diff --git a/.changeset/decode-uri-template-matches.md b/.changeset/decode-uri-template-matches.md
new file mode 100644
index 0000000000..e217cc428c
--- /dev/null
+++ b/.changeset/decode-uri-template-matches.md
@@ -0,0 +1,5 @@
+---
+'@modelcontextprotocol/core-internal': patch
+---
+
+Decode percent-encoded values returned by URI template matching while preserving malformed encodings.
diff --git a/packages/core-internal/src/shared/uriTemplate.ts b/packages/core-internal/src/shared/uriTemplate.ts
index 5ffe213acd..4594b3f4de 100644
--- a/packages/core-internal/src/shared/uriTemplate.ts
+++ b/packages/core-internal/src/shared/uriTemplate.ts
@@ -197,6 +197,15 @@ export class UriTemplate {
         return str.replaceAll(/[.*+?^${}()|[\]\\]/g, String.raw`\$&`);
     }
 
+    private decodeValue(value: string): string {
+        try {
+            return decodeURIComponent(value);
+        } catch {
+            // Preserve malformed percent-encoded values rather than making URI matching throw.
+            return value;
+        }
+    }
+
     private partToRegExp(part: {
         name: string;
         operator: string;
@@ -282,7 +291,8 @@ export class UriTemplate {
             const value = match[i + 1]!;
             const cleanName = name.replace('*', '');
 
-            result[cleanName] = exploded && value.includes(',') ? value.split(',') : value;
+            result[cleanName] =
+                exploded && value.includes(',') ? value.split(',').map(value => this.decodeValue(value)) : this.decodeValue(value);
         }
 
         return result;
diff --git a/packages/core-internal/test/shared/uriTemplate.test.ts b/packages/core-internal/test/shared/uriTemplate.test.ts
index bfc3237872..13c5f2e54d 100644
--- a/packages/core-internal/test/shared/uriTemplate.test.ts
+++ b/packages/core-internal/test/shared/uriTemplate.test.ts
@@ -109,6 +109,23 @@ describe('UriTemplate', () => {
             const match = template.match('/red,green,blue');
             expect(match).toEqual({ list: ['red', 'green', 'blue'] });
         });
+
+        it('should percent-decode matched values', () => {
+            const template = new UriTemplate('/users/{username}{?query}{/tags*}');
+            const match = template.match('/users/Ada%20Lovelace?query=machine%20learning/r%26d,AI%2FML');
+
+            expect(match).toEqual({
+                username: 'Ada Lovelace',
+                query: 'machine learning',
+                tags: ['r&d', 'AI/ML']
+            });
+        });
+
+        it('should preserve malformed percent-encoded values', () => {
+            const template = new UriTemplate('/users/{username}');
+
+            expect(template.match('/users/Ada%ZZ')).toEqual({ username: 'Ada%ZZ' });
+        });
     });
 
     describe('edge cases', () => {