diff --git a/index.ts b/index.ts
index 48d7fb9..1ae6900 100644
--- a/index.ts
+++ b/index.ts
@@ -205,6 +205,11 @@ function parsePositiveInt(value: unknown): number | undefined {
   return undefined;
 }
 
+function isLocalProvider(baseURL?: string): boolean {
+  if (!baseURL) return false;
+  return /localhost|127\.0\.0\.1|\[::1\]|0\.0\.0\.0/i.test(baseURL);
+}
+
 function resolveHookAgentId(
   explicitAgentId: string | undefined,
   sessionKey: string | undefined,
@@ -3160,8 +3165,12 @@ export function parsePluginConfig(value: unknown): PluginConfig {
     throw new Error("embedding config is required");
   }
 
+  const resolvedBaseURL =
+    typeof embedding.baseURL === "string" ? resolveEnvVars(embedding.baseURL) : undefined;
+  const isLocal = isLocalProvider(resolvedBaseURL);
+
   // Accept single key (string) or array of keys for round-robin rotation
-  let apiKey: string | string[];
+  let apiKey: string | string[] | undefined;
   if (typeof embedding.apiKey === "string") {
     apiKey = embedding.apiKey;
   } else if (Array.isArray(embedding.apiKey) && embedding.apiKey.length > 0) {
@@ -3183,7 +3192,16 @@ export function parsePluginConfig(value: unknown): PluginConfig {
   }
 
   if (!apiKey || (Array.isArray(apiKey) && apiKey.length === 0)) {
-    throw new Error("embedding.apiKey is required (set directly or via OPENAI_API_KEY env var)");
+    if (isLocal) {
+      apiKey = "ollama";
+      console.warn(
+        "[memory-lancedb-pro] No embedding.apiKey provided for local provider; using dummy key. This is expected for Ollama and similar local endpoints.",
+      );
+    } else {
+      throw new Error(
+        "embedding.apiKey is required for cloud providers (set directly or via OPENAI_API_KEY env var)",
+      );
+    }
   }
 
   const memoryReflectionRaw = typeof cfg.memoryReflection === "object" && cfg.memoryReflection !== null
diff --git a/test/no-apikey-local-provider.test.mjs b/test/no-apikey-local-provider.test.mjs
new file mode 100644
index 0000000..e8fa849
--- /dev/null
+++ b/test/no-apikey-local-provider.test.mjs
@@ -0,0 +1,68 @@
+import { describe, it } from "node:test";
+import assert from "node:assert/strict";
+import jitiFactory from "jiti";
+
+const jiti = jitiFactory(import.meta.url, { interopDefault: true });
+
+const { parsePluginConfig } = jiti("../index.ts");
+
+function baseConfig(overrides = {}) {
+  return {
+    embedding: {
+      provider: "openai-compatible",
+      ...overrides,
+    },
+  };
+}
+
+function withEnv(value, fn) {
+  const prev = process.env.OPENAI_API_KEY;
+  if (value === undefined) {
+    delete process.env.OPENAI_API_KEY;
+  } else {
+    process.env.OPENAI_API_KEY = value;
+  }
+  try {
+    fn();
+  } finally {
+    if (prev === undefined) {
+      delete process.env.OPENAI_API_KEY;
+    } else {
+      process.env.OPENAI_API_KEY = prev;
+    }
+  }
+}
+
+describe("embedding apiKey handling for local providers", () => {
+  it("allows missing apiKey for localhost baseURL and uses dummy key", () => {
+    const warn = console.warn;
+    console.warn = () => {};
+    try {
+      withEnv(undefined, () => {
+        const cfg = parsePluginConfig(baseConfig({ baseURL: "http://localhost:11434" }));
+        assert.equal(cfg.embedding.apiKey, "ollama");
+      });
+    } finally {
+      console.warn = warn;
+    }
+  });
+
+  it("throws for cloud provider when apiKey is missing", () => {
+    withEnv(undefined, () => {
+      assert.throws(() => parsePluginConfig(baseConfig({ baseURL: "https://api.jina.ai" })), /embedding\.apiKey is required/);
+    });
+  });
+
+  it("preserves explicit apiKey for local provider", () => {
+    withEnv(undefined, () => {
+      const cfg = parsePluginConfig(baseConfig({ baseURL: "http://127.0.0.1:11434", apiKey: "local-key" }));
+      assert.equal(cfg.embedding.apiKey, "local-key");
+    });
+  });
+
+  it("throws when no baseURL and no apiKey", () => {
+    withEnv(undefined, () => {
+      assert.throws(() => parsePluginConfig(baseConfig({})), /embedding\.apiKey is required/);
+    });
+  });
+});