diff --git a/examples/agent_evaluation/README.md b/examples/agent_evaluation/README.md
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+# Agent Evaluation with DeepEval
+
+Demonstrates how to evaluate an AI agent using DeepEval v3.0's agent-specific metrics and component-level tracing.
+
+## What This Example Shows
+
+- **End-to-end agent evaluation** using `TaskCompletionMetric`
+- **Component-level evaluation** using `@observe` decorator
+- **Custom evaluation criteria** with `GEval`
+- Running evaluations with `EvaluationDataset` and `evaluate()`
+
+## Metrics Used
+
+| Metric | What It Measures |
+|---|---|
+| `TaskCompletionMetric` | Did the agent complete what the user asked? |
+| `AnswerRelevancyMetric` | Is the response relevant to the input? |
+| `GEval` (custom) | Domain-specific criteria via natural language |
+
+## Quick Start
+```bash
+export OPENAI_API_KEY="your-key"
+python test_agent_eval.py
+# Or via pytest:
+deepeval test run test_agent_eval.py
+```
+
+## Learn More
+
+- [Agent Metrics Docs](https://deepeval.com/docs/metrics-introduction)
+- [Component-Level Evaluation](https://deepeval.com/docs/getting-started)
+- [Confident AI Platform](https://confident-ai.com) (free)
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diff --git a/examples/agent_evaluation/test_agent_eval.py b/examples/agent_evaluation/test_agent_eval.py
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+"""
+Agent Evaluation Example with DeepEval
+
+This example demonstrates how to evaluate an AI agent using:
+1. @observe decorators for tracing agent, tool, and LLM components
+2. update_current_span for creating test cases at runtime
+3. evals_iterator for running evaluations over a dataset of Goldens
+4. Trace-level metrics (TaskCompletionMetric) - evaluates the entire agent
+5. Span-level metrics (AnswerRelevancyMetric) - evaluates individual components
+6. Custom GEval for domain-specific evaluation criteria
+
+Run: python test_agent_eval.py
+"""
+
+import pytest
+from deepeval import assert_test
+from deepeval.metrics import (
+    TaskCompletionMetric,
+    AnswerRelevancyMetric,
+    GEval,
+)
+from deepeval.test_case import LLMTestCase, LLMTestCaseParams
+from deepeval.dataset import EvaluationDataset, Golden
+from deepeval.tracing import observe, update_current_span
+
+
+# ── Knowledge Base (simulates a vector DB) ─────────────
+
+KNOWLEDGE_BASE = {
+    "refund": "Refunds are available within 30 days of purchase. Items must be unused.",
+    "shipping": "Standard shipping: 5-7 days. Express: 1-2 days ($9.99).",
+    "hours": "Support hours: Mon-Fri, 9am-5pm EST.",
+    "return": "Email returns@example.com with your order number for a prepaid label.",
+}
+
+
+# ── Observed Agent Components ──────────────────────────
+#
+# @observe creates spans that form a trace. The nesting of
+# function calls determines the trace structure:
+
+
+@observe(type="tool")
+def retrieve_context(query: str) -> str:
+    """Search the knowledge base. Traced as a tool span."""
+    query_lower = query.lower()
+    for key, value in KNOWLEDGE_BASE.items():
+        if key in query_lower:
+            return value
+    return "No relevant information found."
+
+
+@observe(metrics=[AnswerRelevancyMetric(threshold=0.5)])
+def generate_response(query: str, context: str) -> str:
+    """Generate a response from retrieved context.
+
+    AnswerRelevancyMetric is attached at the span level — it evaluates
+    THIS component's output, not the entire agent trace.
+
+    In a real app, replace this with an actual LLM call:
+        response = openai.chat.completions.create(...)
+    """
+    response = f"Based on our records: {context}"
+
+    # Create the test case for this span's metric evaluation.
+    # update_current_span tells DeepEval what input/output to evaluate.
+    update_current_span(
+        test_case=LLMTestCase(
+            input=query,
+            actual_output=response,
+            retrieval_context=[context],
+        )
+    )
+    return response
+
+
+@observe(type="agent")
+def support_agent(query: str) -> str:
+    """Customer support agent — trace root.
+
+    TaskCompletionMetric evaluates the entire trace (all spans together).
+    It's passed to evals_iterator(), not to @observe().
+    """
+    context = retrieve_context(query)
+    response = generate_response(query, context)
+    return response
+
+
+# ── Metrics ────────────────────────────────────────────
+
+task_completion = TaskCompletionMetric(threshold=0.5)
+
+# Custom GEval: is the response grounded in facts?
+groundedness = GEval(
+    name="Response Groundedness",
+    criteria=(
+        "Evaluate whether the response only contains information "
+        "that could be derived from a customer support knowledge base. "
+        "The response should not fabricate policies, prices, or deadlines."
+    ),
+    evaluation_params=[
+        LLMTestCaseParams.INPUT,
+        LLMTestCaseParams.ACTUAL_OUTPUT,
+    ],
+    threshold=0.5,
+)
+
+
+# ── Evaluation Dataset ─────────────────────────────────
+
+goldens = [
+    Golden(input="What is your refund policy?"),
+    Golden(input="How long does shipping take?"),
+    Golden(input="When is customer support available?"),
+    Golden(input="How do I return an item?"),
+    Golden(input="How much does express shipping cost?"),
+]
+
+dataset = EvaluationDataset(goldens=goldens)
+
+
+# ── Option 1: Component-level eval with evals_iterator ─
+#
+# This is the recommended approach for agent evaluation.
+# - Trace-level metrics go in evals_iterator(metrics=[...])
+# - Span-level metrics go in @observe(metrics=[...])
+
+
+def run_component_level():
+    """Run component-level evaluation using evals_iterator."""
+    print("Running component-level agent evaluation...")
+    print(f"  Dataset: {len(goldens)} goldens")
+    print(f"  Trace-level: TaskCompletionMetric")
+    print(f"  Span-level:  AnswerRelevancyMetric (on generate_response)")
+    print("-" * 50)
+
+    for golden in dataset.evals_iterator(metrics=[task_completion]):
+        support_agent(golden.input)
+
+
+# ── Option 2: End-to-end eval with pytest ──────────────
+#
+# For CI/CD integration using `deepeval test run`.
+# This treats the agent as a black box.
+
+e2e_test_cases = [
+    LLMTestCase(
+        input="What is your refund policy?",
+        actual_output=support_agent("What is your refund policy?"),
+        expected_output="Refunds are available within 30 days of purchase.",
+    ),
+    LLMTestCase(
+        input="How long does shipping take?",
+        actual_output=support_agent("How long does shipping take?"),
+        expected_output="Standard shipping takes 5-7 days. Express is 1-2 days for $9.99.",
+    ),
+]
+
+e2e_dataset = EvaluationDataset(test_cases=e2e_test_cases)
+
+
+@pytest.mark.parametrize("test_case", e2e_dataset)
+def test_agent_e2e(test_case: LLMTestCase):
+    """End-to-end pytest test for CI/CD pipelines."""
+    assert_test(test_case, [task_completion, groundedness])
+
+
+# ── Main ───────────────────────────────────────────────
+
+if __name__ == "__main__":
+    run_component_level()