diff --git a/crates/blue-core/src/lib.rs b/crates/blue-core/src/lib.rs
index ec5d1ba..1a748af 100644
--- a/crates/blue-core/src/lib.rs
+++ b/crates/blue-core/src/lib.rs
@@ -24,7 +24,7 @@ pub mod voice;
 pub mod workflow;
 
 pub use documents::*;
-pub use llm::{CompletionOptions, CompletionResult, LlmBackendChoice, LlmConfig, LlmError, LlmProvider, LlmProviderChoice, LocalLlmConfig, ApiLlmConfig, MockLlm};
+pub use llm::{CompletionOptions, CompletionResult, LlmBackendChoice, LlmConfig, LlmError, LlmManager, LlmProvider, LlmProviderChoice, LocalLlmConfig, ApiLlmConfig, KeywordLlm, MockLlm, ProviderStatus};
 pub use repo::{detect_blue, BlueHome, RepoError, WorktreeInfo};
 pub use state::{ItemType, ProjectState, StateError, StatusSummary, WorkItem};
 pub use store::{DocType, Document, DocumentStore, LinkType, Reminder, ReminderStatus, SearchResult, Session, SessionType, StagingLock, StagingLockQueueEntry, StagingLockResult, StoreError, Task as StoreTask, TaskProgress, Worktree};
diff --git a/crates/blue-core/src/llm.rs b/crates/blue-core/src/llm.rs
index 81e4166..1226964 100644
--- a/crates/blue-core/src/llm.rs
+++ b/crates/blue-core/src/llm.rs
@@ -254,6 +254,183 @@ impl LlmProvider for MockLlm {
     }
 }
 
+/// Keyword-based fallback "LLM"
+///
+/// Uses simple keyword matching when no real LLM is available.
+/// This provides basic functionality for tasks like ADR relevance matching.
+pub struct KeywordLlm;
+
+impl KeywordLlm {
+    pub fn new() -> Self {
+        Self
+    }
+
+    /// Extract keywords from text (simple word tokenization)
+    fn extract_keywords(text: &str) -> Vec<String> {
+        text.to_lowercase()
+            .split(|c: char| !c.is_alphanumeric())
+            .filter(|w| w.len() > 2)
+            .map(String::from)
+            .collect()
+    }
+
+    /// Calculate keyword overlap score between two texts
+    pub fn keyword_score(text1: &str, text2: &str) -> f64 {
+        let words1: std::collections::HashSet<_> = Self::extract_keywords(text1).into_iter().collect();
+        let words2: std::collections::HashSet<_> = Self::extract_keywords(text2).into_iter().collect();
+
+        if words1.is_empty() || words2.is_empty() {
+            return 0.0;
+        }
+
+        let intersection = words1.intersection(&words2).count();
+        let union = words1.union(&words2).count();
+
+        intersection as f64 / union as f64
+    }
+}
+
+impl Default for KeywordLlm {
+    fn default() -> Self {
+        Self::new()
+    }
+}
+
+impl LlmProvider for KeywordLlm {
+    fn complete(&self, prompt: &str, _options: &CompletionOptions) -> Result<CompletionResult, LlmError> {
+        // KeywordLlm doesn't generate text - it's for scoring/matching only
+        // Return the prompt keywords as a simple response
+        let keywords = Self::extract_keywords(prompt);
+        Ok(CompletionResult {
+            text: keywords.join(", "),
+            prompt_tokens: None,
+            completion_tokens: None,
+            provider: "keywords".to_string(),
+        })
+    }
+
+    fn name(&self) -> &str {
+        "keywords"
+    }
+
+    fn is_ready(&self) -> bool {
+        true // Always ready - no external dependencies
+    }
+}
+
+/// LLM Manager with graceful degradation
+///
+/// Tries providers in order: Local (Ollama) → API → Keywords
+/// Falls back automatically when a provider is unavailable.
+pub struct LlmManager {
+    providers: Vec<Box<dyn LlmProvider>>,
+    config: LlmConfig,
+}
+
+impl LlmManager {
+    /// Create a new LLM manager with the given configuration
+    pub fn new(config: LlmConfig) -> Self {
+        Self {
+            providers: Vec::new(),
+            config,
+        }
+    }
+
+    /// Add a provider to the fallback chain
+    pub fn add_provider(&mut self, provider: Box<dyn LlmProvider>) {
+        self.providers.push(provider);
+    }
+
+    /// Add the keyword fallback (always available)
+    pub fn with_keyword_fallback(mut self) -> Self {
+        self.providers.push(Box::new(KeywordLlm::new()));
+        self
+    }
+
+    /// Get the first ready provider
+    pub fn active_provider(&self) -> Option<&dyn LlmProvider> {
+        self.providers.iter()
+            .find(|p| p.is_ready())
+            .map(|p| p.as_ref())
+    }
+
+    /// Get the active provider name
+    pub fn active_provider_name(&self) -> &str {
+        self.active_provider()
+            .map(|p| p.name())
+            .unwrap_or("none")
+    }
+
+    /// Check if any provider is available
+    pub fn is_available(&self) -> bool {
+        self.providers.iter().any(|p| p.is_ready())
+    }
+
+    /// Complete a prompt using the first available provider
+    pub fn complete(&self, prompt: &str, options: &CompletionOptions) -> Result<CompletionResult, LlmError> {
+        // Respect provider preference
+        match self.config.provider {
+            LlmProviderChoice::None => {
+                return Err(LlmError::NotAvailable("LLM disabled by configuration".to_string()));
+            }
+            LlmProviderChoice::Local => {
+                // Only try local providers
+                for provider in &self.providers {
+                    if provider.name() == "ollama" && provider.is_ready() {
+                        return provider.complete(prompt, options);
+                    }
+                }
+                return Err(LlmError::NotAvailable("Local LLM not available".to_string()));
+            }
+            LlmProviderChoice::Api => {
+                // Only try API providers
+                for provider in &self.providers {
+                    if (provider.name() == "anthropic" || provider.name() == "openai") && provider.is_ready() {
+                        return provider.complete(prompt, options);
+                    }
+                }
+                return Err(LlmError::NotAvailable("API LLM not available".to_string()));
+            }
+            LlmProviderChoice::Auto => {
+                // Try all providers in order
+            }
+        }
+
+        // Auto mode: try each provider in order
+        let mut last_error = None;
+        for provider in &self.providers {
+            if provider.is_ready() {
+                match provider.complete(prompt, options) {
+                    Ok(result) => return Ok(result),
+                    Err(e) => {
+                        last_error = Some(e);
+                        continue;
+                    }
+                }
+            }
+        }
+
+        Err(last_error.unwrap_or_else(|| LlmError::NotAvailable("No LLM providers available".to_string())))
+    }
+
+    /// Get status of all providers
+    pub fn status(&self) -> Vec<ProviderStatus> {
+        self.providers.iter()
+            .map(|p| ProviderStatus {
+                name: p.name().to_string(),
+                ready: p.is_ready(),
+            })
+            .collect()
+    }
+}
+
+/// Status of a provider
+#[derive(Debug, Clone)]
+pub struct ProviderStatus {
+    pub name: String,
+    pub ready: bool,
+}
+
 #[cfg(test)]
 mod tests {
     use super::*;
@@ -279,4 +456,98 @@ mod tests {
         assert_eq!(opts.max_tokens, 1024);
         assert!((opts.temperature - 0.7).abs() < f32::EPSILON);
     }
+
+    #[test]
+    fn test_keyword_llm_extract_keywords() {
+        let keywords = KeywordLlm::extract_keywords("Hello, World! This is a TEST.");
+        assert!(keywords.contains(&"hello".to_string()));
+        assert!(keywords.contains(&"world".to_string()));
+        assert!(keywords.contains(&"this".to_string()));
+        assert!(keywords.contains(&"test".to_string()));
+        // Short words filtered out
+        assert!(!keywords.contains(&"is".to_string()));
+        assert!(!keywords.contains(&"a".to_string()));
+    }
+
+    #[test]
+    fn test_keyword_llm_score() {
+        // Identical texts should have score 1.0
+        let score = KeywordLlm::keyword_score("hello world", "hello world");
+        assert!((score - 1.0).abs() < 0.01);
+
+        // Completely different texts should have score 0.0
+        let score = KeywordLlm::keyword_score("hello world", "foo bar baz");
+        assert!(score < 0.01);
+
+        // Partial overlap
+        let score = KeywordLlm::keyword_score("hello world test", "hello world foo");
+        assert!(score > 0.3 && score < 0.8);
+    }
+
+    #[test]
+    fn test_keyword_llm_always_ready() {
+        let llm = KeywordLlm::new();
+        assert!(llm.is_ready());
+        assert_eq!(llm.name(), "keywords");
+    }
+
+    #[test]
+    fn test_llm_manager_with_keyword_fallback() {
+        let config = LlmConfig::default();
+        let manager = LlmManager::new(config).with_keyword_fallback();
+
+        assert!(manager.is_available());
+        assert_eq!(manager.active_provider_name(), "keywords");
+    }
+
+    #[test]
+    fn test_llm_manager_complete_with_fallback() {
+        let config = LlmConfig::default();
+        let manager = LlmManager::new(config).with_keyword_fallback();
+
+        let result = manager.complete("test prompt here", &CompletionOptions::default());
+        assert!(result.is_ok());
+        assert_eq!(result.unwrap().provider, "keywords");
+    }
+
+    #[test]
+    fn test_llm_manager_provider_order() {
+        let config = LlmConfig::default();
+        let mut manager = LlmManager::new(config);
+
+        // Add mock first, then keywords
+        manager.add_provider(Box::new(MockLlm::constant("mock response")));
+        manager.add_provider(Box::new(KeywordLlm::new()));
+
+        // Mock should be used first since it's ready
+        assert_eq!(manager.active_provider_name(), "mock");
+
+        let result = manager.complete("test", &CompletionOptions::default()).unwrap();
+        assert_eq!(result.provider, "mock");
+        assert_eq!(result.text, "mock response");
+    }
+
+    #[test]
+    fn test_llm_manager_status() {
+        let config = LlmConfig::default();
+        let mut manager = LlmManager::new(config);
+        manager.add_provider(Box::new(MockLlm::constant("test")));
+        manager.add_provider(Box::new(KeywordLlm::new()));
+
+        let status = manager.status();
+        assert_eq!(status.len(), 2);
+        assert!(status.iter().all(|s| s.ready));
+    }
+
+    #[test]
+    fn test_llm_manager_disabled() {
+        let config = LlmConfig {
+            provider: LlmProviderChoice::None,
+            ..Default::default()
+        };
+        let manager = LlmManager::new(config).with_keyword_fallback();
+
+        let result = manager.complete("test", &CompletionOptions::default());
+        assert!(result.is_err());
+    }
 }
diff --git a/crates/blue-mcp/src/handlers/llm.rs b/crates/blue-mcp/src/handlers/llm.rs
index 8925141..6c8e926 100644
--- a/crates/blue-mcp/src/handlers/llm.rs
+++ b/crates/blue-mcp/src/handlers/llm.rs
@@ -1,12 +1,12 @@
 //! LLM tool handlers
 //!
 //! Implements RFC 0005: Local LLM Integration.
-//! Provides MCP tools for model management.
+//! Provides MCP tools for model management with graceful degradation.
 
 use serde_json::{json, Value};
 use std::sync::{Arc, Mutex, OnceLock};
 
-use blue_core::{LocalLlmConfig, LlmProvider};
+use blue_core::{KeywordLlm, LlmConfig, LlmManager, LocalLlmConfig, LlmProvider};
 use blue_ollama::{EmbeddedOllama, HealthStatus, OllamaLlm};
 
 use crate::error::ServerError;
@@ -270,6 +270,75 @@ pub fn handle_model_remove(args: &Value) -> Result<Value, ServerError> {
     ))
 }
 
+/// Get LLM provider chain status (graceful degradation)
+pub fn handle_providers() -> Result<Value, ServerError> {
+    let config = LlmConfig::default();
+    let mut manager = LlmManager::new(config);
+
+    // Check Ollama availability
+    let ollama_config = LocalLlmConfig {
+        use_external: true,
+        ..Default::default()
+    };
+    let ollama = EmbeddedOllama::new(&ollama_config);
+    let ollama_available = ollama.is_ollama_running();
+    let ollama_version = if ollama_available {
+        match ollama.health_check() {
+            HealthStatus::Healthy { version, .. } => Some(version),
+            _ => None,
+        }
+    } else {
+        None
+    };
+
+    // Check API availability (by checking for API key)
+    let anthropic_key = std::env::var("ANTHROPIC_API_KEY").ok();
+    let openai_key = std::env::var("OPENAI_API_KEY").ok();
+    let api_available = anthropic_key.is_some() || openai_key.is_some();
+    let api_provider = if anthropic_key.is_some() {
+        Some("anthropic")
+    } else if openai_key.is_some() {
+        Some("openai")
+    } else {
+        None
+    };
+
+    // Keywords always available
+    manager.add_provider(Box::new(KeywordLlm::new()));
+
+    let active = if ollama_available {
+        "ollama"
+    } else if api_available {
+        api_provider.unwrap_or("api")
+    } else {
+        "keywords"
+    };
+
+    Ok(json!({
+        "active_provider": active,
+        "fallback_chain": [
+            {
+                "name": "ollama",
+                "available": ollama_available,
+                "version": ollama_version,
+                "priority": 1
+            },
+            {
+                "name": api_provider.unwrap_or("api"),
+                "available": api_available,
+                "configured": api_provider.is_some(),
+                "priority": 2
+            },
+            {
+                "name": "keywords",
+                "available": true,
+                "priority": 3
+            }
+        ],
+        "message": format!("Active provider: {}. Fallback: ollama → api → keywords", active)
+    }))
+}
+
 /// Warm up a model (load into memory)
 pub fn handle_model_warmup(args: &Value) -> Result<Value, ServerError> {
     let name = args
@@ -354,4 +423,22 @@ mod tests {
         let result = handle_model_remove(&json!({}));
         assert!(result.is_err());
     }
+
+    #[test]
+    fn test_providers_always_has_keywords() {
+        let result = handle_providers();
+        assert!(result.is_ok());
+        let value = result.unwrap();
+
+        // Should always have an active provider
+        assert!(value.get("active_provider").is_some());
+
+        // Should have fallback chain
+        let chain = value.get("fallback_chain").unwrap().as_array().unwrap();
+        assert_eq!(chain.len(), 3);
+
+        // Keywords should always be available
+        let keywords = chain.iter().find(|p| p.get("name").unwrap() == "keywords").unwrap();
+        assert_eq!(keywords.get("available").unwrap(), true);
+    }
 }
diff --git a/crates/blue-mcp/src/server.rs b/crates/blue-mcp/src/server.rs
index 9aa56d5..634f322 100644
--- a/crates/blue-mcp/src/server.rs
+++ b/crates/blue-mcp/src/server.rs
@@ -1701,6 +1701,14 @@ impl BlueServer {
                         "properties": {}
                     }
                 },
+                {
+                    "name": "blue_llm_providers",
+                    "description": "Show LLM provider fallback chain status. Returns availability of: Ollama (local) → API (Anthropic/OpenAI) → Keywords (always available).",
+                    "inputSchema": {
+                        "type": "object",
+                        "properties": {}
+                    }
+                },
                 {
                     "name": "blue_model_list",
                     "description": "List available models in the Ollama instance.",
@@ -1862,6 +1870,7 @@ impl BlueServer {
             "blue_llm_start" => crate::handlers::llm::handle_start(&call.arguments.unwrap_or_default()),
             "blue_llm_stop" => crate::handlers::llm::handle_stop(),
             "blue_llm_status" => crate::handlers::llm::handle_status(),
+            "blue_llm_providers" => crate::handlers::llm::handle_providers(),
             "blue_model_list" => crate::handlers::llm::handle_model_list(),
             "blue_model_pull" => crate::handlers::llm::handle_model_pull(&call.arguments.unwrap_or_default()),
             "blue_model_remove" => crate::handlers::llm::handle_model_remove(&call.arguments.unwrap_or_default()),