diff --git a/.changeset/legal-cloths-spend.md b/.changeset/legal-cloths-spend.md
new file mode 100644
index 0000000000..50d965307a
--- /dev/null
+++ b/.changeset/legal-cloths-spend.md
@@ -0,0 +1,5 @@
+---
+'@backstage/plugin-mcp-actions-backend': patch
+---
+
+Clarify error handling in readme and update handleError.ts to include all backstage/errors
diff --git a/plugins/mcp-actions-backend/README.md b/plugins/mcp-actions-backend/README.md
index d81d0207c5..39ec169dec 100644
--- a/plugins/mcp-actions-backend/README.md
+++ b/plugins/mcp-actions-backend/README.md
@@ -71,6 +71,31 @@ export const myPlugin = createBackendPlugin({
 });
 ```
 
+### Error Handling
+
+When errors are thrown from MCP actions, the backend will handle and surface error message for any error from `@backstage/errors`. Unknown errors will be handled by `@modelcontextprotocol/sdk`'s default error handling, which may result in a generic `500 Server Error` being returned. As a result, we recommend using errors from `@backstage/errors` when applicable.
+
+See https://backstage.io/docs/reference/errors/ for a full list of supported errors.
+
+When writing MCP tools, use the appropriate error from `@backstage/errors` when applicable:
+
+```ts
+action: async ({ input }) => {
+  // ... get current user and some resource
+
+  if (!resource) {
+    throw new NotFoundError(`Resource ${input.id} not found`);
+  }
+
+  // Check if the user has permissions to access/use the resource
+  if (!hasPermission(user, resource)) {
+    throw new NotAllowedError(
+      `user does not have sufficient permissions for ${resource}`,
+    );
+  }
+};
+```
+
 ### Authentication Configuration
 
 By default, the Backstage backend requires authentication for all requests.
diff --git a/plugins/mcp-actions-backend/src/services/handleErrors.ts b/plugins/mcp-actions-backend/src/services/handleErrors.ts
index 67d92664eb..5266c80e75 100644
--- a/plugins/mcp-actions-backend/src/services/handleErrors.ts
+++ b/plugins/mcp-actions-backend/src/services/handleErrors.ts
@@ -32,6 +32,7 @@ const knownErrors = new Set([
   'NotModifiedError',
   'NotImplementedError',
   'ResponseError',
+  'ServiceUnavailableError',
 ]);
 
 // Extracts the cause error, if the provided error is `ResponseError` or