diff --git a/nanobot/command/builtin.py b/nanobot/command/builtin.py
index 1258bc80..1aa2d648 100644
--- a/nanobot/command/builtin.py
+++ b/nanobot/command/builtin.py
@@ -419,20 +419,28 @@ async def cmd_dream_prompt(ctx: CommandContext) -> OutboundMessage:
     """Show or set up the workspace Dream memory instructions."""
     store = ctx.loop.context.memory
     path = store.dream_prompt_file
+    display_path = path.relative_to(store.workspace).as_posix()
     args = ctx.args.strip().lower()
 
     if args == "init":
-        if path.exists():
+        try:
+            prompt_exists_with_content = path.exists() and (
+                not path.is_file() or bool(path.read_text(encoding="utf-8").strip())
+            )
+        except OSError:
+            prompt_exists_with_content = True
+        if prompt_exists_with_content:
             content = (
-                f"Dream memory instructions already exist at `{path}`.\n\n"
+                f"Dream memory instructions already exist at `{display_path}`.\n\n"
                 "Edit that file, or delete/empty it to return to nanobot's default."
             )
         else:
             path.parent.mkdir(parents=True, exist_ok=True)
             path.write_text(store.default_dream_prompt() + "\n", encoding="utf-8")
             content = (
-                f"Created Dream memory instructions at `{path}`.\n\n"
+                f"Created Dream memory instructions at `{display_path}`.\n\n"
                 "Edit that file to teach Dream how to organize memory. "
+                "This fully replaces nanobot's default Dream guide for this workspace. "
                 "Delete or empty it to return to nanobot's default."
             )
     elif args:
@@ -440,13 +448,13 @@ async def cmd_dream_prompt(ctx: CommandContext) -> OutboundMessage:
     elif store.has_dream_prompt_override():
         content = (
             "Dream memory instructions: custom for this workspace\n\n"
-            f"- Path: `{path}`\n"
+            f"- Path: `{display_path}`\n"
             "- Delete or empty this file to return to nanobot's default."
         )
     else:
         content = (
             "Dream memory instructions: nanobot default\n\n"
-            f"- Editable file: `{path}`\n"
+            f"- Editable file: `{display_path}`\n"
             "- Run `/dream-prompt init` to create an editable copy."
         )
 
diff --git a/tests/command/test_builtin_dream.py b/tests/command/test_builtin_dream.py
index b634b303..7b814434 100644
--- a/tests/command/test_builtin_dream.py
+++ b/tests/command/test_builtin_dream.py
@@ -218,8 +218,8 @@ async def test_dream_prompt_reports_default_prompt(tmp_path) -> None:
     out = await cmd_dream_prompt(_make_dream_prompt_ctx(tmp_path))
 
     assert "Dream memory instructions: nanobot default" in out.content
-    assert "prompts" in out.content
-    assert "dream.md" in out.content
+    assert "prompts/dream.md" in out.content
+    assert str(tmp_path) not in out.content
     assert "/dream-prompt init" in out.content
 
 
@@ -231,6 +231,9 @@ async def test_dream_prompt_init_copies_default_prompt(tmp_path) -> None:
 
     prompt_file = tmp_path / "prompts" / "dream.md"
     assert "Created Dream memory instructions" in out.content
+    assert "prompts/dream.md" in out.content
+    assert str(tmp_path) not in out.content
+    assert "fully replaces nanobot's default Dream guide" in out.content
     assert prompt_file.read_text(encoding="utf-8") == MemoryStore.default_dream_prompt() + "\n"
 
 
@@ -244,9 +247,24 @@ async def test_dream_prompt_init_does_not_overwrite_existing_prompt(tmp_path) ->
     out = await cmd_dream_prompt(ctx)
 
     assert "already exist" in out.content
+    assert "prompts/dream.md" in out.content
+    assert str(tmp_path) not in out.content
     assert prompt_file.read_text(encoding="utf-8") == "custom"
 
 
+@pytest.mark.asyncio
+async def test_dream_prompt_init_recreates_empty_prompt(tmp_path) -> None:
+    prompt_file = tmp_path / "prompts" / "dream.md"
+    prompt_file.parent.mkdir()
+    prompt_file.write_text("  \n", encoding="utf-8")
+    ctx = _make_dream_prompt_ctx(tmp_path, "/dream-prompt init", "init")
+
+    out = await cmd_dream_prompt(ctx)
+
+    assert "Created Dream memory instructions" in out.content
+    assert prompt_file.read_text(encoding="utf-8") == MemoryStore.default_dream_prompt() + "\n"
+
+
 def test_dream_prompt_command_in_help_and_palette() -> None:
     palette = builtin_command_palette()