diff --git a/deploy/docker-compose.tracing.yaml b/deploy/docker-compose.tracing.yaml
deleted file mode 100644
index 9522221f..00000000
--- a/deploy/docker-compose.tracing.yaml
+++ /dev/null
@@ -1,55 +0,0 @@
-version: '3.8'
-
-services:
-  # Jaeger all-in-one for distributed tracing
-  jaeger:
-    image: jaegertracing/all-in-one:latest
-    container_name: jaeger
-    ports:
-      - "4317:4317"   # OTLP gRPC
-      - "4318:4318"   # OTLP HTTP
-      - "16686:16686" # Jaeger UI
-      - "14268:14268" # Jaeger collector
-    environment:
-      - COLLECTOR_OTLP_ENABLED=true
-    networks:
-      - router-network
-
-  # Semantic Router with tracing enabled
-  semantic-router:
-    image: vllm-semantic-router:latest
-    container_name: semantic-router
-    depends_on:
-      - jaeger
-    ports:
-      - "50051:50051" # gRPC ExtProc
-      - "8080:8080"   # Classification API
-      - "9190:9190"   # Metrics
-    volumes:
-      - ./config:/config
-    environment:
-      - CONFIG_PATH=/config/config.tracing.yaml
-    networks:
-      - router-network
-
-  # Grafana for visualization
-  grafana:
-    image: grafana/grafana:latest
-    container_name: grafana
-    ports:
-      - "3000:3000"
-    environment:
-      - GF_AUTH_ANONYMOUS_ENABLED=true
-      - GF_AUTH_ANONYMOUS_ORG_ROLE=Admin
-    volumes:
-      - ./grafana/provisioning:/etc/grafana/provisioning
-      - grafana-storage:/var/lib/grafana
-    networks:
-      - router-network
-
-networks:
-  router-network:
-    driver: bridge
-
-volumes:
-  grafana-storage:
diff --git a/deploy/docker-compose/README.md b/deploy/docker-compose/README.md
new file mode 100644
index 00000000..3a200167
--- /dev/null
+++ b/deploy/docker-compose/README.md
@@ -0,0 +1,42 @@
+# Main Runtime Compose Stack
+
+This directory contains the primary `docker-compose.yml` used to run the semantic-router stack (router + envoy + optional mock-vllm + observability).
+
+## Path Layout
+Because this file lives under `deploy/docker-compose/`, all relative paths to repository resources go two levels up (../../) back to repo root.
+
+Example mappings:
+
+- `../../config` -> mounts to `/app/config` inside containers
+- `../../models` -> shared model files
+- `../../tools/observability/...` -> Prometheus / Grafana provisioning assets
+
+## Profiles
+
+- `testing` : enables `mock-vllm` and `llm-katan`
+- `llm-katan` : only `llm-katan`
+
+## Common Commands
+
+```bash
+# Bring up core stack
+docker compose -f deploy/docker-compose/docker-compose.yml up --build
+
+# With testing profile (adds mock-vllm & llm-katan)
+docker compose -f deploy/docker-compose/docker-compose.yml --profile testing up --build
+
+# Tear down
+docker compose -f deploy/docker-compose/docker-compose.yml down
+```
+
+## Overrides
+You can place a `docker-compose.override.yml` at repo root and combine:
+
+```bash
+docker compose -f deploy/docker-compose/docker-compose.yml -f docker-compose.override.yml up -d
+```
+
+## Related Stacks
+
+- Local observability only: `tools/observability/docker-compose.obs.yml`
+- Tracing stack: `tools/tracing/docker-compose.tracing.yaml`
diff --git a/docker-compose.yml b/deploy/docker-compose/docker-compose.yml
similarity index 81%
rename from docker-compose.yml
rename to deploy/docker-compose/docker-compose.yml
index 8b6990cc..c78c22af 100644
--- a/docker-compose.yml
+++ b/deploy/docker-compose/docker-compose.yml
@@ -3,14 +3,14 @@ services:
   # Semantic Router External Processor Service
   semantic-router:
     build:
-      context: .
+      context: ../../
       dockerfile: Dockerfile.extproc
     container_name: semantic-router
     ports:
       - "50051:50051"
     volumes:
-      - ./config:/app/config:ro
-      - ./models:/app/models:ro
+      - ../../config:/app/config:ro
+      - ../../models:/app/models:ro
     environment:
       - LD_LIBRARY_PATH=/app/lib
       - CONFIG_FILE=${CONFIG_FILE:-/app/config/config.yaml}
@@ -31,7 +31,7 @@ services:
       - "8801:8801"  # Main proxy port
       - "19000:19000"  # Admin interface
     volumes:
-      - ./config/envoy-docker.yaml:/etc/envoy/envoy.yaml:ro
+      - ../../config/envoy-docker.yaml:/etc/envoy/envoy.yaml:ro
     command: ["/usr/local/bin/envoy", "-c", "/etc/envoy/envoy.yaml", "--component-log-level", "ext_proc:trace,router:trace,http:trace"]
     depends_on:
       semantic-router:
@@ -48,7 +48,7 @@ services:
   # Mock vLLM service for testing profile
   mock-vllm:
     build:
-      context: ./tools/mock-vllm
+      context: ../../tools/mock-vllm
       dockerfile: Dockerfile
     container_name: mock-vllm
     profiles: ["testing"]
@@ -69,7 +69,7 @@ services:
     image: prom/prometheus:v2.53.0
     container_name: prometheus
     volumes:
-      - ./tools/observability/prometheus.yaml:/etc/prometheus/prometheus.yaml:ro
+      - ../../tools/observability/prometheus.yaml:/etc/prometheus/prometheus.yaml:ro
       - prometheus-data:/prometheus
     command:
       - --config.file=/etc/prometheus/prometheus.yaml
@@ -91,9 +91,9 @@ services:
     ports:
       - "3000:3000"
     volumes:
-      - ./tools/observability/grafana-datasource.yaml:/etc/grafana/provisioning/datasources/datasource.yaml:ro
-      - ./tools/observability/grafana-dashboard.yaml:/etc/grafana/provisioning/dashboards/dashboard.yaml:ro
-      - ./tools/observability/llm-router-dashboard.json:/etc/grafana/provisioning/dashboards/llm-router-dashboard.json:ro
+      - ../../tools/observability/grafana-datasource.yaml:/etc/grafana/provisioning/datasources/datasource.yaml:ro
+      - ../../tools/observability/grafana-dashboard.yaml:/etc/grafana/provisioning/dashboards/dashboard.yaml:ro
+      - ../../tools/observability/llm-router-dashboard.json:/etc/grafana/provisioning/dashboards/llm-router-dashboard.json:ro
       - grafana-data:/var/lib/grafana
     networks:
       - semantic-network
@@ -103,7 +103,7 @@ services:
   # LLM Katan service for testing
   llm-katan:
     build:
-      context: ./e2e-tests/llm-katan
+      context: ../../e2e-tests/llm-katan
       dockerfile: Dockerfile
     container_name: llm-katan
     profiles: ["testing", "llm-katan"]
diff --git a/deploy/llm-router-dashboard.json b/deploy/llm-router-dashboard.json
deleted file mode 100644
index ff136b6e..00000000
--- a/deploy/llm-router-dashboard.json
+++ /dev/null
@@ -1,1238 +0,0 @@
-{
-  "annotations": {
-    "list": [
-      {
-        "builtIn": 1,
-        "datasource": {
-          "type": "grafana",
-          "uid": "-- Grafana --"
-        },
-        "enable": true,
-        "hide": true,
-        "iconColor": "rgba(0, 211, 255, 1)",
-        "name": "Annotations & Alerts",
-        "target": {
-          "limit": 100,
-          "matchAny": false,
-          "tags": [],
-          "type": "dashboard"
-        },
-        "type": "dashboard"
-      }
-    ]
-  },
-  "editable": true,
-  "fiscalYearStartMonth": 0,
-  "graphTooltip": 0,
-  "id": 18,
-  "links": [],
-  "panels": [
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "thresholds"
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              },
-              {
-                "color": "red",
-                "value": 80
-              }
-            ]
-          }
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 0
-      },
-      "id": 4,
-      "options": {
-        "displayMode": "gradient",
-        "legend": {
-          "calcs": [],
-          "displayMode": "list",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "maxVizHeight": 300,
-        "minVizHeight": 16,
-        "minVizWidth": 8,
-        "namePlacement": "auto",
-        "orientation": "horizontal",
-        "reduceOptions": {
-          "calcs": [
-            "lastNotNull"
-          ],
-          "fields": "",
-          "values": false
-        },
-        "showUnfilled": true,
-        "sizing": "auto",
-        "valueMode": "color",
-        "text": {
-          "valueSize": 24
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "disableTextWrap": false,
-          "editorMode": "code",
-          "expr": "sum by(category) (llm_category_classifications_count)",
-          "fullMetaSearch": false,
-          "includeNullMetadata": true,
-          "instant": true,
-          "legendFormat": "{{category}}",
-          "range": false,
-          "refId": "A",
-          "useBackend": false
-        }
-      ],
-      "title": "Prompt Category",
-      "type": "bargauge"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Tokens/sec",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "tps"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 0
-      },
-      "id": 2,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_model_completion_tokens_total[5m])) by (model)",
-          "legendFormat": "Completion Tokens {{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Token Usage Rate by Model",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Routes/sec",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "ops"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 8
-      },
-      "id": 3,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_model_routing_modifications_total[5m])) by (source_model, target_model)",
-          "format": "time_series",
-          "legendFormat": "{{source_model}} -> {{target_model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Model Routing Rate",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Seconds",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              },
-              {
-                "color": "red",
-                "value": 80
-              }
-            ]
-          },
-          "unit": "s"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 8
-      },
-      "id": 1,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.95, sum(rate(llm_model_completion_latency_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "p95 {{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Model Completion Latency (p95)",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Seconds",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              },
-              {
-                "color": "red",
-                "value": 80
-              }
-            ]
-          },
-          "unit": "s"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 16
-      },
-      "id": 5,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.95, sum(rate(llm_model_ttft_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "TTFT p95 {{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "TTFT (p95) by Model",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Seconds per token",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "s"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 16
-      },
-      "id": 6,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.95, sum(rate(llm_model_tpot_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "TPOT p95 {{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "TPOT (p95) by Model (sec/token)",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Requests/sec",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "reqps"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 24
-      },
-      "id": 7,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_reasoning_decisions_total{enabled=\"true\"}[5m])) by (model, effort)",
-          "legendFormat": "Reasoning Enabled: {{model}} ({{effort}})",
-          "range": true,
-          "refId": "A"
-        },
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_reasoning_decisions_total{enabled=\"false\"}[5m])) by (model)",
-          "legendFormat": "Reasoning Disabled: {{model}}",
-          "range": true,
-          "refId": "B"
-        }
-      ],
-      "title": "Reasoning Rate by Model",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Cost",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "currencyUSD"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 24
-      },
-      "id": 8,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_model_cost_total{currency=\"USD\"}[5m])) by (model)",
-          "legendFormat": "Cost/sec: {{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Model Cost Rate (USD/sec)",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Errors/sec",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "normal"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              },
-              {
-                "color": "red",
-                "value": 1
-              }
-            ]
-          },
-          "unit": "reqps"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 32
-      },
-      "id": 9,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_request_errors_total{reason=\"pii_policy_denied\"}[5m])) by (model)",
-          "legendFormat": "PII Policy Denied: {{model}}",
-          "range": true,
-          "refId": "A"
-        },
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_request_errors_total{reason=\"jailbreak_block\"}[5m])) by (model)",
-          "legendFormat": "Jailbreak Block: {{model}}",
-          "range": true,
-          "refId": "B"
-        }
-      ],
-      "title": "Refusal Rates by Model",
-      "type": "timeseries"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "thresholds"
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              },
-              {
-                "color": "yellow",
-                "value": 0.01
-              },
-              {
-                "color": "red",
-                "value": 0.05
-              }
-            ]
-          },
-          "unit": "percentunit"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 32
-      },
-      "id": 10,
-      "options": {
-        "displayMode": "gradient",
-        "legend": {
-          "calcs": [],
-          "displayMode": "list",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "maxVizHeight": 300,
-        "minVizHeight": 16,
-        "minVizWidth": 8,
-        "namePlacement": "auto",
-        "orientation": "auto",
-        "reduceOptions": {
-          "calcs": [
-            "mean"
-          ],
-          "fields": "",
-          "values": false
-        },
-        "showUnfilled": true,
-        "sizing": "auto",
-        "valueMode": "color"
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(rate(llm_request_errors_total{reason=~\"pii_policy_denied|jailbreak_block\"}[5m])) by (model) / sum(rate(llm_model_requests_total[5m])) by (model)",
-          "legendFormat": "{{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Refusal Rate Percentage by Model",
-      "type": "bargauge"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "thresholds"
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "currencyUSD"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 0,
-        "y": 40
-      },
-      "id": 11,
-      "options": {
-        "displayMode": "gradient",
-        "legend": {
-          "calcs": [],
-          "displayMode": "list",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "maxVizHeight": 300,
-        "minVizHeight": 16,
-        "minVizWidth": 8,
-        "namePlacement": "auto",
-        "orientation": "auto",
-        "reduceOptions": {
-          "calcs": [
-            "lastNotNull"
-          ],
-          "fields": "",
-          "values": false
-        },
-        "showUnfilled": true,
-        "sizing": "auto",
-        "valueMode": "color"
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "sum(llm_model_cost_total{currency=\"USD\"}) by (model)",
-          "legendFormat": "{{model}}",
-          "range": true,
-          "refId": "A"
-        }
-      ],
-      "title": "Total Cost by Model (USD)",
-      "type": "bargauge"
-    },
-    {
-      "datasource": {
-        "type": "prometheus",
-        "uid": "${DS_PROMETHEUS}"
-      },
-      "fieldConfig": {
-        "defaults": {
-          "color": {
-            "mode": "palette-classic"
-          },
-          "custom": {
-            "axisBorderShow": false,
-            "axisCenteredZero": false,
-            "axisColorMode": "text",
-            "axisLabel": "Seconds",
-            "axisPlacement": "auto",
-            "barAlignment": 0,
-            "barWidthFactor": 0.6,
-            "drawStyle": "line",
-            "fillOpacity": 10,
-            "gradientMode": "none",
-            "hideFrom": {
-              "legend": false,
-              "tooltip": false,
-              "viz": false
-            },
-            "insertNulls": false,
-            "lineInterpolation": "smooth",
-            "lineWidth": 1,
-            "pointSize": 5,
-            "scaleDistribution": {
-              "type": "linear"
-            },
-            "showPoints": "auto",
-            "spanNulls": false,
-            "stacking": {
-              "group": "A",
-              "mode": "none"
-            },
-            "thresholdsStyle": {
-              "mode": "off"
-            }
-          },
-          "mappings": [],
-          "thresholds": {
-            "mode": "absolute",
-            "steps": [
-              {
-                "color": "green",
-                "value": null
-              }
-            ]
-          },
-          "unit": "s"
-        },
-        "overrides": []
-      },
-      "gridPos": {
-        "h": 8,
-        "w": 12,
-        "x": 12,
-        "y": 40
-      },
-      "id": 12,
-      "options": {
-        "legend": {
-          "calcs": [
-            "mean",
-            "max",
-            "lastNotNull"
-          ],
-          "displayMode": "table",
-          "placement": "bottom",
-          "showLegend": true
-        },
-        "tooltip": {
-          "hideZeros": false,
-          "mode": "multi",
-          "sort": "none"
-        }
-      },
-      "pluginVersion": "11.5.1",
-      "targets": [
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.50, sum(rate(llm_model_completion_latency_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "p50 {{model}}",
-          "range": true,
-          "refId": "A"
-        },
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.90, sum(rate(llm_model_completion_latency_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "p90 {{model}}",
-          "range": true,
-          "refId": "B"
-        },
-        {
-          "datasource": {
-            "type": "prometheus",
-            "uid": "${DS_PROMETHEUS}"
-          },
-          "editorMode": "code",
-          "expr": "histogram_quantile(0.99, sum(rate(llm_model_completion_latency_seconds_bucket[5m])) by (le, model))",
-          "legendFormat": "p99 {{model}}",
-          "range": true,
-          "refId": "C"
-        }
-      ],
-      "title": "Model Completion Latency (p50/p90/p99)",
-      "type": "timeseries"
-    }
-  ],
-  "preload": false,
-  "refresh": "10s",
-  "schemaVersion": 40,
-  "tags": [
-    "llm-router"
-  ],
-  "templating": {
-    "list": [
-      {
-        "current": {
-          "text": "prometheus",
-          "value": "prometheus"
-        },
-        "includeAll": false,
-        "name": "DS_PROMETHEUS",
-        "options": [],
-        "query": "prometheus",
-        "refresh": 1,
-        "regex": "",
-        "type": "datasource"
-      }
-    ]
-  },
-  "time": {
-    "from": "now-5m",
-    "to": "now"
-  },
-  "timepicker": {},
-  "timezone": "",
-  "title": "LLM Router Metrics",
-  "uid": "llm-router-metrics",
-  "version": 14,
-  "weekStart": ""
-}
\ No newline at end of file
diff --git a/deploy/tracing/README.md b/deploy/tracing/README.md
deleted file mode 100644
index 51927f30..00000000
--- a/deploy/tracing/README.md
+++ /dev/null
@@ -1,155 +0,0 @@
-# Distributed Tracing Deployment Example
-
-This directory contains an example deployment configuration for testing distributed tracing with Jaeger.
-
-## Quick Start
-
-1. **Start the services**:
-
-```bash
-docker-compose -f ../docker-compose.tracing.yaml up -d
-```
-
-2. **Access the UIs**:
-
-- Jaeger UI: http://localhost:16686
-- Grafana: http://localhost:3000
-- Router API: http://localhost:8080
-
-3. **Send test requests**:
-
-```bash
-# Example request
-curl -X POST http://localhost:8080/v1/chat/completions \
-  -H "Content-Type: application/json" \
-  -d '{
-    "model": "auto",
-    "messages": [{"role": "user", "content": "What is 2+2?"}]
-  }'
-```
-
-4. **View traces in Jaeger**:
-
-- Navigate to http://localhost:16686
-- Select service: `vllm-semantic-router`
-- Click "Find Traces"
-
-## Configuration
-
-The router is configured with:
-
-```yaml
-observability:
-  tracing:
-    enabled: true
-    provider: "opentelemetry"
-    exporter:
-      type: "otlp"
-      endpoint: "jaeger:4317"
-      insecure: true
-    sampling:
-      type: "always_on"
-    resource:
-      service_name: "vllm-semantic-router"
-```
-
-## Services
-
-### Jaeger
-
-- **OTLP gRPC**: Port 4317
-- **OTLP HTTP**: Port 4318
-- **Jaeger UI**: Port 16686
-- **Collector**: Port 14268
-
-### Semantic Router
-
-- **gRPC ExtProc**: Port 50051
-- **Classification API**: Port 8080
-- **Metrics**: Port 9190
-
-### Grafana
-
-- **Web UI**: Port 3000
-- Default credentials: admin/admin
-- Pre-configured with Jaeger data source
-
-## Trace Examples
-
-### Request Flow
-
-```
-semantic_router.request.received [2ms]
-├─ semantic_router.classification [45ms]
-│  └─ category: math, confidence: 0.95
-├─ semantic_router.security.jailbreak_detection [12ms]
-│  └─ jailbreak.detected: false
-├─ semantic_router.cache.lookup [3ms]
-│  └─ cache.hit: false
-├─ semantic_router.routing.decision [5ms]
-│  └─ selected_model: gpt-4, reasoning: true
-└─ semantic_router.backend.selection [2ms]
-   └─ endpoint: endpoint1
-```
-
-### Key Attributes
-
-- `request.id`: Unique request identifier
-- `category.name`: Classified category
-- `routing.selected_model`: Selected model
-- `reasoning.enabled`: Reasoning mode
-- `cache.hit`: Cache hit status
-
-## Stopping Services
-
-```bash
-docker-compose -f ../docker-compose.tracing.yaml down
-```
-
-To remove volumes:
-
-```bash
-docker-compose -f ../docker-compose.tracing.yaml down -v
-```
-
-## Troubleshooting
-
-### Traces not appearing
-
-1. Check Jaeger is running:
-
-```bash
-curl http://localhost:16686
-```
-
-2. Verify router can connect to Jaeger:
-
-```bash
-docker logs semantic-router | grep -i tracing
-```
-
-3. Check for initialization message:
-
-```
-Distributed tracing initialized (provider: opentelemetry, exporter: otlp)
-```
-
-### Router fails to start
-
-1. Check configuration:
-
-```bash
-docker logs semantic-router
-```
-
-2. Verify Jaeger is ready:
-
-```bash
-docker logs jaeger
-```
-
-## Next Steps
-
-- [Full Tracing Documentation](../../website/docs/tutorials/observability/distributed-tracing.md)
-- [Quick Start Guide](../../website/docs/tutorials/observability/tracing-quickstart.md)
-- [Configuration Reference](../../config/config.production.yaml)
diff --git a/tools/make/docker.mk b/tools/make/docker.mk
index 8c1ea494..e698097f 100644
--- a/tools/make/docker.mk
+++ b/tools/make/docker.mk
@@ -6,6 +6,12 @@
 DOCKER_REGISTRY ?= ghcr.io/vllm-project/semantic-router
 DOCKER_TAG ?= latest
 
+# Default docker compose environment
+# Point Compose to the relocated main stack by default; override by exporting COMPOSE_FILE
+export COMPOSE_FILE ?= deploy/docker-compose/docker-compose.yml
+# Keep a stable project name so network/volume names are predictable across runs
+export COMPOSE_PROJECT_NAME ?= semantic-router
+
 # Build all Docker images
 docker-build-all: docker-build-extproc docker-build-llm-katan docker-build-precommit
 	@$(LOG_TARGET)
@@ -79,21 +85,35 @@ docker-push-llm-katan:
 	@echo "Pushing llm-katan Docker image..."
 	@$(CONTAINER_RUNTIME) push $(DOCKER_REGISTRY)/llm-katan:$(DOCKER_TAG)
 
-# Docker compose shortcuts
+# Docker compose build flag logic
+# Usage: make docker-compose-up REBUILD=1  (forces image rebuild)
+BUILD_FLAG=$(if $(REBUILD),--build,)
+
+# Docker compose shortcuts (no rebuild by default)
 docker-compose-up:
 	@$(LOG_TARGET)
-	@echo "Starting services with docker-compose..."
-	@docker compose up --build
+	@echo "Starting services with docker-compose (REBUILD=$(REBUILD))..."
+	@docker compose up -d $(BUILD_FLAG)
 
 docker-compose-up-testing:
 	@$(LOG_TARGET)
-	@echo "Starting services with testing profile..."
-	@docker compose --profile testing up --build
+	@echo "Starting services with testing profile (REBUILD=$(REBUILD))..."
+	@docker compose --profile testing up -d $(BUILD_FLAG)
 
 docker-compose-up-llm-katan:
 	@$(LOG_TARGET)
-	@echo "Starting services with llm-katan profile..."
-	@docker compose --profile llm-katan up --build
+	@echo "Starting services with llm-katan profile (REBUILD=$(REBUILD))..."
+	@docker compose --profile llm-katan up -d $(BUILD_FLAG)
+
+# Explicit rebuild targets for convenience
+docker-compose-rebuild: REBUILD=1
+docker-compose-rebuild: docker-compose-up
+
+docker-compose-rebuild-testing: REBUILD=1
+docker-compose-rebuild-testing: docker-compose-up-testing
+
+docker-compose-rebuild-llm-katan: REBUILD=1
+docker-compose-rebuild-llm-katan: docker-compose-up-llm-katan
 
 docker-compose-down:
 	@$(LOG_TARGET)
@@ -111,10 +131,13 @@ docker-help:
 	@echo "  docker-run-llm-katan      - Run llm-katan Docker image locally"
 	@echo "  docker-run-llm-katan-custom SERVED_NAME=name - Run with custom served model name"
 	@echo "  docker-clean              - Clean up Docker images"
-	@echo "  docker-compose-up         - Start docker-compose services"
-	@echo "  docker-compose-up-testing - Start with testing profile"
-	@echo "  docker-compose-up-llm-katan - Start with llm-katan profile"
-	@echo "  docker-compose-down       - Stop docker-compose services"
+	@echo "  docker-compose-up                    - Start services (add REBUILD=1 to rebuild)"
+	@echo "  docker-compose-up-testing            - Start with testing profile (REBUILD=1 optional)"
+	@echo "  docker-compose-up-llm-katan          - Start with llm-katan profile (REBUILD=1 optional)"
+	@echo "  docker-compose-rebuild               - Force rebuild then start"
+	@echo "  docker-compose-rebuild-testing       - Force rebuild (testing profile)"
+	@echo "  docker-compose-rebuild-llm-katan     - Force rebuild (llm-katan profile)"
+	@echo "  docker-compose-down                  - Stop docker-compose services"
 	@echo ""
 	@echo "Environment Variables:"
 	@echo "  DOCKER_REGISTRY - Docker registry (default: ghcr.io/vllm-project/semantic-router)"
diff --git a/tools/make/observability.mk b/tools/make/observability.mk
index 5156deff..5778ecef 100644
--- a/tools/make/observability.mk
+++ b/tools/make/observability.mk
@@ -35,15 +35,15 @@ open-observability:
 
 ## o11y-logs: Show logs from observability containers
 o11y-logs:
-	@docker compose -f docker-compose.obs.yml logs -f 2>/dev/null || docker compose logs prometheus grafana -f
+	@docker compose -f tools/observability/docker-compose.obs.yml logs -f 2>/dev/null || docker compose -f deploy/docker-compose/docker-compose.yml logs prometheus grafana -f
 
 ## o11y-status: Check status of observability containers
 o11y-status:
 	@echo "==> Local mode:"
-	@docker compose -f docker-compose.obs.yml ps 2>/dev/null || echo "  Not running"
+	@docker compose -f tools/observability/docker-compose.obs.yml ps 2>/dev/null || echo "  Not running"
 	@echo ""
 	@echo "==> Compose mode:"
-	@docker compose ps prometheus grafana 2>/dev/null || echo "  Not running"
+	@docker compose -f deploy/docker-compose/docker-compose.yml ps prometheus grafana 2>/dev/null || echo "  Not running"
 
 ## o11y-clean: Remove observability data volumes
 o11y-clean:
diff --git a/tools/observability/README.md b/tools/observability/README.md
index 8635a238..8cf302b7 100644
--- a/tools/observability/README.md
+++ b/tools/observability/README.md
@@ -28,3 +28,17 @@ make o11y-compose
 
 - Prometheus: http://localhost:9090
 - Grafana: http://localhost:3000 (admin/admin)
+
+## Tracing Stack (Jaeger)
+
+For distributed tracing (Jaeger + a tracing-enabled router instance), see:
+
+`tools/tracing/docker-compose.tracing.yaml`
+
+Start it independently:
+
+```bash
+make docker-compose-tracing-up
+```
+
+Then view Jaeger at http://localhost:16686 and (optional) tracing router API at http://localhost:8081.
diff --git a/docker-compose.obs.yml b/tools/observability/docker-compose.obs.yml
similarity index 66%
rename from docker-compose.obs.yml
rename to tools/observability/docker-compose.obs.yml
index 35bde379..b159a163 100644
--- a/docker-compose.obs.yml
+++ b/tools/observability/docker-compose.obs.yml
@@ -1,7 +1,7 @@
 # Local observability stack for monitoring semantic-router running on host
 #
-# Usage: make obs-local
-# Or: docker compose -f docker-compose.obs.yml up
+# Usage: docker compose -f tools/observability/docker-compose.obs.yml up
+# Or via Make: make o11y-local
 #
 # This provides Prometheus and Grafana in Docker with network_mode: host
 # to scrape metrics from router running natively on localhost:9190
@@ -14,7 +14,7 @@ services:
     container_name: prometheus-local
     network_mode: host
     volumes:
-      - ./tools/observability/prometheus.yaml:/etc/prometheus/prometheus.yaml:ro
+      - ./prometheus.yaml:/etc/prometheus/prometheus.yaml:ro
       - prometheus-local-data:/prometheus
     command:
       - '--config.file=/etc/prometheus/prometheus.yaml'
@@ -28,9 +28,9 @@ services:
     container_name: grafana-local
     network_mode: host
     volumes:
-      - ./tools/observability/grafana-datasource.yaml:/etc/grafana/provisioning/datasources/datasource.yaml:ro
-      - ./tools/observability/grafana-dashboard.yaml:/etc/grafana/provisioning/dashboards/dashboard.yaml:ro
-      - ./tools/observability/llm-router-dashboard.json:/etc/grafana/provisioning/dashboards/llm-router-dashboard.json:ro
+      - ./grafana-datasource.yaml:/etc/grafana/provisioning/datasources/datasource.yaml:ro
+      - ./grafana-dashboard.yaml:/etc/grafana/provisioning/dashboards/dashboard.yaml:ro
+      - ./llm-router-dashboard.json:/etc/grafana/provisioning/dashboards/llm-router-dashboard.json:ro
       - grafana-local-data:/var/lib/grafana
     environment:
       - PROMETHEUS_URL=localhost:9090
diff --git a/tools/observability/scripts/start-observability.sh b/tools/observability/scripts/start-observability.sh
index 0d070741..d3c8d474 100755
--- a/tools/observability/scripts/start-observability.sh
+++ b/tools/observability/scripts/start-observability.sh
@@ -48,11 +48,11 @@ MODE="${1:-local}"
 case "${MODE}" in
     local)
         log_info "Starting observability in LOCAL mode (router on host, observability in Docker)"
-        COMPOSE_FILE="${PROJECT_ROOT}/docker-compose.obs.yml"
+        COMPOSE_FILE="${PROJECT_ROOT}/tools/observability/docker-compose.obs.yml"
         ;;
     compose)
         log_info "Starting observability in COMPOSE mode (all services in Docker)"
-        COMPOSE_FILE="${PROJECT_ROOT}/docker-compose.yml"
+        COMPOSE_FILE="${PROJECT_ROOT}/deploy/docker-compose/docker-compose.yml"
         ;;
     *)
         log_error "Invalid mode: ${MODE}"
diff --git a/tools/observability/scripts/stop-observability.sh b/tools/observability/scripts/stop-observability.sh
index fa491589..23e6b500 100755
--- a/tools/observability/scripts/stop-observability.sh
+++ b/tools/observability/scripts/stop-observability.sh
@@ -61,7 +61,7 @@ if any_container_exists "prometheus-local" "grafana-local"; then
 fi
 if [ "${LOCAL_MODE_RUNNING}" = true ]; then
     log_info "Stopping local mode containers..."
-    docker compose -f "${PROJECT_ROOT}/docker-compose.obs.yml" down
+    docker compose -f "${PROJECT_ROOT}/tools/observability/docker-compose.obs.yml" down
 fi
 
 # Also stop compose mode if running as part of main stack
@@ -77,7 +77,7 @@ fi
 
 if [ "${COMPOSE_O11Y_RUNNING}" = true ] && [ "${ROUTER_RUNNING}" = false ]; then
     log_warn "Observability containers from main stack are running"
-    log_info "Use 'docker compose down' to stop the full stack"
+    log_info "Use 'docker compose -f deploy/docker-compose/docker-compose.yml down' to stop the full stack"
 fi
 
 echo ""
diff --git a/tools/tracing/README.md b/tools/tracing/README.md
new file mode 100644
index 00000000..366853b4
--- /dev/null
+++ b/tools/tracing/README.md
@@ -0,0 +1,67 @@
+# Tracing (Local Development Stack)
+
+This directory provides a local Jaeger + tracing-enabled semantic-router stack for development, debugging, and demonstration.
+
+## Why here?
+`tools/tracing` groups this with other local-only utilities (see `tools/observability` for metrics stack). Production deployments should rely on manifests in `deploy/kubernetes` / `openshift` instead of this all-in-one compose.
+
+## Quick Start
+
+```bash
+docker compose -f tools/tracing/docker-compose.tracing.yaml up -d
+```
+
+## Access
+
+- Jaeger UI: http://localhost:16686
+- Tracing Router API: http://localhost:8081
+- Metrics (tracing instance): http://localhost:9191/metrics
+
+## Send a Test Request
+
+```bash
+curl -X POST http://localhost:8081/v1/chat/completions \
+  -H "Content-Type: application/json" \
+  -d '{
+    "model": "auto",
+    "messages": [{"role": "user", "content": "What is 2+2?"}]
+  }'
+```
+
+## View Traces
+
+1. Open Jaeger UI
+2. Select service: `vllm-semantic-router` (or `semantic-router` depending on OTEL resource config)
+3. Click "Find Traces"
+
+## Stopping
+
+```bash
+docker compose -f tools/tracing/docker-compose.tracing.yaml down
+```
+
+With volumes removal:
+
+```bash
+docker compose -f tools/tracing/docker-compose.tracing.yaml down -v
+```
+
+## Environment Variables
+
+| Variable | Purpose |
+|----------|---------|
+| OTEL_EXPORTER_OTLP_ENDPOINT | Where spans are exported (gRPC) |
+| OTEL_SERVICE_NAME | Logical service name in traces |
+
+## Relationship with Metrics Stack
+If you also want Prometheus/Grafana metrics:
+
+```bash
+make o11y-local  # or o11y-compose for full docker mode
+```
+
+## Next Steps
+
+- Distributed tracing docs: `website/docs/tutorials/observability/distributed-tracing.md`
+- Tracing quickstart: `website/docs/tutorials/observability/tracing-quickstart.md`
+- Router config examples: `config/`
diff --git a/tools/tracing/docker-compose.tracing.yaml b/tools/tracing/docker-compose.tracing.yaml
new file mode 100644
index 00000000..749a2707
--- /dev/null
+++ b/tools/tracing/docker-compose.tracing.yaml
@@ -0,0 +1,54 @@
+version: '3.8'
+
+services:
+  jaeger:
+    image: jaegertracing/all-in-one:latest
+    container_name: jaeger
+    ports:
+      - "4317:4317"
+      - "4318:4318"
+      - "16686:16686"
+      - "14268:14268"
+    environment:
+      - COLLECTOR_OTLP_ENABLED=true
+    networks:
+      - tracing-network
+
+  semantic-router:
+    build:
+      context: ../../
+      dockerfile: Dockerfile.extproc
+    image: semantic-router-tracing:latest
+    container_name: semantic-router-tracing
+    depends_on:
+      - jaeger
+    ports:
+      - "50052:50051"
+      - "8081:8080"
+      - "9191:9190"
+    volumes:
+      - ../../config:/app/config:ro
+      - ../../models:/app/models:ro
+    environment:
+      - LD_LIBRARY_PATH=/app/lib
+      - CONFIG_FILE=/app/config/config.tracing.yaml
+      - OTEL_EXPORTER_OTLP_ENDPOINT=http://jaeger:4317
+      - OTEL_SERVICE_NAME=semantic-router
+    networks:
+      - tracing-network
+
+  grafana:
+    image: grafana/grafana:latest
+    container_name: grafana-tracing
+    profiles: ["grafana"]
+    ports:
+      - "33000:3000"
+    environment:
+      - GF_AUTH_ANONYMOUS_ENABLED=true
+      - GF_AUTH_ANONYMOUS_ORG_ROLE=Admin
+    networks:
+      - tracing-network
+
+networks:
+  tracing-network:
+    driver: bridge
diff --git a/website/docs/troubleshooting/container-connectivity.md b/website/docs/troubleshooting/container-connectivity.md
index 3d3681af..456123a7 100644
--- a/website/docs/troubleshooting/container-connectivity.md
+++ b/website/docs/troubleshooting/container-connectivity.md
@@ -112,7 +112,7 @@ Fix
 
 - Map the needed ports with `ports:`.
 
-Example docker-compose.yml snippet
+Example docker-compose.yml snippet (from `deploy/docker-compose/docker-compose.yml` after relocation)
 
 ```yaml
 services:
diff --git a/website/docs/troubleshooting/network-tips.md b/website/docs/troubleshooting/network-tips.md
index 4820cc31..c4a29bce 100644
--- a/website/docs/troubleshooting/network-tips.md
+++ b/website/docs/troubleshooting/network-tips.md
@@ -39,11 +39,11 @@ The router will download embedding models on first run unless you provide them l
      model_id: /app/models/all-MiniLM-L12-v2
    ```
 
-3) No extra env is required. `docker-compose.yml` already mounts `./models:/app/models:ro`.
+3) No extra env is required. `deploy/docker-compose/docker-compose.yml` already mounts `./models:/app/models:ro`.
 
 ### Option B — Use HF cache + mirror
 
-Create a compose override to persist cache and use a regional mirror (example below uses a China mirror). Save as `docker-compose.override.yml` in the repo root:
+Create a compose override to persist cache and use a regional mirror (example below uses a China mirror). Save as `docker-compose.override.yml` in the repo root (Compose will automatically combine it with `deploy/docker-compose/docker-compose.yml` when you specify both):
 
 ```yaml
 services:
@@ -164,14 +164,14 @@ services:
 With the overrides in place, build and run normally (Compose will auto-merge):
 
 ```bash
-# Build all images with overrides
-docker compose -f docker-compose.yml -f docker-compose.override.yml build
+# Build all images with overrides (explicitly reference the relocated compose file)
+docker compose -f deploy/docker-compose/docker-compose.yml -f docker-compose.override.yml build
 
 # Run router + envoy
-docker compose -f docker-compose.yml -f docker-compose.override.yml up -d
+docker compose -f deploy/docker-compose/docker-compose.yml -f docker-compose.override.yml up -d
 
 # If you need the testing profile (mock-vllm)
-docker compose -f docker-compose.yml -f docker-compose.override.yml --profile testing up -d
+docker compose -f deploy/docker-compose/docker-compose.yml -f docker-compose.override.yml --profile testing up -d
 ```
 
 ## 5. Kubernetes clusters with limited egress