diff --git a/crates/goose-api/README.md b/crates/goose-api/README.md
index 3b5469a4..b7fb63a5 100644
--- a/crates/goose-api/README.md
+++ b/crates/goose-api/README.md
@@ -28,15 +28,19 @@ cargo build --release
 
 ## Configuration
 
-Goose API supports configuration through both environment variables and a configuration file. The precedence order is:
+Goose API supports configuration via environment variables and configuration files.
+The precedence order is:
 
 1. Environment variables (highest priority)
-2. Configuration file (lower priority)
-3. Default values (lowest priority)
+2. Goose CLI configuration file (usually `~/.config/goose/config.yaml`) if it exists
+3. `config` file shipped with the crate
+4. Default values (lowest priority)
 
 ### Configuration File
 
-Create a file named `config` (with no extension) in the directory where you run the goose-api. The format can be JSON, YAML, TOML, etc. (the `config` crate will detect the format automatically).
+If no CLI configuration file is found, goose-api looks for a `config` file in its
+crate directory. This file has no extension and can be JSON, YAML, TOML, etc.
+The `config` crate will detect the format automatically.
 
 Example `config` file (YAML format):
 
diff --git a/crates/goose-api/config b/crates/goose-api/config
new file mode 100644
index 00000000..6c721877
--- /dev/null
+++ b/crates/goose-api/config
@@ -0,0 +1,8 @@
+# API server configuration
+host: 0.0.0.0
+port: 8080
+api_key: kurac
+
+# Provider configuration
+provider: ollama
+model: qwen3:8b
diff --git a/crates/goose-api/src/config.rs b/crates/goose-api/src/config.rs
index 11911206..cc6057b9 100644
--- a/crates/goose-api/src/config.rs
+++ b/crates/goose-api/src/config.rs
@@ -8,7 +8,23 @@ use config::{builder::DefaultState, ConfigBuilder, Environment, File};
 use serde_json::Value;
 
 pub fn load_configuration() -> std::result::Result<config::Config, config::ConfigError> {
-    let config_path = std::env::var("GOOSE_CONFIG").unwrap_or_else(|_| "config".to_string());
+    // Determine the configuration file based on priority:
+    // 1. Explicit GOOSE_CONFIG env var
+    // 2. Goose CLI config if it exists
+    // 3. Fallback to config file packaged with goose-api
+
+    let config_path = if let Ok(path) = std::env::var("GOOSE_CONFIG") {
+        path
+    } else {
+        let global = Config::global();
+        if global.exists() {
+            global.path()
+        } else {
+            // Use the config file that ships with goose-api
+            format!("{}/config", env!("CARGO_MANIFEST_DIR"))
+        }
+    };
+
     let builder = ConfigBuilder::<DefaultState>::default()
         .add_source(File::with_name(&config_path).required(false))
         .add_source(Environment::with_prefix("GOOSE_API"));