diff --git a/src/app.h b/src/app.h
index 657a8e9..7c6982b 100644
--- a/src/app.h
+++ b/src/app.h
@@ -805,6 +805,11 @@ public:
     // file in place, so a restart with -salvagewallet rewrites it into a fresh, compact file (keeping a
     // backup). -salvagewallet implies a full rescan, so this restarts the node and re-scans the chain.
     void compactWallet();
+    // True when Compact can actually run: a full-node build whose EMBEDDED node the wallet manages (it
+    // restarts it with -salvagewallet). False for lite or when connected to an external/standalone dragonxd.
+    bool canCompactWallet() const {
+        return supportsFullNodeLifecycleActions() && isUsingEmbeddedDaemon() && daemon_controller_ != nullptr;
+    }
     // A newer daemon binary is installed but the running node is still the old one until a restart.
     void markDaemonRestartPending() { daemon_restart_pending_.store(true); }
     bool daemonRestartPending() const { return daemon_restart_pending_.load(); }
diff --git a/src/app_network.cpp b/src/app_network.cpp
index 623b50e..664efcf 100644
--- a/src/app_network.cpp
+++ b/src/app_network.cpp
@@ -6503,10 +6503,17 @@ void App::maybeWarnLargeWallet()
 void App::compactWallet()
 {
     auto& n = ui::Notifications::instance();
-    if (!supportsFullNodeLifecycleActions() || !daemon_controller_) {
+    if (!supportsFullNodeLifecycleActions()) {
         n.warning(TR("appx_fullnode_lifecycle_unavailable_lite"));
         return;
     }
+    // Compacting rewrites wallet.dat by restarting the node with -salvagewallet — only possible when the
+    // wallet MANAGES the node (the embedded daemon). With an external dragonxd there is no controller to
+    // restart, so tell the user how to do it themselves instead of the misleading lite-build message.
+    if (!isUsingEmbeddedDaemon() || !daemon_controller_) {
+        n.warning(TR("compact_needs_embedded"));
+        return;
+    }
     // Consolidation frees internal BDB pages but never returns the space to the OS; -salvagewallet on the
     // next start rewrites wallet.dat into a fresh, compact file (and keeps the old one as a timestamped
     // .bak). It implies a full rescan, so restartDaemon() takes the node down and back up re-scanning.
diff --git a/src/ui/pages/settings_page.cpp b/src/ui/pages/settings_page.cpp
index c03de5f..251e877 100644
--- a/src/ui/pages/settings_page.cpp
+++ b/src/ui/pages/settings_page.cpp
@@ -2386,10 +2386,16 @@ void RenderSettingsPage(App* app) {
                         if (ImGui::IsItemHovered()) material::Tooltip("%s", TR("tt_merge"));
                         ImGui::SameLine();
                         // Compact reclaims the file space consolidation frees (BDB won't shrink in place).
+                        // It rewrites wallet.dat by restarting the node with -salvagewallet, so it only works
+                        // with the embedded node — disable it for an external dragonxd and explain on hover.
+                        const bool canCompact = app->canCompactWallet();
+                        ImGui::BeginDisabled(!canCompact);
                         if (material::ActionButton("##walletcompact", TR("wallet_size_compact"),
                                                    ICON_MD_COMPRESS, material::ActionTier::Secondary))
                             s_settingsState.confirm_compact_wallet = true;
-                        if (ImGui::IsItemHovered()) material::Tooltip("%s", TR("tt_wallet_size_compact"));
+                        ImGui::EndDisabled();
+                        if (ImGui::IsItemHovered(ImGuiHoveredFlags_AllowWhenDisabled))
+                            material::Tooltip("%s", TR(canCompact ? "tt_wallet_size_compact" : "compact_needs_embedded"));
                     }
 
                     // Row 3: folder buttons (their own row so the path gets the full width).
diff --git a/src/util/i18n.cpp b/src/util/i18n.cpp
index 0cb7c6d..ee66886 100644
--- a/src/util/i18n.cpp
+++ b/src/util/i18n.cpp
@@ -885,6 +885,7 @@ void I18n::loadBuiltinEnglish()
         strings_["confirm_compact_wallet_msg"] = "Consolidating merged your notes, but the wallet file can't shrink on its own \xE2\x80\x94 the node has to rewrite it to reclaim the freed space. This restarts the node and re-scans the blockchain, which can take a while on a large wallet.";
         strings_["confirm_compact_wallet_safe"] = "Your funds and balance are safe \xE2\x80\x94 a timestamped backup of the current wallet is kept.";
         strings_["compact_wallet_confirm"] = "Compact";
+        strings_["compact_needs_embedded"] = "Compacting rewrites wallet.dat, which the wallet can only do with its built-in node. You're connected to a dragonxd you started yourself \xE2\x80\x94 turn on \"Use embedded dragonxd\" in Settings, or restart your dragonxd with -salvagewallet to reclaim the space.";
         strings_["settings_debug_changed"] = "Debug categories changed \xe2\x80\x94 restart daemon to apply";
         strings_["settings_auto_detected"] = "Auto-detected from DRAGONX.conf";
         strings_["settings_visual_effects"] = "Visual Effects";