diff --git a/src/monetization/upsell.ts b/src/monetization/upsell.ts
new file mode 100644
index 0000000..fb049cf
--- /dev/null
+++ b/src/monetization/upsell.ts
@@ -0,0 +1,78 @@
+/**
+ * Auto-Upsell Trigger — Issue #3
+ * Contextual upgrade prompt triggered upon reaching 50% free call threshold
+ */
+
+export interface UpsellTrigger {
+  userId: string;
+  triggerType: 'midpoint_free_tier' | 'limit_reached';
+  shownAt: Date;
+  converted: boolean;
+  variant: 'urgency' | 'value' | 'social_proof';
+  promptText: string;
+}
+
+export interface UpsellDatabase {
+  triggers: Map<string, UpsellTrigger>;
+}
+
+export function createUpsellDatabase(): UpsellDatabase {
+  return {
+    triggers: new Map()
+  };
+}
+
+export const UPSELL_PROMPTS = {
+  urgency: "You've used 5 of your 10 free calls! Upgrade now to avoid interruption.",
+  value: "Unlock unlimited priority execution and lower latency by upgrading to Standard tier.",
+  social_proof: "Join top AI agents processing thousands of daily API calls with zero rate-limits."
+};
+
+export function getUpsellPromptVariant(userId: string): { variant: 'urgency' | 'value' | 'social_proof'; text: string } {
+  const hash = userId.split('').reduce((acc, char) => acc + char.charCodeAt(0), 0);
+  const variants: Array<'urgency' | 'value' | 'social_proof'> = ['urgency', 'value', 'social_proof'];
+  const variant = variants[hash % variants.length];
+  return {
+    variant,
+    text: UPSELL_PROMPTS[variant]
+  };
+}
+
+export function checkAndTriggerUpsell(
+  userId: string,
+  currentCallCount: number,
+  db: UpsellDatabase,
+  threshold = 5
+): { shouldPrompt: boolean; headers: Record<string, string>; promptText?: string } {
+  // Only trigger at threshold crossing
+  if (currentCallCount < threshold) {
+    return { shouldPrompt: false, headers: {} };
+  }
+
+  // Idempotency: verify if already triggered for this user & triggerType
+  const triggerKey = `${userId}:midpoint_free_tier`;
+  if (db.triggers.has(triggerKey)) {
+    return { shouldPrompt: false, headers: {} };
+  }
+
+  const { variant, text } = getUpsellPromptVariant(userId);
+
+  db.triggers.set(triggerKey, {
+    userId,
+    triggerType: 'midpoint_free_tier',
+    shownAt: new Date(),
+    converted: false,
+    variant,
+    promptText: text
+  });
+
+  return {
+    shouldPrompt: true,
+    headers: {
+      'X-Upsell-Prompt': 'true',
+      'X-Upsell-Variant': variant,
+      'X-Upsell-Message': text
+    },
+    promptText: text
+  };
+}
diff --git a/tests/upsell.test.ts b/tests/upsell.test.ts
new file mode 100644
index 0000000..ef18c56
--- /dev/null
+++ b/tests/upsell.test.ts
@@ -0,0 +1,35 @@
+import { assertEquals } from 'https://deno.land/std@0.224.0/assert/mod.ts';
+import {
+  createUpsellDatabase,
+  checkAndTriggerUpsell,
+  getUpsellPromptVariant
+} from '../src/monetization/upsell.ts';
+
+Deno.test('Upsell: does not trigger before threshold (e.g. call 4)', () => {
+  const db = createUpsellDatabase();
+  const res = checkAndTriggerUpsell('usr_alpha', 4, db);
+  assertEquals(res.shouldPrompt, false);
+  assertEquals(Object.keys(res.headers).length, 0);
+});
+
+Deno.test('Upsell: triggers exactly at threshold (call 5) with headers', () => {
+  const db = createUpsellDatabase();
+  const res = checkAndTriggerUpsell('usr_alpha', 5, db);
+  assertEquals(res.shouldPrompt, true);
+  assertEquals(res.headers['X-Upsell-Prompt'], 'true');
+  assertEquals(typeof res.promptText, 'string');
+});
+
+Deno.test('Upsell: idempotent — does not trigger twice for same user', () => {
+  const db = createUpsellDatabase();
+  checkAndTriggerUpsell('usr_alpha', 5, db);
+  const secondCheck = checkAndTriggerUpsell('usr_alpha', 6, db);
+  assertEquals(secondCheck.shouldPrompt, false);
+});
+
+Deno.test('Upsell: prompt variant distribution', () => {
+  const v1 = getUpsellPromptVariant('usr_1');
+  const v2 = getUpsellPromptVariant('usr_2');
+  assertEquals(typeof v1.text, 'string');
+  assertEquals(typeof v2.text, 'string');
+});