diff --git a/.gitignore b/.gitignore
index d8fa784..558b175 100644
--- a/.gitignore
+++ b/.gitignore
@@ -1,5 +1,6 @@
 api/**/*.db
-
+api/data
+api/docker-compose.yml
 
 
 # Byte-compiled / optimized / DLL files
diff --git a/README.md b/README.md
index 0845a28..b0539c3 100644
--- a/README.md
+++ b/README.md
@@ -35,6 +35,19 @@ directories.
 
 ### API
 
+#### Docker
+
+The API can be run using docker-compose. The `docker-compose.yml.example` file can be copied to `docker-compose.yml` and the environment variables can be set in the `.env` file.
+
+```bash
+cd honcho/api
+cp docker-compose.yml.example docker-compose.yml
+[ update the file with openai key and other wanted environment variables ]
+docker compose up -d
+```
+
+#### Manually
+
 The API can be run either by installing the necessary dependencies and then
 specifying the appropriate environment variables.
 
@@ -48,7 +61,7 @@ poetry install # install dependencies
 
 2. Copy the `.env.template` file and specify the type of database and
    connection_uri. For testing sqlite is fine. The below example uses an
-   in-memory sqlite database. 
+   in-memory sqlite database.
 
 > Honcho has been tested with Postgresql and PGVector
 
@@ -72,26 +85,11 @@ poetry shell # Activate virtual environment if not already enabled
 python -m uvicorn src.main:app --reload
 ```
 
-#### Docker
-
-Alternatively there is also a `Dockerfile` included to run the API server from a
-docker container.
-
-The `.env` file is not loaded into the docker container and should still be
-configured from outside.
-
-```bash
-cd honcho/api
-docker build -t honcho-api .
-docker run --env-file .env -p 8000:8000 honcho-api:latest
-```
-
 #### Deploy on Fly
 
 The API can also be deployed on fly.io. Follow the [Fly.io
 Docs](https://fly.io/docs/getting-started/) to setup your environment and the
-`flyctl`. 
-
+`flyctl`.
 
 Once `flyctl` is set up use the following commands to launch the application:
 
@@ -134,12 +132,12 @@ See more information [here](https://python-poetry.org/docs/cli/#add)
 This project is completely open source and welcomes any and all open source
 contributions. The workflow for contributing is to make a fork of the
 repository. You can claim an issue in the issues tab or start a new thread to
-indicate a feature or bug fix you are working on. 
+indicate a feature or bug fix you are working on.
 
 Once you have finished your contribution make a PR pointed at the `staging`
 branch, and it will be reviewed by a project manager. Feel free to join us in
 our [discord](http://discord.gg/plasticlabs) to discuss your changes or get
-help. 
+help.
 
 Once your changes are accepted and merged into staging they will undergo a
 period of live testing before entering the upstream into `main`
diff --git a/api/docker-compose.yml.example b/api/docker-compose.yml.example
new file mode 100644
index 0000000..60fc24d
--- /dev/null
+++ b/api/docker-compose.yml.example
@@ -0,0 +1,39 @@
+version: "3.8"
+services:
+  api:
+    build:
+      context: .
+      dockerfile: Dockerfile
+    ports:
+      - 8000:8000
+    volumes:
+      - .:/app
+    environment:
+      - DATABASE_TYPE=postgres
+      - CONNECTION_URI=postgresql://testuser:testpwd@database:5432/honcho
+      - OPENAI_API_KEY=[YOUR_OPENAI_API_KEY]
+      - OPENTELEMETRY_ENABLED=false
+      - SENTRY_ENABLED=false
+      - SENTRY_DSN=
+      - OTEL_SERVICE_NAME=honcho
+      - OTEL_PYTHON_LOGGING_AUTO_INSTRUMENTATION_ENABLED=true
+      - OTEL_PYTHON_LOG_CORRELATION=true
+      - OTEL_PYTHON_LOG_LEVEL=
+      - OTEL_EXPORTER_OTLP_PROTOCOL=
+      - OTEL_EXPORTER_OTLP_ENDPOINT=
+      - OTEL_EXPORTER_OTLP_HEADERS=
+      - OTEL_RESOURCE_ATTRIBUTES=
+      - DEBUG_LOG_OTEL_TO_PROVIDER=false
+      - DEBUG_LOG_OTEL_TO_CONSOLE=true
+  database:
+    image: ankane/pgvector
+    restart: always
+    environment:
+      - POSTGRES_DB=honcho
+      - POSTGRES_USER=testuser
+      - POSTGRES_PASSWORD=testpwd
+      - POSTGRES_HOST_AUTH_METHOD=trust
+      - PGDATA=/var/lib/postgresql/data/pgdata
+    volumes:
+      - ./local/init.sql:/docker-entrypoint-initdb.d/init.sql
+      - ./data:/var/lib/postgresql/data/