diff --git a/app/globals.css b/app/globals.css
index 3cd1ab1..b8207ad 100644
--- a/app/globals.css
+++ b/app/globals.css
@@ -330,3 +330,16 @@
     background-position: 0 0, 0 10px, 10px -10px, -10px 0px;
   }
 }
+
+/* Text editor - make text visible when selected */
+@layer components {
+  .text-editor-input::selection {
+    background-color: var(--primary);
+    color: var(--primary-foreground);
+  }
+
+  .text-editor-input::-moz-selection {
+    background-color: var(--primary);
+    color: var(--primary-foreground);
+  }
+}
diff --git a/components/canvas/canvas-with-tools.tsx b/components/canvas/canvas-with-tools.tsx
index f1aff0b..6562e6c 100644
--- a/components/canvas/canvas-with-tools.tsx
+++ b/components/canvas/canvas-with-tools.tsx
@@ -4,8 +4,10 @@ import { useEffect, useRef, useState } from 'react';
 import { useCanvasStore, useLayerStore, useToolStore } from '@/store';
 import { useHistoryStore } from '@/store/history-store';
 import { useSelectionStore } from '@/store/selection-store';
+import { useTextStore } from '@/store/text-store';
 import { drawMarchingAnts } from '@/lib/selection-utils';
 import { getContext, drawGrid, drawCheckerboard } from '@/lib/canvas-utils';
+import { renderText } from '@/lib/text-utils';
 import { DrawCommand } from '@/core/commands';
 import {
   PencilTool,
@@ -25,6 +27,7 @@ import {
 } from '@/tools';
 import type { PointerState } from '@/types';
 import { cn } from '@/lib/utils';
+import { OnCanvasTextEditor } from './on-canvas-text-editor';
 
 // Tool instances
 const tools: Record<string, BaseTool> = {
@@ -66,6 +69,7 @@ export function CanvasWithTools() {
   const { activeTool, settings } = useToolStore();
   const { executeCommand } = useHistoryStore();
   const { activeSelection, selectionType, isMarching } = useSelectionStore();
+  const { textObjects, editingTextId } = useTextStore();
   const [marchingOffset, setMarchingOffset] = useState(0);
 
   const [isPanning, setIsPanning] = useState(false);
@@ -129,6 +133,27 @@ export function CanvasWithTools() {
     ctx.globalAlpha = 1;
     ctx.globalCompositeOperation = 'source-over';
 
+    // Draw text objects (skip the one being edited)
+    textObjects.forEach((textObj) => {
+      // Don't render text that's currently being edited
+      if (editingTextId && textObj.id === editingTextId) {
+        return;
+      }
+
+      renderText(ctx, textObj.x, textObj.y, {
+        text: textObj.text,
+        fontFamily: textObj.fontFamily,
+        fontSize: textObj.fontSize,
+        fontStyle: textObj.fontStyle,
+        fontWeight: textObj.fontWeight,
+        color: textObj.color,
+        align: textObj.align,
+        baseline: textObj.baseline,
+        lineHeight: textObj.lineHeight,
+        letterSpacing: textObj.letterSpacing,
+      });
+    });
+
     // Draw grid if enabled (only within canvas bounds)
     if (showGrid) {
       drawGrid(ctx, gridSize, 'rgba(0, 0, 0, 0.15)', width, height);
@@ -141,7 +166,7 @@ export function CanvasWithTools() {
 
     // Restore context state
     ctx.restore();
-  }, [layers, width, height, zoom, offsetX, offsetY, showGrid, gridSize, backgroundColor, selection, pointer, activeSelection, isMarching, marchingOffset]);
+  }, [layers, width, height, zoom, offsetX, offsetY, showGrid, gridSize, backgroundColor, selection, pointer, activeSelection, isMarching, marchingOffset, textObjects, editingTextId]);
 
   // Marching ants animation
   useEffect(() => {
@@ -353,6 +378,9 @@ export function CanvasWithTools() {
         ref={canvasRef}
         className="absolute inset-0"
       />
+
+      {/* On-canvas text editor */}
+      <OnCanvasTextEditor />
     </div>
   );
 }
diff --git a/components/canvas/on-canvas-text-editor.tsx b/components/canvas/on-canvas-text-editor.tsx
new file mode 100644
index 0000000..b1e8602
--- /dev/null
+++ b/components/canvas/on-canvas-text-editor.tsx
@@ -0,0 +1,411 @@
+'use client';
+
+import { useEffect, useRef, useState, useCallback } from 'react';
+import { useTextStore } from '@/store/text-store';
+import { useCanvasStore } from '@/store/canvas-store';
+import { useLayerStore } from '@/store/layer-store';
+import { useHistoryStore } from '@/store/history-store';
+import { TextTool } from '@/tools/text-tool';
+import { renderText } from '@/lib/text-utils';
+import { DrawCommand } from '@/core/commands/draw-command';
+
+export function OnCanvasTextEditor() {
+  const {
+    isOnCanvasEditorActive,
+    editorPosition,
+    editorText,
+    editingTextId,
+    settings,
+    updateEditorText,
+    updateEditorPosition,
+    deactivateOnCanvasEditor,
+    addTextObject,
+    updateTextObject,
+    setText,
+  } = useTextStore();
+
+  const { zoom, offsetX, offsetY, width: canvasWidth, height: canvasHeight } = useCanvasStore();
+  const { getActiveLayer } = useLayerStore();
+  const { executeCommand } = useHistoryStore();
+
+  const [screenPosition, setScreenPosition] = useState({ x: 0, y: 0 });
+  const [isDragging, setIsDragging] = useState(false);
+  const [dragStart, setDragStart] = useState({ x: 0, y: 0, initialCanvasX: 0, initialCanvasY: 0 });
+  const [textBounds, setTextBounds] = useState({ width: 0, height: 0 });
+
+  const textareaRef = useRef<HTMLTextAreaElement>(null);
+  const previewCanvasRef = useRef<HTMLCanvasElement>(null);
+  const containerRef = useRef<HTMLDivElement>(null);
+  const commitTextRef = useRef<(() => void) | null>(null);
+
+  // Calculate screen position from canvas position
+  const calculateScreenPosition = useCallback(() => {
+    if (!editorPosition || !containerRef.current) return { x: 0, y: 0 };
+
+    const container = containerRef.current.parentElement;
+    if (!container) return { x: 0, y: 0 };
+
+    const rect = container.getBoundingClientRect();
+
+    // Apply canvas transformation: canvas coords -> screen coords
+    // The canvas uses: translate(offsetX + width/2, offsetY + height/2), scale(zoom), translate(-canvasWidth/2, -canvasHeight/2)
+    const transformedX = (editorPosition.x - canvasWidth / 2) * zoom + (rect.width / 2) + offsetX;
+    const transformedY = (editorPosition.y - canvasHeight / 2) * zoom + (rect.height / 2) + offsetY;
+
+    return {
+      x: transformedX,
+      y: transformedY,
+    };
+  }, [editorPosition, zoom, offsetX, offsetY, canvasWidth, canvasHeight]);
+
+  // Update screen position when canvas transforms or position changes
+  useEffect(() => {
+    if (isOnCanvasEditorActive && editorPosition) {
+      const pos = calculateScreenPosition();
+      setScreenPosition(pos);
+    }
+  }, [isOnCanvasEditorActive, editorPosition, calculateScreenPosition]);
+
+  // Measure text bounds
+  const measureTextBounds = useCallback((text: string) => {
+    if (!previewCanvasRef.current) {
+      return { width: 200, height: settings.fontSize * settings.lineHeight };
+    }
+
+    const canvas = previewCanvasRef.current;
+    const ctx = canvas.getContext('2d');
+    if (!ctx) {
+      return { width: 200, height: settings.fontSize * settings.lineHeight };
+    }
+
+    // Measure text
+    ctx.font = `${settings.fontStyle} ${settings.fontWeight} ${settings.fontSize}px ${settings.fontFamily}`;
+    const lines = text ? text.split('\n') : [''];
+
+    let maxWidth = 0;
+    lines.forEach((line) => {
+      const width = ctx.measureText(line || ' ').width; // Measure space if empty
+      if (width > maxWidth) maxWidth = width;
+    });
+
+    // Add padding for better visibility and ensure minimum size
+    const width = Math.max(maxWidth + 40, 200);
+    const height = Math.max(lines.length * settings.fontSize * settings.lineHeight + 10, settings.fontSize * settings.lineHeight + 10);
+
+    return { width, height };
+  }, [settings]);
+
+  // Update text bounds when text or settings change
+  useEffect(() => {
+    const bounds = measureTextBounds(editorText);
+    setTextBounds(bounds);
+  }, [editorText, settings, measureTextBounds]);
+
+  // Render text preview on canvas
+  useEffect(() => {
+    if (!previewCanvasRef.current) return;
+
+    const canvas = previewCanvasRef.current;
+    const ctx = canvas.getContext('2d');
+    if (!ctx) return;
+
+    // Set canvas size to match text bounds (scaled)
+    canvas.width = textBounds.width * zoom;
+    canvas.height = textBounds.height * zoom;
+
+    // Clear canvas
+    ctx.clearRect(0, 0, canvas.width, canvas.height);
+
+    if (!editorText) return;
+
+    // Scale context for rendering
+    ctx.save();
+    ctx.scale(zoom, zoom);
+
+    // Render text at origin with 'top' baseline so it's visible
+    // Add small padding from top edge
+    renderText(ctx, 10, 0, { ...settings, text: editorText, baseline: 'top' });
+
+    ctx.restore();
+  }, [editorText, settings, textBounds, zoom]);
+
+  // Handle commit text
+  const commitText = useCallback(() => {
+    if (!editorPosition) return;
+
+    if (!editorText.trim()) {
+      // Empty text, just close editor
+      deactivateOnCanvasEditor();
+      return;
+    }
+
+    const activeLayer = getActiveLayer();
+    if (!activeLayer) {
+      deactivateOnCanvasEditor();
+      return;
+    }
+
+    if (editingTextId) {
+      // Update existing text object - update position if moved
+      updateTextObject(editingTextId, {
+        x: editorPosition.x + 10,
+        y: editorPosition.y,
+        text: editorText,
+        fontFamily: settings.fontFamily,
+        fontSize: settings.fontSize,
+        fontStyle: settings.fontStyle,
+        fontWeight: settings.fontWeight,
+        color: settings.color,
+        align: settings.align,
+        baseline: 'top',
+        lineHeight: settings.lineHeight,
+        letterSpacing: settings.letterSpacing,
+      });
+    } else {
+      // Create new text object
+      addTextObject({
+        layerId: activeLayer.id,
+        x: editorPosition.x + 10,
+        y: editorPosition.y,
+        text: editorText,
+        fontFamily: settings.fontFamily,
+        fontSize: settings.fontSize,
+        fontStyle: settings.fontStyle,
+        fontWeight: settings.fontWeight,
+        color: settings.color,
+        align: settings.align,
+        baseline: 'top',
+        lineHeight: settings.lineHeight,
+        letterSpacing: settings.letterSpacing,
+      });
+    }
+
+    // Update settings text for future use
+    setText(editorText);
+
+    // Close editor
+    deactivateOnCanvasEditor();
+  }, [editorPosition, editorText, editingTextId, settings, deactivateOnCanvasEditor, addTextObject, updateTextObject, setText, getActiveLayer]);
+
+  // Store commitText in ref for click outside handler
+  useEffect(() => {
+    commitTextRef.current = commitText;
+  }, [commitText]);
+
+  // Handle keyboard shortcuts
+  const handleKeyDown = useCallback(
+    (e: React.KeyboardEvent) => {
+      if (e.key === 'Enter' && e.ctrlKey) {
+        e.preventDefault();
+        commitText();
+      } else if (e.key === 'Escape') {
+        e.preventDefault();
+        deactivateOnCanvasEditor();
+      }
+    },
+    [commitText, deactivateOnCanvasEditor]
+  );
+
+  // Handle drag start
+  const handleMouseDown = useCallback(
+    (e: React.MouseEvent) => {
+      if (!editorPosition) return;
+
+      setIsDragging(true);
+      setDragStart({
+        x: e.clientX,
+        y: e.clientY,
+        initialCanvasX: editorPosition.x,
+        initialCanvasY: editorPosition.y,
+      });
+      e.preventDefault();
+      e.stopPropagation();
+    },
+    [editorPosition]
+  );
+
+  // Handle drag move
+  const handleMouseMove = useCallback(
+    (e: globalThis.MouseEvent) => {
+      if (!isDragging) return;
+
+      const deltaX = e.clientX - dragStart.x;
+      const deltaY = e.clientY - dragStart.y;
+
+      // Convert screen delta to canvas delta
+      const canvasDeltaX = deltaX / zoom;
+      const canvasDeltaY = deltaY / zoom;
+
+      updateEditorPosition(
+        dragStart.initialCanvasX + canvasDeltaX,
+        dragStart.initialCanvasY + canvasDeltaY
+      );
+    },
+    [isDragging, dragStart, zoom, updateEditorPosition]
+  );
+
+  // Handle drag end
+  const handleMouseUp = useCallback(() => {
+    setIsDragging(false);
+  }, []);
+
+  // Attach global mouse listeners for dragging
+  useEffect(() => {
+    if (isDragging) {
+      window.addEventListener('mousemove', handleMouseMove);
+      window.addEventListener('mouseup', handleMouseUp);
+      return () => {
+        window.removeEventListener('mousemove', handleMouseMove);
+        window.removeEventListener('mouseup', handleMouseUp);
+      };
+    }
+  }, [isDragging, handleMouseMove, handleMouseUp]);
+
+  // No separate click-outside handler needed - using overlay approach
+
+  // Focus textarea when editor activates
+  useEffect(() => {
+    if (isOnCanvasEditorActive) {
+      setTimeout(() => {
+        textareaRef.current?.focus();
+      }, 10);
+    }
+  }, [isOnCanvasEditorActive]);
+
+  if (!isOnCanvasEditorActive || !editorPosition) return null;
+
+  const scaledWidth = textBounds.width * zoom;
+  const scaledHeight = textBounds.height * zoom;
+
+  return (
+    <>
+      {/* Full-screen overlay to capture outside clicks */}
+      <div
+        className="fixed inset-0"
+        style={{
+          zIndex: 999,
+          pointerEvents: 'auto',
+        }}
+        onMouseDown={(e) => {
+          e.preventDefault();
+          e.stopPropagation();
+          commitText();
+        }}
+      />
+
+      <div
+        ref={containerRef}
+        className="absolute"
+        style={{
+          left: `${screenPosition.x}px`,
+          top: `${screenPosition.y}px`,
+          width: `${scaledWidth}px`,
+          height: `${scaledHeight}px`,
+          zIndex: 1000,
+          pointerEvents: 'auto',
+        }}
+      >
+        {/* Bounding box - visual only */}
+        <div
+          className="absolute inset-0 border-2 border-primary pointer-events-none"
+          style={{
+            borderStyle: 'dashed',
+          }}
+        >
+          {/* Transform handles - draggable */}
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -left-1 -top-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full left-1/2 -translate-x-1/2 -top-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -right-1 -top-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -left-1 top-1/2 -translate-y-1/2 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -right-1 top-1/2 -translate-y-1/2 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -left-1 -bottom-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full left-1/2 -translate-x-1/2 -bottom-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+          <div
+            className="absolute w-2 h-2 bg-white border-2 border-primary rounded-full -right-1 -bottom-1 cursor-move"
+            style={{ pointerEvents: 'auto' }}
+            onMouseDown={handleMouseDown}
+          />
+        </div>
+
+        {/* Text preview canvas */}
+        <canvas
+          ref={previewCanvasRef}
+          className="absolute left-0 top-0 pointer-events-none"
+          style={{
+            width: `${scaledWidth}px`,
+            height: `${scaledHeight}px`,
+            zIndex: 1,
+          }}
+        />
+
+        {/* Transparent textarea for input */}
+        <textarea
+          ref={textareaRef}
+          value={editorText}
+          onChange={(e) => updateEditorText(e.target.value)}
+          onKeyDown={handleKeyDown}
+          onMouseDown={(e) => {
+            // Stop propagation to prevent overlay from committing during text interaction
+            e.stopPropagation();
+          }}
+          wrap="off"
+          spellCheck={false}
+          autoComplete="off"
+          className="absolute left-0 top-0 resize-none overflow-hidden outline-none border-none text-editor-input"
+          style={{
+            width: `${scaledWidth}px`,
+            height: `${scaledHeight}px`,
+            background: 'transparent',
+            color: 'transparent',
+            caretColor: settings.color,
+            fontFamily: settings.fontFamily,
+            fontSize: `${settings.fontSize * zoom}px`,
+            fontStyle: settings.fontStyle,
+            fontWeight: settings.fontWeight,
+            lineHeight: settings.lineHeight,
+            letterSpacing: `${settings.letterSpacing * zoom}px`,
+            textAlign: settings.align,
+            padding: 0,
+            paddingLeft: `${10 * zoom}px`,
+            margin: 0,
+            whiteSpace: 'pre',
+            zIndex: 10,
+            userSelect: 'text',
+            WebkitUserSelect: 'text',
+            MozUserSelect: 'text',
+            cursor: 'text',
+          }}
+        />
+      </div>
+
+    </>
+  );
+}
diff --git a/components/editor/editor-layout.tsx b/components/editor/editor-layout.tsx
index 565bebc..8cf5803 100644
--- a/components/editor/editor-layout.tsx
+++ b/components/editor/editor-layout.tsx
@@ -9,7 +9,6 @@ import { ToolOptions } from './tool-options';
 import { PanelDock } from './panel-dock';
 import { ThemeToggle } from './theme-toggle';
 import { ToolPalette } from '@/components/tools';
-import { TextDialog } from '@/components/modals/text-dialog';
 import { useKeyboardShortcuts } from '@/hooks/use-keyboard-shortcuts';
 import { useFileOperations } from '@/hooks/use-file-operations';
 import { useDragDrop } from '@/hooks/use-drag-drop';
@@ -191,9 +190,6 @@ export function EditorLayout() {
         {/* Right: Panel Dock */}
         <PanelDock />
       </div>
-
-      {/* Text Dialog */}
-      <TextDialog />
     </div>
   );
 }
diff --git a/store/text-store.ts b/store/text-store.ts
index 75be037..2f4a8df 100644
--- a/store/text-store.ts
+++ b/store/text-store.ts
@@ -17,10 +17,13 @@ const DEFAULT_SETTINGS: TextSettings = {
 
 export const useTextStore = create<ITextStore>()(
   persist(
-    (set) => ({
+    (set, get) => ({
       settings: { ...DEFAULT_SETTINGS },
-      isDialogOpen: false,
-      clickPosition: null,
+      textObjects: [],
+      isOnCanvasEditorActive: false,
+      editorPosition: null,
+      editorText: '',
+      editingTextId: null,
 
       setText: (text) =>
         set((state) => ({
@@ -77,21 +80,134 @@ export const useTextStore = create<ITextStore>()(
           settings: { ...state.settings, ...settings },
         })),
 
-      openDialog: (x, y) =>
+      // Text object management
+      addTextObject: (textObject) =>
+        set((state) => ({
+          textObjects: [
+            ...state.textObjects,
+            {
+              ...textObject,
+              id: `text-${Date.now()}-${Math.random().toString(36).substr(2, 9)}`,
+            },
+          ],
+        })),
+
+      updateTextObject: (id, updates) =>
+        set((state) => ({
+          textObjects: state.textObjects.map((obj) =>
+            obj.id === id ? { ...obj, ...updates } : obj
+          ),
+        })),
+
+      deleteTextObject: (id) =>
+        set((state) => ({
+          textObjects: state.textObjects.filter((obj) => obj.id !== id),
+        })),
+
+      getTextObjectAt: (x, y, layerId) => {
+        const state = get();
+
+        // Create temporary canvas for text measurement
+        const canvas = document.createElement('canvas');
+        const ctx = canvas.getContext('2d');
+        if (!ctx) return null;
+
+        // Find text objects at position (reverse order to get topmost)
+        for (let i = state.textObjects.length - 1; i >= 0; i--) {
+          const obj = state.textObjects[i];
+          if (obj.layerId !== layerId) continue;
+
+          // Measure text properly
+          ctx.font = `${obj.fontStyle} ${obj.fontWeight} ${obj.fontSize}px ${obj.fontFamily}`;
+          const lines = obj.text.split('\n');
+
+          let maxWidth = 0;
+          lines.forEach((line) => {
+            const metrics = ctx.measureText(line || ' ');
+            if (metrics.width > maxWidth) maxWidth = metrics.width;
+          });
+
+          // Account for the padding we add in the editor (40px horizontal, 10px vertical)
+          const width = maxWidth + 40;
+          const height = lines.length * obj.fontSize * obj.lineHeight + 10;
+
+          // The text is stored at obj.x, obj.y (which already includes the +10 offset from editor)
+          // But we need to check against the editor bounds which start 10px before
+          const boundX = obj.x - 10;
+          const boundY = obj.y;
+
+          if (
+            x >= boundX &&
+            x <= boundX + width &&
+            y >= boundY &&
+            y <= boundY + height
+          ) {
+            return obj;
+          }
+        }
+        return null;
+      },
+
+      activateOnCanvasEditor: (canvasX, canvasY, textId) => {
+        const state = get();
+        if (textId) {
+          // Editing existing text
+          const textObj = state.textObjects.find((obj) => obj.id === textId);
+          if (textObj) {
+            set({
+              isOnCanvasEditorActive: true,
+              // Subtract the 10px padding offset to position editor correctly
+              editorPosition: { x: textObj.x - 10, y: textObj.y },
+              editorText: textObj.text,
+              editingTextId: textId,
+              settings: {
+                ...state.settings,
+                fontFamily: textObj.fontFamily,
+                fontSize: textObj.fontSize,
+                fontStyle: textObj.fontStyle,
+                fontWeight: textObj.fontWeight,
+                color: textObj.color,
+                align: textObj.align,
+                baseline: textObj.baseline,
+                lineHeight: textObj.lineHeight,
+                letterSpacing: textObj.letterSpacing,
+              },
+            });
+          }
+        } else {
+          // Creating new text
+          set({
+            isOnCanvasEditorActive: true,
+            editorPosition: { x: canvasX, y: canvasY },
+            editorText: '',
+            editingTextId: null,
+          });
+        }
+      },
+
+      deactivateOnCanvasEditor: () =>
         set({
-          isDialogOpen: true,
-          clickPosition: { x, y },
+          isOnCanvasEditorActive: false,
+          editorPosition: null,
+          editorText: '',
+          editingTextId: null,
         }),
 
-      closeDialog: () =>
+      updateEditorPosition: (canvasX, canvasY) =>
         set({
-          isDialogOpen: false,
-          clickPosition: null,
+          editorPosition: { x: canvasX, y: canvasY },
+        }),
+
+      updateEditorText: (text) =>
+        set({
+          editorText: text,
         }),
     }),
     {
       name: 'text-storage',
-      partialize: (state) => ({ settings: state.settings }), // Only persist settings, not dialog state
+      partialize: (state) => ({
+        settings: state.settings,
+      }), // Only persist settings, not text objects (they're saved with project)
     }
   )
 );
diff --git a/tools/text-tool.ts b/tools/text-tool.ts
index a179d30..6a19271 100644
--- a/tools/text-tool.ts
+++ b/tools/text-tool.ts
@@ -18,9 +18,18 @@ export class TextTool extends BaseTool {
     const layer = this.getActiveLayer();
     if (!layer) return;
 
-    // Open text dialog at click position
-    const { openDialog } = useTextStore.getState();
-    openDialog(pointer.x, pointer.y);
+    const { activateOnCanvasEditor, getTextObjectAt } = useTextStore.getState();
+
+    // Check if clicking on existing text object
+    const existingText = getTextObjectAt(pointer.x, pointer.y, layer.id);
+
+    if (existingText) {
+      // Edit existing text
+      activateOnCanvasEditor(pointer.x, pointer.y, existingText.id);
+    } else {
+      // Create new text
+      activateOnCanvasEditor(pointer.x, pointer.y);
+    }
   }
 
   onPointerMove(): void {
diff --git a/types/text.ts b/types/text.ts
index b0d9756..8be13f7 100644
--- a/types/text.ts
+++ b/types/text.ts
@@ -16,10 +16,34 @@ export interface TextSettings {
   letterSpacing: number;
 }
 
+export interface TextObject {
+  id: string;
+  layerId: string;
+  x: number;
+  y: number;
+  text: string;
+  fontFamily: string;
+  fontSize: number;
+  fontStyle: FontStyle;
+  fontWeight: FontWeight;
+  color: string;
+  align: TextAlign;
+  baseline: TextBaseline;
+  lineHeight: number;
+  letterSpacing: number;
+}
+
 export interface TextStore {
   settings: TextSettings;
-  isDialogOpen: boolean;
-  clickPosition: { x: number; y: number } | null;
+
+  // Text objects (non-rasterized text)
+  textObjects: TextObject[];
+
+  // On-canvas editor state
+  isOnCanvasEditorActive: boolean;
+  editorPosition: { x: number; y: number } | null; // Canvas coordinates
+  editorText: string; // Current text being edited
+  editingTextId: string | null; // ID of text object being edited (null for new text)
 
   // Setters
   setText: (text: string) => void;
@@ -34,7 +58,15 @@ export interface TextStore {
   setLetterSpacing: (letterSpacing: number) => void;
   updateSettings: (settings: Partial<TextSettings>) => void;
 
-  // Dialog control
-  openDialog: (x: number, y: number) => void;
-  closeDialog: () => void;
+  // Text object management
+  addTextObject: (textObject: Omit<TextObject, 'id'>) => void;
+  updateTextObject: (id: string, updates: Partial<TextObject>) => void;
+  deleteTextObject: (id: string) => void;
+  getTextObjectAt: (x: number, y: number, layerId: string) => TextObject | null;
+
+  // On-canvas editor control
+  activateOnCanvasEditor: (canvasX: number, canvasY: number, textId?: string) => void;
+  deactivateOnCanvasEditor: () => void;
+  updateEditorPosition: (canvasX: number, canvasY: number) => void;
+  updateEditorText: (text: string) => void;
 }