diff --git a/airflow-core/newsfragments/66399.significant.rst b/airflow-core/newsfragments/66399.significant.rst
new file mode 100644
index 0000000000000..03286d79bd326
--- /dev/null
+++ b/airflow-core/newsfragments/66399.significant.rst
@@ -0,0 +1,11 @@
+Tighten the ``error`` argument on the ``on_task_instance_failed`` listener hook to ``BaseException | None`` (previously ``None | str | BaseException``).
+
+The manual-set FAILED state path on the API server now wraps its
+human-readable reason in a ``RuntimeError`` instead of passing a plain string,
+so listeners always receive an exception type and ``str(error)`` continues to
+yield the human-readable message.
+
+Listener implementations that rely on ``isinstance(error, str)`` to detect
+the manual-set path should switch to the ``msg`` keyword argument introduced
+in #66394 (``msg == "manually_set_to_failed"``); the message text remains
+accessible via ``str(error)``.
diff --git a/airflow-core/src/airflow/api_fastapi/core_api/services/public/task_instances.py b/airflow-core/src/airflow/api_fastapi/core_api/services/public/task_instances.py
index 65e8260c2f47a..4de3b43e13ae7 100644
--- a/airflow-core/src/airflow/api_fastapi/core_api/services/public/task_instances.py
+++ b/airflow-core/src/airflow/api_fastapi/core_api/services/public/task_instances.py
@@ -83,7 +83,9 @@ def _emit_state_listener_hooks(updated_tis: list[TI], new_state: str | TaskInsta
                 get_listener_manager().hook.on_task_instance_failed(
                     previous_state=None,
                     task_instance=ti,
-                    error=f"TaskInstance's state was manually set to `{TaskInstanceState.FAILED}`.",
+                    error=RuntimeError(
+                        f"TaskInstance's state was manually set to `{TaskInstanceState.FAILED}`."
+                    ),
                 )
             elif new_state == TaskInstanceState.SKIPPED:
                 get_listener_manager().hook.on_task_instance_skipped(previous_state=None, task_instance=ti)
diff --git a/airflow-core/src/airflow/example_dags/plugins/event_listener.py b/airflow-core/src/airflow/example_dags/plugins/event_listener.py
index 91af9f5ccc6df..6fc03744a8249 100644
--- a/airflow-core/src/airflow/example_dags/plugins/event_listener.py
+++ b/airflow-core/src/airflow/example_dags/plugins/event_listener.py
@@ -99,7 +99,7 @@ def on_task_instance_success(
 def on_task_instance_failed(
     previous_state: TaskInstanceState | None,
     task_instance: RuntimeTaskInstance | TaskInstance,
-    error: None | str | BaseException,
+    error: BaseException | None,
 ):
     """
     Called when task state changes to FAILED.
@@ -108,7 +108,8 @@ def on_task_instance_failed(
     task_instance that has failed, its dag_run, task and dag information.
 
     A RuntimeTaskInstance is provided in most cases, except when the task's state change is triggered
-    through the API. In that case, the TaskInstance available on the API server will be provided instead.
+    through the API. In that case, the TaskInstance available on the API server will be provided instead,
+    and ``error`` is a ``RuntimeError`` carrying the human-readable reason.
     """
     print("Task instance in failure state")
 
diff --git a/airflow-core/tests/unit/api_fastapi/core_api/routes/public/test_task_instances.py b/airflow-core/tests/unit/api_fastapi/core_api/routes/public/test_task_instances.py
index 505a390f7bf33..f3e0d96496371 100644
--- a/airflow-core/tests/unit/api_fastapi/core_api/routes/public/test_task_instances.py
+++ b/airflow-core/tests/unit/api_fastapi/core_api/routes/public/test_task_instances.py
@@ -4411,6 +4411,11 @@ def test_patch_task_instance_notifies_listeners(
         assert response2.status_code == 200
         assert response2.json()["state"] == state
         assert listener.state == listener_state
+        if state == "failed":
+            # The manual-set FAILED path wraps its human-readable reason in a
+            # RuntimeError so listener authors always receive an exception type.
+            assert isinstance(listener.last_error, RuntimeError)
+            assert "manually set to" in str(listener.last_error)
 
     @mock.patch("airflow.serialization.definitions.dag.SerializedDAG.set_task_instance_state")
     def test_should_call_mocked_api(self, mock_set_ti_state, test_client, session):
diff --git a/airflow-core/tests/unit/listeners/class_listener.py b/airflow-core/tests/unit/listeners/class_listener.py
index 4b9ef3a9f26f1..587a15ee3419f 100644
--- a/airflow-core/tests/unit/listeners/class_listener.py
+++ b/airflow-core/tests/unit/listeners/class_listener.py
@@ -26,6 +26,7 @@ def __init__(self):
         self.started_component = None
         self.stopped_component = None
         self.state = []
+        self.last_error: BaseException | None = None
 
     @hookimpl
     def on_starting(self, component):
@@ -46,8 +47,9 @@ def on_task_instance_success(self, previous_state, task_instance):
         self.state.append(TaskInstanceState.SUCCESS)
 
     @hookimpl
-    def on_task_instance_failed(self, previous_state, task_instance, error: None | str | BaseException):
+    def on_task_instance_failed(self, previous_state, task_instance, error: BaseException | None):
         self.state.append(TaskInstanceState.FAILED)
+        self.last_error = error
 
     @hookimpl
     def on_task_instance_skipped(self, previous_state, task_instance):
diff --git a/shared/listeners/src/airflow_shared/listeners/spec/taskinstance.py b/shared/listeners/src/airflow_shared/listeners/spec/taskinstance.py
index d3450d6b05aa7..9407c339cef9c 100644
--- a/shared/listeners/src/airflow_shared/listeners/spec/taskinstance.py
+++ b/shared/listeners/src/airflow_shared/listeners/spec/taskinstance.py
@@ -51,9 +51,19 @@ def on_task_instance_success(
 def on_task_instance_failed(
     previous_state: TaskInstanceState | None,
     task_instance: RuntimeTaskInstance | TaskInstance,
-    error: None | str | BaseException,
+    error: BaseException | None,
 ):
-    """Execute when task state changes to FAIL. previous_state can be None."""
+    """
+    Execute when task state changes to FAIL. previous_state can be None.
+
+    :param previous_state: Previous state of the task instance (can be None)
+    :param task_instance: The task instance object (RuntimeTaskInstance when called
+        from task execution context, TaskInstance when called from API server)
+    :param error: The exception that caused the failure. ``None`` only when the
+        cause is unavailable. Manual API-driven state transitions wrap their
+        human-readable reason in ``RuntimeError`` so listeners always receive an
+        exception type and ``str(error)`` yields the message.
+    """
 
 
 @hookspec