diff --git a/src/fastmcp/utilities/openapi.py b/src/fastmcp/utilities/openapi.py
index 59d558f72..c29b20661 100644
--- a/src/fastmcp/utilities/openapi.py
+++ b/src/fastmcp/utilities/openapi.py
@@ -274,6 +274,12 @@ class OpenAPIParser(
                 result = {}
 
             return _replace_ref_with_defs(result)
+        except ValueError as e:
+            # Re-raise ValueError for external reference errors and other validation issues
+            if "External or non-local reference not supported" in str(e):
+                raise
+            logger.error(f"Failed to extract schema as dict: {e}", exc_info=False)
+            return {}
         except Exception as e:
             logger.error(f"Failed to extract schema as dict: {e}", exc_info=False)
             return {}
@@ -406,12 +412,30 @@ class OpenAPIParser(
                             request_body_info.content_schema[media_type_str] = (
                                 schema_dict
                             )
+                        except ValueError as e:
+                            # Re-raise ValueError for external reference errors
+                            if "External or non-local reference not supported" in str(
+                                e
+                            ):
+                                raise
+                            logger.error(
+                                f"Failed to extract schema for media type '{media_type_str}': {e}"
+                            )
                         except Exception as e:
                             logger.error(
                                 f"Failed to extract schema for media type '{media_type_str}': {e}"
                             )
 
             return request_body_info
+        except ValueError as e:
+            # Re-raise ValueError for external reference errors
+            if "External or non-local reference not supported" in str(e):
+                raise
+            ref_name = getattr(request_body_or_ref, "ref", "unknown")
+            logger.error(
+                f"Failed to extract request body '{ref_name}': {e}", exc_info=False
+            )
+            return None
         except Exception as e:
             ref_name = getattr(request_body_or_ref, "ref", "unknown")
             logger.error(
@@ -455,6 +479,17 @@ class OpenAPIParser(
                                     media_type_obj.media_type_schema
                                 )
                                 resp_info.content_schema[media_type_str] = schema_dict
+                            except ValueError as e:
+                                # Re-raise ValueError for external reference errors
+                                if (
+                                    "External or non-local reference not supported"
+                                    in str(e)
+                                ):
+                                    raise
+                                logger.error(
+                                    f"Failed to extract schema for media type '{media_type_str}' "
+                                    f"in response {status_code}: {e}"
+                                )
                             except Exception as e:
                                 logger.error(
                                     f"Failed to extract schema for media type '{media_type_str}' "
@@ -462,6 +497,16 @@ class OpenAPIParser(
                                 )
 
                 extracted_responses[str(status_code)] = resp_info
+            except ValueError as e:
+                # Re-raise ValueError for external reference errors
+                if "External or non-local reference not supported" in str(e):
+                    raise
+                ref_name = getattr(resp_or_ref, "ref", "unknown")
+                logger.error(
+                    f"Failed to extract response for status code {status_code} "
+                    f"from reference '{ref_name}': {e}",
+                    exc_info=False,
+                )
             except Exception as e:
                 ref_name = getattr(resp_or_ref, "ref", "unknown")
                 logger.error(
@@ -562,6 +607,17 @@ class OpenAPIParser(
                         logger.info(
                             f"Successfully extracted route: {method_upper} {path_str}"
                         )
+                    except ValueError as op_error:
+                        # Re-raise ValueError for external reference errors
+                        if "External or non-local reference not supported" in str(
+                            op_error
+                        ):
+                            raise
+                        op_id = getattr(operation, "operationId", "unknown")
+                        logger.error(
+                            f"Failed to process operation {method_upper} {path_str} (ID: {op_id}): {op_error}",
+                            exc_info=True,
+                        )
                     except Exception as op_error:
                         op_id = getattr(operation, "operationId", "unknown")
                         logger.error(
@@ -907,6 +963,12 @@ def _replace_ref_with_defs(
         if ref_path.startswith("#/components/schemas/"):
             schema_name = ref_path.split("/")[-1]
             schema["$ref"] = f"#/$defs/{schema_name}"
+        elif not ref_path.startswith("#/"):
+            raise ValueError(
+                f"External or non-local reference not supported: {ref_path}. "
+                f"FastMCP only supports local schema references starting with '#/'. "
+                f"Please include all schema definitions within the OpenAPI document."
+            )
     elif properties := schema.get("properties"):
         if "$ref" in properties:
             schema["properties"] = _replace_ref_with_defs(properties)
diff --git a/tests/utilities/openapi/test_openapi_advanced.py b/tests/utilities/openapi/test_openapi_advanced.py
index 979ca9b28..58a03143d 100644
--- a/tests/utilities/openapi/test_openapi_advanced.py
+++ b/tests/utilities/openapi/test_openapi_advanced.py
@@ -614,3 +614,52 @@ def test_http_trace_method_path(parsed_http_methods_routes):
 
     assert trace_route is not None
     assert trace_route.path == "/resource"
+
+
+@pytest.fixture
+def schema_with_external_reference() -> dict[str, Any]:
+    """Fixture that returns a schema with external schema references like in issue #926."""
+    return {
+        "openapi": "3.0.0",
+        "info": {"title": "External Reference API", "version": "1.0.0"},
+        "paths": {
+            "/products": {
+                "post": {
+                    "summary": "Create a product",
+                    "operationId": "createProduct",
+                    "requestBody": {
+                        "required": True,
+                        "content": {
+                            "application/json": {
+                                "schema": {
+                                    "type": "object",
+                                    "properties": {
+                                        "obj": {
+                                            "$ref": "http://cyaninc.com/json-schemas/market-v1/product-constraints"
+                                        }
+                                    },
+                                }
+                            }
+                        },
+                    },
+                    "responses": {"201": {"description": "Product created"}},
+                }
+            }
+        },
+    }
+
+
+# --- Tests for external schema reference handling --- #
+
+
+def test_external_reference_raises_clear_error(schema_with_external_reference):
+    """Test that external schema references raise a clear, helpful error message."""
+    with pytest.raises(ValueError) as exc_info:
+        parse_openapi_to_http_routes(schema_with_external_reference)
+
+    error_message = str(exc_info.value)
+    assert "External or non-local reference not supported" in error_message
+    assert (
+        "http://cyaninc.com/json-schemas/market-v1/product-constraints" in error_message
+    )
+    assert "FastMCP only supports local schema references" in error_message