diff --git a/README.md b/README.md
index c1a03e2c..fd135015 100644
--- a/README.md
+++ b/README.md
@@ -88,6 +88,57 @@ OPENMEMORY_URL=http://localhost:8080
 OPENMEMORY_API_KEY=your-openmemory-key
 ```
 
+#### OpenMemory Setup (Optional)
+
+OpenMemory provides infinite context for AI conversations. The setup script handles everything automatically:
+
+**Run the setup script**:
+```bash
+chmod +x services/openmemory-setup.sh
+./services/openmemory-setup.sh
+```
+
+The setup script will:
+- **Automatically clone** the OpenMemory backend from [CaviraOSS/OpenMemory](https://github.com/CaviraOSS/OpenMemory) (if not already present)
+- **Remove the `.git` directory** from the cloned repo to avoid nested git repositories
+- **Create the `.env` file** with default configuration (Gemini embeddings, SQLite database)
+- **Install dependencies** using `bun install`
+- **Build the TypeScript backend** using `bun run build`
+
+**Configure OpenMemory**:
+
+After running the setup script, edit `services/openmemory/backend/.env` and fill in the required variables:
+
+```bash
+# Required: Embedding Provider API Key
+# For Gemini (free tier):
+OM_GEMINI_API_KEY=your-gemini-api-key
+
+# Or for OpenAI:
+# OM_EMBED_PROVIDER=openai
+# OM_OPENAI_API_KEY=your-openai-api-key
+
+# API Key for OpenMemory (used by Mallory server to authenticate)
+OM_API_KEY=your-secure-api-key-here
+```
+
+**Add to Server Environment**:
+
+Add these to your `apps/server/.env` file:
+
+```bash
+# OpenMemory Configuration
+OPENMEMORY_URL=http://localhost:8080
+OPENMEMORY_API_KEY=your-secure-api-key-here  # Must match OM_API_KEY above
+```
+
+**Start OpenMemory**:
+```bash
+cd services/openmemory/backend && bun start
+```
+
+> **Note**: OpenMemory is optional. Mallory works without it, but you'll get better context retention in long conversations if you use it. The backend is cloned from the [CaviraOSS/OpenMemory](https://github.com/CaviraOSS/OpenMemory) repository and is not included in this repo (see `.gitignore`).
+
 ### 3. Run Development Servers
 
 #### Option A: Run Both (Client + Server)
diff --git a/services/openmemory-setup.sh b/services/openmemory-setup.sh
index 3b9aea49..ba979f9c 100755
--- a/services/openmemory-setup.sh
+++ b/services/openmemory-setup.sh
@@ -3,15 +3,55 @@
 
 echo "🚀 Setting up OpenMemory for Mallory..."
 
+# Check if OpenMemory backend directory exists
+if [ ! -d "services/openmemory/backend" ]; then
+  echo "❌ OpenMemory backend not found!"
+  echo ""
+  echo "The OpenMemory backend is not included in this repository."
+  echo "Cloning OpenMemory backend from CaviraOSS/OpenMemory..."
+  echo ""
+  
+  # Create directory if it doesn't exist
+  mkdir -p services/openmemory
+  
+  # Clone the repository
+  git clone https://github.com/CaviraOSS/OpenMemory.git services/openmemory/backend
+  
+  if [ $? -ne 0 ]; then
+    echo "❌ Failed to clone OpenMemory backend!"
+    echo "Please check your internet connection and try again."
+    exit 1
+  fi
+  
+  # Remove .git directory to avoid nested git repository
+  echo "🧹 Removing .git directory from cloned repository..."
+  rm -rf services/openmemory/backend/.git
+  
+  echo "✅ OpenMemory backend cloned successfully!"
+  echo ""
+fi
+
+# Check if package.json exists
+if [ ! -f "services/openmemory/backend/package.json" ]; then
+  echo "❌ OpenMemory backend package.json not found!"
+  echo ""
+  echo "The backend directory exists but doesn't contain the source code."
+  echo "Please ensure you've cloned the complete OpenMemory backend repository."
+  echo ""
+  exit 1
+fi
+
 # Create .env file if it doesn't exist
 if [ ! -f services/openmemory/backend/.env ]; then
   echo "📝 Creating OpenMemory .env file..."
+  mkdir -p services/openmemory/backend
   cat > services/openmemory/backend/.env << 'EOF'
 # OpenMemory Configuration for Mallory
+# See README.md for instructions on filling in these variables
 
 # Embedding Provider - Using Gemini (free tier!)
 OM_EMBED_PROVIDER=gemini
-OM_GEMINI_API_KEY=${GEMINI_API_KEY}
+OM_GEMINI_API_KEY=your-gemini-api-key-here
 
 # Server Configuration
 OM_PORT=8080
@@ -26,27 +66,57 @@ OM_TIER=smart
 # Vector Dimensions (Gemini)
 OM_VEC_DIM=768
 
-# API Key
-OM_API_KEY=${OPENMEMORY_API_KEY:-openmemory_dev_key}
+# API Key (used by Mallory server to authenticate with OpenMemory)
+# Generate a secure random string for production use
+OM_API_KEY=your-secure-api-key-here
 EOF
   echo "✅ .env file created"
 else
   echo "✅ .env file already exists"
 fi
 
+# Install dependencies if node_modules doesn't exist
+if [ ! -d "services/openmemory/backend/node_modules" ]; then
+  echo "📦 Installing OpenMemory dependencies..."
+  cd services/openmemory/backend
+  bun install
+  cd ../../..
+fi
+
 # Build OpenMemory
 echo "🔨 Building OpenMemory..."
 cd services/openmemory/backend
+
+# Check if build script exists in package.json
+if ! grep -q '"build"' package.json; then
+  echo "❌ 'build' script not found in package.json!"
+  echo ""
+  echo "The OpenMemory backend package.json is missing the 'build' script."
+  echo "Please ensure you've cloned the correct version of the OpenMemory backend."
+  echo ""
+  exit 1
+fi
+
 bun run build
 
+if [ $? -ne 0 ]; then
+  echo ""
+  echo "❌ Build failed!"
+  echo "Please check the error messages above and ensure:"
+  echo "  1. All dependencies are installed (bun install)"
+  echo "  2. The OpenMemory backend is up to date"
+  echo "  3. Required environment variables are set"
+  exit 1
+fi
+
 echo ""
 echo "✅ OpenMemory is ready!"
 echo ""
 echo "To start OpenMemory:"
 echo "  cd services/openmemory/backend && bun start"
 echo ""
-echo "Or add to your .env:"
-echo "  OPENMEMORY_URL=http://localhost:8080"
-echo "  OPENMEMORY_API_KEY=openmemory_dev_key"
-echo "  OPENAI_API_KEY=your_openai_key"
+echo "📝 Next steps:"
+echo "  1. Edit services/openmemory/backend/.env to configure your API keys"
+echo "  2. See README.md for required environment variables"
+echo "  3. Add OPENMEMORY_URL and OPENMEMORY_API_KEY to your server .env file"