diff --git a/DEVELOPMENT.md b/DEVELOPMENT.md
index cd8b898c..be4bcb30 100644
--- a/DEVELOPMENT.md
+++ b/DEVELOPMENT.md
@@ -1,6 +1,25 @@
 # Development
 
-## Running in development mode
+## Setup local database
+
+You can install PostgreSQL local https://www.postgresql.org/download/ or use Docker (see `postgres.yml`):
+```
+version: "3.2"
+services:
+  postgres:
+    image: postgres
+    environment:
+      POSTGRES_PASSWORD: example
+    ports:
+      - 127.0.0.1:5432:5432
+    volumes:
+      - ./database:/var/lib/postgresql/data
+```
+
+To run it execute: `docker compose -f postgres.yml up -d` where `-d` is used for background run.
+If you have outdated version of docker, try use `docker-compose` instead of `docker compose` (https://docs.docker.com/compose/)
+
+## Running application in development mode
 
 To run application in development mode you need to run `npm run dev` command.
 It will start application with `nodemon` and restart it on any changes in source code.
@@ -9,18 +28,28 @@ You can try to build and run it in local Docker:
 ```
 version: "3.2"
 services:
-  api:
+    api:
     build:
       dockerfile: Dockerfile
       context: .
     ports:
       - "127.0.0.1:3000:3000"
+    volumes:
+      - ./app-config.yaml:/usr/app/app-config.yaml
+    restart: unless-stopped
 ```
 
 ## Configuration
 
-Default application configuration is stored in `app-config.yaml` file.
-To override default configuration you can create `app-config.local.yaml` file and override any configuration value.
+Default application configuration is stored in `app-config.yaml` file. This file is intended for docker configuration since it's using `dsn: 'postgres://postgres:example@postgres:5432/codex-notes'`.
+
+To override default configuration you can create `app-config.local.yaml` file and override any configuration value locally.
+You can also override settings in docker by overriding `app-config.local.yaml` via volumes:
+```
+    volumes:
+      - ./app-config.yaml:/usr/app/app-config.yaml
+      - ./app-config.local.yaml:/usr/app/app-config.local.yaml
+```
 
 ## Logging
 
diff --git a/app-config.yaml b/app-config.yaml
index 3edd88f6..b7ab31f9 100644
--- a/app-config.yaml
+++ b/app-config.yaml
@@ -28,7 +28,7 @@ logging:
   database: info
 
 database:
-  dsn: 'postgres://postgres:pass@localhost:5432/codex-notes'
+  dsn: 'postgres://postgres:example@postgres:5432/codex-notes'
 
 openai:
   token: 'token'
diff --git a/postgres.yml b/postgres.yml
new file mode 100644
index 00000000..318fe372
--- /dev/null
+++ b/postgres.yml
@@ -0,0 +1,10 @@
+version: "3.2"
+services:
+  postgres:
+    image: postgres
+    environment:
+      POSTGRES_PASSWORD: pass
+    ports:
+      - 127.0.0.1:5432:5432
+    volumes:
+      - ./database:/var/lib/postgresql/data
\ No newline at end of file