diff --git a/.env.example b/.env.example
index 5ccd61a..fb3eff7 100644
--- a/.env.example
+++ b/.env.example
@@ -10,7 +10,20 @@
 # your shell profile, the shell value takes precedence.
 
 # Database
-DATABASE_URL=postgresql://smriti:smriti@localhost:5432/smriti
+#
+# Solo/local mode is the low-friction default. It uses a local SQLite
+# database file and does not require Docker or Postgres.
+SMRITI_DB_MODE=local
+
+# Optional: override the local SQLite database path.
+# Default: ~/.smriti/smriti.db
+# SMRITI_LOCAL_DB_PATH=~/.smriti/smriti.db
+
+# Shared/team mode: uncomment for Postgres-backed operation.
+# If DATABASE_URL is explicitly set to a Postgres URL, Smriti preserves
+# Postgres behavior.
+# SMRITI_DB_MODE=postgres
+# DATABASE_URL=postgresql://smriti:smriti@localhost:5432/smriti
 
 # Provider API keys — uncomment and set the ones you want to use.
 # If unset, the backend falls back to config/providers.yaml, then to
diff --git a/AGENTS.md b/AGENTS.md
index 9fe1a1b..db1f740 100644
--- a/AGENTS.md
+++ b/AGENTS.md
@@ -224,8 +224,8 @@ are a client of it. You do not own it.
   That is your reachability check — no separate health probe needed.
 - **If the backend is unreachable, stop and tell the human.** Say:
   "The Smriti backend is not reachable at http://localhost:8000.
-  Please start it with `make dev` and ensure Postgres is running
-  via `docker compose up -d postgres`."
+  Please start it with `make dev-local` for solo/local mode, or
+  `make dev-postgres` for Postgres/shared-team mode."
 - **Do not attempt to start, restart, or manage the backend or
   Docker yourself.** Starting the server from inside an agent's
   tool loop creates environment-variable inheritance issues that
diff --git a/Makefile b/Makefile
index d42c7f3..740af7d 100644
--- a/Makefile
+++ b/Makefile
@@ -1,4 +1,4 @@
-.PHONY: help dev up down test test-unit test-int lint format migrate
+.PHONY: help dev dev-local dev-postgres up down test test-unit test-int lint format migrate setup setup-local setup-postgres
 
 VENV := cd backend && source .venv/bin/activate &&
 
@@ -21,9 +21,15 @@ logs:  ## Follow logs
 
 # ── Backend ──────────────────────────────────────────────────────────────────
 
-dev:  ## Run backend dev server locally (requires venv)
+dev:  ## Run backend dev server with configured DB mode (requires venv)
 	$(VENV) uvicorn app.main:app --reload --port 8000
 
+dev-local:  ## Run backend in local-first SQLite mode
+	$(VENV) SMRITI_DB_MODE=local uvicorn app.main:app --reload --port 8000
+
+dev-postgres:  ## Run backend in Postgres mode
+	$(VENV) SMRITI_DB_MODE=postgres uvicorn app.main:app --reload --port 8000
+
 test:  ## Run all backend tests
 	$(VENV) python -m pytest -v
 
@@ -44,8 +50,8 @@ format:  ## Format backend code
 
 # ── Database ─────────────────────────────────────────────────────────────────
 
-migrate:  ## Run database migrations
-	$(VENV) alembic upgrade head
+migrate:  ## Run database migrations for Postgres/shared mode
+	$(VENV) SMRITI_DB_MODE=postgres alembic upgrade head
 
 migration:  ## Create a new migration (usage: make migration msg="add users table")
 	$(VENV) alembic revision --autogenerate -m "$(msg)"
@@ -71,11 +77,25 @@ install:  ## Install all dependencies (creates venv, installs CLI + MCP server)
 	cd cli && ../backend/.venv/bin/pip install -e .
 	cd frontend && npm install
 
-setup:  ## Full local setup (venv + deps + migrations)
+setup: setup-local  ## Default solo setup (local-first SQLite)
+
+setup-local:  ## Solo setup: venv + deps + local SQLite path, no Docker
+	cp -n .env.example .env || true
+	mkdir -p "$$HOME/.smriti"
+	$(MAKE) install
+	@echo "\n✅ Setup complete!"
+	@echo "    Mode:            local SQLite"
+	@echo "    Local DB path:   $${SMRITI_LOCAL_DB_PATH:-$$HOME/.smriti/smriti.db}"
+	@echo "    Activate the CLI:  source backend/.venv/bin/activate"
+	@echo "    Start backend:     make dev-local"
+	@echo "    Start frontend:    make dev-frontend"
+
+setup-postgres:  ## Shared/team setup: venv + deps + Docker Postgres + migrations
 	cp -n .env.example .env || true
 	$(MAKE) install
+	docker compose up -d postgres
 	$(MAKE) migrate
-	@echo "\n✅ Setup complete!"
+	@echo "\n✅ Postgres setup complete!"
 	@echo "    Activate the CLI:  source backend/.venv/bin/activate"
-	@echo "    Start backend:     make dev"
+	@echo "    Start backend:     make dev-postgres"
 	@echo "    Start frontend:    make dev-frontend"
diff --git a/README.md b/README.md
index 24b978c..6e8543d 100644
--- a/README.md
+++ b/README.md
@@ -72,9 +72,10 @@ One project, one Smriti Space, multiple agents. Each reads the state, declares i
 
 ## Getting started
 
-You will need: Python 3.11+, Node 18+, Docker (for Postgres).
+You will need: Python 3.11+ and Node 18+. Docker is only needed for
+Postgres/shared-team mode.
 
-### 1. Clone and set up
+### 1. Clone and set up for solo/local mode
 
 ```bash
 git clone https://github.com/himanshudongre/smriti
@@ -89,11 +90,14 @@ cp .env.example .env
 #   SMRITI_GENERIC_MODEL=llama3.1:8b
 # See .env.example for details.
 
-docker compose up -d postgres    # start the database
-make setup                       # backend venv + deps + migrations + CLI + frontend
+make setup-local                 # backend venv + CLI + frontend, no Docker
 ```
 
-`make setup` installs the backend, the CLI (`smriti` + `smriti-mcp`), and the frontend. The CLI binaries are installed into the backend venv at `backend/.venv/bin/`. To use them from your shell:
+Local mode uses SQLite at `~/.smriti/smriti.db` by default. Override it
+with `SMRITI_LOCAL_DB_PATH=/path/to/smriti.db` if you want the database
+somewhere else.
+
+`make setup-local` installs the backend, the CLI (`smriti` + `smriti-mcp`), and the frontend. The CLI binaries are installed into the backend venv at `backend/.venv/bin/`. To use them from your shell:
 
 ```bash
 source backend/.venv/bin/activate
@@ -102,12 +106,32 @@ source backend/.venv/bin/activate
 ### 2. Start the backend and frontend
 
 ```bash
-make dev              # backend on http://localhost:8000 (keep running)
+make dev-local        # backend on http://localhost:8000 (keep running)
 make dev-frontend     # frontend on http://localhost:5173 (separate terminal)
 ```
 
 **For the chat UI only, you're done.** Open http://localhost:5173.
 
+### Shared/team mode with Postgres
+
+Postgres remains the stronger shared/team mode. Use it when you want an
+explicit database service, Docker-backed state, or a closer path toward a
+hosted deployment.
+
+```bash
+cp .env.example .env
+# In .env, set:
+#   SMRITI_DB_MODE=postgres
+#   DATABASE_URL=postgresql://smriti:smriti@localhost:5432/smriti
+
+make setup-postgres              # starts Docker Postgres and runs migrations
+make dev-postgres                # backend on http://localhost:8000
+make dev-frontend                # frontend on http://localhost:5173
+```
+
+If `DATABASE_URL` is explicitly set to a Postgres URL, Smriti preserves
+Postgres behavior.
+
 ### 3. For coding agents
 
 **Quick path:**
@@ -139,7 +163,11 @@ smriti skills install claude-code     # → .claude/skills/smriti/SKILL.md
 smriti skills install codex           # → AGENTS.md (commit it)
 ```
 
-**Runtime model.** Postgres runs in Docker. The backend runs locally via `make dev`. The human starts both. Agents are clients of `http://localhost:8000` — they do not manage the backend.
+**Runtime model.** In solo/local mode, Smriti stores state in a SQLite
+file and the backend runs locally via `make dev-local`. In shared/team
+mode, Postgres runs in Docker and the backend runs via `make dev-postgres`.
+Agents are clients of `http://localhost:8000` — they do not manage the
+backend.
 
 ### 4. Auto-inject state at session start (Claude Code)
 
@@ -152,7 +180,7 @@ smriti skills install codex           # → AGENTS.md (commit it)
         "hooks": [
           {
             "type": "command",
-            "command": "smriti state my-project --compact 2>/dev/null || echo 'Smriti backend not reachable. Start it with: make dev'"
+            "command": "smriti state my-project --compact 2>/dev/null || echo 'Smriti backend not reachable. Start it with: make dev-local'"
           }
         ]
       }
diff --git a/cli/README.md b/cli/README.md
index ca126ae..d6d2abf 100644
--- a/cli/README.md
+++ b/cli/README.md
@@ -23,6 +23,11 @@ export SMRITI_API_URL=http://localhost:8000
 
 Or pass `--api-url` on any command.
 
+Local-first vs Postgres storage is configured on the backend, not in the
+CLI. For solo use, start the backend with `make dev-local`; for
+Postgres/shared-team use, start it with `make dev-postgres`. The CLI and
+MCP server keep talking to the same HTTP API either way.
+
 ## MCP server
 
 Run Smriti as a local MCP server so agents inside Claude Code, Cursor, or Windsurf can read and write reasoning state natively — no subprocess-shelling to the `smriti` binary.
diff --git a/cli/smriti_cli/main.py b/cli/smriti_cli/main.py
index 60bf57e..387f87d 100644
--- a/cli/smriti_cli/main.py
+++ b/cli/smriti_cli/main.py
@@ -937,8 +937,8 @@ def cmd_init(client: SmritiClient, args: argparse.Namespace) -> None:
     except Exception:
         _fail(
             f"error: Cannot reach Smriti backend at {client.base_url}.\n"
-            "Start the backend with `make dev` and ensure Postgres is running "
-            "via `docker compose up -d postgres`."
+            "Start the backend with `make dev-local` for solo/local mode, "
+            "or `make dev-postgres` for Postgres/shared-team mode."
         )
         return
 
@@ -999,7 +999,7 @@ def cmd_init(client: SmritiClient, args: argparse.Namespace) -> None:
     settings_path = Path(".claude/settings.json")
     hook_command = (
         f"backend/.venv/bin/smriti state {space_name} --preview 2>/dev/null "
-        f"|| echo 'Smriti backend not reachable. Start with: make dev'"
+        f"|| echo 'Smriti backend not reachable. Start with: make dev-local'"
     )
     hook_entry = {
         "type": "command",
diff --git a/cli/smriti_cli/skill_pack/template.md b/cli/smriti_cli/skill_pack/template.md
index b382404..26070f1 100644
--- a/cli/smriti_cli/skill_pack/template.md
+++ b/cli/smriti_cli/skill_pack/template.md
@@ -1,5 +1,5 @@
 ---
-smriti_skill_pack_version: 2.2
+smriti_skill_pack_version: 2.3
 title: Smriti — how to use it well
 target: {{display_name}}
 ---
@@ -241,8 +241,8 @@ are a client of it. You do not own it.
   That is your reachability check — no separate health probe needed.
 - **If the backend is unreachable, stop and tell the human.** Say:
   "The Smriti backend is not reachable at http://localhost:8000.
-  Please start it with `make dev` and ensure Postgres is running
-  via `docker compose up -d postgres`."
+  Please start it with `make dev-local` for solo/local mode, or
+  `make dev-postgres` for Postgres/shared-team mode."
 - **Do not attempt to start, restart, or manage the backend or
   Docker yourself.** Starting the server from inside an agent's
   tool loop creates environment-variable inheritance issues that
@@ -257,7 +257,8 @@ are a client of it. You do not own it.
   the backend is running stale code. Tell the human: "The backend
   at localhost:8000 does not support [feature]. Its git_sha is
   [sha] but the current repo is at [repo sha]. Please restart
-  the backend with `make dev` to pick up recent changes."
+  the backend with the same mode you are using (`make dev-local`
+  or `make dev-postgres`) to pick up recent changes."
   For worktree-aware coordination, the capabilities list should include
   both `worktrees` and `worktree_binding`.
 - **When to check capabilities:** You do NOT need to check on every
diff --git a/cli/tests/test_skill_pack.py b/cli/tests/test_skill_pack.py
index abda752..76499ef 100644
--- a/cli/tests/test_skill_pack.py
+++ b/cli/tests/test_skill_pack.py
@@ -43,7 +43,7 @@ def test_load_template_nonempty():
 
 def test_get_version_parses_frontmatter():
     version = get_version()
-    assert version == "2.2"
+    assert version == "2.3"
 
 
 def test_get_version_raises_when_frontmatter_missing():