diff --git a/src/features/editScene/CMakeLists.txt b/src/features/editScene/CMakeLists.txt
index 29b258c..5be6948 100644
--- a/src/features/editScene/CMakeLists.txt
+++ b/src/features/editScene/CMakeLists.txt
@@ -120,6 +120,7 @@ set(EDITSCENE_SOURCES
 	components/SkyboxModule.cpp
 	camera/EditorCamera.cpp
 	gizmo/Gizmo.cpp
+	gizmo/Cursor3D.cpp
 	physics/physics.cpp
 )
 
@@ -239,6 +240,7 @@ set(EDITSCENE_HEADERS
 	components/ActionDebug.hpp
 	camera/EditorCamera.hpp
 	gizmo/Gizmo.hpp
+	gizmo/Cursor3D.hpp
 	physics/physics.h
 )
 
diff --git a/src/features/editScene/gizmo/Cursor3D.cpp b/src/features/editScene/gizmo/Cursor3D.cpp
new file mode 100644
index 0000000..0c01c5c
--- /dev/null
+++ b/src/features/editScene/gizmo/Cursor3D.cpp
@@ -0,0 +1,252 @@
+#include "Cursor3D.hpp"
+#include "../components/Transform.hpp"
+#include <cmath>
+
+// Colors for cursor - bright cyan/white for visibility
+static const float COLOR_CYAN[3] = { 0.0f, 1.0f, 1.0f };
+static const float COLOR_WHITE[3] = { 1.0f, 1.0f, 1.0f };
+static const float COLOR_RED[3] = { 1.0f, 0.2f, 0.2f };
+static const float COLOR_GREEN[3] = { 0.2f, 1.0f, 0.2f };
+static const float COLOR_BLUE[3] = { 0.2f, 0.4f, 1.0f };
+
+Cursor3D::Cursor3D(Ogre::SceneManager *sceneMgr)
+	: m_sceneMgr(sceneMgr)
+	, m_cursorNode(nullptr)
+	, m_axesObj(nullptr)
+	, m_markerObj(nullptr)
+	, m_position(Ogre::Vector3::ZERO)
+	, m_orientation(Ogre::Quaternion::IDENTITY)
+	, m_size(1.0f)
+	, m_visible(false)
+{
+	m_cursorNode = m_sceneMgr->getRootSceneNode()->createChildSceneNode(
+		"Cursor3DNode");
+
+	m_axesObj = m_sceneMgr->createManualObject("Cursor3DAxes");
+	m_markerObj = m_sceneMgr->createManualObject("Cursor3DMarker");
+
+	m_cursorNode->attachObject(m_axesObj);
+	m_cursorNode->attachObject(m_markerObj);
+
+	// Draw on top of everything
+	m_axesObj->setRenderQueueGroup(Ogre::RENDER_QUEUE_OVERLAY);
+	m_markerObj->setRenderQueueGroup(Ogre::RENDER_QUEUE_OVERLAY);
+
+	m_cursorNode->setVisible(false);
+
+	createGeometry();
+}
+
+void Cursor3D::shutdown()
+{
+	if (!m_sceneMgr)
+		return;
+
+	if (m_cursorNode && m_axesObj) {
+		try {
+			m_cursorNode->detachObject(m_axesObj);
+		} catch (...) {
+		}
+	}
+	if (m_cursorNode && m_markerObj) {
+		try {
+			m_cursorNode->detachObject(m_markerObj);
+		} catch (...) {
+		}
+	}
+
+	if (m_axesObj) {
+		try {
+			m_sceneMgr->destroyManualObject(m_axesObj);
+		} catch (...) {
+		}
+		m_axesObj = nullptr;
+	}
+	if (m_markerObj) {
+		try {
+			m_sceneMgr->destroyManualObject(m_markerObj);
+		} catch (...) {
+		}
+		m_markerObj = nullptr;
+	}
+
+	if (m_cursorNode) {
+		try {
+			m_sceneMgr->destroySceneNode(m_cursorNode);
+		} catch (...) {
+		}
+		m_cursorNode = nullptr;
+	}
+
+	m_sceneMgr = nullptr;
+}
+
+Cursor3D::~Cursor3D()
+{
+	if (m_sceneMgr)
+		shutdown();
+}
+
+void Cursor3D::setPosition(const Ogre::Vector3 &pos)
+{
+	m_position = pos;
+	updateNodeTransform();
+}
+
+void Cursor3D::setOrientation(const Ogre::Quaternion &rot)
+{
+	m_orientation = rot;
+	updateNodeTransform();
+}
+
+void Cursor3D::setVisible(bool visible)
+{
+	m_visible = visible;
+	if (m_cursorNode)
+		m_cursorNode->setVisible(visible);
+}
+
+bool Cursor3D::isVisible() const
+{
+	return m_visible;
+}
+
+void Cursor3D::setSize(float size)
+{
+	m_size = size;
+	createGeometry();
+}
+
+void Cursor3D::snapToTransform(const TransformComponent &transform)
+{
+	if (transform.node) {
+		m_position = transform.node->_getDerivedPosition();
+		m_orientation = transform.node->_getDerivedOrientation();
+	} else {
+		m_position = transform.position;
+		m_orientation = transform.rotation;
+	}
+	updateNodeTransform();
+}
+
+void Cursor3D::applyToTransform(TransformComponent &transform) const
+{
+	if (!transform.node)
+		return;
+
+	Ogre::SceneNode *parent = static_cast<Ogre::SceneNode*>(
+		transform.node->getParent());
+	if (parent) {
+		transform.position = parent->convertWorldToLocalPosition(
+			m_position);
+		transform.rotation = parent->convertWorldToLocalOrientation(
+			m_orientation);
+	} else {
+		transform.position = m_position;
+		transform.rotation = m_orientation;
+	}
+	transform.applyToNode();
+	transform.markChanged();
+}
+
+bool Cursor3D::hitTest(const Ogre::Ray &mouseRay) const
+{
+	if (!m_cursorNode || !m_visible)
+		return false;
+
+	// Check if ray passes near cursor center
+	Ogre::Vector3 toCursor = m_position - mouseRay.getOrigin();
+	float tca = toCursor.dotProduct(mouseRay.getDirection());
+	if (tca < 0.01f)
+		return false;
+
+	float d2 = toCursor.dotProduct(toCursor) - tca * tca;
+	float threshold = 0.3f * m_size;
+	return d2 <= threshold * threshold;
+}
+
+void Cursor3D::updateNodeTransform()
+{
+	if (m_cursorNode) {
+		m_cursorNode->setPosition(m_position);
+		m_cursorNode->setOrientation(m_orientation);
+	}
+}
+
+void Cursor3D::createGeometry()
+{
+	float len = 0.5f * m_size;
+	float half = 0.05f * m_size;
+
+	// Axes - short lines in RGB
+	m_axesObj->clear();
+	m_axesObj->begin("Ogre/AxisGizmo",
+			 Ogre::RenderOperation::OT_LINE_LIST);
+
+	// X axis - red
+	m_axesObj->colour(COLOR_RED[0], COLOR_RED[1], COLOR_RED[2]);
+	m_axesObj->position(0, 0, 0);
+	m_axesObj->position(len, 0, 0);
+
+	// Y axis - green
+	m_axesObj->colour(COLOR_GREEN[0], COLOR_GREEN[1], COLOR_GREEN[2]);
+	m_axesObj->position(0, 0, 0);
+	m_axesObj->position(0, len, 0);
+
+	// Z axis - blue
+	m_axesObj->colour(COLOR_BLUE[0], COLOR_BLUE[1], COLOR_BLUE[2]);
+	m_axesObj->position(0, 0, 0);
+	m_axesObj->position(0, 0, len);
+
+	m_axesObj->end();
+
+	// Center marker - small wireframe cube in cyan
+	m_markerObj->clear();
+	m_markerObj->begin("Ogre/AxisGizmo",
+			   Ogre::RenderOperation::OT_LINE_LIST);
+	m_markerObj->colour(COLOR_CYAN[0], COLOR_CYAN[1], COLOR_CYAN[2]);
+
+	// Cube corners
+	Ogre::Vector3 corners[8] = {
+		Ogre::Vector3(-half, -half, -half),
+		Ogre::Vector3(half, -half, -half),
+		Ogre::Vector3(half, half, -half),
+		Ogre::Vector3(-half, half, -half),
+		Ogre::Vector3(-half, -half, half),
+		Ogre::Vector3(half, -half, half),
+		Ogre::Vector3(half, half, half),
+		Ogre::Vector3(-half, half, half),
+	};
+
+	// Bottom face
+	m_markerObj->position(corners[0]);
+	m_markerObj->position(corners[1]);
+	m_markerObj->position(corners[1]);
+	m_markerObj->position(corners[2]);
+	m_markerObj->position(corners[2]);
+	m_markerObj->position(corners[3]);
+	m_markerObj->position(corners[3]);
+	m_markerObj->position(corners[0]);
+
+	// Top face
+	m_markerObj->position(corners[4]);
+	m_markerObj->position(corners[5]);
+	m_markerObj->position(corners[5]);
+	m_markerObj->position(corners[6]);
+	m_markerObj->position(corners[6]);
+	m_markerObj->position(corners[7]);
+	m_markerObj->position(corners[7]);
+	m_markerObj->position(corners[4]);
+
+	// Vertical edges
+	m_markerObj->position(corners[0]);
+	m_markerObj->position(corners[4]);
+	m_markerObj->position(corners[1]);
+	m_markerObj->position(corners[5]);
+	m_markerObj->position(corners[2]);
+	m_markerObj->position(corners[6]);
+	m_markerObj->position(corners[3]);
+	m_markerObj->position(corners[7]);
+
+	m_markerObj->end();
+}
diff --git a/src/features/editScene/gizmo/Cursor3D.hpp b/src/features/editScene/gizmo/Cursor3D.hpp
new file mode 100644
index 0000000..677c4e8
--- /dev/null
+++ b/src/features/editScene/gizmo/Cursor3D.hpp
@@ -0,0 +1,88 @@
+#ifndef EDITSCENE_CURSOR3D_HPP
+#define EDITSCENE_CURSOR3D_HPP
+#pragma once
+
+#include <Ogre.h>
+#include <OgreManualObject.h>
+
+// Forward declarations
+struct TransformComponent;
+
+/**
+ * 3D Cursor - a visual marker for prefab placement and transform reference
+ * Shows a small crosshair with axis indicators in world space
+ */
+class Cursor3D {
+public:
+	Cursor3D(Ogre::SceneManager *sceneMgr);
+	~Cursor3D();
+
+	/**
+	 * Shutdown and cleanup - must be called before SceneManager is destroyed
+	 */
+	void shutdown();
+
+	/**
+	 * Set world position
+	 */
+	void setPosition(const Ogre::Vector3 &pos);
+	Ogre::Vector3 getPosition() const
+	{
+		return m_position;
+	}
+
+	/**
+	 * Set world orientation
+	 */
+	void setOrientation(const Ogre::Quaternion &rot);
+	Ogre::Quaternion getOrientation() const
+	{
+		return m_orientation;
+	}
+
+	/**
+	 * Show/hide cursor
+	 */
+	void setVisible(bool visible);
+	bool isVisible() const;
+
+	/**
+	 * Set cursor size/scale
+	 */
+	void setSize(float size);
+	float getSize() const
+	{
+		return m_size;
+	}
+
+	/**
+	 * Copy position and orientation from a TransformComponent (world space)
+	 */
+	void snapToTransform(const TransformComponent &transform);
+
+	/**
+	 * Apply cursor position and orientation to a TransformComponent
+	 */
+	void applyToTransform(TransformComponent &transform) const;
+
+	/**
+	 * Simple hit test - returns true if mouse ray passes near cursor center
+	 */
+	bool hitTest(const Ogre::Ray &mouseRay) const;
+
+private:
+	void createGeometry();
+	void updateNodeTransform();
+
+	Ogre::SceneManager *m_sceneMgr;
+	Ogre::SceneNode *m_cursorNode;
+	Ogre::ManualObject *m_axesObj;
+	Ogre::ManualObject *m_markerObj;
+
+	Ogre::Vector3 m_position;
+	Ogre::Quaternion m_orientation;
+	float m_size;
+	bool m_visible;
+};
+
+#endif // EDITSCENE_CURSOR3D_HPP
diff --git a/src/features/editScene/systems/CharacterSystem.cpp b/src/features/editScene/systems/CharacterSystem.cpp
index 461006b..fbb1804 100644
--- a/src/features/editScene/systems/CharacterSystem.cpp
+++ b/src/features/editScene/systems/CharacterSystem.cpp
@@ -165,6 +165,11 @@ void CharacterSystem::setupEntity(flecs::entity e, CharacterComponent &cc)
 	cc.hasFloor = false;
 	std::cout << "CharacterSystem::setupEntity: entity=" << e.id()
 		  << " nodePos=" << transform.node->_getDerivedPosition()
+		  << " parent=" << (transform.node->getParent() ?
+					   transform.node->getParent()->getName() :
+					   "<root>")
+		  << " radius=" << cc.radius << " height=" << cc.height
+		  << " dirty=" << cc.dirty << " hasFloor=" << cc.hasFloor
 		  << std::endl;
 
 	CharacterState state;
diff --git a/src/features/editScene/systems/EditorUISystem.cpp b/src/features/editScene/systems/EditorUISystem.cpp
index 3ffceff..089f21f 100644
--- a/src/features/editScene/systems/EditorUISystem.cpp
+++ b/src/features/editScene/systems/EditorUISystem.cpp
@@ -63,6 +63,7 @@ EditorUISystem::EditorUISystem(flecs::world &world,
 {
 	registerComponentEditors();
 	m_gizmo = std::make_unique<Gizmo>(m_sceneMgr);
+	m_cursor3D = std::make_unique<Cursor3D>(m_sceneMgr);
 	m_serializer = std::make_unique<SceneSerializer>(m_world, m_sceneMgr);
 }
 
@@ -70,17 +71,44 @@ EditorUISystem::~EditorUISystem() = default;
 
 void EditorUISystem::shutdown()
 {
-	// Shutdown gizmo before SceneManager is destroyed
+	// Shutdown gizmo and cursor before SceneManager is destroyed
 	if (m_gizmo) {
 		m_gizmo->shutdown();
 	}
+	if (m_cursor3D) {
+		m_cursor3D->shutdown();
+	}
 }
 
 bool EditorUISystem::onMousePressed(const Ogre::Ray &mouseRay)
 {
-	if (m_gizmo) {
-		return m_gizmo->onMousePressed(mouseRay);
+	// Try gizmo first
+	if (m_gizmo && m_gizmo->onMousePressed(mouseRay)) {
+		return true;
 	}
+
+	// If cursor placement mode is active, raycast and place cursor
+	// (skip if ImGui wants the mouse for UI interaction)
+	if (m_cursor3D && m_cursorPlaceMode && m_physicsSystem &&
+	    m_physicsSystem->isInitialized() &&
+	    !ImGui::GetIO().WantCaptureMouse) {
+		JoltPhysicsWrapper *physics =
+			m_physicsSystem->getPhysicsWrapper();
+		if (physics) {
+			Ogre::Vector3 start = mouseRay.getOrigin();
+			Ogre::Vector3 end =
+				start + mouseRay.getDirection() * 1000.0f;
+			Ogre::Vector3 hitPos;
+			JPH::BodyID hitBody;
+			if (physics->raycastQuery(start, end, hitPos,
+						  hitBody)) {
+				m_cursor3D->setPosition(hitPos);
+				m_cursorPlaceMode = false; // disable after placement
+				return true;
+			}
+		}
+	}
+
 	return false;
 }
 
@@ -250,6 +278,7 @@ void EditorUISystem::update(float deltaTime)
 	}
 
 	renderPrefabBrowser();
+	renderCursorPanel();
 
 	// Render FPS overlay
 	renderFPSOverlay(deltaTime);
@@ -308,6 +337,14 @@ void EditorUISystem::renderHierarchyWindow()
 				ImGui::EndMenu();
 			}
 
+				// Tools menu
+				if (ImGui::BeginMenu("Tools")) {
+					if (ImGui::MenuItem("3D Cursor")) {
+						m_showCursorPanel = true;
+					}
+					ImGui::EndMenu();
+				}
+
 			// Entity menu
 			if (ImGui::BeginMenu("Entity")) {
 				if (ImGui::MenuItem("New Entity", "Ctrl+N")) {
@@ -1582,6 +1619,11 @@ void EditorUISystem::renderPrefabBrowser()
 		if (ImGui::Button("Create Instance")) {
 			// Will show file picker or use selected prefab
 		}
+		ImGui::SameLine();
+		ImGui::Checkbox("Root", &m_prefabInstAtRoot);
+		if (ImGui::IsItemHovered())
+			ImGui::SetTooltip(
+				"Instantiate at root level (no parent)");
 
 		ImGui::Separator();
 
@@ -1607,20 +1649,72 @@ void EditorUISystem::renderPrefabBrowser()
 
 			std::string instId = "Inst##" + file;
 			if (ImGui::Button(instId.c_str())) {
-				Ogre::Vector3 pos(0, 0, 0);
-				if (m_selectedEntity.is_alive() &&
-				    m_selectedEntity.has<TransformComponent>()) {
-					pos = m_selectedEntity
-						      .get<TransformComponent>()
-						      .position +
-					      Ogre::Vector3(2, 0, 0);
-				}
 				PrefabSystem prefabSys(m_world,
 						       m_sceneMgr);
 				flecs::entity parent =
-					m_selectedEntity.is_alive()
-						? m_selectedEntity
-						: flecs::entity::null();
+					flecs::entity::null();
+				Ogre::Vector3 pos(0, 0, 0);
+
+				if (m_prefabUseCursor && m_cursor3D &&
+				    m_cursor3D->isVisible()) {
+					// Use cursor position as base
+					pos = m_cursor3D->getPosition();
+
+					// Optional downward raycast with margin
+					if (m_prefabRaycastMargin > 0.0f &&
+					    m_physicsSystem &&
+					    m_physicsSystem->isInitialized()) {
+						JoltPhysicsWrapper *physics =
+							m_physicsSystem
+								->getPhysicsWrapper();
+						if (physics) {
+							Ogre::Vector3 start =
+								pos + Ogre::Vector3(
+									      0,
+									      m_prefabRaycastMargin,
+									      0);
+							Ogre::Vector3 end =
+								pos + Ogre::Vector3(
+									      0,
+									      -1000.0f,
+									      0);
+							Ogre::Vector3 hitPos;
+							JPH::BodyID hitBody;
+							if (physics->raycastQuery(
+								    start, end,
+								    hitPos,
+								    hitBody)) {
+								pos = hitPos + Ogre::Vector3(
+									      0,
+									      m_prefabRaycastMargin,
+									      0);
+							}
+						}
+					}
+
+					// If not at root, parent under selected entity
+					if (!m_prefabInstAtRoot &&
+					    m_selectedEntity.is_alive() &&
+					    m_selectedEntity.has<
+						    TransformComponent>()) {
+						parent = m_selectedEntity;
+						// Convert world pos to local
+						auto &pt = m_selectedEntity.get<
+							TransformComponent>();
+						if (pt.node) {
+							pos = pt.node->convertWorldToLocalPosition(
+								pos);
+						}
+					}
+				} else if (!m_prefabInstAtRoot &&
+					   m_selectedEntity.is_alive() &&
+					   m_selectedEntity.has<
+						   TransformComponent>()) {
+					parent = m_selectedEntity;
+					// Local offset from parent
+					pos = Ogre::Vector3(2, 0, 0);
+				}
+
 				auto instance = prefabSys.createInstance(
 					path, parent, pos,
 					file.substr(0, file.find_last_of('.'))
@@ -1634,3 +1728,124 @@ void EditorUISystem::renderPrefabBrowser()
 	}
 	ImGui::End();
 }
+
+void EditorUISystem::renderCursorPanel()
+{
+	if (!m_showCursorPanel)
+		return;
+
+	if (!m_cursor3D)
+		return;
+
+	ImGui::SetNextWindowPos(
+		ImVec2(LEFT_PANEL_WIDTH, 100), ImGuiCond_FirstUseEver);
+	ImGui::SetNextWindowSize(ImVec2(280, 350),
+				 ImGuiCond_FirstUseEver);
+
+	ImGuiWindowFlags flags = ImGuiWindowFlags_NoCollapse;
+	if (ImGui::Begin("3D Cursor", &m_showCursorPanel, flags)) {
+		// Visibility toggle
+		bool visible = m_cursor3D->isVisible();
+		if (ImGui::Checkbox("Visible", &visible)) {
+			m_cursor3D->setVisible(visible);
+		}
+
+		// Placement mode
+		ImGui::SameLine();
+		if (ImGui::Checkbox("Place on Click", &m_cursorPlaceMode)) {
+			if (m_cursorPlaceMode && !m_cursor3D->isVisible())
+				m_cursor3D->setVisible(true);
+		}
+		if (ImGui::IsItemHovered()) {
+			ImGui::SetTooltip(
+				"Click in the 3D viewport to place cursor on surface");
+		}
+
+		ImGui::Separator();
+
+		// Position editor
+		Ogre::Vector3 pos = m_cursor3D->getPosition();
+		float posArr[3] = { pos.x, pos.y, pos.z };
+		if (ImGui::DragFloat3("Position", posArr, 0.01f)) {
+			m_cursor3D->setPosition(Ogre::Vector3(
+				posArr[0], posArr[1], posArr[2]));
+		}
+
+		// Rotation editor (Euler angles)
+		Ogre::Quaternion rot = m_cursor3D->getOrientation();
+		float yaw = Ogre::Radian(rot.getYaw()).valueDegrees();
+		float pitch = Ogre::Radian(rot.getPitch()).valueDegrees();
+		float roll = Ogre::Radian(rot.getRoll()).valueDegrees();
+		float rotArr[3] = { yaw, pitch, roll };
+		if (ImGui::DragFloat3("Rotation (Y/P/R)", rotArr, 0.5f)) {
+			Ogre::Quaternion q1(Ogre::Degree(rotArr[0]),
+					    Ogre::Vector3::UNIT_Y);
+			Ogre::Quaternion q2(Ogre::Degree(rotArr[1]),
+					    Ogre::Vector3::UNIT_X);
+			Ogre::Quaternion q3(Ogre::Degree(rotArr[2]),
+					    Ogre::Vector3::UNIT_Z);
+			m_cursor3D->setOrientation(q1 * q2 * q3);
+		}
+
+		// Size
+		float size = m_cursor3D->getSize();
+		if (ImGui::DragFloat("Size", &size, 0.01f, 0.1f, 10.0f)) {
+			m_cursor3D->setSize(size);
+		}
+
+		ImGui::Separator();
+
+		// Snap to selected entity
+		if (ImGui::Button("Snap to Selected", ImVec2(120, 0))) {
+			if (m_selectedEntity.is_alive() &&
+			    m_selectedEntity.has<TransformComponent>()) {
+				m_cursor3D->snapToTransform(
+					m_selectedEntity.get<TransformComponent>());
+			}
+		}
+		if (ImGui::IsItemHovered()) {
+			ImGui::SetTooltip(
+				"Copy selected entity's world position/rotation to cursor");
+		}
+
+		ImGui::SameLine();
+
+		// Apply to selected entity
+		if (ImGui::Button("Apply to Selected", ImVec2(120, 0))) {
+			if (m_selectedEntity.is_alive() &&
+			    m_selectedEntity.has<TransformComponent>()) {
+				auto &transform =
+					m_selectedEntity.get_mut<TransformComponent>();
+				m_cursor3D->applyToTransform(transform);
+				if (m_selectedEntity.has<
+					    StaticGeometryMemberComponent>()) {
+					m_selectedEntity.get_mut<
+						StaticGeometryMemberComponent>()
+						.markDirty();
+				}
+			}
+		}
+		if (ImGui::IsItemHovered()) {
+			ImGui::SetTooltip(
+				"Copy cursor position/rotation to selected entity");
+		}
+
+		ImGui::Separator();
+
+		// Prefab placement settings
+		ImGui::Text("Prefab Placement");
+		ImGui::Checkbox("Use Cursor Position", &m_prefabUseCursor);
+		if (ImGui::IsItemHovered()) {
+			ImGui::SetTooltip(
+				"Place prefabs at cursor position instead of selected entity");
+		}
+		ImGui::DragFloat("Raycast Margin", &m_prefabRaycastMargin,
+				 0.01f, 0.0f, 10.0f);
+		if (ImGui::IsItemHovered()) {
+			ImGui::SetTooltip(
+				"Vertical offset: raycast from cursor+margin downward, "
+				"place prefab at hit point + margin");
+		}
+	}
+	ImGui::End();
+}
diff --git a/src/features/editScene/systems/EditorUISystem.hpp b/src/features/editScene/systems/EditorUISystem.hpp
index 76cae55..d811d8b 100644
--- a/src/features/editScene/systems/EditorUISystem.hpp
+++ b/src/features/editScene/systems/EditorUISystem.hpp
@@ -9,6 +9,7 @@
 #include "../ui/ComponentRegistry.hpp"
 #include "../components/EntityName.hpp"
 #include "../gizmo/Gizmo.hpp"
+#include "../gizmo/Cursor3D.hpp"
 #include "SceneSerializer.hpp"
 
 // Forward declarations
@@ -92,6 +93,14 @@ public:
 		return m_gizmo.get();
 	}
 
+	/**
+	 * Get the 3D cursor for external interaction
+	 */
+	Cursor3D *getCursor3D() const
+	{
+		return m_cursor3D.get();
+	}
+
 	/**
 	 * Shutdown UI system - must be called before SceneManager destruction
 	 */
@@ -171,6 +180,7 @@ public:
 	 */
 	void showCreatePrefabDialog(flecs::entity entity);
 	void renderPrefabBrowser();
+	void renderCursorPanel();
 
 private:
 	// File menu
@@ -209,6 +219,7 @@ private:
 	ComponentRegistry m_componentRegistry;
 	std::vector<flecs::entity> m_allEntities;
 	std::unique_ptr<Gizmo> m_gizmo;
+	std::unique_ptr<Cursor3D> m_cursor3D;
 	std::unique_ptr<SceneSerializer> m_serializer;
 
 	// Settings
@@ -255,6 +266,13 @@ private:
 	bool m_showPrefabBrowser = false;
 	std::vector<std::string> m_prefabFiles;
 	bool m_refreshPrefabList = true;
+	bool m_prefabInstAtRoot = false;
+	bool m_prefabUseCursor = true;       // Use 3D cursor for prefab placement
+	float m_prefabRaycastMargin = 0.0f;  // Vertical margin for raycast placement
+
+	// 3D Cursor state
+	bool m_showCursorPanel = false;
+	bool m_cursorPlaceMode = false;      // Click in viewport to place cursor
 
 	// Queries
 	flecs::query<EntityNameComponent> m_nameQuery;
diff --git a/src/features/editScene/systems/PrefabSystem.cpp b/src/features/editScene/systems/PrefabSystem.cpp
index bc93c1a..df2980c 100644
--- a/src/features/editScene/systems/PrefabSystem.cpp
+++ b/src/features/editScene/systems/PrefabSystem.cpp
@@ -46,13 +46,53 @@ flecs::entity PrefabSystem::createInstance(const std::string &prefabPath,
 					   const std::string &name,
 					   EditorUISystem *uiSystem)
 {
+	// Read prefab root transform so we can preserve it as the base
+	Ogre::Vector3 prefabPos(0, 0, 0);
+	Ogre::Quaternion prefabRot(Ogre::Quaternion::IDENTITY);
+	Ogre::Vector3 prefabScale(1, 1, 1);
+	try {
+		std::ifstream file(prefabPath);
+		if (file.is_open()) {
+			nlohmann::json prefabJson;
+			file >> prefabJson;
+			file.close();
+			if (prefabJson.contains("transform")) {
+				auto &t = prefabJson["transform"];
+				if (t.contains("position")) {
+					auto &p = t["position"];
+					prefabPos = Ogre::Vector3(
+						p.value("x", 0.0f),
+						p.value("y", 0.0f),
+						p.value("z", 0.0f));
+				}
+				if (t.contains("rotation")) {
+					auto &r = t["rotation"];
+					prefabRot = Ogre::Quaternion(
+						r.value("w", 1.0f),
+						r.value("x", 0.0f),
+						r.value("y", 0.0f),
+						r.value("z", 0.0f));
+				}
+				if (t.contains("scale")) {
+					auto &s = t["scale"];
+					prefabScale = Ogre::Vector3(
+						s.value("x", 1.0f),
+						s.value("y", 1.0f),
+						s.value("z", 1.0f));
+				}
+			}
+		}
+	} catch (...) {
+		// Ignore read errors — defaults are safe
+	}
+
 	flecs::entity instance = m_world.entity();
 	instance.add<EditorMarkerComponent>();
 	instance.set<EntityNameComponent>(EntityNameComponent(name));
 	instance.set<PrefabInstanceComponent>(
 		PrefabInstanceComponent{ prefabPath, false });
 
-	// Create transform
+	// Create transform: caller offset + prefab root transform
 	TransformComponent transform;
 	Ogre::SceneNode *parentNode = m_sceneMgr->getRootSceneNode();
 	if (parent.is_valid() && parent != 0 &&
@@ -61,12 +101,28 @@ flecs::entity PrefabSystem::createInstance(const std::string &prefabPath,
 		instance.child_of(parent);
 	}
 	transform.node = parentNode->createChildSceneNode();
-	transform.position = position;
-	transform.rotation = Ogre::Quaternion::IDENTITY;
-	transform.scale = Ogre::Vector3::UNIT_SCALE;
+	transform.position = position + prefabPos;
+	transform.rotation = prefabRot;
+	transform.scale = prefabScale;
 	transform.applyToNode();
 	instance.set<TransformComponent>(transform);
 
+	Ogre::LogManager::getSingleton().logMessage(
+		"PrefabSystem::createInstance: name=" + name +
+		" offset=" + Ogre::StringConverter::toString(position) +
+		" prefabPos=" + Ogre::StringConverter::toString(prefabPos) +
+		" finalPos=" +
+		Ogre::StringConverter::toString(
+			transform.node->_getDerivedPosition()) +
+		" parent=" +
+		(parent.is_valid() && parent != 0 ?
+			std::to_string(parent.id()) :
+			"<root>") +
+		" nodeParent=" +
+		(parentNode != m_sceneMgr->getRootSceneNode() ?
+			parentNode->getName() :
+			"<root>"));
+
 	if (uiSystem)
 		uiSystem->addEntity(instance);
 
diff --git a/src/features/editScene/systems/SceneSerializer.cpp b/src/features/editScene/systems/SceneSerializer.cpp
index 6693bb9..f217189 100644
--- a/src/features/editScene/systems/SceneSerializer.cpp
+++ b/src/features/editScene/systems/SceneSerializer.cpp
@@ -795,7 +795,7 @@ void SceneSerializer::deserializeEntityComponents(
 			flecs::entity child = m_world.entity();
 			if (addEditorMarker)
 				child.add<EditorMarkerComponent>();
-			if (json.contains("id")) {
+			if (childJson.contains("id")) {
 				uint64_t cid = childJson.value("id", 0ULL);
 				if (cid)
 					m_entityMap[cid] = child;