Although LLMs can generate tools for generic domains and tasks, they struggle with enterprise-related domains that involve proprietary APIs and data schemas. We present ToolSmith, a framework for autonomously generating and validating agent-compatible tools. Given an API specification and a Tool Specification Requirement (TSR), ToolSmith produces a tool function and verifies it through a closed-loop process: it creates natural language (NL) tests and executes the tool in a secure agent sandbox for validation. For state-changing tools, ToolSmith confirms outcomes by querying the API with parameters derived from the NL tests. If the tool fails to produce the desired output, ToolSmith generates diagnostic feedback to iteratively regenerate it. By ensuring both functional correctness and agent compatibility, ToolSmith enables reliable automation of enterprise workflows.