diff --git a/CHANGELOG.md b/CHANGELOG.md
index 12e31352..d3a05ec4 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,5 +1,17 @@
 # Changelog
 
+## [4.1.0](https://github.com/CopilotC-Nvim/CopilotChat.nvim/compare/v4.0.0...v4.1.0) (2025-08-03)
+
+
+### Features
+
+* **ui:** improve keyword highlights accuracy and performance ([#1260](https://github.com/CopilotC-Nvim/CopilotChat.nvim/issues/1260)) ([0d64e26](https://github.com/CopilotC-Nvim/CopilotChat.nvim/commit/0d64e267a5aef3bd7d580a2c488bcc8b66d374a4))
+
+
+### Bug Fixes
+
+* **functions:** do not filter schema enum when entering input ([#1264](https://github.com/CopilotC-Nvim/CopilotChat.nvim/issues/1264)) ([8510f30](https://github.com/CopilotC-Nvim/CopilotChat.nvim/commit/8510f30ff8c338482e7c8a2a7d102519cc57315f)), closes [#1263](https://github.com/CopilotC-Nvim/CopilotChat.nvim/issues/1263)
+
 ## [4.0.0](https://github.com/CopilotC-Nvim/CopilotChat.nvim/compare/v3.12.2...v4.0.0) (2025-08-02)
 
 
diff --git a/README.md b/README.md
index d70e31a4..c35320a4 100644
--- a/README.md
+++ b/README.md
@@ -255,9 +255,13 @@ Types of copilot highlights:
 - `CopilotChatHeader` - Header highlight in chat buffer
 - `CopilotChatSeparator` - Separator highlight in chat buffer
 - `CopilotChatStatus` - Status and spinner in chat buffer
-- `CopilotChatHelp` - Help messages in chat buffer (help, references)
+- `CopilotChatHelp` - Help text in chat buffer
+- `CopilotChatResource` - Resource highlight in chat buffer (e.g. `#file`, `#gitdiff`)
+- `CopilotChatTool` - Tool call highlight in chat buffer (e.g. `@copilot`)
+- `CopilotChatPrompt` - Prompt highlight in chat buffer (e.g. `/Explain`, `/Review`)
+- `CopilotChatModel` - Model highlight in chat buffer (e.g. `$gpt-4.1`)
+- `CopilotChatUri` - URI highlight in chat buffer (e.g. `##https://...`)
 - `CopilotChatSelection` - Selection highlight in source buffer
-- `CopilotChatKeyword` - Keyword highlight in chat buffer (e.g. prompts, tools)
 - `CopilotChatAnnotation` - Annotation highlight in chat buffer (file headers, tool call headers, tool call body)
 
 ## Prompts
diff --git a/doc/CopilotChat.txt b/doc/CopilotChat.txt
index c23f2808..f49db7f1 100644
--- a/doc/CopilotChat.txt
+++ b/doc/CopilotChat.txt
@@ -1,4 +1,4 @@
-*CopilotChat.txt*          For NVIM v0.8.0         Last change: 2025 August 02
+*CopilotChat.txt*          For NVIM v0.8.0         Last change: 2025 August 03
 
 ==============================================================================
 Table of Contents                              *CopilotChat-table-of-contents*
@@ -325,9 +325,13 @@ Types of copilot highlights:
 - `CopilotChatHeader` - Header highlight in chat buffer
 - `CopilotChatSeparator` - Separator highlight in chat buffer
 - `CopilotChatStatus` - Status and spinner in chat buffer
-- `CopilotChatHelp` - Help messages in chat buffer (help, references)
+- `CopilotChatHelp` - Help text in chat buffer
+- `CopilotChatResource` - Resource highlight in chat buffer (e.g. `#file`, `#gitdiff`)
+- `CopilotChatTool` - Tool call highlight in chat buffer (e.g. `@copilot`)
+- `CopilotChatPrompt` - Prompt highlight in chat buffer (e.g. `/Explain`, `/Review`)
+- `CopilotChatModel` - Model highlight in chat buffer (e.g. `$gpt-4.1`)
+- `CopilotChatUri` - URI highlight in chat buffer (e.g. `##https://...`)
 - `CopilotChatSelection` - Selection highlight in source buffer
-- `CopilotChatKeyword` - Keyword highlight in chat buffer (e.g. prompts, tools)
 - `CopilotChatAnnotation` - Annotation highlight in chat buffer (file headers, tool call headers, tool call body)
 
 
diff --git a/lua/CopilotChat/functions.lua b/lua/CopilotChat/functions.lua
index 6e936a3d..e63b63a3 100644
--- a/lua/CopilotChat/functions.lua
+++ b/lua/CopilotChat/functions.lua
@@ -114,15 +114,16 @@ function M.match_uri(uri, pattern)
   return result
 end
 
----@param tool CopilotChat.config.functions.Function
-function M.parse_schema(tool)
-  local schema = tool.schema
+--- Parse function schema and return a JSON schema object
+---@param fn CopilotChat.config.functions.Function
+function M.parse_schema(fn)
+  local schema = fn.schema
 
   -- If schema is missing but uri is present, generate a default schema from uri
-  if not schema and tool.uri then
+  if not schema and fn.uri then
     -- Extract parameter names from the uri pattern, e.g. file://{path}
     local param_names = {}
-    for param in tool.uri:gmatch(URI_PARAM_PATTERN) do
+    for param in fn.uri:gmatch(URI_PARAM_PATTERN) do
       table.insert(param_names, param)
     end
     if #param_names > 0 then
@@ -138,26 +139,22 @@ function M.parse_schema(tool)
     end
   end
 
-  if schema then
-    schema = filter_schema(schema, true)
-  end
-
   return schema
 end
 
---- Prepare the schema for use
----@param tools table<string, CopilotChat.config.functions.Function>
+--- Prepare functions for tool use
+---@param functions table<string, CopilotChat.config.functions.Function>
 ---@return table<CopilotChat.client.Tool>
-function M.parse_tools(tools)
-  local tool_names = vim.tbl_keys(tools)
+function M.parse_tools(functions)
+  local tool_names = vim.tbl_keys(functions)
   table.sort(tool_names)
   return vim.tbl_map(function(name)
-    local tool = tools[name]
+    local tool = functions[name]
 
     return {
       name = name,
       description = tool.description,
-      schema = M.parse_schema(tool),
+      schema = filter_schema(M.parse_schema(tool), true),
     }
   end, tool_names)
 end
diff --git a/lua/CopilotChat/ui/chat.lua b/lua/CopilotChat/ui/chat.lua
index fe70feff..8b22c32e 100644
--- a/lua/CopilotChat/ui/chat.lua
+++ b/lua/CopilotChat/ui/chat.lua
@@ -340,6 +340,9 @@ function Chat:open(config)
     vim.wo[self.winnr].foldcolumn = '0'
   end
 
+  local ns = vim.api.nvim_create_namespace('copilot-chat-local-hl')
+  vim.api.nvim_set_hl(ns, '@markup.quote.markdown', {})
+  vim.api.nvim_win_set_hl_ns(self.winnr, ns)
   vim.api.nvim_win_set_buf(self.winnr, self.bufnr)
   self:render()
 end
@@ -678,22 +681,6 @@ function Chat:render()
       end
     end
 
-    -- Keywords
-    if current_message and current_message.role == 'user' then
-      -- FIXME: This is not optimal, but i cant figure out how to do it better as treesitter keeps overriding it
-      local patterns = {
-        '()#?#[^ ]+()',
-        '()@[^ ]+()',
-        '()%$[^ ]+()',
-        '()/[^ ]+()',
-      }
-      for _, pattern in ipairs(patterns) do
-        for s, e in line:gmatch(pattern) do
-          vim.api.nvim_buf_add_highlight(self.bufnr, highlight_ns, 'CopilotChatKeyword', l - 1, s - 1, e - 1)
-        end
-      end
-    end
-
     -- If last line, finish last message
     if l == #lines and current_message then
       current_message.section.end_line = l
diff --git a/plugin/CopilotChat.lua b/plugin/CopilotChat.lua
index de5e0158..e59ee49e 100644
--- a/plugin/CopilotChat.lua
+++ b/plugin/CopilotChat.lua
@@ -16,10 +16,14 @@ local function setup_highlights()
   vim.api.nvim_set_hl(0, 'CopilotChatSeparator', { link = '@punctuation.special.markdown', default = true })
   vim.api.nvim_set_hl(0, 'CopilotChatStatus', { link = 'DiagnosticHint', default = true })
   vim.api.nvim_set_hl(0, 'CopilotChatHelp', { link = 'DiagnosticInfo', default = true })
-  vim.api.nvim_set_hl(0, 'CopilotChatKeyword', { link = 'Keyword', default = true })
+  vim.api.nvim_set_hl(0, 'CopilotChatResource', { link = 'Constant', default = true })
+  vim.api.nvim_set_hl(0, 'CopilotChatTool', { link = 'Function', default = true })
+  vim.api.nvim_set_hl(0, 'CopilotChatPrompt', { link = 'Statement', default = true })
+  vim.api.nvim_set_hl(0, 'CopilotChatModel', { link = 'Type', default = true })
+  vim.api.nvim_set_hl(0, 'CopilotChatUri', { link = 'Underlined', default = true })
   vim.api.nvim_set_hl(0, 'CopilotChatSelection', { link = 'Visual', default = true })
-  vim.api.nvim_set_hl(0, 'CopilotChatAnnotation', { link = 'ColorColumn', default = true })
 
+  vim.api.nvim_set_hl(0, 'CopilotChatAnnotation', { link = 'ColorColumn', default = true })
   local fg = vim.api.nvim_get_hl(0, { name = 'CopilotChatStatus', link = false }).fg
   local bg = vim.api.nvim_get_hl(0, { name = 'CopilotChatAnnotation', link = false }).bg
   vim.api.nvim_set_hl(0, 'CopilotChatAnnotationHeader', { fg = fg, bg = bg })
@@ -75,6 +79,18 @@ vim.api.nvim_create_user_command('CopilotChatReset', function()
   chat.reset()
 end, { force = true })
 
+vim.api.nvim_create_autocmd('FileType', {
+  pattern = 'copilot-chat',
+  group = group,
+  callback = vim.schedule_wrap(function()
+    vim.cmd.syntax('match CopilotChatResource "#\\S\\+"')
+    vim.cmd.syntax('match CopilotChatTool "@\\S\\+"')
+    vim.cmd.syntax('match CopilotChatPrompt "/\\S\\+"')
+    vim.cmd.syntax('match CopilotChatModel "\\$\\S\\+"')
+    vim.cmd.syntax('match CopilotChatUri "##\\S\\+"')
+  end),
+})
+
 local function complete_load()
   local chat = require('CopilotChat')
   local options = vim.tbl_map(function(file)
diff --git a/version.txt b/version.txt
index fcdb2e10..ee74734a 100644
--- a/version.txt
+++ b/version.txt
@@ -1 +1 @@
-4.0.0
+4.1.0