diff --git a/internal/server/e2e_test.go b/internal/server/e2e_test.go
index 035064c8..5d7e82a9 100644
--- a/internal/server/e2e_test.go
+++ b/internal/server/e2e_test.go
@@ -3010,3 +3010,173 @@ func TestE2E_ServerDeleteReaddDifferentTools(t *testing.T) {
 	t.Log("Phase 3 & 4 Complete: ONLY Tool Set B (new_tool_gamma) searchable and callable")
 	t.Log("SUCCESS: Stale index entries cleaned up correctly on server re-add")
 }
+
+// Test: retrieve_tools returns correct annotations and call_with based on tool hints (Issue #306)
+func TestE2E_RetrieveToolsAnnotationsAndCallWith(t *testing.T) {
+	env := NewTestEnvironment(t)
+	defer env.Cleanup()
+
+	trueVal := true
+	falseVal := false
+
+	// Create mock upstream server with tools that have different annotation hints
+	mockTools := []mcp.Tool{
+		{
+			Name:        "delete_records",
+			Description: "Delete records from the database permanently",
+			InputSchema: mcp.ToolInputSchema{
+				Type:       "object",
+				Properties: map[string]interface{}{},
+			},
+			Annotations: mcp.ToolAnnotation{
+				DestructiveHint: &trueVal,
+				ReadOnlyHint:    &falseVal,
+			},
+		},
+		{
+			Name:        "update_config",
+			Description: "Update server configuration settings",
+			InputSchema: mcp.ToolInputSchema{
+				Type:       "object",
+				Properties: map[string]interface{}{},
+			},
+			Annotations: mcp.ToolAnnotation{
+				ReadOnlyHint: &falseVal,
+			},
+		},
+		{
+			Name:        "list_items",
+			Description: "List all items in the inventory",
+			InputSchema: mcp.ToolInputSchema{
+				Type:       "object",
+				Properties: map[string]interface{}{},
+			},
+			Annotations: mcp.ToolAnnotation{
+				ReadOnlyHint: &trueVal,
+			},
+		},
+	}
+
+	mockServer := env.CreateMockUpstreamServer("annotated", mockTools)
+
+	mcpClient := env.CreateProxyClient()
+	defer mcpClient.Close()
+	env.ConnectClient(mcpClient)
+
+	ctx := context.Background()
+
+	// Add and unquarantine the server
+	addRequest := mcp.CallToolRequest{}
+	addRequest.Params.Name = "upstream_servers"
+	addRequest.Params.Arguments = map[string]interface{}{
+		"operation": "add",
+		"name":      "annotated",
+		"url":       mockServer.addr,
+		"protocol":  "streamable-http",
+		"enabled":   true,
+	}
+
+	result, err := mcpClient.CallTool(ctx, addRequest)
+	require.NoError(t, err)
+	assert.False(t, result.IsError)
+
+	serverConfig, err := env.proxyServer.runtime.StorageManager().GetUpstreamServer("annotated")
+	require.NoError(t, err)
+	serverConfig.Quarantined = false
+	err = env.proxyServer.runtime.StorageManager().SaveUpstreamServer(serverConfig)
+	require.NoError(t, err)
+
+	servers, err := env.proxyServer.runtime.StorageManager().ListUpstreamServers()
+	require.NoError(t, err)
+
+	cfg := env.proxyServer.runtime.Config()
+	cfg.Servers = servers
+	err = env.proxyServer.runtime.LoadConfiguredServers(cfg)
+	require.NoError(t, err)
+
+	// Wait for connection and trigger tool discovery
+	time.Sleep(4 * time.Second)
+	err = env.proxyServer.runtime.DiscoverAndIndexTools(ctx)
+	require.NoError(t, err)
+	time.Sleep(2 * time.Second)
+
+	// Do a broad search to find all annotated tools
+	searchRequest := mcp.CallToolRequest{}
+	searchRequest.Params.Name = "retrieve_tools"
+	searchRequest.Params.Arguments = map[string]interface{}{
+		"query": "delete update list records config items",
+		"limit": 20,
+	}
+	searchResult, err := mcpClient.CallTool(ctx, searchRequest)
+	require.NoError(t, err)
+	assert.False(t, searchResult.IsError)
+
+	require.Greater(t, len(searchResult.Content), 0)
+	contentBytes, err := json.Marshal(searchResult.Content[0])
+	require.NoError(t, err)
+	var contentMap map[string]interface{}
+	err = json.Unmarshal(contentBytes, &contentMap)
+	require.NoError(t, err)
+	contentText, ok := contentMap["text"].(string)
+	require.True(t, ok)
+
+	var searchResponse map[string]interface{}
+	err = json.Unmarshal([]byte(contentText), &searchResponse)
+	require.NoError(t, err)
+
+	tools, ok := searchResponse["tools"].([]interface{})
+	require.True(t, ok, "tools should be an array")
+	t.Logf("Found %d tools in search", len(tools))
+	for _, toolRaw := range tools {
+		if tool, ok := toolRaw.(map[string]interface{}); ok {
+			t.Logf("  Tool: name=%v, server=%v, call_with=%v, annotations=%v",
+				tool["name"], tool["server"], tool["call_with"], tool["annotations"])
+		}
+	}
+	require.GreaterOrEqual(t, len(tools), 3, "Should find all 3 annotated tools")
+
+	// Verify call_with for each tool
+	// Note: tool names may be bare ("delete_records") or prefixed ("annotated:delete_records")
+	// depending on how they were indexed. Match by bare name + server field.
+	expectedCallWith := map[string]string{
+		"delete_records": "call_tool_destructive",
+		"update_config":  "call_tool_write",
+		"list_items":     "call_tool_read",
+	}
+
+	for _, toolRaw := range tools {
+		tool, ok := toolRaw.(map[string]interface{})
+		if !ok {
+			continue
+		}
+		toolName, _ := tool["name"].(string)
+		serverField, _ := tool["server"].(string)
+
+		// Strip server prefix if present for matching
+		bareName := toolName
+		if parts := strings.SplitN(toolName, ":", 2); len(parts) == 2 {
+			bareName = parts[1]
+		}
+
+		expected, isOurs := expectedCallWith[bareName]
+		if !isOurs || serverField != "annotated" {
+			continue
+		}
+
+		callWith, ok := tool["call_with"].(string)
+		assert.True(t, ok, "call_with should be a string for %s", toolName)
+		assert.Equal(t, expected, callWith,
+			"call_with mismatch for %s: expected %s, got %s",
+			toolName, expected, callWith)
+
+		// Verify annotations are present for destructive/write tools
+		if expected != "call_tool_read" {
+			assert.NotNil(t, tool["annotations"],
+				"annotations should be present for %s", toolName)
+		}
+
+		delete(expectedCallWith, bareName)
+	}
+
+	assert.Empty(t, expectedCallWith, "Not all expected tools were found: %v", expectedCallWith)
+}
diff --git a/internal/server/mcp.go b/internal/server/mcp.go
index c8c4393b..e96debc7 100644
--- a/internal/server/mcp.go
+++ b/internal/server/mcp.go
@@ -847,17 +847,26 @@ func (p *MCPProxyServer) handleRetrieveTools(ctx context.Context, request mcp.Ca
 		}
 
 		// Look up tool annotations and derive recommended call_with variant (Spec 018)
-		// Parse tool name to get just the tool part (format: server:tool)
-		parts := strings.SplitN(result.Tool.Name, ":", 2)
-		if len(parts) == 2 {
-			annotations := p.lookupToolAnnotations(parts[0], parts[1])
+		// Use ServerName directly - result.Tool.Name may or may not have "server:" prefix
+		// depending on how tools were indexed (Issue #306)
+		serverName := result.Tool.ServerName
+		toolName := result.Tool.Name
+		if serverName == "" {
+			// Fallback: try to extract from "server:tool" format
+			if parts := strings.SplitN(result.Tool.Name, ":", 2); len(parts) == 2 {
+				serverName = parts[0]
+				toolName = parts[1]
+			}
+		}
+
+		if serverName != "" {
+			annotations := p.lookupToolAnnotations(serverName, toolName)
 			if annotations != nil {
 				mcpTool["annotations"] = annotations
 			}
 			// Add call_with recommendation based on annotations
 			mcpTool["call_with"] = contracts.DeriveCallWith(annotations)
 		} else {
-			// Fallback for tools without server prefix (shouldn't happen normally)
 			mcpTool["call_with"] = contracts.ToolVariantRead // Default to read - safest option
 		}
 
@@ -3984,7 +3993,9 @@ func (p *MCPProxyServer) lookupToolAnnotations(serverName, toolName string) *con
 	}
 
 	for _, tool := range serverStatus.Tools {
-		if tool.Name == toolName {
+		// tool.Name may be in "server:tool" format (from ToolMetadata.Name),
+		// while toolName is just the tool part. Match both formats.
+		if tool.Name == toolName || tool.Name == serverName+":"+toolName {
 			return tool.Annotations
 		}
 	}
diff --git a/internal/server/mcp_test.go b/internal/server/mcp_test.go
index b985cc6f..c65e0816 100644
--- a/internal/server/mcp_test.go
+++ b/internal/server/mcp_test.go
@@ -12,6 +12,7 @@ import (
 	"go.uber.org/zap"
 
 	"github.com/smart-mcp-proxy/mcpproxy-go/internal/config"
+	"github.com/smart-mcp-proxy/mcpproxy-go/internal/contracts"
 	"github.com/smart-mcp-proxy/mcpproxy-go/internal/secret"
 	"github.com/smart-mcp-proxy/mcpproxy-go/internal/upstream"
 )
@@ -307,6 +308,163 @@ func TestToolFormatConversion(t *testing.T) {
 	assert.Contains(t, properties, "market_data")
 }
 
+// TestAnnotationLookupNameMatching tests that lookupToolAnnotations correctly
+// matches tool names regardless of whether StateView stores them as "tool"
+// or "server:tool" format. This is the bug reported in Issue #306.
+func TestAnnotationLookupNameMatching(t *testing.T) {
+	trueVal := true
+	falseVal := false
+
+	tests := []struct {
+		name             string
+		serverName       string
+		toolName         string
+		stateViewName    string // How the tool name is stored in StateView
+		annotations      *config.ToolAnnotations
+		expectedCallWith string
+	}{
+		{
+			name:          "StateView stores full name (server:tool), lookup uses bare tool name",
+			serverName:    "github",
+			toolName:      "delete_repo",
+			stateViewName: "github:delete_repo",
+			annotations: &config.ToolAnnotations{
+				DestructiveHint: &trueVal,
+			},
+			expectedCallWith: "call_tool_destructive",
+		},
+		{
+			name:          "StateView stores bare tool name, lookup uses bare tool name",
+			serverName:    "github",
+			toolName:      "delete_repo",
+			stateViewName: "delete_repo",
+			annotations: &config.ToolAnnotations{
+				DestructiveHint: &trueVal,
+			},
+			expectedCallWith: "call_tool_destructive",
+		},
+		{
+			name:          "write tool with full name in StateView",
+			serverName:    "myserver",
+			toolName:      "update_config",
+			stateViewName: "myserver:update_config",
+			annotations: &config.ToolAnnotations{
+				ReadOnlyHint: &falseVal,
+			},
+			expectedCallWith: "call_tool_write",
+		},
+		{
+			name:          "read-only tool with full name in StateView",
+			serverName:    "myserver",
+			toolName:      "list_items",
+			stateViewName: "myserver:list_items",
+			annotations: &config.ToolAnnotations{
+				ReadOnlyHint: &trueVal,
+			},
+			expectedCallWith: "call_tool_read",
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			// Simulate the name matching logic from lookupToolAnnotations
+			// This tests the fix for Issue #306 where tool.Name in StateView
+			// is "server:tool" but toolName passed in is just "tool"
+			matched := false
+			toolNameInStateView := tt.stateViewName
+			if toolNameInStateView == tt.toolName || toolNameInStateView == tt.serverName+":"+tt.toolName {
+				matched = true
+			}
+
+			assert.True(t, matched, "Tool name matching failed: stateview=%q, lookup=%q",
+				tt.stateViewName, tt.toolName)
+
+			// Verify DeriveCallWith returns correct variant when annotations are found
+			if matched {
+				callWith := contracts.DeriveCallWith(tt.annotations)
+				assert.Equal(t, tt.expectedCallWith, callWith)
+			}
+		})
+	}
+}
+
+// TestRetrieveToolsCallWithAnnotations verifies that the handleRetrieveTools
+// code path correctly splits tool names and derives call_with from annotations.
+// This is a regression test for Issue #306.
+func TestRetrieveToolsCallWithAnnotations(t *testing.T) {
+	trueVal := true
+	falseVal := false
+
+	// Simulate search results as returned by the index
+	mockResults := []*config.SearchResult{
+		{
+			Tool: &config.ToolMetadata{
+				Name:       "myserver:delete_data",
+				ServerName: "myserver",
+				Annotations: &config.ToolAnnotations{
+					DestructiveHint: &trueVal,
+				},
+			},
+			Score: 0.9,
+		},
+		{
+			Tool: &config.ToolMetadata{
+				Name:       "myserver:update_config",
+				ServerName: "myserver",
+				Annotations: &config.ToolAnnotations{
+					ReadOnlyHint: &falseVal,
+				},
+			},
+			Score: 0.8,
+		},
+		{
+			Tool: &config.ToolMetadata{
+				Name:       "myserver:list_items",
+				ServerName: "myserver",
+				Annotations: &config.ToolAnnotations{
+					ReadOnlyHint: &trueVal,
+				},
+			},
+			Score: 0.7,
+		},
+		{
+			Tool: &config.ToolMetadata{
+				Name:       "myserver:unknown_tool",
+				ServerName: "myserver",
+				// No annotations
+			},
+			Score: 0.6,
+		},
+	}
+
+	// Simulate the annotation lookup + call_with derivation from handleRetrieveTools
+	// In production, lookupToolAnnotations queries the StateView, but we can test
+	// the name-splitting logic and DeriveCallWith here.
+	for _, result := range mockResults {
+		parts := strings.SplitN(result.Tool.Name, ":", 2)
+		require.Len(t, parts, 2, "Tool name should be in server:tool format: %s", result.Tool.Name)
+
+		// The fix for #306: even if lookupToolAnnotations can't find annotations
+		// via StateView (because of name mismatch), we can verify the split is correct
+		assert.Equal(t, result.Tool.ServerName, parts[0],
+			"Server name from split should match ServerName field")
+
+		// Verify DeriveCallWith with the tool's own annotations
+		callWith := contracts.DeriveCallWith(result.Tool.Annotations)
+
+		switch result.Tool.Name {
+		case "myserver:delete_data":
+			assert.Equal(t, "call_tool_destructive", callWith)
+		case "myserver:update_config":
+			assert.Equal(t, "call_tool_write", callWith)
+		case "myserver:list_items":
+			assert.Equal(t, "call_tool_read", callWith)
+		case "myserver:unknown_tool":
+			assert.Equal(t, "call_tool_read", callWith) // nil annotations → safe default
+		}
+	}
+}
+
 func TestUpstreamServerOperations(t *testing.T) {
 	// Test basic server operations parsing
 	t.Run("BasicServerOperations", func(t *testing.T) {