diff --git a/CHANGELOG.md b/CHANGELOG.md
index abd99ac0..e5f4e29b 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -32,6 +32,12 @@ refactors, dependency updates, CI changes, and code cleanup do not belong here.
 
 ---
 
+## [1.2.5] - 2026-08-14
+
+### Fixed
+
+- Fixed Mermaid diagrams with HTML labels or named entities failing to display in Markdown live preview and standalone Mermaid files.
+
 ## [1.2.4] - 2026-08-14
 
 ### Fixed
diff --git a/Cargo.lock b/Cargo.lock
index 154ace00..73737c04 100644
--- a/Cargo.lock
+++ b/Cargo.lock
@@ -1845,7 +1845,7 @@ dependencies = [
 
 [[package]]
 name = "neverwrite-native-backend"
-version = "1.2.4"
+version = "1.2.5"
 dependencies = [
  "agent-client-protocol",
  "agent-client-protocol-legacy",
diff --git a/apps/desktop/native-backend/Cargo.toml b/apps/desktop/native-backend/Cargo.toml
index e736a88e..35bb4d49 100644
--- a/apps/desktop/native-backend/Cargo.toml
+++ b/apps/desktop/native-backend/Cargo.toml
@@ -1,6 +1,6 @@
 [package]
 name = "neverwrite-native-backend"
-version = "1.2.4"
+version = "1.2.5"
 edition = "2021"
 
 [dependencies]
diff --git a/apps/desktop/package-lock.json b/apps/desktop/package-lock.json
index 96fcabb2..09af4f21 100644
--- a/apps/desktop/package-lock.json
+++ b/apps/desktop/package-lock.json
@@ -1,12 +1,12 @@
 {
     "name": "bifrostwrite-desktop",
-    "version": "1.2.4",
+    "version": "1.2.5",
     "lockfileVersion": 3,
     "requires": true,
     "packages": {
         "": {
             "name": "bifrostwrite-desktop",
-            "version": "1.2.4",
+            "version": "1.2.5",
             "hasInstallScript": true,
             "dependencies": {
                 "@codemirror/commands": "^6.10.3",
diff --git a/apps/desktop/package.json b/apps/desktop/package.json
index 31cc4580..5c9e1789 100644
--- a/apps/desktop/package.json
+++ b/apps/desktop/package.json
@@ -1,7 +1,7 @@
 {
     "name": "bifrostwrite-desktop",
     "private": true,
-    "version": "1.2.4",
+    "version": "1.2.5",
     "homepage": "https://github.com/bifrost-proxy/BifrostWrite",
     "type": "module",
     "engines": {
diff --git a/apps/desktop/src-tauri/Cargo.lock b/apps/desktop/src-tauri/Cargo.lock
index 610d6c69..5f32e9b7 100644
--- a/apps/desktop/src-tauri/Cargo.lock
+++ b/apps/desktop/src-tauri/Cargo.lock
@@ -250,7 +250,7 @@ checksum = "72b3254f16251a8381aa12e40e3c4d2f0199f8c6508fbecb9d91f575e0fbb8c6"
 
 [[package]]
 name = "bifrostwrite-desktop"
-version = "1.2.4"
+version = "1.2.5"
 dependencies = [
  "arboard",
  "base64 0.22.1",
diff --git a/apps/desktop/src-tauri/Cargo.toml b/apps/desktop/src-tauri/Cargo.toml
index 6356b5fb..7ca7f479 100644
--- a/apps/desktop/src-tauri/Cargo.toml
+++ b/apps/desktop/src-tauri/Cargo.toml
@@ -1,6 +1,6 @@
 [package]
 name = "bifrostwrite-desktop"
-version = "1.2.4"
+version = "1.2.5"
 edition = "2021"
 description = "Tauri desktop shell for BifrostWrite"
 license = "Apache-2.0"
diff --git a/apps/desktop/src-tauri/tauri.conf.json b/apps/desktop/src-tauri/tauri.conf.json
index 8c0f7280..4190fd1a 100644
--- a/apps/desktop/src-tauri/tauri.conf.json
+++ b/apps/desktop/src-tauri/tauri.conf.json
@@ -1,7 +1,7 @@
 {
   "$schema": "https://schema.tauri.app/config/2",
   "productName": "BifrostWrite",
-  "version": "1.2.4",
+  "version": "1.2.5",
   "identifier": "com.bifrostwrite.desktop",
   "build": {
     "beforeDevCommand": "npm run renderer:dev",
diff --git a/apps/desktop/src/features/editor/MermaidFilePreview.test.tsx b/apps/desktop/src/features/editor/MermaidFilePreview.test.tsx
index 3b1438d3..7a3fed75 100644
--- a/apps/desktop/src/features/editor/MermaidFilePreview.test.tsx
+++ b/apps/desktop/src/features/editor/MermaidFilePreview.test.tsx
@@ -30,14 +30,18 @@ describe("MermaidFilePreview", () => {
 A --> B`;
         mockedRenderMermaidDiagram.mockResolvedValueOnce({
             status: "ok",
-            svg: '<svg viewBox="0 0 10 10"><text>Flow</text></svg>',
+            svg: [
+                '<svg viewBox="0 0 10 10"><foreignObject>',
+                '<div xmlns="http://www.w3.org/1999/xhtml">README&nbsp;Flow</div>',
+                "</foreignObject></svg>",
+            ].join(""),
         });
 
         renderComponent(<MermaidFilePreview source={source} tabId="tab-1" />);
 
         expect(screen.getByText("Rendering Mermaid diagram...")).toBeInTheDocument();
 
-        expect(await screen.findByText("Flow")).not.toBeNull();
+        expect(await screen.findByText("README Flow")).not.toBeNull();
         expect(mockedRenderMermaidDiagram).toHaveBeenCalledWith(
             source,
             expect.stringMatching(/^mermaid-file-tab-1-/),
diff --git a/apps/desktop/src/features/editor/MermaidFilePreview.tsx b/apps/desktop/src/features/editor/MermaidFilePreview.tsx
index 073e986f..dda61431 100644
--- a/apps/desktop/src/features/editor/MermaidFilePreview.tsx
+++ b/apps/desktop/src/features/editor/MermaidFilePreview.tsx
@@ -4,6 +4,7 @@ import {
     renderMermaidDiagram,
     type MermaidRenderResult,
 } from "./mermaid/mermaidRenderer";
+import { parseMermaidSvg } from "./mermaid/mermaidSvg";
 
 type MermaidFilePreviewState =
     | { status: "idle" }
@@ -130,13 +131,6 @@ function toPreviewState(result: MermaidRenderResult): MermaidFilePreviewState {
     return { status: "rendered", svg };
 }
 
-function parseMermaidSvg(svg: string): SVGElement | null {
-    const parsed = new DOMParser().parseFromString(svg, "image/svg+xml");
-    const root = parsed.documentElement;
-    if (root.nodeName.toLowerCase() !== "svg") return null;
-    return document.importNode(root, true) as unknown as SVGElement;
-}
-
 function sanitizeIdPart(value: string) {
     return value.replace(/[^a-zA-Z0-9_-]/g, "-");
 }
diff --git a/apps/desktop/src/features/editor/extensions/livePreviewBlocks.test.ts b/apps/desktop/src/features/editor/extensions/livePreviewBlocks.test.ts
index 00e65240..8a10450e 100644
--- a/apps/desktop/src/features/editor/extensions/livePreviewBlocks.test.ts
+++ b/apps/desktop/src/features/editor/extensions/livePreviewBlocks.test.ts
@@ -192,7 +192,11 @@ describe("code block live preview", () => {
     it("renders Mermaid SVG blocks asynchronously", async () => {
         mockedRenderMermaidDiagram.mockResolvedValueOnce({
             status: "ok",
-            svg: '<svg xmlns="http://www.w3.org/2000/svg"><text>Diagram</text></svg>',
+            svg: [
+                '<svg xmlns="http://www.w3.org/2000/svg"><foreignObject>',
+                '<div xmlns="http://www.w3.org/1999/xhtml">README&nbsp;Diagram</div>',
+                "</foreignObject></svg>",
+            ].join(""),
         });
         const parent = document.createElement("div");
         document.body.appendChild(parent);
@@ -215,8 +219,9 @@ describe("code block live preview", () => {
         await flushPromises();
 
         expect(
-            view.dom.querySelector(".cm-mermaid-preview svg text")?.textContent,
-        ).toBe("Diagram");
+            view.dom.querySelector(".cm-mermaid-preview svg foreignObject")
+                ?.textContent,
+        ).toBe("README\u00a0Diagram");
         expect(view.dom.querySelector(".cm-mermaid-preview-error")).toBeNull();
 
         view.destroy();
diff --git a/apps/desktop/src/features/editor/extensions/livePreviewBlocks.ts b/apps/desktop/src/features/editor/extensions/livePreviewBlocks.ts
index b05b3bd2..bbd18b58 100644
--- a/apps/desktop/src/features/editor/extensions/livePreviewBlocks.ts
+++ b/apps/desktop/src/features/editor/extensions/livePreviewBlocks.ts
@@ -54,6 +54,7 @@ import {
     renderEmbedPreview,
 } from "./notePreviewSource";
 import { renderMermaidDiagram } from "../mermaid/mermaidRenderer";
+import { parseMermaidSvg } from "../mermaid/mermaidSvg";
 import { formatCodeFenceLanguageLabel } from "../codeFencePresentation";
 
 const IMAGE_EXTENSIONS = /\.(png|jpe?g|gif|svg|webp|bmp|ico|avif)([?#].*)?$/i;
@@ -1072,13 +1073,6 @@ const mermaidBlockSourceHidden = Decoration.line({
     class: "cm-code-block-fence-hidden cm-mermaid-source-hidden",
 });
 
-function parseMermaidSvg(svg: string): SVGElement | null {
-    const parsed = new DOMParser().parseFromString(svg, "image/svg+xml");
-    const root = parsed.documentElement;
-    if (root.nodeName.toLowerCase() !== "svg") return null;
-    return document.importNode(root, true) as unknown as SVGElement;
-}
-
 function renderMermaidError(container: HTMLElement, message: string) {
     container.className = "cm-mermaid-preview-body cm-mermaid-preview-error";
 
diff --git a/apps/desktop/src/features/editor/mermaid/mermaidSvg.test.ts b/apps/desktop/src/features/editor/mermaid/mermaidSvg.test.ts
new file mode 100644
index 00000000..3d9200da
--- /dev/null
+++ b/apps/desktop/src/features/editor/mermaid/mermaidSvg.test.ts
@@ -0,0 +1,24 @@
+import { describe, expect, it } from "vitest";
+import { parseMermaidSvg } from "./mermaidSvg";
+
+describe("parseMermaidSvg", () => {
+    it("accepts Mermaid HTML labels that are not strict XML", () => {
+        const svg = parseMermaidSvg(`
+            <svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 100 40">
+                <foreignObject width="100" height="40">
+                    <div xmlns="http://www.w3.org/1999/xhtml">README&nbsp;flow<br>ready</div>
+                </foreignObject>
+            </svg>
+        `);
+
+        expect(svg).not.toBeNull();
+        expect(svg?.namespaceURI).toBe("http://www.w3.org/2000/svg");
+        expect(svg?.textContent).toContain("README\u00a0flow");
+        expect(svg?.textContent).toContain("ready");
+    });
+
+    it("rejects output without an SVG root", () => {
+        expect(parseMermaidSvg("<div>not an SVG</div>")).toBeNull();
+        expect(parseMermaidSvg("<parsererror>bad SVG</parsererror>")).toBeNull();
+    });
+});
diff --git a/apps/desktop/src/features/editor/mermaid/mermaidSvg.ts b/apps/desktop/src/features/editor/mermaid/mermaidSvg.ts
new file mode 100644
index 00000000..c14e5950
--- /dev/null
+++ b/apps/desktop/src/features/editor/mermaid/mermaidSvg.ts
@@ -0,0 +1,17 @@
+const SVG_NAMESPACE = "http://www.w3.org/2000/svg";
+
+/**
+ * Mermaid SVG output may contain HTML labels inside foreignObject elements.
+ * Parse it as HTML so named entities and HTML-style void elements remain
+ * compatible with the browser/WebView, then require an SVG document root.
+ */
+export function parseMermaidSvg(svg: string): SVGSVGElement | null {
+    const parsed = new DOMParser().parseFromString(svg, "text/html");
+    const root = parsed.body.firstElementChild;
+
+    if (root?.localName !== "svg" || root.namespaceURI !== SVG_NAMESPACE) {
+        return null;
+    }
+
+    return document.importNode(root, true) as SVGSVGElement;
+}