diff --git a/.gitignore b/.gitignore
index 22573552..afd8e42b 100644
--- a/.gitignore
+++ b/.gitignore
@@ -41,4 +41,5 @@ cmd/docs/*
 # docker-compose
 gatewayd-files/
 cmd/gatewayd-plugin-cache-linux-amd64-*
+tempo-data
 
diff --git a/docker-compose.yaml b/docker-compose.yaml
index 96eda460..8328b09f 100644
--- a/docker-compose.yaml
+++ b/docker-compose.yaml
@@ -37,8 +37,11 @@ services:
       timeout: 5s
       retries: 5
   gatewayd:
-    image: gatewaydio/gatewayd:latest
-    command: ["run", "--config", "/gatewayd-files/gatewayd.yaml", "--plugin-config", "/gatewayd-files/gatewayd_plugins.yaml"]
+    # image: gatewaydio/gatewayd:latest
+    build:
+      context: .
+      dockerfile: Dockerfile
+    command: ["run", "--config", "/gatewayd-files/gatewayd.yaml", "--plugin-config", "/gatewayd-files/gatewayd_plugins.yaml", "--tracing", "--collector-url", "tempo:4317"]
     environment:
       # For more information about the environment variables, see:
       # https://docs.gatewayd.io/using-gatewayd/configuration#environment-variables
@@ -48,8 +51,8 @@ services:
       # GatewayD server for PostgreSQL clients to connect to
       - "15432:15432"
       # Prometheus metrics:
-      #   http://localhost:9090/metrics
-      - "9090:9090"
+      #   http://localhost:9090/metrics # Make sure the port is not used by prometheus before uncommenting the following line
+      # - "9090:9090"
       # GatewayD HTTP gateway:
       #   http://localhost:18080/swagger-ui/ for the API documentation
       #   http://localhost:18080/healthz for the health check
@@ -74,3 +77,47 @@ services:
         condition: service_healthy
       install_plugins:
         condition: service_completed_successfully
+
+  prometheus:
+    image: prom/prometheus:latest
+    volumes:
+      - ./observability-configs/prometheus.yaml:/etc/prometheus/prometheus.yml
+    ports:
+      - "9090:9090"
+    depends_on:
+      - gatewayd
+
+  tempo_init:
+    image: &tempoImage grafana/tempo:latest
+    user: root
+    entrypoint:
+      - "chown"
+      - "10001:10001"
+      - "/var/tempo"
+    volumes:
+      - ./tempo-data:/var/tempo
+
+  tempo:
+    image: *tempoImage
+    command: ["-config.file=/etc/tempo.yaml"]
+    volumes:
+      - ./observability-configs/tempo.yaml:/etc/tempo.yaml
+      - ./tempo-data:/var/tempo
+    ports:
+      - "4317:4317" # otlp grpc
+    depends_on:
+      - tempo_init
+
+  grafana:
+    image: grafana/grafana:latest
+    volumes:
+      - ./observability-configs/grafana-datasources.yaml:/etc/grafana/provisioning/datasources/datasources.yaml
+    environment:
+      - GF_AUTH_ANONYMOUS_ENABLED=true
+      - GF_AUTH_DISABLE_LOGIN_FORM=true
+      - GF_AUTH_ANONYMOUS_ORG_ROLE=Admin
+    ports:
+      - "3000:3000"
+    depends_on:
+      - prometheus
+      - tempo
diff --git a/observability-configs/grafana-datasources.yaml b/observability-configs/grafana-datasources.yaml
new file mode 100644
index 00000000..e1606d1c
--- /dev/null
+++ b/observability-configs/grafana-datasources.yaml
@@ -0,0 +1,31 @@
+apiVersion: 1
+
+datasources:
+  - name: GatewayD Prometheus
+    type: prometheus
+    uid: prometheus
+    access: proxy
+    orgId: 1
+    url: http://prometheus:9090
+    basicAuth: false
+    isDefault: false
+    version: 1
+    editable: false
+    jsonData:
+      httpMethod: GET
+  - name: GatewayD Tempo
+    type: tempo
+    access: proxy
+    orgId: 1
+    url: http://tempo:3200
+    basicAuth: false
+    isDefault: true
+    version: 1
+    editable: false
+    apiVersion: 1
+    uid: tempo
+    jsonData:
+      httpMethod: GET
+      serviceMap:
+        datasourceUid: prometheus
+
diff --git a/observability-configs/prometheus.yaml b/observability-configs/prometheus.yaml
new file mode 100644
index 00000000..f64370e6
--- /dev/null
+++ b/observability-configs/prometheus.yaml
@@ -0,0 +1,13 @@
+global:
+  scrape_interval: 5s
+
+scrape_configs:
+  - job_name: "gatewayd-aggregated-metrics"
+    scrape_interval: 5s
+    metrics_path: /metrics
+    static_configs:
+      - targets: ["gatewayd:9090"]
+
+  - job_name: "tempo"
+    static_configs:
+      - targets: ["tempo:3200"]
diff --git a/observability-configs/tempo.yaml b/observability-configs/tempo.yaml
new file mode 100644
index 00000000..3a387bd0
--- /dev/null
+++ b/observability-configs/tempo.yaml
@@ -0,0 +1,43 @@
+stream_over_http_enabled: true
+server:
+  http_listen_port: 3200
+  log_level: info
+
+distributor:
+  receivers: # this configuration will listen on all ports and protocols that tempo is capable of.
+    otlp:
+      protocols:
+        grpc:
+
+ingester:
+  max_block_duration: 5m # cut the headblock when this much time passes. this is being set for demo purposes and should probably be left alone normally
+
+compactor:
+  compaction:
+    block_retention: 1h # overall Tempo trace retention. set for demo purposes
+
+metrics_generator:
+  registry:
+    external_labels:
+      source: tempo
+      cluster: docker-compose
+  storage:
+    path: /var/tempo/generator/wal
+    remote_write:
+      - url: http://prometheus:9090/api/v1/write
+        send_exemplars: true
+  traces_storage:
+    path: /var/tempo/generator/traces
+
+storage:
+  trace:
+    backend: local # backend configuration to use
+    wal:
+      path: /var/tempo/wal # where to store the wal locally
+    local:
+      path: /var/tempo/blocks
+
+overrides:
+  defaults:
+    metrics_generator:
+      processors: [service-graphs, span-metrics, local-blocks] # enables metrics generator