diff --git a/CHANGELOG.md b/CHANGELOG.md
index e1d556f..97c941e 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,6 +7,13 @@ loosely follows [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
 ## [Unreleased]
 
 ### Added
+- "New Terminal" entry in the command palette spawns a bare interactive
+  `$SHELL` pane (kind `terminal`). Unlike "Run process: …" presets,
+  which are session-persistent and reachable via `restart_process`,
+  terminals are ephemeral — once they exit they vanish from the
+  Processes sidebar instead of lingering as a dead row. The default
+  `shell` process preset that previously seeded on first run has been
+  removed; this entry replaces it.
 - User-created top-level command processes now survive a patterm
   restart. Each spawn (palette form, command preset, or MCP
   `spawn_process` with `kind=command`) writes a record to
@@ -64,6 +71,11 @@ loosely follows [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
   after a child program disables mouse tracking.
 
 ### Changed
+- The palette's per-child "Kill <name>" action is now labelled
+  "Close <name>". The underlying signal (SIGTERM) and behaviour are
+  unchanged; the new label matches the existing "Close agent: …"
+  context entry and reads less violent for what is really just a
+  graceful termination.
 - CLI flag parsing switched from Go's stdlib `flag` to `spf13/pflag`.
   `--project` (and the internal `--socket` / `--identity` /
   `--scenario` / `--patterm-bin` flags) are now the only accepted form
@@ -71,6 +83,12 @@ loosely follows [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
   renders the canonical `--flag` form.
 
 ### Fixed
+- Exited terminal panes (kind `terminal`, including those launched via
+  the new "New Terminal" palette entry or MCP `spawn_process` with
+  `kind=terminal`) are now removed from the session and the Processes
+  sidebar as soon as they exit. Previously they stuck around as a
+  greyed-out row indistinguishable from an exited command process,
+  even though terminals have no restart path.
 - Opening the command palette while a scratchpad was focused left the
   palette wedged — typing did nothing and Esc left the palette's top
   border drawn over the pad until you closed the pad with Ctrl-W and
diff --git a/TODO.md b/TODO.md
index d6a8774..62018d3 100644
--- a/TODO.md
+++ b/TODO.md
@@ -1,8 +1,3 @@
-- [ ] We should probably rename the Kill <Process> terminology to Close <Process> instead, across processes and agents.
-- [ ] Exited shells are still being treated as active processes. They should be removed from the process list when they exit.
-- [ ] Shells should be renamed to terminals. "New Terminal" etc.
-
-
 # On Hold
 - [ ] There's a unicode <?> being displayed in opencode [ON HOLD]
   - Investigated 2026-05-14: patterm passes ghostty grapheme codepoints
diff --git a/internal/app/app.go b/internal/app/app.go
index 8bf515d..9000478 100644
--- a/internal/app/app.go
+++ b/internal/app/app.go
@@ -1607,6 +1607,13 @@ func (st *uiState) closePalette(action paletteAction) {
 			st.flashError(fmt.Sprintf("spawn %s: %v", action.preset.Name, err))
 		}
 
+	case "spawn-terminal":
+		l := st.layoutSnapshot()
+		st.launcher.SetSize(l.childCols(), l.childRows())
+		if _, err := st.launcher.LaunchTerminal(nil, "terminal", "", "", nil); err != nil {
+			st.flashError(fmt.Sprintf("spawn terminal: %v", err))
+		}
+
 	case "spawn-process-submit":
 		if action.command == "" {
 			restoreView()
diff --git a/internal/app/palette.go b/internal/app/palette.go
index a3c1311..88f6955 100644
--- a/internal/app/palette.go
+++ b/internal/app/palette.go
@@ -11,12 +11,13 @@ import (
 // paletteAction is what the palette returns when the user picks an item.
 type paletteAction struct {
 	// kind: "spawn-agent" | "spawn-process" | "spawn-process-form" |
-	//       "spawn-process-submit" | "switch" | "kill" | "quit" |
-	//       "cancel" | "pad-delete" | "pad-rename" | "pad-rename-form" |
-	//       "pad-rename-submit" | "pad-edit" | "agent-rename" |
-	//       "agent-rename-form" | "agent-rename-submit" | "agent-close" |
-	//       "proc-rename" | "proc-rename-form" | "proc-rename-submit" |
-	//       "proc-delete" | "proc-stop" | "proc-restart"
+	//       "spawn-process-submit" | "spawn-terminal" | "switch" |
+	//       "kill" | "quit" | "cancel" | "pad-delete" | "pad-rename" |
+	//       "pad-rename-form" | "pad-rename-submit" | "pad-edit" |
+	//       "agent-rename" | "agent-rename-form" | "agent-rename-submit" |
+	//       "agent-close" | "proc-rename" | "proc-rename-form" |
+	//       "proc-rename-submit" | "proc-delete" | "proc-stop" |
+	//       "proc-restart"
 	kind string
 
 	// For spawn-agent / spawn-process, the preset to launch.
@@ -276,6 +277,16 @@ func (p *paletteState) allItems() []paletteItem {
 		})
 	}
 
+	// "New Terminal" — bare interactive $SHELL pane. Distinct from
+	// "Run process: …" presets in that it spawns a KindTerminal (which
+	// disappears from the sidebar on exit rather than sticking around
+	// for restart). One quick keystroke; no form.
+	out = append(out, paletteItem{
+		label:  "New Terminal",
+		hint:   "bare interactive $SHELL · removed on exit",
+		action: paletteAction{kind: "spawn-terminal"},
+	})
+
 	// Freeform "Spawn process…" entry. Opens a sub-form for typing an
 	// arbitrary command line and ticking "relaunch on exit". The action
 	// kind is intercepted by acceptOrEnterForm so accept switches the
@@ -288,14 +299,14 @@ func (p *paletteState) allItems() []paletteItem {
 		action: paletteAction{kind: "spawn-process-form"},
 	})
 
-	// Kill entries last among the action rows, before Quit. Mirror the
+	// Close entries last among the action rows, before Quit. Mirror the
 	// "(current)" marker from switch entries so the focused tab is
-	// obvious when scanning the kill list.
+	// obvious when scanning the close list.
 	for _, c := range p.children {
 		if c.Status() != StatusRunning {
 			continue
 		}
-		label := "Kill " + c.DisplayName()
+		label := "Close " + c.DisplayName()
 		if c.ID == p.focused {
 			label = "• " + label + " (current)"
 		}
diff --git a/internal/app/session.go b/internal/app/session.go
index 11f72c5..d0859c4 100644
--- a/internal/app/session.go
+++ b/internal/app/session.go
@@ -403,6 +403,23 @@ func (s *Session) reapChild(c *Child, runID uint64) {
 	if !c.restarting.Load() {
 		c.cleanupOwnedPaths()
 	}
+	// Terminals are ephemeral: unlike command entries (kept around for
+	// restart_process) and agents (which the user clears via close_process
+	// once they're done with the corpse), an exited terminal has nothing
+	// useful left to do. Drop it from the session so it disappears from
+	// the Processes sidebar / switch list immediately.
+	if c.Kind == KindTerminal && !c.restarting.Load() {
+		c.teardownPTY()
+		s.mu.Lock()
+		delete(s.children, c.ID)
+		for i, oid := range s.order {
+			if oid == c.ID {
+				s.order = append(s.order[:i], s.order[i+1:]...)
+				break
+			}
+		}
+		s.mu.Unlock()
+	}
 }
 
 // killDescendantsOf terminates every still-live direct child of
diff --git a/internal/app/tree.go b/internal/app/tree.go
index 3568ba5..b3cf035 100644
--- a/internal/app/tree.go
+++ b/internal/app/tree.go
@@ -96,17 +96,24 @@ func firstRunningAgentID(children []*Child) string {
 }
 
 // processList returns every top-level command/terminal entry in spawn
-// order, regardless of running state. The Processes sidebar section
-// keeps showing exited entries so the user can see what just died (and
-// because Session retains KindCommand entries for restart).
+// order. Exited KindCommand entries remain visible so the user can see
+// what just died and reach restart_process; exited KindTerminal entries
+// are filtered out because terminals are ephemeral and have no restart
+// path (Session also drops them in reapChild — this filter is defensive
+// for any window between exit and deletion).
 func processList(children []*Child) []*Child {
 	out := make([]*Child, 0, len(children))
 	for _, c := range children {
 		if c.ParentID != "" {
 			continue
 		}
-		if c.Kind == KindCommand || c.Kind == KindTerminal {
+		switch c.Kind {
+		case KindCommand:
 			out = append(out, c)
+		case KindTerminal:
+			if c.Status() == StatusRunning {
+				out = append(out, c)
+			}
 		}
 	}
 	return out
diff --git a/internal/preset/preset.go b/internal/preset/preset.go
index 39039c1..1c5c6f6 100644
--- a/internal/preset/preset.go
+++ b/internal/preset/preset.go
@@ -250,14 +250,6 @@ func ensureDefaults(base string) error {
     "^\\s*>_"
   ]
 }
-`,
-		},
-		{
-			"presets/processes/shell.json",
-			`{
-  "name": "shell",
-  "argv": ["__SHELL__"]
-}
 `,
 		},
 	}
@@ -269,15 +261,7 @@ func ensureDefaults(base string) error {
 		if err := os.MkdirAll(filepath.Dir(full), 0o700); err != nil {
 			return err
 		}
-		body := d.body
-		if strings.Contains(body, "__SHELL__") {
-			shell := os.Getenv("SHELL")
-			if shell == "" {
-				shell = "/bin/sh"
-			}
-			body = strings.ReplaceAll(body, "__SHELL__", shell)
-		}
-		if err := os.WriteFile(full, []byte(body), 0o600); err != nil {
+		if err := os.WriteFile(full, []byte(d.body), 0o600); err != nil {
 			return err
 		}
 	}