diff --git a/pyproject.toml b/pyproject.toml
index aa9866ab..5ce35f12 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -60,11 +60,12 @@ dev-dependencies = [
     "langchain-openai",
 ]
 
-# Override semantic-kernel's azure-ai-projects constraint to allow 2.x
-# semantic-kernel 1.39.3 constrains azure-ai-projects~=1.0.0b12 but this repo needs >=2.0.0b1
-# The functionality is compatible; only the version constraint was tightened
+# azure-ai-projects is capped at <2.0.0 because:
+# 1. semantic-kernel>=1.39.3 requires azure-ai-projects~=1.0.0b12 (<2.0.0)
+# 2. tooling-extensions-azureaifoundry uses the 1.x Agents API (project_client.agents.update_agent)
+#    which was removed in azure-ai-projects 2.x
 override-dependencies = [
-    "azure-ai-projects >= 2.0.0b1",
+    "azure-ai-projects>=1.0.0b12,<2.0.0",
 ]
 
 # Centralized version constraints for all external dependencies
@@ -80,7 +81,7 @@ constraint-dependencies = [
 
     # --- Azure Services ---
     "azure-ai-agents >= 1.0.0b251001",
-    "azure-ai-projects >= 2.0.0b1",
+    "azure-ai-projects>=1.0.0b12,<2.0.0",
     "azure-identity >= 1.12.0",
     "azure-monitor-ingestion >= 1.0.0",
     "azure-monitor-opentelemetry-exporter >= 1.0.0b39",