diff --git a/pyproject.toml b/pyproject.toml
index d8f08a0..958fba6 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -12,6 +12,7 @@ dependencies = [
     "sqlalchemy>=2.0.0",
     "alembic>=1.13.0",
     "pydantic>=2.0.0",
+    "pydantic-settings>=2.0.0",
     "python-dotenv>=1.0.0",
     "websockets>=12.0",
     "prometheus-client>=0.19.0",
diff --git a/src/polymarket_insider_tracker/config.py b/src/polymarket_insider_tracker/config.py
new file mode 100644
index 0000000..d63cf03
--- /dev/null
+++ b/src/polymarket_insider_tracker/config.py
@@ -0,0 +1,263 @@
+"""Configuration management service with Pydantic Settings.
+
+This module provides centralized configuration management for the
+Polymarket Insider Tracker application, loading and validating
+environment variables at startup.
+"""
+
+from __future__ import annotations
+
+import logging
+from functools import lru_cache
+from typing import Literal
+
+from pydantic import Field, SecretStr, field_validator
+from pydantic_settings import BaseSettings, SettingsConfigDict
+
+
+class DatabaseSettings(BaseSettings):
+    """Database connection settings."""
+
+    model_config = SettingsConfigDict(env_prefix="")
+
+    url: str = Field(
+        alias="DATABASE_URL",
+        description="PostgreSQL connection string",
+    )
+
+    @field_validator("url")
+    @classmethod
+    def validate_url(cls, v: str) -> str:
+        """Validate database URL format."""
+        if not v.startswith(("postgresql://", "postgresql+asyncpg://")):
+            raise ValueError("DATABASE_URL must be a PostgreSQL connection string")
+        return v
+
+
+class RedisSettings(BaseSettings):
+    """Redis connection settings."""
+
+    model_config = SettingsConfigDict(env_prefix="")
+
+    url: str = Field(
+        default="redis://localhost:6379",
+        alias="REDIS_URL",
+        description="Redis connection string",
+    )
+
+    @field_validator("url")
+    @classmethod
+    def validate_url(cls, v: str) -> str:
+        """Validate Redis URL format."""
+        if not v.startswith("redis://"):
+            raise ValueError("REDIS_URL must start with redis://")
+        return v
+
+
+class PolygonSettings(BaseSettings):
+    """Polygon blockchain RPC settings."""
+
+    model_config = SettingsConfigDict(env_prefix="POLYGON_")
+
+    rpc_url: str = Field(
+        default="https://polygon-rpc.com",
+        alias="POLYGON_RPC_URL",
+        description="Primary Polygon RPC endpoint",
+    )
+    fallback_rpc_url: str | None = Field(
+        default=None,
+        alias="POLYGON_FALLBACK_RPC_URL",
+        description="Fallback Polygon RPC endpoint",
+    )
+
+    @field_validator("rpc_url", "fallback_rpc_url")
+    @classmethod
+    def validate_url(cls, v: str | None) -> str | None:
+        """Validate RPC URL format."""
+        if v is None:
+            return v
+        if not v.startswith(("http://", "https://")):
+            raise ValueError("RPC URL must be an HTTP(S) endpoint")
+        return v
+
+
+class PolymarketSettings(BaseSettings):
+    """Polymarket API settings."""
+
+    model_config = SettingsConfigDict(env_prefix="POLYMARKET_")
+
+    ws_url: str = Field(
+        default="wss://ws-subscriptions-clob.polymarket.com/ws/market",
+        alias="POLYMARKET_WS_URL",
+        description="Polymarket WebSocket URL for live data",
+    )
+    api_key: SecretStr | None = Field(
+        default=None,
+        alias="POLYMARKET_API_KEY",
+        description="Optional Polymarket API key",
+    )
+
+    @field_validator("ws_url")
+    @classmethod
+    def validate_ws_url(cls, v: str) -> str:
+        """Validate WebSocket URL format."""
+        if not v.startswith(("ws://", "wss://")):
+            raise ValueError("WebSocket URL must start with ws:// or wss://")
+        return v
+
+
+class DiscordSettings(BaseSettings):
+    """Discord notification settings."""
+
+    model_config = SettingsConfigDict(env_prefix="DISCORD_")
+
+    webhook_url: SecretStr | None = Field(
+        default=None,
+        alias="DISCORD_WEBHOOK_URL",
+        description="Discord webhook URL for alerts",
+    )
+
+    @property
+    def enabled(self) -> bool:
+        """Check if Discord notifications are enabled."""
+        return self.webhook_url is not None
+
+
+class TelegramSettings(BaseSettings):
+    """Telegram notification settings."""
+
+    model_config = SettingsConfigDict(env_prefix="TELEGRAM_")
+
+    bot_token: SecretStr | None = Field(
+        default=None,
+        alias="TELEGRAM_BOT_TOKEN",
+        description="Telegram bot token",
+    )
+    chat_id: str | None = Field(
+        default=None,
+        alias="TELEGRAM_CHAT_ID",
+        description="Telegram chat ID for alerts",
+    )
+
+    @property
+    def enabled(self) -> bool:
+        """Check if Telegram notifications are enabled."""
+        return self.bot_token is not None and self.chat_id is not None
+
+
+class Settings(BaseSettings):
+    """Main application settings.
+
+    Loads configuration from environment variables with support for
+    .env files via python-dotenv.
+
+    Example:
+        ```python
+        from polymarket_insider_tracker.config import get_settings
+
+        settings = get_settings()
+        print(settings.database.url)
+        print(settings.log_level)
+        ```
+    """
+
+    model_config = SettingsConfigDict(
+        env_file=".env",
+        env_file_encoding="utf-8",
+        extra="ignore",
+    )
+
+    # Nested configuration groups
+    database: DatabaseSettings = Field(default_factory=DatabaseSettings)
+    redis: RedisSettings = Field(default_factory=RedisSettings)
+    polygon: PolygonSettings = Field(default_factory=PolygonSettings)
+    polymarket: PolymarketSettings = Field(default_factory=PolymarketSettings)
+    discord: DiscordSettings = Field(default_factory=DiscordSettings)
+    telegram: TelegramSettings = Field(default_factory=TelegramSettings)
+
+    # Application settings
+    log_level: Literal["DEBUG", "INFO", "WARNING", "ERROR", "CRITICAL"] = Field(
+        default="INFO",
+        alias="LOG_LEVEL",
+        description="Logging level",
+    )
+    health_port: int = Field(
+        default=8080,
+        alias="HEALTH_PORT",
+        description="HTTP port for health check endpoints",
+        ge=1,
+        le=65535,
+    )
+    dry_run: bool = Field(
+        default=False,
+        alias="DRY_RUN",
+        description="Run without sending actual alerts",
+    )
+
+    def get_logging_level(self) -> int:
+        """Get the numeric logging level."""
+        level: int = getattr(logging, self.log_level)
+        return level
+
+    def redacted_summary(self) -> dict[str, str | dict[str, str]]:
+        """Get a summary of settings with secrets redacted.
+
+        Returns:
+            Dictionary of settings with sensitive values masked.
+        """
+        return {
+            "database_url": self._redact_url(self.database.url),
+            "redis_url": self._redact_url(self.redis.url),
+            "polygon": {
+                "rpc_url": self.polygon.rpc_url,
+                "fallback_rpc_url": self.polygon.fallback_rpc_url or "(not set)",
+            },
+            "polymarket": {
+                "ws_url": self.polymarket.ws_url,
+                "api_key": "(set)" if self.polymarket.api_key else "(not set)",
+            },
+            "discord_enabled": str(self.discord.enabled),
+            "telegram_enabled": str(self.telegram.enabled),
+            "log_level": self.log_level,
+            "health_port": str(self.health_port),
+            "dry_run": str(self.dry_run),
+        }
+
+    @staticmethod
+    def _redact_url(url: str) -> str:
+        """Redact password from URL if present."""
+        if "@" in url and "://" in url:
+            # URL has credentials - redact the password
+            protocol_end = url.index("://") + 3
+            at_pos = url.index("@")
+            creds_part = url[protocol_end:at_pos]
+            if ":" in creds_part:
+                username = creds_part.split(":")[0]
+                return f"{url[:protocol_end]}{username}:***@{url[at_pos + 1 :]}"
+        return url
+
+
+@lru_cache(maxsize=1)
+def get_settings() -> Settings:
+    """Get the application settings singleton.
+
+    Uses LRU cache to ensure settings are loaded only once and
+    reused across the application.
+
+    Returns:
+        The Settings instance.
+
+    Raises:
+        ValidationError: If required environment variables are missing
+            or have invalid values.
+    """
+    return Settings()
+
+
+def clear_settings_cache() -> None:
+    """Clear the settings cache.
+
+    Useful for testing when you need to reload settings with
+    different environment variables.
+    """
+    get_settings.cache_clear()
diff --git a/tests/test_config.py b/tests/test_config.py
new file mode 100644
index 0000000..4e470b5
--- /dev/null
+++ b/tests/test_config.py
@@ -0,0 +1,329 @@
+"""Tests for configuration management service."""
+
+from __future__ import annotations
+
+import os
+from typing import TYPE_CHECKING
+from unittest.mock import patch
+
+import pytest
+from pydantic import ValidationError
+
+from polymarket_insider_tracker.config import (
+    DatabaseSettings,
+    DiscordSettings,
+    PolygonSettings,
+    PolymarketSettings,
+    RedisSettings,
+    Settings,
+    TelegramSettings,
+    clear_settings_cache,
+    get_settings,
+)
+
+if TYPE_CHECKING:
+    from collections.abc import Iterator
+
+
+@pytest.fixture(autouse=True)
+def clear_cache() -> Iterator[None]:
+    """Clear settings cache before and after each test."""
+    clear_settings_cache()
+    yield
+    clear_settings_cache()
+
+
+class TestDatabaseSettings:
+    """Tests for DatabaseSettings."""
+
+    def test_valid_postgresql_url(self) -> None:
+        """Test valid PostgreSQL URL."""
+        with patch.dict(os.environ, {"DATABASE_URL": "postgresql://user:pass@localhost/db"}):
+            settings = DatabaseSettings()
+            assert settings.url == "postgresql://user:pass@localhost/db"
+
+    def test_valid_asyncpg_url(self) -> None:
+        """Test valid asyncpg URL."""
+        with patch.dict(
+            os.environ, {"DATABASE_URL": "postgresql+asyncpg://user:pass@localhost/db"}
+        ):
+            settings = DatabaseSettings()
+            assert settings.url == "postgresql+asyncpg://user:pass@localhost/db"
+
+    def test_invalid_url_raises(self) -> None:
+        """Test that invalid database URL raises validation error."""
+        with (
+            patch.dict(os.environ, {"DATABASE_URL": "mysql://user:pass@localhost/db"}),
+            pytest.raises(ValidationError, match="PostgreSQL connection string"),
+        ):
+            DatabaseSettings()
+
+
+class TestRedisSettings:
+    """Tests for RedisSettings."""
+
+    def test_default_url(self) -> None:
+        """Test default Redis URL."""
+        with patch.dict(os.environ, {}, clear=True):
+            settings = RedisSettings()
+            assert settings.url == "redis://localhost:6379"
+
+    def test_custom_url(self) -> None:
+        """Test custom Redis URL."""
+        with patch.dict(os.environ, {"REDIS_URL": "redis://redis:6380"}):
+            settings = RedisSettings()
+            assert settings.url == "redis://redis:6380"
+
+    def test_invalid_url_raises(self) -> None:
+        """Test that invalid Redis URL raises validation error."""
+        with (
+            patch.dict(os.environ, {"REDIS_URL": "http://localhost:6379"}),
+            pytest.raises(ValidationError, match="redis://"),
+        ):
+            RedisSettings()
+
+
+class TestPolygonSettings:
+    """Tests for PolygonSettings."""
+
+    def test_default_rpc_url(self) -> None:
+        """Test default Polygon RPC URL."""
+        with patch.dict(os.environ, {}, clear=True):
+            settings = PolygonSettings()
+            assert settings.rpc_url == "https://polygon-rpc.com"
+            assert settings.fallback_rpc_url is None
+
+    def test_custom_urls(self) -> None:
+        """Test custom Polygon RPC URLs."""
+        with patch.dict(
+            os.environ,
+            {
+                "POLYGON_RPC_URL": "https://alchemy.io/polygon",
+                "POLYGON_FALLBACK_RPC_URL": "https://backup.polygon.io",
+            },
+        ):
+            settings = PolygonSettings()
+            assert settings.rpc_url == "https://alchemy.io/polygon"
+            assert settings.fallback_rpc_url == "https://backup.polygon.io"
+
+    def test_invalid_url_raises(self) -> None:
+        """Test that invalid RPC URL raises validation error."""
+        with (
+            patch.dict(os.environ, {"POLYGON_RPC_URL": "ws://polygon.io"}),
+            pytest.raises(ValidationError, match="HTTP"),
+        ):
+            PolygonSettings()
+
+
+class TestPolymarketSettings:
+    """Tests for PolymarketSettings."""
+
+    def test_default_ws_url(self) -> None:
+        """Test default Polymarket WebSocket URL."""
+        with patch.dict(os.environ, {}, clear=True):
+            settings = PolymarketSettings()
+            assert "polymarket.com" in settings.ws_url
+            assert settings.api_key is None
+
+    def test_custom_api_key(self) -> None:
+        """Test custom API key (secret)."""
+        with patch.dict(os.environ, {"POLYMARKET_API_KEY": "secret-key-123"}):
+            settings = PolymarketSettings()
+            assert settings.api_key is not None
+            assert settings.api_key.get_secret_value() == "secret-key-123"
+
+    def test_invalid_ws_url_raises(self) -> None:
+        """Test that invalid WebSocket URL raises validation error."""
+        with (
+            patch.dict(os.environ, {"POLYMARKET_WS_URL": "http://polymarket.com"}),
+            pytest.raises(ValidationError, match="ws://"),
+        ):
+            PolymarketSettings()
+
+
+class TestDiscordSettings:
+    """Tests for DiscordSettings."""
+
+    def test_disabled_by_default(self) -> None:
+        """Test Discord is disabled when no webhook URL."""
+        with patch.dict(os.environ, {}, clear=True):
+            settings = DiscordSettings()
+            assert not settings.enabled
+            assert settings.webhook_url is None
+
+    def test_enabled_with_webhook(self) -> None:
+        """Test Discord is enabled with webhook URL."""
+        with patch.dict(os.environ, {"DISCORD_WEBHOOK_URL": "https://discord.com/webhook/123"}):
+            settings = DiscordSettings()
+            assert settings.enabled
+            assert settings.webhook_url is not None
+
+
+class TestTelegramSettings:
+    """Tests for TelegramSettings."""
+
+    def test_disabled_by_default(self) -> None:
+        """Test Telegram is disabled when no credentials."""
+        with patch.dict(os.environ, {}, clear=True):
+            settings = TelegramSettings()
+            assert not settings.enabled
+
+    def test_disabled_with_partial_config(self) -> None:
+        """Test Telegram is disabled with only token or chat_id."""
+        with patch.dict(os.environ, {"TELEGRAM_BOT_TOKEN": "token123"}):
+            settings = TelegramSettings()
+            assert not settings.enabled
+
+        with patch.dict(os.environ, {"TELEGRAM_CHAT_ID": "12345"}):
+            settings = TelegramSettings()
+            assert not settings.enabled
+
+    def test_enabled_with_full_config(self) -> None:
+        """Test Telegram is enabled with both token and chat_id."""
+        with patch.dict(
+            os.environ,
+            {
+                "TELEGRAM_BOT_TOKEN": "token123",
+                "TELEGRAM_CHAT_ID": "12345",
+            },
+        ):
+            settings = TelegramSettings()
+            assert settings.enabled
+
+
+class TestSettings:
+    """Tests for main Settings class."""
+
+    def test_loads_with_required_vars(self) -> None:
+        """Test settings load with required environment variables."""
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                "REDIS_URL": "redis://localhost:6379",
+            },
+        ):
+            settings = Settings()
+            assert settings.database.url == "postgresql://user:pass@localhost/db"
+            assert settings.redis.url == "redis://localhost:6379"
+
+    def test_default_log_level(self) -> None:
+        """Test default log level is INFO."""
+        with patch.dict(
+            os.environ,
+            {"DATABASE_URL": "postgresql://user:pass@localhost/db"},
+        ):
+            settings = Settings()
+            assert settings.log_level == "INFO"
+
+    def test_custom_log_level(self) -> None:
+        """Test custom log level."""
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                "LOG_LEVEL": "DEBUG",
+            },
+        ):
+            settings = Settings()
+            assert settings.log_level == "DEBUG"
+
+    def test_invalid_log_level_raises(self) -> None:
+        """Test invalid log level raises validation error."""
+        with (
+            patch.dict(
+                os.environ,
+                {
+                    "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                    "LOG_LEVEL": "TRACE",
+                },
+            ),
+            pytest.raises(ValidationError),
+        ):
+            Settings()
+
+    def test_health_port_validation(self) -> None:
+        """Test health port must be valid port number."""
+        with (
+            patch.dict(
+                os.environ,
+                {
+                    "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                    "HEALTH_PORT": "99999",
+                },
+            ),
+            pytest.raises(ValidationError, match="65535"),
+        ):
+            Settings()
+
+    def test_get_logging_level(self) -> None:
+        """Test get_logging_level returns numeric level."""
+        import logging
+
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                "LOG_LEVEL": "WARNING",
+            },
+        ):
+            settings = Settings()
+            assert settings.get_logging_level() == logging.WARNING
+
+    def test_redacted_summary(self) -> None:
+        """Test redacted_summary masks sensitive data."""
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:secretpass@localhost/db",
+                "REDIS_URL": "redis://localhost:6379",
+            },
+        ):
+            settings = Settings()
+            summary = settings.redacted_summary()
+
+            # Database password should be redacted
+            db_url = summary["database_url"]
+            assert isinstance(db_url, str)
+            assert "secretpass" not in db_url
+            assert "***" in db_url
+            assert "user" in db_url
+
+
+class TestGetSettings:
+    """Tests for get_settings singleton."""
+
+    def test_returns_same_instance(self) -> None:
+        """Test get_settings returns cached instance."""
+        with patch.dict(
+            os.environ,
+            {"DATABASE_URL": "postgresql://user:pass@localhost/db"},
+        ):
+            settings1 = get_settings()
+            settings2 = get_settings()
+            assert settings1 is settings2
+
+    def test_clear_cache_allows_reload(self) -> None:
+        """Test clear_settings_cache allows reloading settings."""
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                "LOG_LEVEL": "INFO",
+            },
+        ):
+            settings1 = get_settings()
+            assert settings1.log_level == "INFO"
+
+        clear_settings_cache()
+
+        with patch.dict(
+            os.environ,
+            {
+                "DATABASE_URL": "postgresql://user:pass@localhost/db",
+                "LOG_LEVEL": "DEBUG",
+            },
+        ):
+            settings2 = get_settings()
+            assert settings2.log_level == "DEBUG"
+            assert settings1 is not settings2
diff --git a/uv.lock b/uv.lock
index 1d596e4..6313558 100644
--- a/uv.lock
+++ b/uv.lock
@@ -1547,6 +1547,7 @@ dependencies = [
     { name = "prometheus-client" },
     { name = "py-clob-client" },
     { name = "pydantic" },
+    { name = "pydantic-settings" },
     { name = "python-dotenv" },
     { name = "redis" },
     { name = "scikit-learn" },
@@ -1578,6 +1579,7 @@ requires-dist = [
     { name = "prometheus-client", specifier = ">=0.19.0" },
     { name = "py-clob-client", specifier = ">=0.1.0" },
     { name = "pydantic", specifier = ">=2.0.0" },
+    { name = "pydantic-settings", specifier = ">=2.0.0" },
     { name = "pytest", marker = "extra == 'dev'", specifier = ">=7.0.0" },
     { name = "pytest-asyncio", marker = "extra == 'dev'", specifier = ">=0.21.0" },
     { name = "pytest-cov", marker = "extra == 'dev'", specifier = ">=4.0.0" },
@@ -1903,6 +1905,20 @@ wheels = [
     { url = "https://files.pythonhosted.org/packages/36/c7/cfc8e811f061c841d7990b0201912c3556bfeb99cdcb7ed24adc8d6f8704/pydantic_core-2.41.5-pp311-pypy311_pp73-win_amd64.whl", hash = "sha256:56121965f7a4dc965bff783d70b907ddf3d57f6eba29b6d2e5dabfaf07799c51", size = 2145302, upload-time = "2025-11-04T13:43:46.64Z" },
 ]
 
+[[package]]
+name = "pydantic-settings"
+version = "2.12.0"
+source = { registry = "https://pypi.org/simple" }
+dependencies = [
+    { name = "pydantic" },
+    { name = "python-dotenv" },
+    { name = "typing-inspection" },
+]
+sdist = { url = "https://files.pythonhosted.org/packages/43/4b/ac7e0aae12027748076d72a8764ff1c9d82ca75a7a52622e67ed3f765c54/pydantic_settings-2.12.0.tar.gz", hash = "sha256:005538ef951e3c2a68e1c08b292b5f2e71490def8589d4221b95dab00dafcfd0", size = 194184, upload-time = "2025-11-10T14:25:47.013Z" }
+wheels = [
+    { url = "https://files.pythonhosted.org/packages/c1/60/5d4751ba3f4a40a6891f24eec885f51afd78d208498268c734e256fb13c4/pydantic_settings-2.12.0-py3-none-any.whl", hash = "sha256:fddb9fd99a5b18da837b29710391e945b1e30c135477f484084ee513adb93809", size = 51880, upload-time = "2025-11-10T14:25:45.546Z" },
+]
+
 [[package]]
 name = "pygments"
 version = "2.19.2"