diff --git a/docs/environment-variables.md b/docs/environment-variables.md
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index 000000000..d9c302af2
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@@ -0,0 +1,123 @@
+# Environment Variables
+
+MCP servers commonly need access to API keys, database URLs, and other configuration.
+This guide covers the patterns for passing and accessing environment variables.
+
+## Accessing Environment Variables in Tools
+
+Use `os.environ` or `os.getenv()` to read environment variables in your tool functions:
+
+```python title="server.py"
+import os
+
+from mcp.server import MCPServer
+
+mcp = MCPServer("my-server")
+
+
+@mcp.tool()
+def search(query: str) -> str:
+    """Search using an external API."""
+    api_key = os.environ["SEARCH_API_KEY"]  # (1)!
+    # use api_key to call your service...
+    return f"Results for: {query}"
+
+
+@mcp.tool()
+def summarize(text: str) -> str:
+    """Summarize text using the configured model."""
+    model = os.getenv("MODEL_NAME", "gpt-4o")  # (2)!
+    return f"Summary (via {model}): {text[:100]}..."
+```
+
+1. Raises `KeyError` if the variable is not set. Use this for required configuration.
+2. Returns a default value if the variable is not set. Use this for optional configuration.
+
+## How Environment Variables Reach Your Server
+
+### Claude Desktop
+
+When configuring a server in Claude Desktop's `claude_desktop_config.json`,
+environment variables are specified in the `env` field:
+
+```json
+{
+  "mcpServers": {
+    "my-server": {
+      "command": "uv",
+      "args": ["run", "server.py"],
+      "env": {
+        "SEARCH_API_KEY": "sk-...",
+        "MODEL_NAME": "gpt-4o"
+      }
+    }
+  }
+}
+```
+
+The `mcp install` command can set these for you:
+
+```bash
+# Set individual variables
+mcp install server.py -v SEARCH_API_KEY=sk-... -v MODEL_NAME=gpt-4o
+
+# Or load from a .env file
+mcp install server.py -f .env
+```
+
+### Running Directly
+
+When running your server directly, pass environment variables using standard shell mechanisms:
+
+```bash
+# Inline
+SEARCH_API_KEY=sk-... uv run server.py
+
+# Or export first
+export SEARCH_API_KEY=sk-...
+uv run server.py
+```
+
+### Programmatic Clients
+
+When connecting to a stdio server programmatically, pass environment variables
+through `StdioServerParameters`:
+
+```python
+from mcp import ClientSession
+from mcp.client.stdio import StdioServerParameters, stdio_client
+
+params = StdioServerParameters(
+    command="uv",
+    args=["run", "server.py"],
+    env={
+        "SEARCH_API_KEY": "sk-...",
+        "MODEL_NAME": "gpt-4o",
+    },
+)
+
+async with stdio_client(params) as (read, write):
+    async with ClientSession(read, write) as session:
+        await session.initialize()
+        # session is ready to use
+```
+
+!!! note
+    The stdio transport inherits a filtered set of environment variables from the parent
+    process for security. Variables passed via the `env` parameter are merged on top of
+    these defaults.
+
+## MCPServer Settings
+
+`MCPServer` uses [Pydantic Settings](https://docs.pydantic.dev/latest/concepts/pydantic_settings/)
+and recognizes the following `MCP_`-prefixed environment variables:
+
+| Variable | Default | Description |
+|----------|---------|-------------|
+| `MCP_DEBUG` | `false` | Enable debug logging |
+| `MCP_LOG_LEVEL` | `INFO` | Set the log level |
+| `MCP_WARN_ON_DUPLICATE_TOOLS` | `true` | Warn when registering duplicate tool names |
+| `MCP_WARN_ON_DUPLICATE_RESOURCES` | `true` | Warn when registering duplicate resources |
+| `MCP_WARN_ON_DUPLICATE_PROMPTS` | `true` | Warn when registering duplicate prompts |
+
+These can also be set in a `.env` file, which `MCPServer` loads automatically.
diff --git a/mkdocs.yml b/mkdocs.yml
index 070c533e3..ae13a0741 100644
--- a/mkdocs.yml
+++ b/mkdocs.yml
@@ -16,6 +16,7 @@ nav:
   - Migration Guide: migration.md
   - Documentation:
       - Concepts: concepts.md
+      - Environment Variables: environment-variables.md
       - Low-Level Server: low-level-server.md
       - Authorization: authorization.md
       - Testing: testing.md