diff --git a/.gitignore b/.gitignore
index 92da579..2d6a65b 100644
--- a/.gitignore
+++ b/.gitignore
@@ -32,6 +32,7 @@ go.work.sum
 *.key
 build/
 bins/
+**/tmp/
 
 # Claude Code settings
 .claude/
diff --git a/Makefile b/Makefile
index 4e5a870..e320b73 100644
--- a/Makefile
+++ b/Makefile
@@ -144,3 +144,33 @@ helm-test:
 helm-example:
 	cd charts; helm template example ./s2s-proxy -f ./s2s-proxy/values.example.yaml > s2s-proxy/example.yaml
 	@echo "Example written to charts/s2s-proxy/example.yaml"
+
+# Local development environment
+DEVELOP_ENV_FILE    = develop/docker-compose/develop.env
+DOCKER_COMPOSE_FILE    ?= ./develop/docker-compose/develop.docker-compose.yaml
+DOCKER_COMPOSE          = docker compose --file $(DOCKER_COMPOSE_FILE) --env-file $(DEVELOP_ENV_FILE)
+
+PROXY_LEFT_CONFIG_TMPL  = develop/docker-compose/develop.proxy-left.tmpl.yaml
+PROXY_RIGHT_CONFIG_TMPL = develop/docker-compose/develop.proxy-right.tmpl.yaml
+PROXY_LEFT_CONFIG       = develop/docker-compose/tmp/develop.proxy-left.yaml
+PROXY_RIGHT_CONFIG      = develop/docker-compose/tmp/develop.proxy-right.yaml
+
+.PHONY: generate-configs
+generate-configs:
+	mkdir -p develop/docker-compose/tmp
+	set -a && . $(DEVELOP_ENV_FILE) && set +a && \
+	envsubst < $(PROXY_LEFT_CONFIG_TMPL) > $(PROXY_LEFT_CONFIG) && \
+	envsubst < $(PROXY_RIGHT_CONFIG_TMPL) > $(PROXY_RIGHT_CONFIG)
+
+.PHONY: start-dependencies
+start-dependencies: generate-configs
+	$(DOCKER_COMPOSE) up --detach --build --wait --wait-timeout 120
+	@echo >&2 'Dependencies ready!'
+
+.PHONY: stop-dependencies
+stop-dependencies:
+	$(DOCKER_COMPOSE) down --timeout 60
+
+.PHONY: nuke-dependencies
+nuke-dependencies:
+	$(DOCKER_COMPOSE) down --timeout 60 --volumes --remove-orphans
diff --git a/develop/README.md b/develop/README.md
index 28548af..194f2dc 100644
--- a/develop/README.md
+++ b/develop/README.md
@@ -10,7 +10,20 @@
 
 # How-Tos
 
-## Setup a local proxy pair with two Temporal clusters
+## Setup a local proxy pair with two Temporal clusters (docker compose)
+
+### Steps
+
+1. To start the development environment: `make start-dependencies`
+2. Done! Run tests against these services. The default ports are specified in an [environment file](docker-compose/develop.env)
+3. To stop the development environment: `make stop-dependencies`
+
+### Logs
+
+- To view container logs, run `docker logs <container name>`. For example `docker logs docker-compose-smoke-test-1`.
+- To find container name, run `docker ps -a`, or grep for specific compose service name, e.g. `docker ps -a | grep smoke-test`
+
+## Setup a local proxy pair with two Temporal clusters (manual)
 
 ### Ports
 | Service              | port  | Connected to   |
diff --git a/develop/docker-compose/develop.docker-compose.yaml b/develop/docker-compose/develop.docker-compose.yaml
new file mode 100644
index 0000000..38bf814
--- /dev/null
+++ b/develop/docker-compose/develop.docker-compose.yaml
@@ -0,0 +1,138 @@
+x-volumes: &x-volumes
+  - ./..:/etc/develop:ro
+
+services:
+  temporal-left:
+    image: temporalio/temporal:1.5.0
+    command:
+      - server
+      - start-dev
+      - --port
+      - "${TEMPORAL_INTERNAL_PORT}"
+      - --ip
+      - "0.0.0.0"
+      - --headless
+      - --namespace
+      - default
+      - --log-level
+      - warn
+    ports:
+      - "${TEMPORAL_LEFT_EXTERNAL_PORT}:${TEMPORAL_INTERNAL_PORT}"
+    networks:
+      - develop
+    healthcheck:
+      test:
+        - CMD
+        - temporal
+        - operator
+        - cluster
+        - health
+        - --address
+        - "localhost:${TEMPORAL_INTERNAL_PORT}"
+      interval: 5s
+      timeout: 5s
+      retries: 30
+      start_period: 5s
+
+  temporal-right:
+    image: temporalio/temporal:1.5.0
+    command:
+      - server
+      - start-dev
+      - --port
+      - "${TEMPORAL_INTERNAL_PORT}"
+      - --ip
+      - "0.0.0.0"
+      - --headless
+      - --namespace
+      - default
+      - --log-level
+      - warn
+    ports:
+      - "${TEMPORAL_RIGHT_EXTERNAL_PORT}:${TEMPORAL_INTERNAL_PORT}"
+    networks:
+      - develop
+    healthcheck:
+      test:
+        - CMD
+        - temporal
+        - operator
+        - cluster
+        - health
+        - --address
+        - "localhost:${TEMPORAL_INTERNAL_PORT}"
+      interval: 5s
+      timeout: 5s
+      retries: 30
+      start_period: 5s
+
+  proxy-right:
+    build:
+      context: ../..
+      dockerfile: Dockerfile
+    environment:
+      CONFIG_YML: /etc/develop/docker-compose/tmp/develop.proxy-right.yaml
+    volumes: *x-volumes
+    ports:
+      - "${PROXY_RIGHT_EXTERNAL_PORT}:${PROXY_RIGHT_INTERNAL_PORT}"
+    networks:
+      - develop
+    depends_on:
+      temporal-right:
+        condition: service_healthy
+    healthcheck: # TODO: Replace with healthcheck endpoint.
+      test:
+        - CMD-SHELL
+        - "wget -q -O /dev/null -T 3 http://localhost:6060/debug/pprof/ || exit 1"
+      interval: 5s
+      timeout: 5s
+      retries: 30
+      start_period: 10s
+
+  proxy-left:
+    build:
+      context: ../..
+      dockerfile: Dockerfile
+    environment:
+      CONFIG_YML: /etc/develop/docker-compose/tmp/develop.proxy-left.yaml
+    volumes: *x-volumes
+    ports:
+      - "${PROXY_LEFT_EXTERNAL_PORT}:${PROXY_LEFT_INTERNAL_PORT}"
+    networks:
+      - develop
+    depends_on:
+      temporal-left:
+        condition: service_healthy
+      proxy-right:
+        condition: service_healthy
+    healthcheck: # TODO: Replace with healthcheck endpoint.
+      test:
+        - CMD-SHELL
+        - "wget -q -O /dev/null -T 3 http://localhost:6060/debug/pprof/ || exit 1"
+      interval: 5s
+      timeout: 5s
+      retries: 30
+      start_period: 10s
+
+  smoke-test:
+    image: temporalio/temporal:1.5.0
+    entrypoint: /bin/sh
+    networks:
+      - develop
+    depends_on:
+      proxy-left:
+        condition: service_healthy
+      proxy-right:
+        condition: service_healthy
+    volumes: *x-volumes
+    environment:
+      TEMPORAL_LEFT_INBOUND: "temporal-left:${TEMPORAL_INTERNAL_PORT}"
+      TEMPORAL_RIGHT_INBOUND: "temporal-right:${TEMPORAL_INTERNAL_PORT}"
+      PROXY_LEFT_OUTBOUND: "proxy-left:${PROXY_LEFT_INTERNAL_PORT}"
+      PROXY_RIGHT_OUTBOUND: "proxy-right:${PROXY_RIGHT_INTERNAL_PORT}"
+    command:
+      - /etc/develop/docker-compose/smoke-test.sh
+
+networks:
+  develop:
+    driver: bridge
diff --git a/develop/docker-compose/develop.env b/develop/docker-compose/develop.env
new file mode 100644
index 0000000..4d2655a
--- /dev/null
+++ b/develop/docker-compose/develop.env
@@ -0,0 +1,11 @@
+# External Ports (exposed via localhost)
+TEMPORAL_LEFT_EXTERNAL_PORT=4000
+TEMPORAL_RIGHT_EXTERNAL_PORT=5000
+PROXY_LEFT_EXTERNAL_PORT=4001
+PROXY_RIGHT_EXTERNAL_PORT=5001
+
+# Internal Ports (exposed on containers in docker network)
+TEMPORAL_INTERNAL_PORT=7233
+PROXY_LEFT_INTERNAL_PORT=6233
+PROXY_RIGHT_INTERNAL_PORT=6333
+PROXY_MUX_INTERNAL_PORT=6334
diff --git a/develop/docker-compose/develop.proxy-left.tmpl.yaml b/develop/docker-compose/develop.proxy-left.tmpl.yaml
new file mode 100644
index 0000000..c235578
--- /dev/null
+++ b/develop/docker-compose/develop.proxy-left.tmpl.yaml
@@ -0,0 +1,15 @@
+clusterConnections:
+  - name: "cluster-left"
+    local:
+      connectionType: "tcp"
+      tcpClient:
+        address: "temporal-left:${TEMPORAL_INTERNAL_PORT}"
+      tcpServer:
+        address: "0.0.0.0:${PROXY_LEFT_INTERNAL_PORT}"
+    remote:
+      connectionType: "mux-client"
+      muxCount: 1
+      muxAddressInfo:
+        address: "proxy-right:${PROXY_MUX_INTERNAL_PORT}"
+profiling:
+  pprofAddress: "0.0.0.0:6060"
diff --git a/develop/docker-compose/develop.proxy-right.tmpl.yaml b/develop/docker-compose/develop.proxy-right.tmpl.yaml
new file mode 100644
index 0000000..d723078
--- /dev/null
+++ b/develop/docker-compose/develop.proxy-right.tmpl.yaml
@@ -0,0 +1,15 @@
+clusterConnections:
+  - name: "cluster-right"
+    local:
+      connectionType: "tcp"
+      tcpClient:
+        address: "temporal-right:${TEMPORAL_INTERNAL_PORT}"
+      tcpServer:
+        address: "0.0.0.0:${PROXY_RIGHT_INTERNAL_PORT}"
+    remote:
+      connectionType: "mux-server"
+      muxCount: 1
+      muxAddressInfo:
+        address: "0.0.0.0:${PROXY_MUX_INTERNAL_PORT}"
+profiling:
+  pprofAddress: "0.0.0.0:6060"
diff --git a/develop/docker-compose/smoke-test.sh b/develop/docker-compose/smoke-test.sh
new file mode 100755
index 0000000..f94ef21
--- /dev/null
+++ b/develop/docker-compose/smoke-test.sh
@@ -0,0 +1,25 @@
+#!/bin/sh
+set -e
+
+sleep 20 # TODO: remove after addition of reliable s2s-proxy healthcheck endpoint.
+
+# connectivity (also covered by docker-compose healthcheck)
+temporal operator cluster health --address "$TEMPORAL_LEFT_INBOUND"
+temporal operator cluster health --address "$TEMPORAL_RIGHT_INBOUND"
+
+# cross-server proxy-left routes to temporal-right
+NS_L="smoketest-left-$$"
+temporal operator namespace create "$NS_L" --retention 24h --address "$TEMPORAL_RIGHT_INBOUND"
+temporal operator namespace describe "$NS_L" --address "$PROXY_LEFT_OUTBOUND"
+
+# cross-server proxy-right routes to temporal-left
+NS_R="smoketest-right-$$"
+temporal operator namespace create "$NS_R" --retention 24h --address "$TEMPORAL_LEFT_INBOUND"
+temporal operator namespace describe "$NS_R" --address "$PROXY_RIGHT_OUTBOUND"
+
+# outbound route is routed through each proxy
+# TODO: for strong validation - after migrating off of temporal cli dev server, we can override and check the cluster name (currently both are named 'active')
+temporal operator cluster describe --address "$PROXY_LEFT_OUTBOUND"
+temporal operator cluster describe --address "$PROXY_RIGHT_OUTBOUND"
+
+echo "smoke tests succeeded. 🚬"