vi.fn(async () => []),
+  },
+}));
+
+vi.mock("@/hooks/useVisibleGates", () => ({ useVisibleGates: () => [] }));
+vi.mock("@/hooks/useStrictAgentCapabilities", () => ({
+  useStrictAgentCapabilities: () => false,
+}));
+vi.mock("@/hooks/useAdvancedMode", () => ({
+  useAdvancedMode: () => [false, vi.fn()],
+}));
+vi.mock("@/hooks/useCommandEnter", () => ({
+  useCommandEnter: vi.fn(),
+  createCommandEnterKeyDown: () => () => undefined,
+  isMac: false,
+}));
+vi.mock("@/components/ReasoningEffortSelect", () => ({
+  ModelSelectItems: () => null,
+  ReasoningEffortSelect: () => null,
+  useModelCapabilities: () => ({
+    capabilitiesMap: new Map(),
+    activeModelIds: [],
+    capabilitiesLoaded: true,
+  }),
+  useReasoningEffort: () => ({
+    supportedEfforts: [],
+    workerEffortWarning: undefined,
+  }),
+}));
+vi.mock("@/components/TaskPromptPicker", () => ({ TaskPromptPicker: () => null }));
+vi.mock("@/components/CriteriaPicker", () => ({
+  CriteriaPicker: ({ trailingAction, inputId, selected }: {
+    trailingAction?: ReactNode;
+    inputId?: string;
+    selected: string[];
+  }) => <div data-testid={inputId}>{selected.join(", ")}{trailingAction}</div>,
+}));
+vi.mock("@/components/CreateCriterionDialog", () => ({
+  CreateCriterionDialog: ({
+    open, mode, onCreated, defaultGates, lockedGates,
+  }: ComponentProps<typeof CreateCriterionDialog>) => open ? (
+    <div role="dialog">
+      <span>{mode ?? "criteria"}</span>
+      <span data-testid="default-gates">{defaultGates?.join(",")}</span>
+      <span data-testid="locked-gates">{lockedGates?.join(",")}</span>
+      <button onClick={() => onCreated("new_observation")}>Complete creation</button>
+    </div>
+  ) : null,
+}));
+vi.mock("@/components/SkillPicker", () => ({ SkillPicker: () => null }));
+vi.mock("@/components/CodebasePicker", () => ({ CodebasePicker: () => null }));
+vi.mock("@/components/ResourcePicker", () => ({ ResourcePicker: () => null }));
+vi.mock("@/components/ExtensionPicker", () => ({ ExtensionPicker: () => null }));
+vi.mock("@/components/ProfilePicker", () => ({ ProfilePicker: () => null }));
+vi.mock("@/components/ProfileCreateForm", () => ({ ProfileCreateForm: () => null }));
+vi.mock("@/components/AgentBadge", () => ({ AgentBadge: () => null }));
+
+import { SubmitRun } from "./SubmitRun";
+
+afterEach(() => {
+  cleanup();
+  vi.clearAllMocks();
+});
+
+function renderRunForm() {
+  const queryClient = new QueryClient({
+    defaultOptions: { queries: { retry: false } },
+  });
+  return render(
+    <QueryClientProvider client={queryClient}>
+      <MemoryRouter>
+        <SubmitRun />
+      </MemoryRouter>
+    </QueryClientProvider>,
+  );
+}
+
+describe("SubmitRun Observation creation", () => {
+  it("opens the specialized shared wizard and selects the created observation only", async () => {
+    renderRunForm();
+
+    fireEvent.click(await screen.findByRole("button", { name: "New Observation" }));
+    expect(screen.getByText("observation", { exact: true })).toBeTruthy();
+    fireEvent.click(screen.getByRole("button", { name: "Complete creation" }));
+    expect(screen.getByTestId("observations").textContent).toContain("new_observation");
+    expect(screen.getByTestId("criteria").textContent).not.toContain("new_observation");
+  });
+
+  it("keeps requirements creation generic with locked Select gates", async () => {
+    renderRunForm();
+
+    fireEvent.click(within(screen.getByTestId("criteria")).getByRole("button", { name: "New…" }));
+    expect(screen.getByText("criteria", { exact: true })).toBeTruthy();
+    expect(screen.getByTestId("default-gates").textContent).toBe("select");
+    expect(screen.getByTestId("locked-gates").textContent).toBe("select");
+  });
+});
diff --git a/apps/portal/src/pages/SubmitRun.tsx b/apps/portal/src/pages/SubmitRun.tsx
index ec6b639ea..60b2edd10 100644
--- a/apps/portal/src/pages/SubmitRun.tsx
+++ b/apps/portal/src/pages/SubmitRun.tsx
@@ -1141,14 +1141,14 @@ export function SubmitRun() {
                   onClick={() => setCreateObservationOpen(true)}
                 >
                   <Plus className="h-3.5 w-3.5" />
-                  New…
+                  New Observation
                 </Button>
               )}
             />
             <CreateCriterionDialog
               open={createObservationOpen}
               onOpenChange={setCreateObservationOpen}
-              defaultKind="observation"
+              mode="observation"
               onCreated={(id) => setPickedObservations((prev) => [...prev, id])}
             />
             <p className="flex items-center gap-1.5 text-xs text-muted-foreground">
diff --git a/docs/architecture/app-design.md b/docs/architecture/app-design.md
index 2f13ae37f..31592cf83 100644
--- a/docs/architecture/app-design.md
+++ b/docs/architecture/app-design.md
@@ -709,6 +709,22 @@ Criteria are reusable evaluation rules stored in the database and optionally def
 
 Observation evaluation happens off the coding-agent critical path in the `pp-taxonomy` post-processor (see [post-processing](post-processing.md)). A run carries the chosen `observations: string[]` (observation-criteria ids); **iteration-subject** results are stored per turn as `turn.observationResults: CriterionResult[]`, while **run-subject** results are stored once at run level as `run.observationResults: CriterionResult[]` (both the same shape as gate `criteriaResults`). Dimension grouping is derived at read time by joining `criterionId` → criterion `taxonomyElementId`.
 
+### Inline Observation authoring
+
+The Portal's **New Run** form opens the shared `CreateCriterionDialog` with
+`mode="observation"` from **New Observation**. This fixes the kind to observation,
+uses Observation labels throughout both wizard steps and notifications, and limits
+parent/child pickers to observations. The existing optional dimension selector and
+evaluation subject remain available: the subject defaults to whole-run, accepts the
+AI suggestion, and can be overridden by the user. Creation omits gate compatibility
+and adds the new ID to the run's selected observations, not its gate criteria.
+
+Omitting `mode` retains generic **New Criteria** authoring, including the kind
+selector, `defaultKind`, and gate defaults/locks. This is a presentation-only
+specialization; API payloads, prompt generation, and Observation result contracts
+are unchanged. The CLI already supports observation creation through criterion
+kind/subject options and run selection through observation IDs.
+
 See [`ENV_VARIABLES.md`](../../scope-mt-app/ENV_VARIABLES.md) for related configuration options.
 
 ## Statistics Analysis