diff --git a/src/google/adk/tools/_automatic_function_calling_util.py b/src/google/adk/tools/_automatic_function_calling_util.py
index dde0c8ced80..a08e532d93b 100644
--- a/src/google/adk/tools/_automatic_function_calling_util.py
+++ b/src/google/adk/tools/_automatic_function_calling_util.py
@@ -40,6 +40,7 @@
 from ..utils._callable_utils import get_callable_doc
 from ..utils._callable_utils import unwrap_callable
 from ..utils.variant_utils import GoogleLLMVariant
+from ._gemini_schema_util import _dereference_schema
 from ._gemini_schema_util import _sanitize_schema_formats_for_gemini
 
 logger = logging.getLogger('google_adk.' + __name__)
@@ -420,6 +421,8 @@ def from_function_with_options(
             sanitized_schema = _sanitize_schema_formats_for_gemini(
                 json_schema_dict
             )
+          else:
+            sanitized_schema = _dereference_schema(json_schema_dict)
           parameters_json_schema[name] = types.Schema.model_validate(
               sanitized_schema
           )
diff --git a/tests/unittests/tools/test_from_function_with_options.py b/tests/unittests/tools/test_from_function_with_options.py
index 869db8655cf..d778b4c8a77 100644
--- a/tests/unittests/tools/test_from_function_with_options.py
+++ b/tests/unittests/tools/test_from_function_with_options.py
@@ -13,6 +13,7 @@
 # limitations under the License.
 
 from collections.abc import Sequence
+import datetime
 from typing import Any
 from typing import AsyncGenerator
 from typing import Dict
@@ -460,6 +461,55 @@ def complex_tool(
   )
 
 
+@pytest.mark.parametrize('shape', ['model', 'list', 'mapping', 'optional'])
+def test_vertex_fallback_resolves_nested_model_references(shape):
+  """Nested models keep their fields when another parameter needs fallback."""
+
+  class Address(pydantic.BaseModel):
+    city: str
+    email: str = pydantic.Field(json_schema_extra={'format': 'email'})
+    label: str = 'home'
+
+  class Person(pydantic.BaseModel):
+    address: Address
+
+  parameter_type = {
+      'model': Person,
+      'list': list[Person],
+      'mapping': dict[str, Person],
+      'optional': Person | None,
+  }[shape]
+
+  def schedule(person: parameter_type, when: datetime.datetime, notify=True):
+    return 'ok'
+
+  declaration = _automatic_function_calling_util.from_function_with_options(
+      schedule, GoogleLLMVariant.VERTEX_AI
+  )
+
+  person_schema = declaration.parameters.properties['person']
+  if shape == 'list':
+    assert person_schema.type == types.Type.ARRAY
+    person_schema = person_schema.items
+  elif shape == 'mapping':
+    assert person_schema.type == types.Type.OBJECT
+    person_schema = types.Schema.model_validate(
+        person_schema.additional_properties
+    )
+  elif shape == 'optional':
+    assert person_schema.any_of[1].type == types.Type.NULL
+    person_schema = person_schema.any_of[0]
+  assert person_schema.type == types.Type.OBJECT
+  address_schema = person_schema.properties['address']
+  assert address_schema.properties['city'].type == types.Type.STRING
+  assert address_schema.properties['email'].format == 'email'
+  assert address_schema.properties['label'].default == 'home'
+  assert set(address_schema.required) == {'city', 'email'}
+  assert declaration.parameters.properties['when'].format == 'date-time'
+  assert declaration.parameters.properties['notify'].default is True
+  assert set(declaration.parameters.required) == {'person', 'when'}
+
+
 def test_format_preservation_for_vertex_fallback():
   """Test that format is preserved for VERTEX_AI variant in fallback path."""