Evaluating conversational AI systems that use external tools is challenging, as errors can arise from complex interactions among user, agent, and tools. While existing evaluation methods assess either user satisfaction or agents’ tool-calling capabilities, they fail to capture critical errors in multi-turn tool-augmented dialogues—such as when agents misinterpret tool results yet appear satisfactory to users. We introduce TRACE, a benchmark of systematically synthesized tool-augmented conversations covering diverse error cases. Evaluation with state-of-the-art conversation evaluation frameworks reveals that all approaches remain far from ideal performance, demonstrating the fundamental difficulty of this benchmark.