How to Master Context Engineering
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You might craft the perfect prompt for your AI, yet as a conversation continues your chatbot starts forgetting key details from earlier messages, your coding assistant loses track of the project’s structure, or your RAG-powered bot fails to connect information across multiple documents. As AI applications grow more complex, a clever prompt is just one piece of the puzzle. The larger challenge is context engineering, the emerging practice of managing what information an AI model “sees” and remembers during its tasks.
In this guide, we explain what context engineering is, why it’s valuable, how it differs from prompt engineering, and practical techniques (like RAG systems, AI agents, and coding assistants) that make AI systems more context-aware. We’ll also discuss common context failure types – such as context poisoning, distraction, confusion, and clash – and offer mitigation strategies for each. By the end, you’ll have a roadmap for improving any AI system with better context management, using accessible language and examples suited for beginners, business users, and developers alike.
Context engineering is the practice of designing AI systems that determine what information a model should receive as context before generating a response. In other words, rather than relying on a single prompt in isolation, context engineering focuses on building a dynamic, stateful “information ecosystem” around the model. This ecosystem includes everything the model sees or has available prior to producing an answer.
Even though the term is relatively new, the underlying principles have been around for a while. The key idea is to curate and supply all relevant details an AI needs, in the right format and at the right time, so it can perform a task effectively. Instead of manually writing a perfect prompt for each query, you build systems that pull together context from multiple sources and organize it within the model’s context window. This means your AI assistant’s input might include things like conversation history, user profile data, facts retrieved from a knowledge base, and even the outputs of other tools – all packaged as context for the model to use.
What counts as context? It’s far more than just the user’s latest question. The context is essentially everything that frames the AI’s response. For example, a robust context can include:
Managing all these pieces within a limited context window is challenging. Today’s large language models have finite memory (context lengths), so a context engineering system must continually decide what’s most relevant and filter out or compress the rest. In practice, this involves building retrieval mechanisms that fetch the right data at the right time, and memory mechanisms that track important interactions over time. For instance, a system might maintain short-term memory of recent dialogue, a long-term memory store for older facts, and policies for pruning or summarising content that’s no longer needed. The goal is to keep the context both concise and useful for each query, despite the ever-present limits on tokens.
The real payoff comes when all these context sources work together to make the AI feel truly context-aware and intelligent. When your virtual assistant can seamlessly reference past conversations, recall a user’s preferences, consult relevant documents, and incorporate live data all at once, the interaction stops feeling like a series of isolated Q&As and starts feeling like a coherent, helpful experience that “remembers” and adapts. In short, effective context engineering can turn a generic model into a personalised, enterprise-ready AI that delivers consistent, relevant results.
It’s important to distinguish context engineering from the more familiar prompt engineering. If you simply ask ChatGPT to “Write a professional email response,” that’s prompt engineering – you’re giving the model a one-off instruction in plain language. But imagine you’re deploying a customer support chatbot that needs to handle multi-turn conversations: it should remember previous customer questions, pull up the user’s account info, reference relevant product documentation, and maintain a polite tone throughout. Designing that system crosses into context engineering – you’re crafting the entire context and information flow around the model, not just a single prompt.
Another way to see the difference: prompt engineering is about what you ask the model to do, whereas context engineering is about what you give the model to work with (in addition to the immediate prompt). AI researcher Andrej Karpathy explains it well:
People associate prompts with short task descriptions you’d give an LLM in your day-to-day use. When in every industrial-strength LLM app, context engineering is the delicate art and science of filling the context window with just the right information for the next step.
You still need well-crafted prompts or questions, but with context engineering those prompts are supported by a rich, managed backdrop of data rather than operating in a vacuum.
In short, prompt engineering focuses on how to phrase an ask to the model, while context engineering focuses on building a system around the model so it always has the right information. The rise of context engineering reflects a shift in AI development: instead of spending all effort on the perfect prompt or bigger model, we invest in feeding models better data and tools. This shift is already evident in enterprise AI design, where success often hinges on providing the model with an organised view of business knowledge, user context, and goals – not just a cleverly worded instruction.
How does context engineering actually manifest in real-world AI systems? In practice, it means designing your AI application to gather and supply relevant information whenever the model needs it, across complex, multi-step workflows. Let’s look at a few practical contexts where this is essential, and the techniques used to achieve it.
Imagine a customer support chatbot at a large company. A user’s query might be simple (“My internet is down”), but a helpful response may require pulling together context: previous support tickets from that user, their account status and settings, knowledge base articles on troubleshooting connectivity, and perhaps the current network status from an API. And the bot should remember what was said earlier in the conversation so it doesn’t repeat itself. Traditional one-shot prompting can’t handle this complexity gracefully – this is where context engineering becomes necessary. The system needs to dynamically fetch and fuse information at each turn so the AI’s answers remain accurate and contextual.
Let’s examine three key techniques and examples of context engineering in action:
One of the foundational context-engineering techniques is retrieval-augmented generation, commonly called RAG. RAG was among the first methods to bridge the gap between an AI model’s fixed training data and new, external information the model didn’t originally train on. The concept is straightforward: when the user asks something, retrieve relevant text from a knowledge source and include it in the model’s context, so the model can generate an informed answer. Essentially, the model “augments” its generation with real-time retrieved knowledge.
For example, if you ask an AI a question about your company’s internal policies, a RAG system will search your policy documents for the answer and feed the most relevant excerpts into the prompt context. This way, the model can provide a correct answer grounded in those documents, even if they weren’t part of its original training. Before the advent of RAG, one would have had to fine-tune or retrain the model on those internal documents to achieve a similar result. RAG changed the game by letting us keep the model frozen and instead engineer the context on the fly – searching, ranking, and inserting the information we need.
Under the hood, a RAG system typically breaks documents into chunks and indexes them (often via embeddings in a vector database). When a query comes, it finds the most relevant chunks, perhaps using semantic search, and packs them into the prompt along with the user’s question. The model then sees “context” that includes both the question and the retrieved data, allowing it to answer using that data. This approach greatly expands what the model can talk about, without needing gigantic prompts full of everything or extremely long training sessions. In effect, RAG gives AI a form of “open-book exam” ability – it can look up facts as needed.
Why is RAG useful? It improves accuracy and reduces hallucinations by grounding responses in real data. As NVIDIA’s Rick Merritt put it
Retrieval-augmented generation is a technique for enhancing the accuracy and reliability of generative AI models with information from specific and relevant data sources.
By fetching up-to-date or domain-specific info, RAG helps the model produce answers that are both current and company-specific. It’s widely used for applications like enterprise Q&A, chatbots with proprietary knowledge, and personal assistants that need to refer to user data. RAG is often the first step organisations take toward context engineering, because it directly addresses the knowledge gap of pre-trained LLMs. In fact, many modern enterprise AI solutions build a “retrieval pipeline” – connecting the LLM to corporate wikis, databases or web search – as a core feature of their design.
If RAG adds documents to the context, AI agents add an even more dynamic form of context: tools and actions. An AI agent is an AI system that can decide to perform certain operations (like calling APIs, running computations, or invoking other AI models) as part of answering a user’s request. Each of those operations provides new information that goes back into the context for subsequent steps. In essence, agents make the context a living, changing workspace rather than a static chunk of text.
For example, suppose you ask a chatbot, “What’s the latest price of Tesla stock and can you summarize the recent news about it?” A capable AI agent might do the following: realize it needs current data, use a tool to fetch the latest stock price from a finance API, then use another tool to search news headlines, and finally compile that info into an answer. Each tool’s output (stock price, news snippets) is injected into the AI’s context as it works through the problem. This is beyond basic prompting – the AI is effectively writing its own context via tool use.
Agents therefore require context engineering to track the state: what tools are available, what their results were, and what the agent has done so far. The system must keep a memory of actions taken and data received. Frameworks like LangChain, OpenAI’s function calling, and others provide structures for this, but it’s all context management under the hood. Agents introduce interactivity and conditional logic into the context. Instead of a static prompt, you have a loop of observe context → decide action → update context → repeat, until the task is done.
With the decreasing cost of LLM inference, we’re even seeing multi-agent systems: several AI agents specialised in different tasks that collaborate by sharing information amongst themselves. They communicate via messages or protocols (for example, the recent “Agent-2-Agent” (A2A) protocols), exchanging context so that each agent works on a piece of the problem. This approach can parallelise complex tasks – imagine one agent summarising a document while another extracts data from a database, then a coordinator agent combines their findings. Multi-agent setups are cutting-edge, but they underscore the point that context engineering is vital: one must carefully design what each agent sees and shares to avoid chaos. (In fact, agents that don’t manage context well can end up confusing each other or looping infinitely – a challenge for AI developers.)
AI agents shine in enterprise AI design when you need an AI to integrate with various business processes. For example, an AI assistant that can not only chat but also create calendar events, send emails, query internal systems, etc., would likely be built as an agent with tool plugins. Context engineering here means giving the agent the right tools and ensuring it knows when and how to use them. As a concrete example, Digital Bricks has worked on AI agent development for clients, architecting agents that operate over enterprise data and APIs. In doing so, we ensure the agent’s context always includes the necessary tool definitions and any results fetched, and that irrelevant data is kept out. This results in agents that can dynamically respond to user needs with up-to-date actions and information, rather than just static answers.
AI coding assistants (like GitHub Copilot, Cursor, or Windsurf) represent one of the most advanced use cases of context engineering. These are systems that help developers write code by suggesting completions, functions, or even entire modules. The challenge is that codebases are large, interconnected, and highly structured – far too much for an AI to hold in its head at once without help. A good coding assistant needs to maintain awareness of the project’s context: not just the single file you’re editing, but potentially many files, libraries, and your past interactions.
Think about asking a code assistant, “Refactor the process_data function to handle missing values.” To do this well, the AI must know: Where is process_data used in the project? What data types does it expect and return? Are there global variables or config that affect it? What coding style and conventions does this project follow? Without such context, the AI might propose a change that breaks things elsewhere. So the assistant’s environment builds a context comprising your project structure, the content of relevant files (perhaps the file with process_data and a few top import modules), recent code changes you made, and maybe even the git history or issue tracker notes for clues. It also likely includes system instructions about the coding style (for example, “use British English in comments” or “follow PEP8 standards”).
Context engineering is critical for coding assistants because code has a lot of implicit context – functions defined in one file may affect behavior in another, and certain patterns or frameworks require global understanding. A coding assistant essentially performs RAG on your codebase: it retrieves relevant code snippets and docs as context whenever you ask for help. Advanced ones also maintain a cache or memory of what you’ve been doing (e.g. what files you edited or what errors you encountered) to refine suggestions.
Notably, these assistants get better the longer you use them on a project. This isn’t magic; it’s context accumulation. As the AI sees more of your code and how you write it, it builds up an internal knowledge base (or the platform does on its behalf). Tools like Cursor, for instance, claim to adapt to your coding style over time. All of that is context being engineered behind the scenes – the assistant is remembering patterns, or storing vectors of your code for retrieval, etc., to bring relevant context to each new suggestion.
From an enterprise perspective, adopting AI coding assistants requires both technical and cultural context management. On the technical side, companies might integrate these assistants with their own code repositories and documentation so that suggestions are grounded in internal libraries (another RAG-like augmentation). On the human side, developers need guidance to use these tools effectively – which is partly a context engineering problem (how to feed the right info to the tool) and partly training. For example, Digital Bricks offers a Copilot Adoption Accelerator service that helps organisations roll out coding copilots successfully. This includes setting up the context sources (like linking the assistant to company codebases or knowledge) and teaching developers how to write good prompts vs. context cues for the AI. By structuring the adoption program around context best practices, teams quickly see better suggestions from Copilot or similar tools, because the AI is being given the right project context and guidelines from day one.
In summary, context engineering in practice can range from straightforward (plugging a vector database into your chatbot) to sophisticated (orchestrating multiple agents and tools). Whether you’re building a conversational assistant that queries a company wiki, an AI agent that manages workflows, or a code assistant learning a codebase, the core principle is the same: provide the AI with the right information at the right time. Do that well, and you unlock far more capability from the model than any prompt-tweaking alone could achieve.
At this point, you might wonder: if context engineering is so powerful, won’t ever-expanding context windows solve these problems anyway? After all, cutting-edge models now boast huge contexts, some claim 100k tokens or even up to 1 million tokens of context capacity. Couldn’t we just “dump everything in” and let the model handle it? The short answer from recent research is no – simply having a massive context doesn’t guarantee better performance. In fact, overloading an AI’s context can cause systems to fail in surprising ways. Drew Breunig, an AI researcher, memorably summarized that longer contexts often “do not generate better responses”; instead, they introduce failure modes where “contexts can become poisoned, distracting, confusing, or conflicting.”
In this section, we’ll explore four common context failure types and, crucially, how to mitigate each with sound context engineering techniques. Understanding these failure modes will help you design AI systems that avoid them from the outset.
Context poisoning occurs when a false or irrelevant piece of information gets introduced into the context and the model then treats it as truth, often referring back to it repeatedly. In effect, a “bad fact” pollutes the context and can derail the AI’s output thereafter. This often originates from an AI hallucination or an error that slips into the conversation memory or working notes.
A dramatic real-world example comes from DeepMind’s Gemini AI agent. When tasked with playing Pokémon, the agent would occasionally hallucinate incorrect game state info (e.g. thinking a character had fainted when it hadn’t). This incorrect info would get lodged into the agent’s context (in its list of “goals” for the game) and thereafter the agent’s strategy became nonsensical – it kept pursuing an impossible goal based on the hallucinated state. As researchers noted, once the context was poisoned with these inaccuracies, the model fixated on them and had great difficulty recovering. In general, context poisoning is pernicious in long-running sessions or agent loops, because the error compounds itself: the AI’s subsequent reasoning builds on a faulty foundation.
The best mitigation is to validate and isolate information before it propagates. In context engineering terms, this is often called context quarantine – isolating certain contexts or threads so that a mistake in one doesn’t infect everything. For example, you might have the AI summarize what it thinks is true and then verify that summary against an external source or a set of rules before committing it to long-term memory. If something seems off (e.g. a contradiction or a low confidence answer), the system can “quarantine” that part of the context by starting a fresh thread or discarding certain memory. Essentially, you reset or fork the context, rather than letting errors persist.
Another tactic is to compartmentalise sub-tasks into separate agents or sessions, each with their own context. That way, if one sub-agent produces a hallucination, it doesn’t directly contaminate another’s state. This approach was highlighted by Anthropic’s research on multi-agent systems: they used multiple parallel “subagents” each with their own context window (a form of quarantine), and found it improved overall reliability. The idea is akin to notetaking in separate notebooks – if one gets messy, it doesn’t ruin the others. In summary, to combat context poisoning: build in verification steps, and don’t let any single thread of context carry unvetted information for too long. Fresh starts are your friend when things go awry.
Context distraction refers to the situation where the context becomes so large or unwieldy that the model starts paying too much attention to the provided context and loses focus on what it learned during training or the actual task at hand. In essence, the model is distracted by the noise of its extended history, leading to degraded performance on the current query.
This effect was observed in the same DeepMind Gemini agent: as they let the conversation context grow beyond 100,000 tokens (an enormous history), the agent began to loop on past actions instead of coming up with new plans. It was as if the AI was mesmerised by its own lengthy log and could not synthesize novel solutions – a clear sign of distraction. And it’s not only giant 1M-token models that suffer. A study by Databricks researchers found that even a very large open-source model (Meta’s Llama 3.1 with 405 billion parameters) started losing correctness around 32k tokens of context. Smaller models hit their distraction limit even sooner. In plain terms, many models start making mistakes long before you’ve filled up their theoretical context window. So tossing in more context beyond a certain point can actually hurt results, not help.
The mitigation for distraction is straightforward: context summarisation and pruning. Instead of letting the context grow indefinitely with every exchange, you periodically compress it. For example, after a long chat, your system might replace the raw transcript with a concise summary of key points (thus freeing up space and removing redundant detail). This way, the AI retains the important bits of history without being bogged down by everything that was said. Summarisation boils down the context, reducing noise while keeping relevant info – much like condensing a lengthy meeting into actionable minutes.
Another tactic is to enforce a rolling window – only keep the last N interactions verbatim and summarize older ones, or drop irrelevant earlier content entirely (a form of context pruning). By removing or abstracting outdated pieces, you prevent the context from reaching that “distraction ceiling.” It’s like clearing clutter from a workbench so you can focus on the task at hand. Research indicates that these techniques are essential even as context sizes increase. As Breunig notes, if you’re not actively summarising or retrieving relevant info, beware of large context distraction. In practice, implementing an automatic summariser that triggers when a conversation exceeds, say, 50% of the context window can dramatically improve consistency. The model will then use the summary (which it can digest) rather than wading through a transcript of hundreds of turns.
Context confusion happens when too much extraneous or poorly targeted information in the context leads the model to get “confused” and produce a suboptimal response. The model may attempt to use irrelevant data just because it’s there, or it may pick up the wrong tool or fact from a cluttered context. This often occurs in AI systems that provide many tools or instructions at once, some of which are not needed for the current query.
A clear example comes from the realm of tool-using models. Researchers at UC Berkeley maintain a Function-Calling Leaderboard (for tool-using LLMs) and found that every model they tested did worse when given more than one tool at a time. If you tell an AI it has 10 different functions it can call, its performance tends to drop compared to if it had just 1 relevant function. The models would sometimes even call tools that had nothing to do with the user’s request, simply because the definitions were present in context. In other words, the presence of superfluous choices led to confusion in decision-making.
This problem amplifies with scale. A recent study (“Less is More”) evaluated a smaller Llama 3.1–8B model on a task involving 46 possible tools. The model failed completely when all 46 tool descriptions were in context (despite fitting in its 16k token window), but succeeded when only 19 relevant tools were provided. The context length wasn’t the issue – it was that too many irrelevant options confused the model’s priorities. The authors observed that beyond about 30 tools, the model was virtually guaranteed to misuse or pick something incorrectly. By reducing the “tool context” to under 30, they achieved up to 3× better tool selection accuracy and much shorter prompts.
The cure for context confusion is to trim the context to only what’s needed – particularly regarding tools and reference info. This is often termed tool loadout management: just like a gamer chooses a limited loadout of weapons for a mission, an AI should be given only the most relevant tools for a given query. One effective method is to apply RAG to the tool descriptions themselves. In fact, the researchers Tiantian Gan and Qiyao Sun did exactly this: they stored tool definitions in a vector database and, when a query came, they retrieved only the top-matching tools to present to the model. This significantly reduced confusion and improved results, because the AI wasn’t distracted by dozens of irrelevant APIs.
In practice, if your AI has a suite of capabilities, you might implement a “tool selector” step. For instance, given a user request, first decide (via a simple model or rules) which 2–3 tools are likely relevant, and only tell the main AI about those. The rest of the tools stay out of the context unless needed. This selective approach was found to improve a small model’s performance by 44% on a tool-use benchmark and it also yields side benefits: a smaller context not only reduces confusion but improves speed and efficiency (fewer tokens to process).
Beyond tools, the same principle applies to any auxiliary context: don’t overload the model with tangential info. If an e-commerce chatbot is helping with order tracking, it probably doesn’t need the entire product catalog and company history in context – just the user’s order details and relevant policies. Carefully curating context to the task at hand will prevent the model from wandering off-course due to irrelevant inputs.
Context clash is the worst-case scenario: it’s when different pieces of information in the context directly contradict each other or the model’s goals, leading to internal conflict and degraded performance. This often arises in multi-turn interactions or complex workflows where partial information arrives in stages. The clash can occur between earlier and later messages, or between tool outputs and instructions, etc., effectively confusing the model about what’s true or what it should do.
A joint research team from Microsoft and Salesforce recently demonstrated how serious context clash can be. They took standard benchmark problems (which are usually given as a single prompt) and instead “sharded” the information across multiple turns – simulating a user who feeds details bit by bit over a conversation. The result: on average a 39% drop in performance compared to the single-turn case, even though the model ultimately received the same information, just spread out. One model’s score plunged from 98% to 64% once the prompt was broken into pieces. What happened? Essentially, when information came in incrementally, the model’s earlier attempts to answer (based on incomplete data) stuck around in context and conflicted with the later information. The model got tangled up by its own prior outputs mixed with new inputs – a clash between old assumptions and new facts.
In simpler terms, as the researchers put it: “when LLMs take a wrong turn in a conversation, they get lost and do not recover.” The early misleading content in context (even if it’s the model’s own interim answer) can throw off the final result dramatically. This has huge implications for agents that do step-by-step reasoning or multi-turn help: if not handled carefully, each intermediate step’s text can confuse the subsequent steps.
To mitigate context clash, you need to remove or segregate conflicting information as new information arrives. Two techniques are often recommended: context pruning and context offloading.
Think of offloading as giving the AI a notebook to scribble on, instead of forcing it to do all math in its head (where the “in its head” scribbles would confuse it). Many agent frameworks now use this concept: a hidden scratchpad for chain-of-thought reasoning, which the user never sees, only the final answer. This prevents the clash between the model’s evolving thoughts and the final query resolution.
In practice, to avoid context clash, design your multi-turn or multi-step systems such that the model isn’t haunted by the ghosts of its initial misconceptions. Prune aggressively – if the context has a summary of previous turns, update that summary to remove inaccuracies once more info comes. If an agent is working on a complicated problem, have it summarize partial results and then reset the context for the next phase, bringing in only the summary (thus excluding the false starts). And whenever feasible, separate the “thinking space” from the “communication space.” As a rule of thumb, any information that is no longer relevant or is known to be wrong should be dropped from context as soon as possible. This ensures that new inputs don’t have to fight with old, contradictory ones.
By applying the above mitigations – quarantine, summarisation, loadout management, pruning, offloading – we address the major failure modes of context management. Remember, these issues tend to hit complex agentic systems the hardest, because those are exactly the scenarios with long contexts, multiple tools, and iterative reasoning. If you’re designing such systems, robust context engineering is not optional; it’s the bedrock of reliability.
In the evolving world of AI, context engineering is emerging as the next critical skill – a shift from crafting perfect prompts to building context-aware systems that manage information flow over time. The ability to maintain the right context across interactions is often what separates an AI that feels truly intelligent from one that only gives decent one-off answers. By ensuring our models consistently have relevant knowledge, memory of past interactions, and appropriate tools at their disposal, we unlock capabilities that raw model size or prompt tweaks alone can’t achieve.
Throughout this guide, we discussed how techniques like RAG, dynamic agents, and structured memory can make AI more context-aware and effective. We also examined common failure modes – context poisoning, distraction, confusion, and clash – and saw that even as LLM context windows grow very large, thoughtful context management is still needed to avoid those pitfalls. The good news is that the solutions (retrieval, summarisation, tool selection, context isolation, etc.) are already being applied in cutting-edge systems serving millions of users. These practices are becoming standard in enterprise AI design, where consistency and reliability are paramount.
So, how to get started with context engineering? You don’t need to implement everything at once. Start small: for example, add a retrieval step to your chatbot so it can pull answers from your company wiki (a basic RAG implementation), or use a simple memory buffer so it remembers the last few user queries. If you have an existing prompt that works, try augmenting it by prepending a bit of structured context (like a persona instruction or a relevant knowledge snippet) and see if the results improve. These incremental steps can yield immediate improvements in your AI’s usefulness.
As your needs grow – say you want your AI to handle multi-turn dialogues or complex tasks – you can gradually layer in more sophisticated context tools: maybe integrate a vector database for long-term knowledge, or introduce an agent loop for tool use (ensuring you manage the context between steps). Many frameworks and libraries (LangChain, LlamaIndex, etc.) are available to help implement these patterns without reinventing the wheel. It’s also helpful to keep an eye on research and community best practices, as context engineering is a fast-moving area with new patterns emerging (memory architectures, context compression strategies, and so on).
Finally, consider the human and organisational aspect: building a context-aware AI often means curating the data sources, rules, and workflows that feed into it. This can be a multi-disciplinary effort – involving knowledge management (to prepare content for retrieval), software integration (to hook up tools/APIs), and user experience design (to ensure the AI’s use of context aligns with user needs). If your team is new to this, it can be beneficial to tap into expertise or services that specialise in AI solution design. Digital Bricks offers consulting on context engineering – from accelerating Copilot adoption in development teams to architecting custom AI agent solutions for the enterprise. Engaging experts can jump-start your journey by providing proven frameworks and avoiding common pitfalls in context design.
In conclusion, context engineering represents a fundamental evolution in how we build AI systems. We’re moving from treating models as isolated oracles to treating them as part of a larger context-aware ecosystem. By mastering this, you empower your AI to be context-aware, consistent, and truly helpful over long interactions – which is exactly what users and businesses need as we integrate AI deeper into daily workflows. So, start experimenting with context strategies in your next AI project, and remember to always ask: “Does my AI have all the context it needs to do its job well?” If not, you know how to fix it. Happy engineering!