diff --git a/install/bash/install.sh b/install/bash/install.sh
index d66b753..35bab15 100755
--- a/install/bash/install.sh
+++ b/install/bash/install.sh
@@ -5,6 +5,9 @@ set -euo pipefail
 # Base URL for additional scripts
 CODEPLAIN_SCRIPTS_BASE_URL="${CODEPLAIN_SCRIPTS_BASE_URL:-https://codeplain.ai}"
 
+# Base URL for the Codeplain API (used to verify the API key)
+CODEPLAIN_API_URL="${CODEPLAIN_API_URL:-https://api.codeplain.ai}"
+
 # Brand Colors (True Color / 24-bit)
 YELLOW='\033[38;2;224;255;110m'    # #E0FF6E
 GREEN='\033[38;2;121;252;150m'     # #79FC96
@@ -39,6 +42,30 @@ install_uv() {
     export PATH="$HOME/.local/bin:$PATH"
 }
 
+# Trim leading/trailing whitespace (spaces, tabs, newlines, carriage returns).
+# Users often copy the API key with surrounding whitespace or newlines.
+trim_whitespace() {
+    local value="$*"
+    value="${value#"${value%%[![:space:]]*}"}"  # strip leading whitespace
+    value="${value%"${value##*[![:space:]]}"}"   # strip trailing whitespace
+    printf '%s' "$value"
+}
+
+# Verify an API key against the Codeplain API's /status endpoint.
+# Sets the global VALIDATION_HTTP_CODE and returns 0 only when the key is valid
+# (HTTP 200). This checks only the API key, nothing else about the install.
+validate_api_key() {
+    local key="$1"
+    local http_code
+    http_code=$(curl -s -o /dev/null -w "%{http_code}" \
+        --max-time 30 \
+        -X POST "${CODEPLAIN_API_URL}/status" \
+        -H "Content-Type: application/json" \
+        --data "{\"api_key\":\"${key}\"}" 2>/dev/null || true)
+    VALIDATION_HTTP_CODE="${http_code:-000}"
+    [ "$VALIDATION_HTTP_CODE" = "200" ]
+}
+
 # Check if uv is installed
 if ! command -v uv &> /dev/null; then
     echo -e "${GRAY}uv is not installed.${NC}"
@@ -75,10 +102,11 @@ fi
 
 # Check if API key already exists
 SKIP_API_KEY_SETUP=false
+API_KEY_VERIFIED=false
 if [ -n "${CODEPLAIN_API_KEY:-}" ]; then
+    USE_EXISTING=false
     if [ "$NONINTERACTIVE" = "1" ]; then
-        echo -e "${GREEN}✓${NC} Using existing CODEPLAIN_API_KEY (non-interactive mode)."
-        SKIP_API_KEY_SETUP=true
+        USE_EXISTING=true
     else
         echo -e "  You already have an API key configured."
         echo ""
@@ -88,8 +116,33 @@ if [ -n "${CODEPLAIN_API_KEY:-}" ]; then
         echo ""
 
         if [[ ! "$GET_NEW_KEY" =~ ^[Yy]$ ]]; then
+            USE_EXISTING=true
+        fi
+    fi
+
+    # Verify the existing key before trusting it, so a stale/expired key
+    # doesn't slip through with a false "Sign in successful".
+    if [ "$USE_EXISTING" = true ]; then
+        echo -e "${GRAY}Verifying your existing API key...${NC}"
+        if validate_api_key "$CODEPLAIN_API_KEY"; then
             echo -e "${GREEN}✓${NC} Using existing API key."
             SKIP_API_KEY_SETUP=true
+            API_KEY_VERIFIED=true
+        elif [ "$VALIDATION_HTTP_CODE" = "401" ]; then
+            if [ "$NONINTERACTIVE" = "1" ]; then
+                echo -e "${RED}Existing CODEPLAIN_API_KEY is invalid.${NC}"
+                echo -e "${GRAY}Set a valid CODEPLAIN_API_KEY and re-run the installer.${NC}"
+                SKIP_API_KEY_SETUP=true
+            else
+                echo -e "${RED}Your existing API key is invalid. Please enter a new one.${NC}"
+                echo ""
+                # SKIP_API_KEY_SETUP stays false: fall through to the paste flow.
+            fi
+        else
+            # Could not reach the API. Keep the existing key rather than
+            # blocking the user over a transient network issue.
+            echo -e "${GRAY}Could not verify the existing API key (could not reach ${CODEPLAIN_API_URL}). Keeping it.${NC}"
+            SKIP_API_KEY_SETUP=true
         fi
     fi
 fi
@@ -100,8 +153,34 @@ if [ "$SKIP_API_KEY_SETUP" = false ]; then
     else
         echo -e "Go to ${YELLOW}https://platform.codeplain.ai${NC} and sign up to get your API key."
         echo ""
-        read -r -p "Paste your API key here: " API_KEY < /dev/tty
-        echo ""
+        # Keep prompting until we get a valid API key (or the user submits an
+        # empty value to skip). The pasted key is trimmed and verified against
+        # the Codeplain API before we accept it.
+        while true; do
+            read -r -p "Paste your API key here: " API_KEY < /dev/tty
+            echo ""
+            API_KEY="$(trim_whitespace "$API_KEY")"
+
+            # Empty input: let the user skip key setup for now.
+            if [ -z "$API_KEY" ]; then
+                break
+            fi
+
+            echo -e "${GRAY}Verifying your API key...${NC}"
+            if validate_api_key "$API_KEY"; then
+                echo -e "${GREEN}✓${NC} API key verified."
+                echo ""
+                API_KEY_VERIFIED=true
+                break
+            elif [ "$VALIDATION_HTTP_CODE" = "401" ]; then
+                echo -e "${RED}Invalid API key. Please make sure the full key was copied.${NC}"
+                echo ""
+            else
+                echo -e "${RED}Could not verify the API key (could not reach ${CODEPLAIN_API_URL}).${NC}"
+                echo -e "${GRAY}Check your internet connection and try again.${NC}"
+                echo ""
+            fi
+        done
     fi
 fi
 
@@ -159,8 +238,11 @@ cat << 'EOF'
                       |_|
 EOF
 echo ""
-echo -e "${GREEN}✓ Sign in successful.${NC}"
-echo ""
+# Only claim success when a verified API key is actually configured.
+if [ "$API_KEY_VERIFIED" = true ]; then
+    echo -e "${GREEN}✓ Sign in successful.${NC}"
+    echo ""
+fi
 echo -e "  ${WHITE}Welcome to *codeplain!${NC}"
 echo ""
 echo -e "  ${GRAY}Spec-driven, production-ready code generation${NC}"
@@ -307,6 +389,23 @@ if [[ ! "${DOWNLOAD_EXAMPLES:-}" =~ ^[Nn]$ ]]; then
     run_script "examples.sh"
 fi
 
+# Final verification: make sure the installed codeplain can actually run and
+# reach the API. Only meaningful when an API key is configured, so users who
+# skipped the key are not falsely told something went wrong.
+if [ -n "${CODEPLAIN_API_KEY:-}" ]; then
+    # Ensure the freshly installed tool is findable in this session.
+    export PATH="$HOME/.local/bin:$PATH"
+    echo -e "${GRAY}Verifying your installation...${NC}"
+    if codeplain --status > /dev/null 2>&1; then
+        echo -e "${GREEN}✓${NC} Installation verified."
+    else
+        echo -e "${RED}Something went wrong during installation.${NC}"
+        echo -e "${GRAY}Please restart your terminal and try again, or reinstall with:${NC}"
+        echo -e "  uv tool install --force codeplain"
+        exit 1
+    fi
+fi
+
 # Final message
 if [ "$NONINTERACTIVE" != "1" ]; then
     clear
diff --git a/install/powershell/install.ps1 b/install/powershell/install.ps1
index 75a4b25..a7418da 100644
--- a/install/powershell/install.ps1
+++ b/install/powershell/install.ps1
@@ -12,6 +12,11 @@ if (-not $env:CODEPLAIN_SCRIPTS_BASE_URL) {
     $env:CODEPLAIN_SCRIPTS_BASE_URL = "https://codeplain.ai"
 }
 
+# Base URL for the Codeplain API (used to verify the API key)
+if (-not $env:CODEPLAIN_API_URL) {
+    $env:CODEPLAIN_API_URL = "https://api.codeplain.ai"
+}
+
 # Brand Colors (True Color / 24-bit)
 $ESC = [char]27
 $YELLOW     = "$ESC[38;2;224;255;110m"      # #E0FF6E
@@ -56,6 +61,33 @@ function Install-Uv {
     }
 }
 
+# Verify an API key against the Codeplain API's /status endpoint.
+# Returns a status string: "valid" (HTTP 200), "invalid" (HTTP 401), or
+# "error" (could not reach the API). This checks only the API key.
+function Test-ApiKey {
+    param([string]$Key)
+
+    $body = @{ api_key = $Key } | ConvertTo-Json -Compress
+    try {
+        $response = Invoke-WebRequest -Uri "$($env:CODEPLAIN_API_URL)/status" `
+            -Method Post `
+            -ContentType "application/json" `
+            -Body $body `
+            -TimeoutSec 30 `
+            -UseBasicParsing `
+            -ErrorAction Stop
+        if ($response.StatusCode -eq 200) { return "valid" }
+        return "error"
+    } catch {
+        $statusCode = $null
+        if ($_.Exception.Response) {
+            $statusCode = [int]$_.Exception.Response.StatusCode
+        }
+        if ($statusCode -eq 401) { return "invalid" }
+        return "error"
+    }
+}
+
 # Check if uv is installed
 if (-not (Get-Command uv -ErrorAction SilentlyContinue)) {
     Write-Host "${GRAY}uv is not installed.${NC}"
@@ -125,10 +157,11 @@ Write-Host ""
 
 # Check if API key already exists
 $skipApiKeySetup = $false
+$apiKeyVerified = $false
 if ($env:CODEPLAIN_API_KEY) {
+    $useExisting = $false
     if ($nonInteractive) {
-        Write-Host "${GREEN}✓${NC} Using existing CODEPLAIN_API_KEY (non-interactive mode)."
-        $skipApiKeySetup = $true
+        $useExisting = $true
     } else {
         Write-Host "  You already have an API key configured."
         Write-Host ""
@@ -138,8 +171,34 @@ if ($env:CODEPLAIN_API_KEY) {
         Write-Host ""
 
         if ($getNewKey -notmatch '^[Yy]$') {
+            $useExisting = $true
+        }
+    }
+
+    # Verify the existing key before trusting it, so a stale/expired key
+    # doesn't slip through with a false "Sign in successful".
+    if ($useExisting) {
+        Write-Host "${GRAY}Verifying your existing API key...${NC}"
+        $existingResult = Test-ApiKey $env:CODEPLAIN_API_KEY
+        if ($existingResult -eq "valid") {
             Write-Host "${GREEN}✓${NC} Using existing API key."
             $skipApiKeySetup = $true
+            $apiKeyVerified = $true
+        } elseif ($existingResult -eq "invalid") {
+            if ($nonInteractive) {
+                Write-Host "${RED}Existing CODEPLAIN_API_KEY is invalid.${NC}"
+                Write-Host "${GRAY}Set a valid CODEPLAIN_API_KEY and re-run the installer.${NC}"
+                $skipApiKeySetup = $true
+            } else {
+                Write-Host "${RED}Your existing API key is invalid. Please enter a new one.${NC}"
+                Write-Host ""
+                # $skipApiKeySetup stays false: fall through to the paste flow.
+            }
+        } else {
+            # Could not reach the API. Keep the existing key rather than
+            # blocking the user over a transient network issue.
+            Write-Host "${GRAY}Could not verify the existing API key (could not reach $($env:CODEPLAIN_API_URL)). Keeping it.${NC}"
+            $skipApiKeySetup = $true
         }
     }
 }
@@ -151,8 +210,34 @@ if (-not $skipApiKeySetup) {
     } else {
         Write-Host "Go to ${YELLOW}https://platform.codeplain.ai${NC} and sign up to get your API key."
         Write-Host ""
-        $apiKey = Read-Host "Paste your API key here"
-        Write-Host ""
+        # Keep prompting until we get a valid API key (or the user submits an
+        # empty value to skip). The pasted key is trimmed and verified against
+        # the Codeplain API before we accept it.
+        while ($true) {
+            $apiKey = (Read-Host "Paste your API key here").Trim()
+            Write-Host ""
+
+            # Empty input: let the user skip key setup for now.
+            if (-not $apiKey) {
+                break
+            }
+
+            Write-Host "${GRAY}Verifying your API key...${NC}"
+            $result = Test-ApiKey $apiKey
+            if ($result -eq "valid") {
+                Write-Host "${GREEN}✓${NC} API key verified."
+                Write-Host ""
+                $apiKeyVerified = $true
+                break
+            } elseif ($result -eq "invalid") {
+                Write-Host "${RED}Invalid API key. Please make sure the full key was copied.${NC}"
+                Write-Host ""
+            } else {
+                Write-Host "${RED}Could not verify the API key (could not reach $($env:CODEPLAIN_API_URL)).${NC}"
+                Write-Host "${GRAY}Check your internet connection and try again.${NC}"
+                Write-Host ""
+            }
+        }
     }
 }
 
@@ -181,8 +266,11 @@ Write-Host @'
                       |_|
 '@
 Write-Host ""
-Write-Host "${GREEN}✓ Sign in successful.${NC}"
-Write-Host ""
+# Only claim success when a verified API key is actually configured.
+if ($apiKeyVerified) {
+    Write-Host "${GREEN}✓ Sign in successful.${NC}"
+    Write-Host ""
+}
 Write-Host "  ${WHITE}Welcome to *codeplain!${NC}"
 Write-Host ""
 Write-Host "  ${GRAY}Spec-driven, production-ready code generation${NC}"
@@ -332,6 +420,28 @@ if ($downloadExamples -notmatch '^[Nn]$') {
     Invoke-SubScript "examples.ps1"
 }
 
+# Final verification: make sure the installed codeplain can actually run and
+# reach the API. Only meaningful when an API key is configured, so users who
+# skipped the key are not falsely told something went wrong.
+if ($env:CODEPLAIN_API_KEY) {
+    Write-Host "${GRAY}Verifying your installation...${NC}"
+    $verifyOk = $false
+    try {
+        & codeplain --status *> $null
+        $verifyOk = ($LASTEXITCODE -eq 0)
+    } catch {
+        $verifyOk = $false
+    }
+    if ($verifyOk) {
+        Write-Host "${GREEN}✓${NC} Installation verified."
+    } else {
+        Write-Host "${RED}Something went wrong during installation.${NC}"
+        Write-Host "${GRAY}Please restart your terminal and try again, or reinstall with:${NC}"
+        Write-Host "  uv tool install --force codeplain"
+        exit 1
+    }
+}
+
 # Final message
 if (-not $nonInteractive) { Clear-Host }
 Write-Host ""
diff --git a/plain2code.py b/plain2code.py
index 37a20f3..d0d3d9e 100644
--- a/plain2code.py
+++ b/plain2code.py
@@ -327,7 +327,7 @@ def main():  # noqa: C901
             console.error(
                 "Your API key is required. Please set the CODEPLAIN_API_KEY environment variable or provide it with the --api-key argument.\n"
             )
-            return
+            sys.exit(1)
 
         if not args.api:
             args.api = "https://api.codeplain.ai"
@@ -336,6 +336,7 @@ def main():  # noqa: C901
             print_status(args.api_key, args.api, system_config.client_version)
         except Exception as e:
             console.error(f"Error fetching status: {str(e)}")
+            sys.exit(1)
         return
 
     template_dirs = file_utils.get_template_directories(args.filename, args.template_dir, DEFAULT_TEMPLATE_DIRS)