diff --git a/examples/plugin_example.py b/examples/plugin_example.py
new file mode 100644
index 00000000..ac179f89
--- /dev/null
+++ b/examples/plugin_example.py
@@ -0,0 +1,71 @@
+#!/usr/bin/env python3
+"""Example demonstrating how to use plugins with Claude Code SDK.
+
+Plugins allow you to extend Claude Code with custom commands, agents, skills,
+and hooks. This example shows how to load a local plugin and verify it's
+loaded by checking the system message.
+
+The demo plugin is located in examples/plugins/demo-plugin/ and provides
+a custom /greet command.
+"""
+
+from pathlib import Path
+
+import anyio
+
+from claude_agent_sdk import (
+    ClaudeAgentOptions,
+    SystemMessage,
+    query,
+)
+
+
+async def plugin_example():
+    """Example showing plugins being loaded in the system message."""
+    print("=== Plugin Example ===\n")
+
+    # Get the path to the demo plugin
+    # In production, you can use any path to your plugin directory
+    plugin_path = Path(__file__).parent / "plugins" / "demo-plugin"
+
+    options = ClaudeAgentOptions(
+        plugins=[
+            {
+                "type": "local",
+                "path": str(plugin_path),
+            }
+        ],
+        max_turns=1,  # Limit to one turn for quick demo
+    )
+
+    print(f"Loading plugin from: {plugin_path}\n")
+
+    found_plugins = False
+    async for message in query(prompt="Hello!", options=options):
+        if isinstance(message, SystemMessage) and message.subtype == "init":
+            print("System initialized!")
+            print(f"System message data keys: {list(message.data.keys())}\n")
+
+            # Check for plugins in the system message
+            plugins_data = message.data.get("plugins", [])
+            if plugins_data:
+                print("Plugins loaded:")
+                for plugin in plugins_data:
+                    print(f"  - {plugin.get('name')} (path: {plugin.get('path')})")
+                found_plugins = True
+            else:
+                print("Note: Plugin was passed via CLI but may not appear in system message.")
+                print(f"Plugin path configured: {plugin_path}")
+                found_plugins = True
+
+    if found_plugins:
+        print("\nPlugin successfully configured!\n")
+
+
+async def main():
+    """Run all plugin examples."""
+    await plugin_example()
+
+
+if __name__ == "__main__":
+    anyio.run(main)
diff --git a/examples/plugins/demo-plugin/.claude-plugin/plugin.json b/examples/plugins/demo-plugin/.claude-plugin/plugin.json
new file mode 100644
index 00000000..a33038ef
--- /dev/null
+++ b/examples/plugins/demo-plugin/.claude-plugin/plugin.json
@@ -0,0 +1,8 @@
+{
+  "name": "demo-plugin",
+  "description": "A demo plugin showing how to extend Claude Code with custom commands",
+  "version": "1.0.0",
+  "author": {
+    "name": "Claude Code Team"
+  }
+}
diff --git a/examples/plugins/demo-plugin/commands/greet.md b/examples/plugins/demo-plugin/commands/greet.md
new file mode 100644
index 00000000..5274b20e
--- /dev/null
+++ b/examples/plugins/demo-plugin/commands/greet.md
@@ -0,0 +1,5 @@
+# Greet Command
+
+This is a custom greeting command from the demo plugin.
+
+When the user runs this command, greet them warmly and explain that this message came from a custom plugin loaded via the Python SDK. Tell them that plugins can be used to extend Claude Code with custom commands, agents, skills, and hooks.
diff --git a/src/claude_agent_sdk/__init__.py b/src/claude_agent_sdk/__init__.py
index 1a5ebf5f..cde28be0 100644
--- a/src/claude_agent_sdk/__init__.py
+++ b/src/claude_agent_sdk/__init__.py
@@ -39,6 +39,7 @@
     PreCompactHookInput,
     PreToolUseHookInput,
     ResultMessage,
+    SdkPluginConfig,
     SettingSource,
     StopHookInput,
     SubagentStopHookInput,
@@ -339,6 +340,8 @@ async def call_tool(name: str, arguments: dict[str, Any]) -> Any:
     # Agent support
     "AgentDefinition",
     "SettingSource",
+    # Plugin support
+    "SdkPluginConfig",
     # MCP Server Support
     "create_sdk_mcp_server",
     "tool",
diff --git a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
index f19403c7..1ec352f9 100644
--- a/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
+++ b/src/claude_agent_sdk/_internal/transport/subprocess_cli.py
@@ -191,6 +191,14 @@ def _build_command(self) -> list[str]:
         )
         cmd.extend(["--setting-sources", sources_value])
 
+        # Add plugin directories
+        if self._options.plugins:
+            for plugin in self._options.plugins:
+                if plugin["type"] == "local":
+                    cmd.extend(["--plugin-dir", plugin["path"]])
+                else:
+                    raise ValueError(f"Unsupported plugin type: {plugin['type']}")
+
         # Add extra args for future CLI flags
         for flag, value in self._options.extra_args.items():
             if value is None:
diff --git a/src/claude_agent_sdk/types.py b/src/claude_agent_sdk/types.py
index be1cb996..efeaf70b 100644
--- a/src/claude_agent_sdk/types.py
+++ b/src/claude_agent_sdk/types.py
@@ -406,6 +406,16 @@ class McpSdkServerConfig(TypedDict):
 )
 
 
+class SdkPluginConfig(TypedDict):
+    """SDK plugin configuration.
+
+    Currently only local plugins are supported via the 'local' type.
+    """
+
+    type: Literal["local"]
+    path: str
+
+
 # Content block types
 @dataclass
 class TextBlock:
@@ -542,6 +552,8 @@ class ClaudeAgentOptions:
     agents: dict[str, AgentDefinition] | None = None
     # Setting sources to load (user, project, local)
     setting_sources: list[SettingSource] | None = None
+    # Plugin configurations for custom plugins
+    plugins: list[SdkPluginConfig] = field(default_factory=list)
 
 
 # SDK Control Protocol