diff --git a/.gitignore b/.gitignore
index ba2a97b..8d72f3a 100644
--- a/.gitignore
+++ b/.gitignore
@@ -1,2 +1,3 @@
 node_modules
 coverage
+.pi/readcache/
diff --git a/README.md b/README.md
index cdce8bf..5c4f248 100644
--- a/README.md
+++ b/README.md
@@ -46,6 +46,20 @@ pi install git:https://github.com/Gurpartap/pi-readcache
 
 After installation, you can use pi normally. If pi is already running when you install or update, run `/reload` in that session.
 
+### Custom Cache Storage
+
+By default, `pi-readcache` stores its cache in `.pi/readcache` within your project root.
+
+To override this, add a `readcacheDir` key to your `~/.pi/agent/settings.json` file:
+
+```json
+{
+  "readcacheDir": "/path/to/your/custom/cache"
+}
+```
+
+The extension will respect this path and create the necessary subdirectories there.
+
 ## Day-to-day usage
 
 | Action | Command | Expected result |
diff --git a/src/constants.ts b/src/constants.ts
index 5b2969e..afe82d1 100644
--- a/src/constants.ts
+++ b/src/constants.ts
@@ -24,7 +24,10 @@ export const DEFAULT_EXCLUDED_PATH_PATTERNS = [
 	".netrc",
 ] as const;
 
-export const READCACHE_ROOT_DIR = ".pi/readcache";
+import { getReadcacheCacheDir } from "./pi-config.js";
+
+// ...
+export const READCACHE_ROOT_DIR = await getReadcacheCacheDir();
 export const READCACHE_OBJECTS_DIR = `${READCACHE_ROOT_DIR}/objects`;
 export const READCACHE_TMP_DIR = `${READCACHE_ROOT_DIR}/tmp`;
 export const READCACHE_OBJECT_MAX_AGE_MS = 24 * 60 * 60 * 1000;
diff --git a/src/pi-config.ts b/src/pi-config.ts
new file mode 100644
index 0000000..e3c343e
--- /dev/null
+++ b/src/pi-config.ts
@@ -0,0 +1,42 @@
+import { homedir } from "node:os";
+import { join } from "node:path";
+import { readFile } from "node:fs/promises";
+
+// Configuration constants following Pi standards
+const CONFIG_DIR_NAME = ".pi";
+const ENV_AGENT_DIR = "PI_CODING_AGENT_DIR";
+
+/**
+ * Returns the standard agent config directory (~/.pi/agent/).
+ */
+export function getAgentDir(): string {
+	const envDir = process.env[ENV_AGENT_DIR];
+	if (envDir) {
+		if (envDir === "~") return homedir();
+		if (envDir.startsWith("~/")) return homedir() + envDir.slice(1);
+		return envDir;
+	}
+	return join(homedir(), CONFIG_DIR_NAME, "agent");
+}
+
+/**
+ * Returns the standard path to settings.json (~/.pi/agent/settings.json).
+ */
+export function getSettingsPath(): string {
+	return join(getAgentDir(), "settings.json");
+}
+
+/**
+ * Reads the settings.json file and returns the 'readcacheDir' key,
+ * defaulting to the standard local cache path if not set.
+ */
+export async function getReadcacheCacheDir(): Promise<string> {
+	const defaultDir = ".pi/readcache";
+	try {
+		const content = await readFile(getSettingsPath(), "utf-8");
+		const settings = JSON.parse(content);
+		return settings.readcacheDir || defaultDir;
+	} catch {
+		return defaultDir;
+	}
+}
diff --git a/test/unit/pi-config.test.ts b/test/unit/pi-config.test.ts
new file mode 100644
index 0000000..1e61435
--- /dev/null
+++ b/test/unit/pi-config.test.ts
@@ -0,0 +1,51 @@
+import { describe, it, expect, vi, beforeEach, afterEach } from "vitest";
+import { getReadcacheCacheDir } from "../../src/pi-config.js";
+import { readFile } from "node:fs/promises";
+import { homedir } from "node:os";
+import { join } from "node:path";
+
+vi.mock("node:fs/promises");
+
+describe("getReadcacheCacheDir", () => {
+	const originalEnv = process.env;
+
+	beforeEach(() => {
+		process.env = { ...originalEnv };
+		vi.resetAllMocks();
+	});
+
+	afterEach(() => {
+		process.env = originalEnv;
+	});
+
+	it("returns default path when settings.json does not exist", async () => {
+		vi.mocked(readFile).mockRejectedValue(new Error("File not found"));
+		const dir = await getReadcacheCacheDir();
+		expect(dir).toBe(".pi/readcache");
+	});
+
+	it("returns default path when readcacheDir is missing in settings", async () => {
+		vi.mocked(readFile).mockResolvedValue("{}");
+		const dir = await getReadcacheCacheDir();
+		expect(dir).toBe(".pi/readcache");
+	});
+
+	it("returns custom path from settings.json", async () => {
+		vi.mocked(readFile).mockResolvedValue(JSON.stringify({ readcacheDir: "/tmp/custom-cache" }));
+		const dir = await getReadcacheCacheDir();
+		expect(dir).toBe("/tmp/custom-cache");
+	});
+
+	it("respects PI_CODING_AGENT_DIR override for settings location", async () => {
+		process.env.PI_CODING_AGENT_DIR = "/custom/agent";
+		vi.mocked(readFile).mockImplementation(async (path: string) => {
+			if (path === join("/custom/agent", "settings.json")) {
+				return JSON.stringify({ readcacheDir: "/env/cache" });
+			}
+			throw new Error("File not found");
+		});
+
+		const dir = await getReadcacheCacheDir();
+		expect(dir).toBe("/env/cache");
+	});
+});