diff --git a/.gitignore b/.gitignore
index ad583ae..2f11afc 100644
--- a/.gitignore
+++ b/.gitignore
@@ -48,4 +48,7 @@ pids/
 
 # Temporary files
 .tmp/
-temp/
\ No newline at end of file
+temp/
+
+# MCP todo list
+.mcp-todos.json
diff --git a/readme.md b/readme.md
index e5ebe4c..98d9930 100644
--- a/readme.md
+++ b/readme.md
@@ -78,6 +78,42 @@ export ANTHROPIC_API_KEY=your_key_here
 # Then just run: mcp-use
 ```
 
+## Using Local OpenAI-Compatible APIs
+
+The CLI now supports local OpenAI-compatible APIs (like LM Studio, Ollama with OpenAI compatibility, LocalAI, etc.):
+
+### Option 1: Using the dedicated local provider
+
+```bash
+# Set your local API endpoint (defaults to http://localhost:1234/v1)
+export LOCAL_OPENAI_BASE_URL=http://localhost:1234/v1
+
+# Use any API key (local servers often don't require real keys)
+export LOCAL_OPENAI_API_KEY=local-api-key
+
+# Select the local provider and model
+mcp-use
+/model localopenai gpt-3.5-turbo
+```
+
+### Option 2: Using OpenAI provider with custom base URL
+
+```bash
+# Set custom base URL for OpenAI provider
+export OPENAI_BASE_URL=http://localhost:1234/v1
+export OPENAI_API_KEY=your-local-key
+
+# Use as normal OpenAI provider
+mcp-use
+/model openai gpt-3.5-turbo
+```
+
+Common local API servers:
+- **LM Studio**: Default URL is `http://localhost:1234/v1`
+- **Ollama (OpenAI mode)**: Use `http://localhost:11434/v1`
+- **LocalAI**: Default URL is `http://localhost:8080/v1`
+- **Text Generation WebUI**: With OpenAI extension at `http://localhost:5000/v1`
+
 ## Usage
 
 ```
@@ -174,6 +210,7 @@ Switch LLM providers and configure settings using slash commands:
 /model google gemini-1.5-pro
 /model mistral mistral-large-latest
 /model groq llama-3.1-70b-versatile
+/model localopenai gpt-3.5-turbo  # For local APIs
 
 # List available models
 /models
diff --git a/source/services/llm-service.ts b/source/services/llm-service.ts
index fb307e6..0f326c8 100644
--- a/source/services/llm-service.ts
+++ b/source/services/llm-service.ts
@@ -28,8 +28,34 @@ const PROVIDERS = {
 	openai: {
 		envVar: 'OPENAI_API_KEY',
 		defaultModel: 'gpt-4o',
-		factory: (key: string, cfg: LLMConfig) =>
-			new ChatOpenAI({openAIApiKey: key, modelName: cfg.model}),
+		factory: (key: string, cfg: LLMConfig) => {
+			const baseURL = process.env['OPENAI_BASE_URL'] || process.env['OPENAI_API_BASE'];
+			const config: any = {
+				openAIApiKey: key,
+				modelName: cfg.model,
+			};
+			if (baseURL) {
+				config.configuration = {
+					baseURL: baseURL.endsWith('/') ? baseURL.slice(0, -1) : baseURL,
+				};
+			}
+			return new ChatOpenAI(config);
+		},
+	},
+	localopenai: {
+		envVar: 'LOCAL_OPENAI_API_KEY',
+		defaultModel: 'gpt-3.5-turbo',
+		factory: (key: string, cfg: LLMConfig) => {
+			const baseURL = process.env['LOCAL_OPENAI_BASE_URL'] || 'http://localhost:1234/v1';
+			const config: any = {
+				openAIApiKey: key || 'local-api-key',
+				modelName: cfg.model,
+				configuration: {
+					baseURL: baseURL.endsWith('/') ? baseURL.slice(0, -1) : baseURL,
+				},
+			};
+			return new ChatOpenAI(config);
+		},
 	},
 	azureopenai: {
 		envVar: 'AZURE_OPENAI_API_KEY',