diff --git a/lib/crewai/src/crewai/utilities/pydantic_schema_utils.py b/lib/crewai/src/crewai/utilities/pydantic_schema_utils.py
index 4c69c9bf6..d2acfee16 100644
--- a/lib/crewai/src/crewai/utilities/pydantic_schema_utils.py
+++ b/lib/crewai/src/crewai/utilities/pydantic_schema_utils.py
@@ -91,6 +91,9 @@ def resolve_refs(schema: dict[str, Any]) -> dict[str, Any]:
     This is needed because Pydantic generates $ref-based schemas that
     some consumers (e.g. LLMs, tool frameworks) don't handle well.
 
+    Circular references are detected and replaced with a plain
+    ``{"type": "object"}`` stub to prevent infinite recursion.
+
     Args:
         schema: JSON Schema dict that may contain "$refs" and "$defs".
 
@@ -100,18 +103,23 @@ def resolve_refs(schema: dict[str, Any]) -> dict[str, Any]:
     defs = schema.get("$defs", {})
     schema_copy = deepcopy(schema)
 
-    def _resolve(node: Any) -> Any:
+    def _resolve(node: Any, resolving: frozenset[str] = frozenset()) -> Any:
         if isinstance(node, dict):
             ref = node.get("$ref")
             if isinstance(ref, str) and ref.startswith("#/$defs/"):
                 def_name = ref.replace("#/$defs/", "")
+                if def_name in resolving:
+                    return {"type": "object"}
                 if def_name in defs:
-                    return _resolve(deepcopy(defs[def_name]))
+                    return _resolve(
+                        deepcopy(defs[def_name]),
+                        resolving | {def_name},
+                    )
                 raise KeyError(f"Definition '{def_name}' not found in $defs.")
-            return {k: _resolve(v) for k, v in node.items()}
+            return {k: _resolve(v, resolving) for k, v in node.items()}
 
         if isinstance(node, list):
-            return [_resolve(i) for i in node]
+            return [_resolve(i, resolving) for i in node]
 
         return node
 
@@ -658,6 +666,93 @@ def build_rich_field_description(prop_schema: dict[str, Any]) -> str:
     return ". ".join(parts) if parts else ""
 
 
+# Thread-local set tracking which schemas are currently being converted to
+# Pydantic models.  Used by ``_json_schema_to_pydantic_type`` to detect
+# circular ``$ref`` chains and break the recursion with a ``dict`` fallback.
+_resolving_refs: set[str] = set()
+
+
+def _safe_replace_refs(json_schema: dict[str, Any]) -> dict[str, Any]:
+    """Resolve ``$ref`` pointers in *json_schema*, tolerating circular refs.
+
+    ``jsonref.replace_refs(proxies=False)`` performs eager, recursive
+    inlining.  When a definition refers back to itself (directly or
+    transitively) this blows the Python call stack and also produces
+    Python dicts with circular object references that break all
+    downstream recursive visitors.
+
+    Strategy: always break circular ``$ref`` chains *before* handing the
+    schema to ``jsonref`` so the library never encounters a cycle.
+    """
+    schema_copy = deepcopy(json_schema)
+    defs = schema_copy.get("$defs", {})
+
+    if defs and _has_circular_refs(schema_copy, defs):
+        _break_circular_refs(schema_copy, defs, set())
+
+    try:
+        return dict(jsonref.replace_refs(schema_copy, proxies=False))
+    except RecursionError:
+        # Last resort - return the manually patched copy as-is.
+        return schema_copy
+
+
+def _has_circular_refs(
+    node: Any,
+    defs: dict[str, Any],
+    visiting: set[str] | None = None,
+) -> bool:
+    """Return ``True`` if *node* contains any circular ``$ref`` chain."""
+    if visiting is None:
+        visiting = set()
+
+    if isinstance(node, dict):
+        ref = node.get("$ref")
+        if isinstance(ref, str) and ref.startswith("#/$defs/"):
+            def_name = ref.removeprefix("#/$defs/")
+            if def_name in visiting:
+                return True
+            if def_name in defs:
+                visiting.add(def_name)
+                if _has_circular_refs(defs[def_name], defs, visiting):
+                    return True
+                visiting.discard(def_name)
+        for value in node.values():
+            if _has_circular_refs(value, defs, visiting):
+                return True
+    elif isinstance(node, list):
+        for item in node:
+            if _has_circular_refs(item, defs, visiting):
+                return True
+    return False
+
+
+def _break_circular_refs(
+    node: Any,
+    defs: dict[str, Any],
+    visiting: set[str],
+) -> None:
+    """Walk *node* in-place and replace circular ``$ref`` pointers with stubs."""
+    if isinstance(node, dict):
+        ref = node.get("$ref")
+        if isinstance(ref, str) and ref.startswith("#/$defs/"):
+            def_name = ref.removeprefix("#/$defs/")
+            if def_name in visiting:
+                # Circular - replace the *whole* node content with a stub.
+                node.clear()
+                node["type"] = "object"
+                return
+            if def_name in defs:
+                visiting.add(def_name)
+                _break_circular_refs(defs[def_name], defs, visiting)
+                visiting.discard(def_name)
+        for value in node.values():
+            _break_circular_refs(value, defs, visiting)
+    elif isinstance(node, list):
+        for item in node:
+            _break_circular_refs(item, defs, visiting)
+
+
 def create_model_from_schema(  # type: ignore[no-any-unimported]
     json_schema: dict[str, Any],
     *,
@@ -677,6 +772,10 @@ def create_model_from_schema(  # type: ignore[no-any-unimported]
     as nested objects, referenced definitions ($ref), arrays with typed items,
     union types (anyOf/oneOf), and string formats.
 
+    Circular ``$ref`` chains (common in complex MCP tool schemas) are detected
+    and broken automatically so that deeply-nested or self-referential schemas
+    never trigger a ``RecursionError``.
+
     Args:
         json_schema: A dictionary representing the JSON schema.
         root_schema: The root schema containing $defs. If not provided, the
@@ -712,7 +811,7 @@ def create_model_from_schema(  # type: ignore[no-any-unimported]
         >>> person.name
         'John'
     """
-    json_schema = dict(jsonref.replace_refs(json_schema, proxies=False))
+    json_schema = _safe_replace_refs(json_schema)
 
     effective_root = root_schema or json_schema
 
@@ -920,13 +1019,21 @@ def _json_schema_to_pydantic_type(
     """
     ref = json_schema.get("$ref")
     if ref:
-        ref_schema = _resolve_ref(ref, root_schema)
-        return _json_schema_to_pydantic_type(
-            ref_schema,
-            root_schema,
-            name_=name_,
-            enrich_descriptions=enrich_descriptions,
-        )
+        # Detect circular $ref chains - if we are already resolving this
+        # ref higher up the call stack, break the cycle by returning dict.
+        if ref in _resolving_refs:
+            return dict
+        _resolving_refs.add(ref)
+        try:
+            ref_schema = _resolve_ref(ref, root_schema)
+            return _json_schema_to_pydantic_type(
+                ref_schema,
+                root_schema,
+                name_=name_,
+                enrich_descriptions=enrich_descriptions,
+            )
+        finally:
+            _resolving_refs.discard(ref)
 
     enum_values = json_schema.get("enum")
     if enum_values:
diff --git a/lib/crewai/tests/utilities/test_pydantic_schema_utils.py b/lib/crewai/tests/utilities/test_pydantic_schema_utils.py
index 98a5e6aa5..c030edab2 100644
--- a/lib/crewai/tests/utilities/test_pydantic_schema_utils.py
+++ b/lib/crewai/tests/utilities/test_pydantic_schema_utils.py
@@ -19,6 +19,9 @@ import pytest
 from pydantic import BaseModel
 
 from crewai.utilities.pydantic_schema_utils import (
+    _break_circular_refs,
+    _has_circular_refs,
+    _safe_replace_refs,
     build_rich_field_description,
     convert_oneof_to_anyof,
     create_model_from_schema,
@@ -882,3 +885,333 @@ class TestEndToEndMCPSchema:
         )
         assert obj.filters.date_from == datetime.date(2025, 1, 1)
         assert obj.filters.categories == ["news", "tech"]
+
+
+# ---------------------------------------------------------------------------
+# Circular $ref handling  (issue #5474)
+# ---------------------------------------------------------------------------
+
+
+class TestCircularRefDetection:
+    """Tests for _has_circular_refs helper."""
+
+    def test_detects_direct_self_reference(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"child": {"$ref": "#/$defs/Node"}},
+            "$defs": {
+                "Node": {
+                    "type": "object",
+                    "properties": {
+                        "children": {
+                            "type": "array",
+                            "items": {"$ref": "#/$defs/Node"},
+                        },
+                    },
+                },
+            },
+        }
+        assert _has_circular_refs(schema, schema["$defs"]) is True
+
+    def test_detects_indirect_circular_reference(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"a": {"$ref": "#/$defs/A"}},
+            "$defs": {
+                "A": {
+                    "type": "object",
+                    "properties": {"b": {"$ref": "#/$defs/B"}},
+                },
+                "B": {
+                    "type": "object",
+                    "properties": {"a": {"$ref": "#/$defs/A"}},
+                },
+            },
+        }
+        assert _has_circular_refs(schema, schema["$defs"]) is True
+
+    def test_no_circular_ref(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"item": {"$ref": "#/$defs/Item"}},
+            "$defs": {
+                "Item": {
+                    "type": "object",
+                    "properties": {"name": {"type": "string"}},
+                },
+            },
+        }
+        assert _has_circular_refs(schema, schema["$defs"]) is False
+
+
+class TestBreakCircularRefs:
+    """Tests for _break_circular_refs helper."""
+
+    def test_breaks_direct_self_reference(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"child": {"$ref": "#/$defs/Node"}},
+            "$defs": {
+                "Node": {
+                    "type": "object",
+                    "properties": {
+                        "name": {"type": "string"},
+                        "children": {
+                            "type": "array",
+                            "items": {"$ref": "#/$defs/Node"},
+                        },
+                    },
+                },
+            },
+        }
+        _break_circular_refs(schema, schema["$defs"], set())
+        # The self-referential $ref inside Node's items should be replaced
+        items = schema["$defs"]["Node"]["properties"]["children"]["items"]
+        assert items == {"type": "object"}
+        assert "$ref" not in items
+
+    def test_preserves_non_circular_refs(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"item": {"$ref": "#/$defs/Item"}},
+            "$defs": {
+                "Item": {
+                    "type": "object",
+                    "properties": {"name": {"type": "string"}},
+                },
+            },
+        }
+        original = deepcopy(schema)
+        _break_circular_refs(schema, schema["$defs"], set())
+        # Non-circular schema should be unchanged
+        assert schema == original
+
+
+class TestSafeReplaceRefs:
+    """Tests for _safe_replace_refs."""
+
+    def test_resolves_non_circular_schema(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"item": {"$ref": "#/$defs/Item"}},
+            "$defs": {
+                "Item": {
+                    "type": "object",
+                    "properties": {"id": {"type": "integer"}},
+                },
+            },
+        }
+        result = _safe_replace_refs(schema)
+        assert "$ref" not in result.get("properties", {}).get("item", {})
+        assert result["properties"]["item"]["type"] == "object"
+
+    def test_handles_circular_schema_without_recursion_error(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"root": {"$ref": "#/$defs/TreeNode"}},
+            "$defs": {
+                "TreeNode": {
+                    "type": "object",
+                    "properties": {
+                        "name": {"type": "string"},
+                        "children": {
+                            "type": "array",
+                            "items": {"$ref": "#/$defs/TreeNode"},
+                        },
+                    },
+                },
+            },
+        }
+        # Must not raise RecursionError
+        result = _safe_replace_refs(schema)
+        assert isinstance(result, dict)
+
+
+class TestResolveRefsCircular:
+    """Tests that resolve_refs handles circular references."""
+
+    def test_circular_ref_does_not_recurse(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"root": {"$ref": "#/$defs/Node"}},
+            "$defs": {
+                "Node": {
+                    "type": "object",
+                    "properties": {
+                        "child": {"$ref": "#/$defs/Node"},
+                    },
+                },
+            },
+        }
+        resolved = resolve_refs(schema)
+        # The circular ref should become {"type": "object"} stub
+        child = resolved["properties"]["root"]["properties"]["child"]
+        assert child == {"type": "object"}
+
+    def test_indirect_circular_ref(self) -> None:
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"a": {"$ref": "#/$defs/A"}},
+            "$defs": {
+                "A": {
+                    "type": "object",
+                    "properties": {"b": {"$ref": "#/$defs/B"}},
+                },
+                "B": {
+                    "type": "object",
+                    "properties": {"a": {"$ref": "#/$defs/A"}},
+                },
+            },
+        }
+        resolved = resolve_refs(schema)
+        # A -> B -> A(cycle) => the second A should be a stub
+        b_schema = resolved["properties"]["a"]["properties"]["b"]
+        assert b_schema["properties"]["a"] == {"type": "object"}
+
+
+class TestCreateModelCircularRef:
+    """End-to-end tests for create_model_from_schema with circular $ref schemas.
+
+    Regression tests for GitHub issue #5474: MCP servers with >10 tools
+    that expose self-referential JSON schemas caused
+    ``RecursionError: maximum recursion depth exceeded``.
+    """
+
+    def test_direct_self_referential_schema(self) -> None:
+        """A type that references itself (tree-like structure)."""
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {
+                "name": {"type": "string"},
+                "children": {
+                    "type": "array",
+                    "items": {"$ref": "#/$defs/TreeNode"},
+                },
+            },
+            "required": ["name"],
+            "$defs": {
+                "TreeNode": {
+                    "type": "object",
+                    "properties": {
+                        "name": {"type": "string"},
+                        "children": {
+                            "type": "array",
+                            "items": {"$ref": "#/$defs/TreeNode"},
+                        },
+                    },
+                    "required": ["name"],
+                },
+            },
+        }
+        Model = create_model_from_schema(schema, model_name="TreeSchema")
+        assert Model.__name__ == "TreeSchema"
+        obj = Model(name="root")
+        assert obj.name == "root"
+
+    def test_indirect_circular_reference(self) -> None:
+        """Two types that reference each other (A -> B -> A)."""
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"node": {"$ref": "#/$defs/NodeA"}},
+            "required": ["node"],
+            "$defs": {
+                "NodeA": {
+                    "type": "object",
+                    "properties": {
+                        "name": {"type": "string"},
+                        "linked": {"$ref": "#/$defs/NodeB"},
+                    },
+                    "required": ["name"],
+                },
+                "NodeB": {
+                    "type": "object",
+                    "properties": {
+                        "value": {"type": "integer"},
+                        "back": {"$ref": "#/$defs/NodeA"},
+                    },
+                    "required": ["value"],
+                },
+            },
+        }
+        Model = create_model_from_schema(schema, model_name="MutualRef")
+        obj = Model(node={"name": "hello", "linked": {"value": 42}})
+        assert obj.node.name == "hello"
+
+    def test_many_tools_with_complex_schemas(self) -> None:
+        """Simulate an MCP server exposing >10 tools (issue #5474 trigger)."""
+        for i in range(15):
+            tool_schema: dict[str, Any] = {
+                "type": "object",
+                "properties": {
+                    "query": {"type": "string"},
+                    "options": {
+                        "type": "object",
+                        "properties": {
+                            "limit": {"type": "integer"},
+                            "filter": {"type": "string"},
+                        },
+                    },
+                },
+                "required": ["query"],
+            }
+            Model = create_model_from_schema(
+                tool_schema, model_name=f"Tool{i}Schema"
+            )
+            obj = Model(query=f"test_{i}")
+            assert obj.query == f"test_{i}"
+
+    def test_circular_ref_with_enrich_descriptions(self) -> None:
+        """Circular schema + enrich_descriptions should not blow up."""
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {
+                "name": {"type": "string", "description": "Node name"},
+                "child": {"$ref": "#/$defs/Recursive"},
+            },
+            "required": ["name"],
+            "$defs": {
+                "Recursive": {
+                    "type": "object",
+                    "properties": {
+                        "name": {"type": "string", "description": "Name"},
+                        "child": {"$ref": "#/$defs/Recursive"},
+                    },
+                },
+            },
+        }
+        Model = create_model_from_schema(
+            schema,
+            model_name="EnrichedCircular",
+            enrich_descriptions=True,
+        )
+        assert Model.__name__ == "EnrichedCircular"
+        obj = Model(name="top")
+        assert obj.name == "top"
+
+    def test_deeply_nested_non_circular_still_works(self) -> None:
+        """A deep but non-circular chain of $refs should still resolve."""
+        schema: dict[str, Any] = {
+            "type": "object",
+            "properties": {"l1": {"$ref": "#/$defs/Level1"}},
+            "required": ["l1"],
+            "$defs": {
+                "Level1": {
+                    "type": "object",
+                    "properties": {"l2": {"$ref": "#/$defs/Level2"}},
+                    "required": ["l2"],
+                },
+                "Level2": {
+                    "type": "object",
+                    "properties": {"l3": {"$ref": "#/$defs/Level3"}},
+                    "required": ["l3"],
+                },
+                "Level3": {
+                    "type": "object",
+                    "properties": {"value": {"type": "string"}},
+                    "required": ["value"],
+                },
+            },
+        }
+        Model = create_model_from_schema(schema, model_name="DeepChain")
+        obj = Model(l1={"l2": {"l3": {"value": "deep"}}})
+        assert obj.l1.l2.l3.value == "deep"