diff --git a/cli/src/commands/onboard.ts b/cli/src/commands/onboard.ts
index 881f2481..c26788f1 100644
--- a/cli/src/commands/onboard.ts
+++ b/cli/src/commands/onboard.ts
@@ -3,6 +3,7 @@ import pc from "picocolors";
 import { configExists, readConfig, resolveConfigPath, writeConfig } from "../config/store.js";
 import type { PaperclipConfig } from "../config/schema.js";
 import { ensureAgentJwtSecret, resolveAgentJwtEnvFile } from "../config/env.js";
+import { ensureLocalSecretsKeyFile } from "../config/secrets-key.js";
 import { promptDatabase } from "../prompts/database.js";
 import { promptLlm } from "../prompts/llm.js";
 import { promptLogging } from "../prompts/logging.js";
@@ -132,6 +133,13 @@ export async function onboard(opts: { config?: string }): Promise<void> {
     secrets,
   };
 
+  const keyResult = ensureLocalSecretsKeyFile(config, resolveConfigPath(opts.config));
+  if (keyResult.status === "created") {
+    p.log.success(`Created local secrets key file at ${pc.dim(keyResult.path)}`);
+  } else if (keyResult.status === "existing") {
+    p.log.message(pc.dim(`Using existing local secrets key file at ${keyResult.path}`));
+  }
+
   writeConfig(config, opts.config);
 
   p.note(
diff --git a/cli/src/config/secrets-key.ts b/cli/src/config/secrets-key.ts
new file mode 100644
index 00000000..48cee011
--- /dev/null
+++ b/cli/src/config/secrets-key.ts
@@ -0,0 +1,48 @@
+import { randomBytes } from "node:crypto";
+import fs from "node:fs";
+import path from "node:path";
+import type { PaperclipConfig } from "./schema.js";
+import { resolveRuntimeLikePath } from "../utils/path-resolver.js";
+
+export type EnsureSecretsKeyResult =
+  | { status: "created"; path: string }
+  | { status: "existing"; path: string }
+  | { status: "skipped_env"; path: null }
+  | { status: "skipped_provider"; path: null };
+
+export function ensureLocalSecretsKeyFile(
+  config: Pick<PaperclipConfig, "secrets">,
+  configPath?: string,
+): EnsureSecretsKeyResult {
+  if (config.secrets.provider !== "local_encrypted") {
+    return { status: "skipped_provider", path: null };
+  }
+
+  const envMasterKey = process.env.PAPERCLIP_SECRETS_MASTER_KEY;
+  if (envMasterKey && envMasterKey.trim().length > 0) {
+    return { status: "skipped_env", path: null };
+  }
+
+  const keyFileOverride = process.env.PAPERCLIP_SECRETS_MASTER_KEY_FILE;
+  const configuredPath =
+    keyFileOverride && keyFileOverride.trim().length > 0
+      ? keyFileOverride.trim()
+      : config.secrets.localEncrypted.keyFilePath;
+  const keyFilePath = resolveRuntimeLikePath(configuredPath, configPath);
+
+  if (fs.existsSync(keyFilePath)) {
+    return { status: "existing", path: keyFilePath };
+  }
+
+  fs.mkdirSync(path.dirname(keyFilePath), { recursive: true });
+  fs.writeFileSync(keyFilePath, randomBytes(32).toString("base64"), {
+    encoding: "utf8",
+    mode: 0o600,
+  });
+  try {
+    fs.chmodSync(keyFilePath, 0o600);
+  } catch {
+    // best effort
+  }
+  return { status: "created", path: keyFilePath };
+}
diff --git a/cli/src/utils/path-resolver.ts b/cli/src/utils/path-resolver.ts
new file mode 100644
index 00000000..daff57ac
--- /dev/null
+++ b/cli/src/utils/path-resolver.ts
@@ -0,0 +1,23 @@
+import fs from "node:fs";
+import path from "node:path";
+
+function unique(items: string[]): string[] {
+  return Array.from(new Set(items));
+}
+
+export function resolveRuntimeLikePath(value: string, configPath?: string): string {
+  if (path.isAbsolute(value)) return value;
+
+  const cwd = process.cwd();
+  const configDir = configPath ? path.dirname(configPath) : null;
+  const workspaceRoot = configDir ? path.resolve(configDir, "..") : cwd;
+
+  const candidates = unique([
+    path.resolve(workspaceRoot, "server", value),
+    path.resolve(workspaceRoot, value),
+    path.resolve(cwd, value),
+    ...(configDir ? [path.resolve(configDir, value)] : []),
+  ]);
+
+  return candidates.find((candidate) => fs.existsSync(candidate)) ?? candidates[0];
+}