diff --git a/README.md b/README.md
index aab7446..2a8b87f 100644
--- a/README.md
+++ b/README.md
@@ -11,3 +11,25 @@ source .venv/bin/activate  # Linux/Mac
 pip install -r requirements.txt
 uvicorn app.main:app --reload
 ```
+
+## Configuration
+
+Configuration is managed via YAML files in the `config/` directory.
+
+### Configuration File
+
+Edit `config/settings.yaml` to configure your environment:
+
+```yaml
+database:
+  sql_server:
+    host: your-host
+    port: 1433
+    database: your-database
+    username: your-username
+    password: your-password
+```
+
+### Local Overrides
+
+For local development, create `config/settings.local.yaml` to override specific values without committing them.