diff --git a/src/codexchange/config.py b/src/codexchange/config.py
new file mode 100644
index 0000000..0f7c703
--- /dev/null
+++ b/src/codexchange/config.py
@@ -0,0 +1,97 @@
+"""Configuration management for CodeXchange CLI."""
+
+import os
+from pathlib import Path
+from typing import Optional
+
+import yaml
+from pydantic import BaseModel
+
+
+class ConfigSettings(BaseModel):
+    """Configuration settings for CodeXchange CLI."""
+    
+    ollama_host: str = "http://localhost:11434"
+    default_model: str = "codellama"
+    timeout: int = 300
+    verbose: bool = False
+    
+    model_config = {
+        "populate_by_name": True
+    }
+
+
+def get_config_path() -> Path:
+    """Get the path to the configuration file."""
+    return Path.home() / ".codexchange.yaml"
+
+
+def load_config(config_path: Optional[Path] = None) -> ConfigSettings:
+    """Load configuration from file.
+    
+    Args:
+        config_path: Optional path to config file. If not provided, uses default location.
+    
+    Returns:
+        ConfigSettings object with loaded configuration.
+    """
+    if config_path is None:
+        config_path = get_config_path()
+    
+    config = ConfigSettings()
+    
+    if config_path.exists():
+        try:
+            with open(config_path, "r") as f:
+                config_data = yaml.safe_load(f) or {}
+            config = ConfigSettings(**config_data)
+        except (yaml.YAMLError, IOError) as e:
+            print(f"Warning: Failed to load config file: {e}")
+    
+    return config
+
+
+def save_config(config: ConfigSettings, config_path: Optional[Path] = None) -> None:
+    """Save configuration to file.
+    
+    Args:
+        config: ConfigSettings object to save.
+        config_path: Optional path to config file. If not provided, uses default location.
+    """
+    if config_path is None:
+        config_path = get_config_path()
+    
+    config_dict = config.model_dump(exclude_none=True)
+    
+    config_path.parent.mkdir(parents=True, exist_ok=True)
+    
+    with open(config_path, "w") as f:
+        yaml.dump(config_dict, f, default_flow_style=False)
+
+
+def get_config() -> ConfigSettings:
+    """Get configuration with environment variable overrides.
+    
+    Environment variables:
+        CODEXCHANGE_OLLAMA_HOST: Ollama host URL
+        CODEXCHANGE_DEFAULT_MODEL: Default model name
+        CODEXCHANGE_TIMEOUT: Request timeout in seconds
+    
+    Returns:
+        ConfigSettings object with merged configuration.
+    """
+    config = load_config()
+    
+    if os.getenv("CODEXCHANGE_OLLAMA_HOST"):
+        config.ollama_host = os.getenv("CODEXCHANGE_OLLAMA_HOST", "")
+    
+    if os.getenv("CODEXCHANGE_DEFAULT_MODEL"):
+        config.default_model = os.getenv("CODEXCHANGE_DEFAULT_MODEL", "")
+    
+    if os.getenv("CODEXCHANGE_TIMEOUT"):
+        try:
+            config.timeout = int(os.getenv("CODEXCHANGE_TIMEOUT") or "300")
+        except ValueError:
+            pass
+    
+    return config