diff --git a/ARCHITECTURE.md b/ARCHITECTURE.md
index 7b4f15e8c80..de2455a51a0 100644
--- a/ARCHITECTURE.md
+++ b/ARCHITECTURE.md
@@ -4,6 +4,21 @@ This document helps contributors understand where to make changes in LiteLLM.
 
 ---
 
+## How It Works
+
+The AI Gateway (Proxy) uses the LiteLLM SDK internally for all LLM calls:
+
+```
+OpenAI SDK (client)    ──▶  AI Gateway (proxy/)  ──▶  LiteLLM SDK (litellm/)  ──▶  LLM API
+Anthropic SDK (client) ──▶  AI Gateway (proxy/)  ──▶  LiteLLM SDK (litellm/)  ──▶  LLM API
+Any HTTP client        ──▶  AI Gateway (proxy/)  ──▶  LiteLLM SDK (litellm/)  ──▶  LLM API
+```
+
+The **AI Gateway** adds authentication, rate limiting, budgets, and routing on top of the SDK.
+The **SDK** handles the actual LLM provider calls, request/response transformations, and streaming.
+
+---
+
 ## 1. AI Gateway (Proxy) Request Flow
 
 The AI Gateway (`litellm/proxy/`) wraps the SDK with authentication, rate limiting, and management features.