diff --git a/apps/obsidian/src/index.ts b/apps/obsidian/src/index.ts
index a120ebfaf..04be58716 100644
--- a/apps/obsidian/src/index.ts
+++ b/apps/obsidian/src/index.ts
@@ -14,8 +14,9 @@ import { Settings, VIEW_TYPE_DISCOURSE_CONTEXT } from "~/types";
 import {
   addConvertSubmenu,
   isImageFile,
-  replaceImageEmbedInEditor,
+  openConvertImageToNodeModal,
 } from "~/utils/editorMenuUtils";
+import { createImageEmbedHoverExtension } from "~/utils/imageEmbedHoverIcon";
 import { registerCommands } from "~/utils/registerCommands";
 import { DiscourseContextView } from "~/components/DiscourseContextView";
 import { VIEW_TYPE_TLDRAW_DG_PREVIEW, FRONTMATTER_KEY } from "~/constants";
@@ -159,41 +160,11 @@ export default class DiscourseGraphPlugin extends Plugin {
             label: "Convert into",
             nodeTypes: this.settings.nodeTypes,
             onClick: (nodeType) => {
-              new ModifyNodeModal(this.app, {
-                nodeTypes: this.settings.nodeTypes,
+              openConvertImageToNodeModal({
                 plugin: this,
-                initialTitle: "",
+                imageFile: file,
                 initialNodeType: nodeType,
-                onSubmit: async ({
-                  nodeType: selectedType,
-                  title,
-                  selectedExistingNode,
-                }) => {
-                  const targetFile =
-                    selectedExistingNode ??
-                    (await createDiscourseNode({
-                      plugin: this,
-                      nodeType: selectedType,
-                      text: title,
-                    }));
-
-                  if (!targetFile) return;
-
-                  const imageLink = this.app.metadataCache.fileToLinktext(
-                    file,
-                    targetFile.path,
-                  );
-                  await this.app.vault.append(
-                    targetFile,
-                    `\n![[${imageLink}]]\n`,
-                  );
-                  replaceImageEmbedInEditor({
-                    app: this.app,
-                    imageFile: file,
-                    targetFile,
-                  });
-                },
-              }).open();
+              });
             },
           });
           return;
@@ -300,6 +271,9 @@ export default class DiscourseGraphPlugin extends Plugin {
 
     // eslint-disable-next-line @typescript-eslint/no-unsafe-argument
     this.registerEditorExtension(nodeTagHotkeyExtension);
+
+    // eslint-disable-next-line @typescript-eslint/no-unsafe-argument
+    this.registerEditorExtension(createImageEmbedHoverExtension(this));
   }
 
   private createStyleElement() {
diff --git a/apps/obsidian/src/utils/editorMenuUtils.ts b/apps/obsidian/src/utils/editorMenuUtils.ts
index 2c822956d..81553e4d0 100644
--- a/apps/obsidian/src/utils/editorMenuUtils.ts
+++ b/apps/obsidian/src/utils/editorMenuUtils.ts
@@ -1,5 +1,8 @@
 import { App, MarkdownView, Menu, TFile } from "obsidian";
 import { DiscourseNode } from "~/types";
+import type DiscourseGraphPlugin from "~/index";
+import { createDiscourseNode } from "~/utils/createNode";
+import ModifyNodeModal from "~/components/ModifyNodeModal";
 
 /**
  * Add a "Convert into" / "Turn into discourse node" submenu to a context menu,
@@ -36,7 +39,7 @@ export const addConvertSubmenu = ({
 /**
  * Replace the first embed of `imageFile` in the active editor with a link to `targetFile`.
  */
-export const replaceImageEmbedInEditor = ({
+const replaceImageEmbedInEditor = ({
   app,
   imageFile,
   targetFile,
@@ -71,3 +74,50 @@ const IMAGE_EXTENSIONS = /^(png|jpe?g|gif|svg|bmp|webp|avif|tiff?)$/i;
 
 export const isImageFile = (file: TFile): boolean =>
   IMAGE_EXTENSIONS.test(file.extension);
+
+/**
+ * Open ModifyNodeModal to convert an image file into a discourse node.
+ * Shared by file-menu "Convert into" and the hover icon on embedded images.
+ */
+export const openConvertImageToNodeModal = ({
+  plugin,
+  imageFile,
+  initialNodeType,
+}: {
+  plugin: DiscourseGraphPlugin;
+  imageFile: TFile;
+  initialNodeType?: DiscourseNode;
+}): void => {
+  new ModifyNodeModal(plugin.app, {
+    nodeTypes: plugin.settings.nodeTypes,
+    plugin,
+    initialTitle: "",
+    initialNodeType,
+    onSubmit: async ({
+      nodeType: selectedType,
+      title,
+      selectedExistingNode,
+    }) => {
+      const targetFile =
+        selectedExistingNode ??
+        (await createDiscourseNode({
+          plugin,
+          nodeType: selectedType,
+          text: title,
+        }));
+
+      if (!targetFile) return;
+
+      const imageLink = plugin.app.metadataCache.fileToLinktext(
+        imageFile,
+        targetFile.path,
+      );
+      await plugin.app.vault.append(targetFile, `\n![[${imageLink}]]\n`);
+      replaceImageEmbedInEditor({
+        app: plugin.app,
+        imageFile,
+        targetFile,
+      });
+    },
+  }).open();
+};
diff --git a/apps/obsidian/src/utils/imageEmbedHoverIcon.ts b/apps/obsidian/src/utils/imageEmbedHoverIcon.ts
new file mode 100644
index 000000000..e29c58007
--- /dev/null
+++ b/apps/obsidian/src/utils/imageEmbedHoverIcon.ts
@@ -0,0 +1,133 @@
+import {
+  type PluginValue,
+  EditorView,
+  ViewPlugin,
+  ViewUpdate,
+} from "@codemirror/view";
+import { setIcon, TFile } from "obsidian";
+import type DiscourseGraphPlugin from "~/index";
+import {
+  isImageFile,
+  openConvertImageToNodeModal,
+} from "~/utils/editorMenuUtils";
+
+const ICON_CLASS = "dg-image-convert-icon";
+
+const resolveImageFile = (
+  embedEl: HTMLElement,
+  plugin: DiscourseGraphPlugin,
+): TFile | null => {
+  const src = embedEl.getAttribute("src");
+  if (!src) return null;
+
+  const activeFile = plugin.app.workspace.getActiveFile();
+  if (!activeFile) return null;
+
+  const resolved = plugin.app.metadataCache.getFirstLinkpathDest(
+    src,
+    activeFile.path,
+  );
+  if (!resolved || !isImageFile(resolved)) return null;
+
+  return resolved;
+};
+
+const createConvertIcon = (
+  embedEl: HTMLElement,
+  plugin: DiscourseGraphPlugin,
+): HTMLButtonElement => {
+  const btn = document.createElement("button");
+  btn.className = `${ICON_CLASS} absolute z-[2] right-[42px] w-[26px] h-[26px] flex cursor-[var(--cursor)] border-none opacity-0 pointer-events-none group-hover:opacity-100 group-hover:pointer-events-auto`;
+  btn.style.cssText = `
+    top: var(--size-2-2);
+    padding: var(--size-2-2) var(--size-2-3);
+    color: var(--text-muted);
+    background-color: var(--background-primary);
+  `;
+  btn.title = "Convert to node";
+  setIcon(btn, "file-input");
+
+  btn.addEventListener("click", (e) => {
+    e.stopPropagation();
+    e.preventDefault();
+
+    const imageFile = resolveImageFile(embedEl, plugin);
+    if (!imageFile) return;
+
+    openConvertImageToNodeModal({ plugin, imageFile });
+  });
+
+  return btn;
+};
+
+const processContainer = (
+  container: HTMLElement,
+  plugin: DiscourseGraphPlugin,
+): void => {
+  const embeds = container.querySelectorAll<HTMLElement>(
+    ".internal-embed.image-embed",
+  );
+
+  for (const embedEl of embeds) {
+    if (embedEl.querySelector(`.${ICON_CLASS}`)) continue;
+
+    const imageFile = resolveImageFile(embedEl, plugin);
+    if (!imageFile) continue;
+
+    embedEl.classList.add("group", "relative");
+    embedEl.appendChild(createConvertIcon(embedEl, plugin));
+  }
+};
+
+/**
+ * CodeMirror ViewPlugin that adds a "Convert to node" hover icon
+ * on embedded images in the live-preview editor.
+ */
+export const createImageEmbedHoverExtension = (
+  plugin: DiscourseGraphPlugin,
+): ViewPlugin<PluginValue> => {
+  return ViewPlugin.fromClass(
+    class {
+      private dom: HTMLElement;
+      private observer: MutationObserver;
+
+      constructor(view: EditorView) {
+        this.dom = view.dom;
+        processContainer(view.dom, plugin);
+
+        // Obsidian renders embeds asynchronously after doc changes,
+        // so we need a MutationObserver to catch newly added image embeds.
+        this.observer = new MutationObserver((mutations) => {
+          const hasRelevantMutation = mutations.some((m) =>
+            Array.from(m.addedNodes).some(
+              (n) =>
+                n instanceof HTMLElement &&
+                !n.classList.contains(ICON_CLASS) &&
+                (n.matches(".internal-embed.image-embed") ||
+                  n.querySelector(".internal-embed.image-embed")),
+            ),
+          );
+          if (hasRelevantMutation) {
+            processContainer(this.dom, plugin);
+          }
+        });
+        this.observer.observe(this.dom, {
+          childList: true,
+          subtree: true,
+        });
+      }
+
+      update(update: ViewUpdate): void {
+        if (update.docChanged || update.viewportChanged) {
+          processContainer(update.view.dom, plugin);
+        }
+      }
+
+      destroy(): void {
+        this.observer.disconnect();
+        const icons = this.dom.querySelectorAll(`.${ICON_CLASS}`);
+        icons.forEach((icon) => icon.remove());
+      }
+    },
+  );
+};