diff --git a/docs/configuration.md b/docs/configuration.md
index abe4ea38ec8..d1d8098f895 100644
--- a/docs/configuration.md
+++ b/docs/configuration.md
@@ -119,6 +119,20 @@ This also works for secret settings, like credentials:
 export POETRY_HTTP_BASIC_MY_REPOSITORY_PASSWORD=secret
 ```
 
+## Configuration sources
+
+When a setting is set in multiple places, Poetry applies the following precedence
+(from highest to lowest):
+
+1. Environment variables (for example, `POETRY_VIRTUALENVS_CREATE`)
+2. The local `poetry.toml` file (created with `poetry config --local`)
+3. The global `config.toml` file
+4. The setting's default value
+
+For repository credentials (`http-basic.*`, `pypi-token.*`), Poetry may also read
+from `auth.toml` and the system keyring (for details see [Repositories]({{< relref "repositories" >}})).
+Environment variables still take precedence over file-based values.
+
 ## Migrate outdated configs
 
 If Poetry renames or remove config options it might be necessary to migrate explicit set options. This is possible