diff --git a/packages/cli/src/cmd/init.test.ts b/packages/cli/src/cmd/init.test.ts
index d1b68eb..356d166 100644
--- a/packages/cli/src/cmd/init.test.ts
+++ b/packages/cli/src/cmd/init.test.ts
@@ -1,5 +1,12 @@
 import { describe, expect, it } from "vitest"
-import { buildDegitSources, resolveDestDir, slugify } from "./init"
+import {
+	buildDegitSources,
+	generateEnvContent,
+	mergeEnvContent,
+	parseEnvKeys,
+	resolveDestDir,
+	slugify
+} from "./init"
 
 describe("init command - unit tests", () => {
 	describe("slugify function", () => {
@@ -132,4 +139,107 @@ describe("init command - unit tests", () => {
 			expect(result).toBe("/home/user/projects")
 		})
 	})
+
+	describe("parseEnvKeys", () => {
+		it("should parse simple env keys", () => {
+			const content = "FOO=bar\nBAZ=qux"
+			const keys = parseEnvKeys(content)
+			expect(keys).toEqual(new Set(["FOO", "BAZ"]))
+		})
+
+		it("should ignore comments", () => {
+			const content = "# This is a comment\nFOO=bar\n# Another comment"
+			const keys = parseEnvKeys(content)
+			expect(keys).toEqual(new Set(["FOO"]))
+		})
+
+		it("should ignore empty lines", () => {
+			const content = "FOO=bar\n\nBAZ=qux\n"
+			const keys = parseEnvKeys(content)
+			expect(keys).toEqual(new Set(["FOO", "BAZ"]))
+		})
+
+		it("should handle values with equals signs", () => {
+			const content = 'DATABASE_URL="postgres://user:pass=123@localhost"'
+			const keys = parseEnvKeys(content)
+			expect(keys).toEqual(new Set(["DATABASE_URL"]))
+		})
+
+		it("should trim whitespace from keys", () => {
+			const content = "  FOO  =bar"
+			const keys = parseEnvKeys(content)
+			expect(keys).toEqual(new Set(["FOO"]))
+		})
+	})
+
+	describe("generateEnvContent", () => {
+		it("should generate env content with header", () => {
+			const requiredEnv = { FOO: "bar", BAZ: "qux" }
+			const content = generateEnvContent(requiredEnv)
+			expect(content).toBe("# Generated by StartupKit\nFOO=bar\nBAZ=qux\n")
+		})
+
+		it("should handle single entry", () => {
+			const requiredEnv = { AUTH_SECRET: "secret123" }
+			const content = generateEnvContent(requiredEnv)
+			expect(content).toBe("# Generated by StartupKit\nAUTH_SECRET=secret123\n")
+		})
+	})
+
+	describe("mergeEnvContent", () => {
+		it("should add missing keys to existing content", () => {
+			const existingContent = "EXISTING=value"
+			const requiredEnv = { EXISTING: "ignored", NEW_KEY: "new_value" }
+			const { content, addedKeys } = mergeEnvContent(
+				existingContent,
+				requiredEnv
+			)
+			expect(content).toBe("EXISTING=value\nNEW_KEY=new_value\n")
+			expect(addedKeys).toEqual(["NEW_KEY"])
+		})
+
+		it("should not modify content when all keys exist", () => {
+			const existingContent = "FOO=bar\nBAZ=qux"
+			const requiredEnv = { FOO: "different", BAZ: "also_different" }
+			const { content, addedKeys } = mergeEnvContent(
+				existingContent,
+				requiredEnv
+			)
+			expect(content).toBe("FOO=bar\nBAZ=qux")
+			expect(addedKeys).toEqual([])
+		})
+
+		it("should add multiple missing keys", () => {
+			const existingContent = "EXISTING=value"
+			const requiredEnv = { KEY1: "val1", KEY2: "val2" }
+			const { content, addedKeys } = mergeEnvContent(
+				existingContent,
+				requiredEnv
+			)
+			expect(content).toBe("EXISTING=value\nKEY1=val1\nKEY2=val2\n")
+			expect(addedKeys).toEqual(["KEY1", "KEY2"])
+		})
+
+		it("should handle content with trailing newline", () => {
+			const existingContent = "EXISTING=value\n"
+			const requiredEnv = { NEW_KEY: "new_value" }
+			const { content, addedKeys } = mergeEnvContent(
+				existingContent,
+				requiredEnv
+			)
+			expect(content).toBe("EXISTING=value\nNEW_KEY=new_value\n")
+			expect(addedKeys).toEqual(["NEW_KEY"])
+		})
+
+		it("should preserve comments in existing content", () => {
+			const existingContent = "# My app config\nFOO=bar"
+			const requiredEnv = { BAZ: "qux" }
+			const { content, addedKeys } = mergeEnvContent(
+				existingContent,
+				requiredEnv
+			)
+			expect(content).toBe("# My app config\nFOO=bar\nBAZ=qux\n")
+			expect(addedKeys).toEqual(["BAZ"])
+		})
+	})
 })
diff --git a/packages/cli/src/cmd/init.ts b/packages/cli/src/cmd/init.ts
index 0bf370f..3a83393 100644
--- a/packages/cli/src/cmd/init.ts
+++ b/packages/cli/src/cmd/init.ts
@@ -1,3 +1,4 @@
+import { existsSync, readFileSync, writeFileSync } from "node:fs"
 import path from "node:path"
 import degit from "degit"
 import inquirer from "inquirer"
@@ -5,6 +6,46 @@ import { replaceInFile } from "replace-in-file"
 import { spinner } from "../lib/spinner"
 import { exec } from "../lib/system"
 
+export function parseEnvKeys(content: string): Set<string> {
+	return new Set(
+		content
+			.split("\n")
+			.filter((line) => line.includes("=") && !line.startsWith("#"))
+			.map((line) => line.split("=")[0].trim())
+	)
+}
+
+export function generateEnvContent(
+	requiredEnv: Record<string, string>
+): string {
+	return `# Generated by StartupKit\n${Object.entries(requiredEnv)
+		.map(([key, value]) => `${key}=${value}`)
+		.join("\n")}\n`
+}
+
+export function mergeEnvContent(
+	existingContent: string,
+	requiredEnv: Record<string, string>
+): { content: string; addedKeys: string[] } {
+	const existingKeys = parseEnvKeys(existingContent)
+	const missingEntries = Object.entries(requiredEnv).filter(
+		([key]) => !existingKeys.has(key)
+	)
+
+	if (missingEntries.length === 0) {
+		return { content: existingContent, addedKeys: [] }
+	}
+
+	const additions = missingEntries
+		.map(([key, value]) => `${key}=${value}`)
+		.join("\n")
+
+	return {
+		content: `${existingContent.trimEnd()}\n${additions}\n`,
+		addedKeys: missingEntries.map(([k]) => k)
+	}
+}
+
 export function slugify(input: string): string {
 	return input
 		.toLowerCase()
@@ -169,6 +210,25 @@ export async function init(props: {
 		await exec("pnpm install --no-frozen-lockfile", { cwd: destDir })
 	})
 
+	// Create or update .env.local with required keys
+	const envLocal = path.join(destDir, ".env.local")
+	const requiredEnv: Record<string, string> = {
+		AUTH_SECRET: "FAKE1234567890123456789012345678901234567890",
+		DATABASE_URL: `postgresql://localhost:5432/${key}?schema=public`
+	}
+
+	if (existsSync(envLocal)) {
+		const existingContent = readFileSync(envLocal, "utf-8")
+		const { content, addedKeys } = mergeEnvContent(existingContent, requiredEnv)
+		if (addedKeys.length > 0) {
+			writeFileSync(envLocal, content)
+			console.log(`✅ Added missing env vars: ${addedKeys.join(", ")}`)
+		}
+	} else {
+		writeFileSync(envLocal, generateEnvContent(requiredEnv))
+		console.log("✅ Created .env.local")
+	}
+
 	// Generate AI agent instructions
 	await spinner(`Generating AI agent instructions`, async () => {
 		await exec("pnpm agents.md", { cwd: destDir })