diff --git a/README.md b/README.md
index e9fba43..c5ba7c6 100644
--- a/README.md
+++ b/README.md
@@ -5,19 +5,34 @@ A simple file storage service with user buckets and usage limits.
 ## Setup
 
 1. Set up PostgreSQL database and run the schema:
-
 ```bash
 psql -d termcloud -f internal/db/schema.sql
 ```
 
-2. Set environment variables:
-
+2. Configure environment variables (copy `.env.example` to `.env` and customize):
 ```bash
-# .env.example
-DATABASE_URL="postgres://user:password@localhost/termcloud"
-PORT="8080"
+cp .env.example .env
+# Edit .env with your settings
 ```
 
+### Configuration Options
+
+| Variable | Default | Description |
+|----------|---------|-------------|
+| `DATABASE_URL` | - | PostgreSQL connection string |
+| `PORT` | 8080 | Server port |
+| `STORAGE_DIR` | storage | Directory for file storage |
+| `MAX_FILE_SIZE_MB` | 100 | Maximum file size in MB |
+| `RATE_LIMIT` | 20.0 | Requests per second limit |
+| `CORS_ORIGINS` | * | Allowed CORS origins |
+| `GZIP_LEVEL` | 5 | Gzip compression level (1-9) |
+| `DB_MAX_CONNECTIONS` | 100 | Maximum database connections |
+| `DB_MIN_CONNECTIONS` | 10 | Minimum database connections |
+| `DB_CONN_LIFETIME` | 1h | Connection lifetime |
+| `DB_CONN_IDLE_TIME` | 1m | Connection idle timeout |
+| `DB_HEALTH_CHECK_PERIOD` | 5s | Health check interval |
+| `DEFAULT_STORAGE_LIMIT_GB` | 1 | Default user storage limit |
+
 3. Build and run:
 
 ```bash