diff --git a/esphome/components/api/client.py b/esphome/components/api/client.py
index 312d937f01..31ae8163da 100644
--- a/esphome/components/api/client.py
+++ b/esphome/components/api/client.py
@@ -18,7 +18,7 @@ with warnings.catch_warnings():
 import contextlib
 
 from esphome.const import CONF_KEY, CONF_PORT, __version__
-from esphome.core import CORE
+from esphome.core import CORE, EsphomeError
 from esphome.platformio_api import process_stacktrace
 
 from . import CONF_ENCRYPTION
@@ -32,6 +32,32 @@ if TYPE_CHECKING:
 _LOGGER = logging.getLogger(__name__)
 
 
+def _process_stacktrace_line(
+    config: dict[str, Any],
+    raw_line: str,
+    backtrace_state: bool,
+    platform_process_stacktrace: Any | None,
+) -> bool:
+    """Run the stack-trace decoder for a single log line.
+
+    on_log runs inside an asyncio protocol callback; if an exception
+    escapes, the loop tears the transport down with "Fatal error:
+    protocol.data_received() call failed." and ReconnectLogic
+    immediately reconnects, the device replays the same crash trace,
+    and we loop forever. Stack-trace decoding requires a populated
+    build dir for the device, which may not exist (e.g. flashed from
+    another machine); log and continue instead of killing the
+    connection.
+    """
+    try:
+        if platform_process_stacktrace:
+            return platform_process_stacktrace(config, raw_line, backtrace_state)
+        return process_stacktrace(config, raw_line, backtrace_state=backtrace_state)
+    except EsphomeError as exc:
+        _LOGGER.debug("Stack-trace decoding failed: %s", exc)
+        return False
+
+
 async def async_run_logs(
     config: dict[str, Any],
     addresses: list[str],
@@ -84,14 +110,9 @@ async def async_run_logs(
         for parsed_msg in parse_log_message(text, timestamp):
             print(parsed_msg.replace("\033", "\\033") if dashboard else parsed_msg)
         for raw_line in text.splitlines():
-            if platform_process_stacktrace:
-                backtrace_state = platform_process_stacktrace(
-                    config, raw_line, backtrace_state
-                )
-            else:
-                backtrace_state = process_stacktrace(
-                    config, raw_line, backtrace_state=backtrace_state
-                )
+            backtrace_state = _process_stacktrace_line(
+                config, raw_line, backtrace_state, platform_process_stacktrace
+            )
 
     # Safe to fall back to plaintext here only for this diagnostics use
     # case: the stream is one-way from device to client, and this code
diff --git a/tests/unit_tests/components/api/__init__.py b/tests/unit_tests/components/api/__init__.py
new file mode 100644
index 0000000000..e69de29bb2
diff --git a/tests/unit_tests/components/api/test_client.py b/tests/unit_tests/components/api/test_client.py
new file mode 100644
index 0000000000..9f038b093d
--- /dev/null
+++ b/tests/unit_tests/components/api/test_client.py
@@ -0,0 +1,80 @@
+"""Tests for esphome.components.api.client."""
+
+from __future__ import annotations
+
+from unittest.mock import patch
+
+from esphome.components.api import client as api_client
+from esphome.core import EsphomeError
+
+
+def test_process_stacktrace_line_swallows_esphome_error() -> None:
+    """A failing stack-trace decode must not propagate.
+
+    on_log runs inside an asyncio protocol callback; if EsphomeError
+    escapes, the loop reports "Fatal error: protocol.data_received()
+    call failed.", tears the connection down, and ReconnectLogic loops
+    forever as the device replays the same crash trace on every
+    reconnect.
+    """
+    config = {"esphome": {"name": "test"}}
+
+    with patch.object(
+        api_client, "process_stacktrace", side_effect=EsphomeError("no idedata")
+    ) as mock_process:
+        result = api_client._process_stacktrace_line(
+            config, "PC: 0x4010496e", True, None
+        )
+
+    assert mock_process.called
+    assert result is False
+
+
+def test_process_stacktrace_line_swallows_platform_handler_error() -> None:
+    """The same protection must apply to the platform-specific handler."""
+    config = {"esphome": {"name": "test"}}
+
+    def platform_handler(_config, _line, _state):
+        raise EsphomeError("no idedata")
+
+    result = api_client._process_stacktrace_line(
+        config, "PC: 0x4010496e", True, platform_handler
+    )
+
+    assert result is False
+
+
+def test_process_stacktrace_line_returns_handler_result() -> None:
+    """When decoding succeeds, the handler's result is returned unchanged."""
+    config = {"esphome": {"name": "test"}}
+
+    with patch.object(
+        api_client, "process_stacktrace", return_value=True
+    ) as mock_process:
+        result = api_client._process_stacktrace_line(
+            config, "PC: 0x4010496e", False, None
+        )
+
+    mock_process.assert_called_once_with(
+        config, "PC: 0x4010496e", backtrace_state=False
+    )
+    assert result is True
+
+
+def test_process_stacktrace_line_uses_platform_handler_when_provided() -> None:
+    """The platform handler is preferred over the generic one."""
+    config = {"esphome": {"name": "test"}}
+    calls: list[tuple[object, str, bool]] = []
+
+    def platform_handler(cfg, line, state):
+        calls.append((cfg, line, state))
+        return True
+
+    with patch.object(api_client, "process_stacktrace") as mock_generic:
+        result = api_client._process_stacktrace_line(
+            config, "BT0: 0x4010496e", False, platform_handler
+        )
+
+    assert calls == [(config, "BT0: 0x4010496e", False)]
+    assert mock_generic.called is False
+    assert result is True