diff --git a/esphome/components/api/api_frame_helper_noise.cpp b/esphome/components/api/api_frame_helper_noise.cpp
index c1641b398a..1ae848dead 100644
--- a/esphome/components/api/api_frame_helper_noise.cpp
+++ b/esphome/components/api/api_frame_helper_noise.cpp
@@ -138,10 +138,12 @@ APIError APINoiseFrameHelper::handle_noise_error_(int err, const LogString *func
 
 /// Run through handshake messages (if in that phase)
 APIError APINoiseFrameHelper::loop() {
-  // During handshake phase, process as many actions as possible until we can't progress
-  // socket_->ready() stays true until next main loop, but state_action() will return
-  // WOULD_BLOCK when no more data is available to read
-  while (state_ != State::DATA && this->socket_->ready()) {
+  // Cache ready() outside the loop. On ESP8266 LWIP raw TCP, ready() returns false once
+  // the rx buffer is consumed. Re-checking each iteration would block handshake writes
+  // that must follow reads, deadlocking the handshake. state_action() will return
+  // WOULD_BLOCK when no more data is available to read.
+  bool socket_ready = this->socket_->ready();
+  while (state_ != State::DATA && socket_ready) {
     APIError err = state_action_();
     if (err == APIError::WOULD_BLOCK) {
       break;
diff --git a/esphome/components/api/api_server.cpp b/esphome/components/api/api_server.cpp
index 211bda66de..f25a9bc0e2 100644
--- a/esphome/components/api/api_server.cpp
+++ b/esphome/components/api/api_server.cpp
@@ -148,12 +148,16 @@ void APIServer::loop() {
   while (client_index < this->clients_.size()) {
     auto &client = this->clients_[client_index];
 
+    // Common case: process active client
+    if (!client->flags_.remove) {
+      client->loop();
+    }
+    // Handle disconnection promptly - close socket to free LWIP PCB
+    // resources and prevent retransmit crashes on ESP8266.
     if (client->flags_.remove) {
       // Rare case: handle disconnection (don't increment - swapped element needs processing)
       this->remove_client_(client_index);
     } else {
-      // Common case: process active client
-      client->loop();
       client_index++;
     }
   }