diff --git a/packages/core/src/subsystems/LLMManager/ModelsProvider.service/connectors/JSONModelsProvider.class.ts b/packages/core/src/subsystems/LLMManager/ModelsProvider.service/connectors/JSONModelsProvider.class.ts
index 118cee70..06fed1f0 100644
--- a/packages/core/src/subsystems/LLMManager/ModelsProvider.service/connectors/JSONModelsProvider.class.ts
+++ b/packages/core/src/subsystems/LLMManager/ModelsProvider.service/connectors/JSONModelsProvider.class.ts
@@ -214,6 +214,93 @@ export class JSONModelsProvider extends ModelsProviderConnector {
         return this.isValidSingleModel(data);
     }
 
+    /**
+     * Determines whether a file path should be ignored by the directory watcher.
+     *
+     * This method implements a sophisticated filtering strategy for dot-segment paths
+     * (paths containing directories that start with a dot, like .git, .env, .cache).
+     *
+     * **Filtering Strategy:**
+     * 1. Paths WITHOUT dot segments: Never ignored
+     * 2. Paths WITH dot segments:
+     *    - If SMYTH_PATH is not configured: All ignored
+     *    - If SMYTH_PATH is configured:
+     *      - Allow the watched directory even if SMYTH_PATH contains dot-segments
+     *        (e.g., /home/user/.smyth/models/OpenAI/default.json is allowed)
+     *      - Ignore dot-segments INSIDE the models directory
+     *        (e.g., /home/user/.smyth/models/.hidden/model.json is ignored)
+     *      - Paths outside watched directory: Ignored
+     *
+     * @param filePath - The file path to check
+     * @param watchedDir - The absolute path of the directory being watched (models folder)
+     * @param smythPath - The resolved SMYTH_PATH, or null if not configured
+     * @returns true if the path should be ignored, false if it should be watched
+     *
+     * @example
+     * ```typescript
+     * // Path without dot-segment (allowed)
+     * shouldIgnorePath('/models/OpenAI/default.json', '/models', '/home/.smyth') // => false
+     *
+     * // Dot-segment inside models directory (ignored)
+     * shouldIgnorePath('/models/.git/config', '/models', '/home/.smyth') // => true
+     *
+     * // Dot-segment in parent path only (allowed)
+     * shouldIgnorePath('/home/.smyth/models/OpenAI/default.json', '/home/.smyth/models', '/home/.smyth') // => false
+     * ```
+     */
+    private shouldIgnorePath(filePath: string, watchedDir: string, smythPath: string | null): boolean {
+        // Check if the file path contains a dot-segment (e.g., /.git/, /.env/, /.cache/)
+        // Regex explanation: [\\/]\. matches a path separator (/ or \) followed by a dot
+        const hasDotSegment = /[\\/]\./.test(filePath);
+
+        // CASE 1: If there is NO dot-segment at all, we never ignore this path
+        // Examples: /models/OpenAI/default.json, /models/Anthropic/claude.json
+        if (!hasDotSegment) {
+            return false;
+        }
+
+        // CASE 2: If there IS a dot-segment and SMYTH_PATH is not configured,
+        // we ignore all such paths to prevent watching system/hidden files
+        // Examples: /.git/config, /node_modules/.cache/file.json
+        if (hasDotSegment && !smythPath) {
+            return true;
+        }
+
+        // Resolve the file path to an absolute path for accurate comparison
+        // This ensures we can reliably compare against the watched directory path
+        const resolvedPath = path.resolve(filePath);
+
+        // Check if the resolved path is inside the watched directory (models folder)
+        // This handles two cases:
+        // 1. The path exactly matches the watched directory
+        // 2. The path is a child of the watched directory (starts with watchedDir + separator)
+        const isInsideWatchedDir = resolvedPath === watchedDir || resolvedPath.startsWith(watchedDir + path.sep);
+
+        // CASE 3: If the path is outside the watched directory, ignore it
+        // This prevents watching unrelated files that happen to have dot-segments
+        if (!isInsideWatchedDir) {
+            return true;
+        }
+
+        // CASE 4: Path is inside the watched directory
+        // Now we need to determine if the dot-segment is in the models directory itself
+        // or if it is part of the parent path (e.g., SMYTH_PATH containing .smyth)
+
+        // Get the relative path from the watched directory to determine where the dot-segment is
+        const relativePath = path.relative(watchedDir, resolvedPath);
+
+        // Check if the dot-segment appears in the relative portion (inside models directory)
+        // Regex explanation: (^|[\\/])\. matches a dot at the start OR after a path separator
+        // Examples that match: '.git/config', 'subdir/.hidden/file.json'
+        const hasDotSegmentInsideWatchedDir = /(^|[\\/])\./.test(relativePath);
+
+        // FINAL DECISION:
+        // - If dot-segment is INSIDE the models directory (e.g., models/.git/config), IGNORE it (return true)
+        // - If dot-segment is OUTSIDE the models directory (e.g., /home/user/.smyth/models/OpenAI/default.json), ALLOW it (return false)
+        // This allows SMYTH_PATH to contain dot-segments while preventing dot-segments within the models folder
+        return hasDotSegmentInsideWatchedDir;
+    }
+
     private initDirWatcher(dir) {
         const stats = fsSync.statSync(dir);
 
@@ -257,8 +344,12 @@ export class JSONModelsProvider extends ModelsProviderConnector {
             maxWait: 5000,
         });
 
+        const smythPath = process.env.SMYTH_PATH ? path.resolve(process.env.SMYTH_PATH) : null;
+        const watchedDir = path.resolve(dir);
+
         const watcher = chokidar.watch(dir, {
-            ignored: /(^|[\/\\])\../, // ignore dotfiles
+            // Use the extracted method for path filtering
+            ignored: (filePath: string) => this.shouldIgnorePath(filePath, watchedDir, smythPath),
             persistent: true,
             ignoreInitial: true, // Don't fire events for files that already exist
             awaitWriteFinish: {