diff --git a/openhands/agenthub/codeact_agent/function_calling.py b/openhands/agenthub/codeact_agent/function_calling.py
index 42ce1f98db87..a4ee35ff7b59 100644
--- a/openhands/agenthub/codeact_agent/function_calling.py
+++ b/openhands/agenthub/codeact_agent/function_calling.py
@@ -12,6 +12,7 @@
     ModelResponse,
 )
 
+from openhands.core.exceptions import FunctionCallNotExistsError
 from openhands.core.logger import openhands_logger as logger
 from openhands.events.action import (
     Action,
@@ -484,7 +485,9 @@ def response_to_actions(response: ModelResponse) -> list[Action]:
             elif tool_call.function.name == 'browser':
                 action = BrowseInteractiveAction(browser_actions=arguments['code'])
             else:
-                raise RuntimeError(f'Unknown tool call: {tool_call.function.name}')
+                raise FunctionCallNotExistsError(
+                    f'Tool {tool_call.function.name} is not registered. (arguments: {arguments}). Please check the tool name and retry with an existing tool.'
+                )
 
             # We only add thought to the first action
             if i == 0:
diff --git a/openhands/controller/agent_controller.py b/openhands/controller/agent_controller.py
index 9ba8c3d0a154..f9e4a8edb555 100644
--- a/openhands/controller/agent_controller.py
+++ b/openhands/controller/agent_controller.py
@@ -12,6 +12,7 @@
 from openhands.controller.stuck import StuckDetector
 from openhands.core.config import AgentConfig, LLMConfig
 from openhands.core.exceptions import (
+    FunctionCallNotExistsError,
     FunctionCallValidationError,
     LLMMalformedActionError,
     LLMNoActionError,
@@ -488,6 +489,7 @@ async def _step(self) -> None:
             LLMNoActionError,
             LLMResponseError,
             FunctionCallValidationError,
+            FunctionCallNotExistsError,
         ) as e:
             self.event_stream.add_event(
                 ErrorObservation(
diff --git a/openhands/core/exceptions.py b/openhands/core/exceptions.py
index 0c0a771191b4..bf5a29f60752 100644
--- a/openhands/core/exceptions.py
+++ b/openhands/core/exceptions.py
@@ -114,3 +114,10 @@ class FunctionCallValidationError(Exception):
 
     def __init__(self, message):
         super().__init__(message)
+
+
+class FunctionCallNotExistsError(Exception):
+    """Exception raised when an LLM call a tool that is not registered."""
+
+    def __init__(self, message):
+        super().__init__(message)