diff --git a/src/systems/generation/parser.js b/src/systems/generation/parser.js
index 3a6d020..7fec28a 100644
--- a/src/systems/generation/parser.js
+++ b/src/systems/generation/parser.js
@@ -133,6 +133,88 @@ function debugLog(message, data = null) {
     }
 }
 
+/**
+ * Extract structured skills data from stats text
+ * Parses format:
+ * Skills:
+ * CategoryName:
+ * - SkillName (Lv X)
+ * - SkillName (Lv X)
+ * Uncategorized:
+ * - SkillName (Lv X)
+ *
+ * @param {string} statsText - Stats section text containing skills
+ * @returns {Object|null} Structured skills data or null if not found
+ */
+function extractSkills(statsText) {
+    if (!statsText) return null;
+
+    // Find the Skills section
+    const skillsMatch = statsText.match(/Skills:([\s\S]*?)(?=\n\n|On Person:|Stored|Assets:|Main Quest|Optional Quest|$)/i);
+    if (!skillsMatch) {
+        // Fallback: try simple format "Skills: skill1, skill2"
+        const simpleMatch = statsText.match(/Skills:\s*(.+)/i);
+        if (simpleMatch) {
+            const skillsText = simpleMatch[1].trim();
+            if (skillsText && skillsText !== 'None') {
+                // Return as string for backward compatibility
+                return skillsText;
+            }
+        }
+        return null;
+    }
+
+    const skillsSection = skillsMatch[1];
+    const skillsData = {
+        version: 1,
+        categories: {},
+        uncategorized: []
+    };
+
+    // Split into lines and process
+    const lines = skillsSection.split('\n').map(line => line.trim()).filter(line => line);
+
+    let currentCategory = null;
+
+    for (const line of lines) {
+        // Check if this is a category header (ends with colon, no dash)
+        if (line.endsWith(':') && !line.startsWith('-')) {
+            currentCategory = line.slice(0, -1).trim();
+            if (currentCategory !== 'Uncategorized' && !skillsData.categories[currentCategory]) {
+                skillsData.categories[currentCategory] = [];
+            }
+            continue;
+        }
+
+        // Check if this is a skill line (starts with -, has level info)
+        const skillMatch = line.match(/^-\s*(.+?)\s*\(Lv\s*(\d+)\)/i);
+        if (skillMatch) {
+            const skillName = skillMatch[1].trim();
+            const level = parseInt(skillMatch[2], 10) || 1;
+
+            const skill = {
+                name: skillName,
+                level: level,
+                xp: 0,
+                maxXP: 100
+            };
+
+            if (currentCategory === 'Uncategorized' || currentCategory === null) {
+                skillsData.uncategorized.push(skill);
+            } else if (currentCategory && skillsData.categories[currentCategory]) {
+                skillsData.categories[currentCategory].push(skill);
+            }
+        }
+    }
+
+    // Return null if no skills were found
+    if (Object.keys(skillsData.categories).length === 0 && skillsData.uncategorized.length === 0) {
+        return null;
+    }
+
+    return skillsData;
+}
+
 /**
  * Parses the model response to extract the different data sections.
  * Extracts tracker data from markdown code blocks in the AI response.
@@ -351,10 +433,12 @@ export function parseUserStats(statsText) {
         // Parse skills section if enabled
         const skillsConfig = trackerConfig?.userStats?.skillsSection;
         if (skillsConfig?.enabled) {
-            const skillsMatch = statsText.match(/Skills:\s*(.+)/i);
-            if (skillsMatch) {
-                extensionSettings.userStats.skills = skillsMatch[1].trim();
-                debugLog('[RPG Parser] Skills extracted:', skillsMatch[1].trim());
+            const skillsData = extractSkills(statsText);
+            if (skillsData) {
+                extensionSettings.userStats.skills = skillsData;
+                debugLog('[RPG Parser] Skills extracted:', skillsData);
+            } else {
+                debugLog('[RPG Parser] Skills extraction failed or none found');
             }
         }
 
diff --git a/src/systems/generation/promptBuilder.js b/src/systems/generation/promptBuilder.js
index 62be66c..a1dbf42 100644
--- a/src/systems/generation/promptBuilder.js
+++ b/src/systems/generation/promptBuilder.js
@@ -10,6 +10,53 @@ import { extensionSettings, committedTrackerData, FEATURE_FLAGS } from '../../co
 // Type imports
 /** @typedef {import('../../types/inventory.js').InventoryV2} InventoryV2 */
 
+/**
+ * Builds a formatted skills summary for AI context injection.
+ * Converts structured skills data to multi-line plaintext format organized by category.
+ *
+ * @param {Object|string} skills - Current skills (structured or legacy string)
+ * @returns {string} Formatted skills summary for prompt injection
+ * @example
+ * // Structured input: { version: 1, categories: { Combat: [{name: 'Swordsmanship', level: 5}] }, uncategorized: [] }
+ * // Returns: "Skills:\nCombat:\n- Swordsmanship (Lv 5)"
+ */
+export function buildSkillsSummary(skills) {
+    // Handle legacy string format
+    if (typeof skills === 'string') {
+        return `Skills: ${skills}`;
+    }
+
+    // Handle structured format
+    if (skills && typeof skills === 'object' && skills.version) {
+        let summary = 'Skills:';
+        const categories = skills.categories || {};
+        const uncategorized = skills.uncategorized || [];
+
+        // Add categorized skills
+        for (const [categoryName, skillsList] of Object.entries(categories)) {
+            if (skillsList && skillsList.length > 0) {
+                summary += `\n${categoryName}:`;
+                for (const skill of skillsList) {
+                    summary += `\n- ${skill.name} (Lv ${skill.level})`;
+                }
+            }
+        }
+
+        // Add uncategorized skills
+        if (uncategorized.length > 0) {
+            summary += '\nUncategorized:';
+            for (const skill of uncategorized) {
+                summary += `\n- ${skill.name} (Lv ${skill.level})`;
+            }
+        }
+
+        return summary;
+    }
+
+    // Empty or invalid
+    return 'Skills: None';
+}
+
 /**
  * Builds a formatted inventory summary for AI context injection.
  * Converts v2 inventory structure to multi-line plaintext format.
@@ -166,9 +213,13 @@ export function generateTrackerInstructions(includeHtmlPrompt = true, includeCon
 
             // Add skills section if enabled
             if (userStatsConfig?.skillsSection?.enabled) {
-                const skillFields = userStatsConfig.skillsSection.customFields || [];
-                const skillFieldsText = skillFields.map(f => `[${f}]`).join(', ');
-                instructions += `Skills: [${skillFieldsText || 'Skill1, Skill2, etc.'}]\n`;
+                instructions += `Skills:\n`;
+                instructions += `[Category Name]:\n`;
+                instructions += `- [Skill Name] (Lv [1-100])\n`;
+                instructions += `- [Another Skill] (Lv [1-100])\n`;
+                instructions += `Uncategorized:\n`;
+                instructions += `- [Uncategorized Skill] (Lv [1-100])\n`;
+                instructions += `(Organize skills by logical categories like Combat, Magic, Social, Crafting, etc. Include level as integer 1-100. Skills without a clear category go in Uncategorized.)\n`;
             }
 
             // Add inventory format based on feature flag