diff --git a/.env.example b/.env.example
new file mode 100644
index 0000000..453fbb4
--- /dev/null
+++ b/.env.example
@@ -0,0 +1,31 @@
+# Database Configuration
+DATABASE_USER=SA
+DATABASE_PASSWORD=YourStrong@Passw0rd
+DATABASE_NAME=PathwayCoordinator
+DATABASE_HOST=db
+AZURE_WEB_JOBS_STORAGE=UseDevelopmentStorage=true
+DatabaseConnectionString=Server=${DATABASE_HOST};Database=${DATABASE_NAME};User Id=${DATABASE_USER};Password=${DATABASE_PASSWORD};TrustServerCertificate=True
+AzureWebJobsStorage=UseDevelopmentStorage=true
+FUNCTIONS_WORKER_RUNTIME=dotnet-isolated
+MailboxId=X26ABC1
+MeshSharedKey=TestKey
+MeshPassword=password
+BSSMailBox=X26ABC1
+MeshApiBaseUrl=http://localhost:8700/messageexchange
+ASPNETCORE_ENVIRONMENT=Development
+DiscoveryTimerExpression=*/5 * * * *
+QueueUrl=http://127.0.0.1:10001
+
+# API Configuration
+API_PORT=7071
+
+# Event Grid Configuration
+EVENT_GRID_TOPIC_URL=https://localhost:60101/api/events
+EVENT_GRID_TOPIC_KEY=TheLocal+DevelopmentKey=
+
+# Azurite Configuration
+AZURITE_ACCOUNT_KEY=Eby8vdM02xNOcqFlqUwJPLlmEtlCDXJ1OUzFT50uSRZ6IFsuFq2UVErCz4I6tq/K1SZFPTOtr/KBHBeksoGMGw==
+AZURITE_CONNECTION_STRING=DefaultEndpointsProtocol=http;AccountName=devstoreaccount1;AccountKey=Eby8vdM02xNOcqFlqUwJPLlmEtlCDXJ1OUzFT50uSRZ6IFsuFq2UVErCz4I6tq/K1SZFPTOtr/KBHBeksoGMGw==;BlobEndpoint=http://127.0.0.1:10000/devstoreaccount1;QueueEndpoint=http://127.0.0.1:10001/devstoreaccount1;TableEndpoint=http://127.0.0.1:10002/devstoreaccount1
+AZURITE_BLOB_PORT=10000
+AZURITE_QUEUE_PORT=10001
+AZURITE_TABLE_PORT=10002
diff --git a/compose.yaml b/compose.yaml
index 48fedf2..7b0059e 100644
--- a/compose.yaml
+++ b/compose.yaml
@@ -1,9 +1,8 @@
 services:
-  ### ✅ API (Azure Functions in .NET 9) ###
   api:
     container_name: "api"
     build:
-      context: ./src
+      context: ./Src
       dockerfile: ServiceLayer.API/Dockerfile
     platform: linux/amd64
     restart: always
@@ -11,11 +10,88 @@ services:
       FUNCTIONS_WORKER_RUNTIME: "dotnet-isolated"
       AzureWebJobsStorage: "${AZURE_WEB_JOBS_STORAGE}"
       AzureWebJobsSecretStorageType: "files"
+      DatabaseConnectionString: "${DatabaseConnectionString}"
+      EVENT_GRID_TOPIC_URL: "${EVENT_GRID_TOPIC_URL}"
+      EVENT_GRID_TOPIC_KEY: "${EVENT_GRID_TOPIC_KEY}"
     ports:
       - "${API_PORT}:80"
+    healthcheck:
+      test: ["CMD-SHELL", "curl -f http://localhost:80/api/health || exit 1"]
+      interval: 30s
+      timeout: 10s
+      retries: 3
+      start_period: 40s
+    depends_on:
+      azurite:
+        condition: service_healthy
+      db:
+        condition: service_healthy
+    networks:
+      - backend
+
+  azurite:
+    container_name: "azurite"
+    image: mcr.microsoft.com/azure-storage/azurite:latest
+    restart: always
+    command: "azurite --blobHost 0.0.0.0 --queueHost 0.0.0.0 --tableHost 0.0.0.0 --location /data --debug /data/debug.log"
+    ports:
+      - "${AZURITE_BLOB_PORT}:10000"
+      - "${AZURITE_QUEUE_PORT}:10001"
+      - "${AZURITE_TABLE_PORT}:10002"
+    healthcheck:
+      test: ["CMD-SHELL", "/bin/sh -c 'nc -z 127.0.0.1 10000 || exit 1'"]
+      interval: 10s
+      timeout: 5s
+      retries: 10
+      start_period: 15s
+    volumes:
+      - azurite-data:/data
+    networks:
+      - backend
+
+  db:
+    container_name: "db"
+    image: mcr.microsoft.com/mssql/server:2022-latest
+    restart: always
+    environment:
+      ACCEPT_EULA: "Y"
+      MSSQL_SA_PASSWORD: "${DATABASE_PASSWORD}"
+      MSSQL_PID: "Developer"
+    ports:
+      - "1433:1433"
+    user: "root"
+    volumes:
+      - db-data:/var/opt/mssql
+    healthcheck:
+      test: ["CMD-SHELL", "pgrep -f sqlservr || exit 1"]
+      interval: 20s
+      timeout: 10s
+      retries: 6
+      start_period: 60s
+    networks:
+      - backend
+
+  db-setup:
+    container_name: "db-setup"
+    build:
+      context: ./database
+      dockerfile: Dockerfile
+    restart: "no"
+    environment:
+      DATABASE_PASSWORD: "${DATABASE_PASSWORD}"
+    depends_on:
+      db:
+        condition: service_healthy
     networks:
       - backend
 
 networks:
   backend:
+    name: backend-network
     driver: bridge
+volumes:
+  azurite-data:
+    name: azurite-data
+  db-data:
+    name: db-data
+    driver: local
diff --git a/database/Dockerfile b/database/Dockerfile
new file mode 100644
index 0000000..bbe5048
--- /dev/null
+++ b/database/Dockerfile
@@ -0,0 +1,16 @@
+FROM mcr.microsoft.com/mssql-tools:v1
+
+# Use root initially to set permissions
+USER root
+WORKDIR /database
+COPY db-setup-entrypoint.sh /database/
+COPY create_database_statement.sql /database/
+
+RUN chmod +x /database/db-setup-entrypoint.sh && \
+    useradd -m -s /bin/bash mssqltools && \
+    chown -R mssqltools:mssqltools /database
+
+# Switch to non-root user for security
+USER mssqltools
+
+ENTRYPOINT ["/database/db-setup-entrypoint.sh"]
diff --git a/database/create_database_statement.sql b/database/create_database_statement.sql
new file mode 100644
index 0000000..a6db7d9
--- /dev/null
+++ b/database/create_database_statement.sql
@@ -0,0 +1,23 @@
+USE master;
+GO
+
+-- Check if database exists and create it if it doesn't
+IF NOT EXISTS (
+        SELECT name
+        FROM sys.databases
+        WHERE name = N'ServiceLayer'
+        )
+BEGIN
+    CREATE DATABASE [ServiceLayer];
+END
+GO
+
+USE [ServiceLayer];
+GO
+
+-- Only try to set QUERY_STORE if SQL Server version is higher than 12 (SQL 2014)
+IF CAST(SERVERPROPERTY('ProductVersion') AS NVARCHAR(128)) > '12'
+BEGIN
+    ALTER DATABASE [ServiceLayer] SET QUERY_STORE = ON;
+END
+GO
diff --git a/database/db-setup-entrypoint.sh b/database/db-setup-entrypoint.sh
new file mode 100644
index 0000000..062f666
--- /dev/null
+++ b/database/db-setup-entrypoint.sh
@@ -0,0 +1,21 @@
+#!/bin/bash
+echo "🔧 Starting DB setup..."
+
+# Check if the SQL script exists
+if [ ! -f /database/create_database_statement.sql ]; then
+  echo "❌ SQL script not found!"
+  exit 1
+fi
+
+echo "📡 Connecting to SQL Server at db..."
+until /opt/mssql-tools/bin/sqlcmd -S db -U SA -P "${DATABASE_PASSWORD}" -Q "SELECT 1;" > /dev/null 2>&1
+do
+    echo "⏳ Waiting for SQL Server..."
+    sleep 5
+done
+echo "✅ SQL Server is ready."
+
+# Run the SQL setup script to create the database
+/opt/mssql-tools/bin/sqlcmd -S db -U SA -P "${DATABASE_PASSWORD}" -d master -i /database/create_database_statement.sql
+
+echo "✅ Database setup completed."