diff --git a/.env.example b/.env.example
index 225b588..76c4c1d 100644
--- a/.env.example
+++ b/.env.example
@@ -1,2 +1,3 @@
 # OpenRouter API key (https://openrouter.ai/keys). OPENAI_API_KEY also accepted.
+# Copy this file to ~/.gcode/.env, then edit the key value.
 OPENROUTER_API_KEY=sk-or-your-openrouter-key-here
diff --git a/CONTRIBUTING.md b/CONTRIBUTING.md
index 179aee8..773c79d 100644
--- a/CONTRIBUTING.md
+++ b/CONTRIBUTING.md
@@ -8,11 +8,12 @@
 git clone https://github.com/shauryagangrade/GCode.git
 cd GCode
 pip install -e .
-cp .env.example .env
+mkdir -p ~/.gcode && cp .env.example ~/.gcode/.env
 gcode
 ```
 
-You will need an OpenRouter API key. Copy the `.env.example` file, name it `.env`, and fill in your `OPENROUTER_API_KEY`.
+You will need an OpenRouter API key. Copy the `.env.example` file to
+`~/.gcode/.env` and fill in your `OPENROUTER_API_KEY`.
 
 ---
 
diff --git a/README.md b/README.md
index 4a972dd..907536a 100644
--- a/README.md
+++ b/README.md
@@ -30,7 +30,15 @@ pip install -e .
 
 ## Setup
 
-Copy `.env.example` to `.env` and add your OpenRouter API key:
+GCode reads your API key from `~/.gcode/.env` (not a project-root `.env`).
+Create it from the template and add your OpenRouter API key:
+
+```bash
+mkdir -p ~/.gcode
+cp .env.example ~/.gcode/.env
+```
+
+Then edit `~/.gcode/.env`:
 
 ```
 OPENROUTER_API_KEY=sk-or-...