diff --git a/AGENTS.md b/AGENTS.md
index ebbdee9..5d2c700 100644
--- a/AGENTS.md
+++ b/AGENTS.md
@@ -141,7 +141,15 @@ go run cmd/server/main.go &
 
 **Configuration File Support:**
 
-A `config.example.yaml` file is provided as a template:
+A `config.example.yaml` file is provided as a template. By default, the application looks for `config.yaml` in the current working directory.
+
+To specify a custom config file path, set the `DLC_CONFIG_FILE` environment variable:
+
+```bash
+DLC_CONFIG_FILE="/path/to/config.yaml" go run ./cmd/server
+```
+
+Example `config.yaml`:
 
 ```yaml
 server:
@@ -153,10 +161,12 @@ shutdown:
 ```
 
 **Configuration Loading:**
-- Environment variables take precedence over defaults
+- **File-based configuration** takes highest precedence
+- **Environment variables** override defaults but are overridden by config file
+- **Default values** are used when no other configuration is provided
 - All configuration is validated on startup
 - Invalid configurations cause server startup failure
-- Configuration values are logged at startup
+- Configuration values and source are logged at startup
 
 **Verification:**
 ```bash
diff --git a/README.md b/README.md
index be31820..4af5e1e 100644
--- a/README.md
+++ b/README.md
@@ -1,11 +1,16 @@
 # DanceLessonsCoach
 
-A simple Go project demonstrating idiomatic package structure and CLI implementation.
+A Go project demonstrating idiomatic package structure, CLI implementation, and JSON API with Chi router.
 
 ## Features
 
 - Greet function with default behavior
 - Command-line interface
+- JSON API with versioned endpoints
+- Chi router integration
+- Zerolog for high-performance logging
+- Viper for configuration management
+- Graceful shutdown with context
 - Unit tests
 - Go 1.26.1 compatible
 
@@ -20,8 +25,70 @@ cd DanceLessonsCoach
 go run ./cmd/greet
 ```
 
+## Optional Configuration
+
+The project supports configuration via YAML file, environment variables, or defaults.
+Configuration priority: file > environment variables > defaults
+
+### Configuration File
+
+By default, the application looks for `config.yaml` in the current working directory.
+
+Create a `config.yaml` file:
+
+```yaml
+server:
+  host: "0.0.0.0"
+  port: 8080
+shutdown:
+  timeout: 30s
+```
+
+Then start the server:
+
+```bash
+go run ./cmd/server
+```
+
+### Custom Config File Path
+
+To specify a custom config file path, use the `DLC_CONFIG_FILE` environment variable:
+
+```bash
+# Use a specific config file
+export DLC_CONFIG_FILE="/path/to/your/config.yaml"
+go run ./cmd/server
+
+# Or in one command
+DLC_CONFIG_FILE="/path/to/your/config.yaml" go run ./cmd/server
+```
+
+### Environment Variables
+
+You can also configure via environment variables with `DLC_` prefix:
+
+```bash
+# Set configuration via environment variables
+export DLC_SERVER_HOST="0.0.0.0"
+export DLC_SERVER_PORT=8080
+export DLC_SHUTDOWN_TIMEOUT=30s
+
+# Start the server
+go run ./cmd/server
+```
+
+### Configuration Priority
+
+1. **File-based configuration** (highest priority)
+2. **Environment variables** (override defaults)
+3. **Default values** (lowest priority)
+
+This means if you have both a config file and environment variables, the file takes precedence.
+
 ## Usage
 
+### CLI
+
 ```bash
 # Default greeting
 go run ./cmd/greet
@@ -32,6 +99,23 @@ go run ./cmd/greet John
 # Output: Hello John!
 ```
 
+### Web Server
+
+```bash
+# Start the server
+go run ./cmd/server
+
+# Test API endpoints
+curl http://localhost:8080/api/health
+# Output: {"status":"healthy"}
+
+curl http://localhost:8080/api/v1/greet
+# Output: {"message":"Hello world!"}
+
+curl http://localhost:8080/api/v1/greet/John
+# Output: {"message":"Hello John!"}
+```
+
 ## Testing
 
 ```bash
@@ -47,12 +131,20 @@ go test ./pkg/greet/
 ```
 DanceLessonsCoach/
 ├── cmd/
-│   └── greet/
-│       └── main.go          # CLI entry point
+│   ├── greet/              # CLI entry point
+│   │   └── main.go
+│   └── server/             # Web server entry point
+│       └── main.go
 ├── pkg/
-│   └── greet/
-│       ├── greet.go         # Core library
-│       └── greet_test.go    # Unit tests
+│   ├── config/             # Configuration management
+│   │   └── config.go
+│   ├── greet/              # Core greet functionality
+│   │   ├── api_v1.go       # API v1 handlers
+│   │   ├── greet.go        # Core service
+│   │   └── greet_test.go    # Unit tests
+│   └── server/             # Server implementation
+│       └── server.go
+├── config.example.yaml     # Configuration template
 ├── go.mod                   # Go module definition
 └── README.md                # Project documentation
 ```
diff --git a/config.yaml b/config.yaml
new file mode 100644
index 0000000..2e88d1b
--- /dev/null
+++ b/config.yaml
@@ -0,0 +1,5 @@
+server:
+  host: "0.0.0.0"
+  port: 8080
+shutdown:
+  timeout: 5s
\ No newline at end of file
diff --git a/pkg/config/config.go b/pkg/config/config.go
index 38d2e0f..20e96e2 100644
--- a/pkg/config/config.go
+++ b/pkg/config/config.go
@@ -2,6 +2,7 @@ package config
 
 import (
 	"fmt"
+	"os"
 	"time"
 
 	"github.com/rs/zerolog/log"
@@ -19,7 +20,9 @@ type Config struct {
 	}
 }
 
-// LoadConfig loads configuration from environment variables and defaults
+// LoadConfig loads configuration from file, environment variables, and defaults
+// Configuration priority: file > environment variables > defaults
+// To specify a custom config file path, set DLC_CONFIG_FILE environment variable
 func LoadConfig() (*Config, error) {
 	v := viper.New()
 	
@@ -28,6 +31,28 @@ func LoadConfig() (*Config, error) {
 	v.SetDefault("server.port", 8080)
 	v.SetDefault("shutdown.timeout", 30*time.Second)
 	
+	// Check for custom config file path via environment variable
+	if configFile := os.Getenv("DLC_CONFIG_FILE"); configFile != "" {
+		v.SetConfigFile(configFile)
+		log.Info().Str("config_file", configFile).Msg("Using custom config file path")
+	} else {
+		// Default: look for config.yaml in current directory
+		v.SetConfigName("config")
+		v.SetConfigType("yaml")
+		v.AddConfigPath(".")
+	}
+	
+	// Read config file if it exists
+	if err := v.ReadInConfig(); err != nil {
+		if _, ok := err.(viper.ConfigFileNotFoundError); !ok {
+			// Config file was found but there was an error reading it
+			log.Warn().Err(err).Msg("Error reading config file, using defaults")
+		}
+		// Config file not found, continue with environment variables and defaults
+	} else {
+		log.Info().Str("config_file", v.ConfigFileUsed()).Msg("Config file loaded")
+	}
+	
 	// Bind environment variables
 	v.AutomaticEnv()
 	v.SetEnvPrefix("DLC") // DanceLessonsCoach prefix