diff --git a/CONTRIBUTING.md b/CONTRIBUTING.md
index 2ad45aea3e..fa1826a07f 100644
--- a/CONTRIBUTING.md
+++ b/CONTRIBUTING.md
@@ -21,12 +21,28 @@ git clone https://github.com/your-username/MemGPT.git
 
 ### 🧩 Install Dependencies
 
+**Installing dependencies with poetry** (recommended):
+```shell
+cd MemGPT
+pip install poetry
+poetry install -E dev -E postgres -E local -E legacy
+```
+If you are managing dependencies with poetry, you will need to run MemGPT commands with `poetry run memgpt run`. 
+
+**Installing dependencies with pip**:
 ```shell
 cd MemGPT
 # Optional: set up a virtual environment.
 # python3 -m venv venv
 # . venv/bin/activate
-pip install -r requirements.txt
+pip install -e '.[dev,postgres,local,legacy]'
+```
+
+#### (Optional) Installing pre-commit
+We recommend installing pre-commit to ensure proper formatting during development:
+```
+poetry run pre-commit install
+poetry run pre-commit run --all-files
 ```
 
 ## 2. 🛠️ Making Changes
@@ -47,13 +63,31 @@ Now, the world is your oyster! Go ahead and craft your fabulous changes. 🎨
 
 Before we hit the 'Wow, I'm Done' button, let's make sure everything works as expected. Run tests and make sure the existing ones don't throw a fit. And if needed, create new tests. 🕵️
 
-Make sure that you can run
-```shell
-python3 main.py
+### Run existing tests
+
+Running tests if you installed via poetry:
 ```
-successfully before submitting a pull request.
+poetry run pytest -s tests
+```
+
+Running tests if you installed via pip:
+```
+pytest -s tests
+```
+
+### Creating new tests
+If you added a major feature change, please add new tests in the `tests/` directory.
 
-## 4. 🚀 Submitting Changes
+## 4. 🧩 Adding new dependencies 
+If you need to add a new dependency to MemGPT, please add the package via `poetry add <PACKAGE_NAME>`. This will update the `pyproject.toml` and `poetry.lock` files. If the dependency does not need to be installed by all users, make sure to mark the dependency as optional in the `pyproject.toml` file and if needed, create a new extra under `[tool.poetry.extras]`. 
+
+## 5. 🚀 Submitting Changes
+
+### Check Formatting
+Please ensure your code is formatted correctly by running:
+```
+poetry run black . -l 140
+```
 
 ### 🚀 Create a Pull Request
 
@@ -64,15 +98,15 @@ You're almost there! It's time to share your brilliance with the world. 🌍
 3. Choose the base branch (`main`) and the compare branch (your feature branch).
 4. Whip up a catchy title and describe your changes in the description. 🪄
 
-## 5. 🔍 Review and Approval
+## 6. 🔍 Review and Approval
 
 The maintainers, will take a look and might suggest some cool upgrades or ask for more details. Once they give the thumbs up, your creation becomes part of MemGPT!
 
-## 6. 📜 Code of Conduct
+## 7. 📜 Code of Conduct
 
 Please be sure to follow the project's Code of Conduct.
 
-## 7. 📫 Contact
+## 8. 📫 Contact
 
 Need help or just want to say hi? We're here for you. Reach out through filing an issue on this GitHub repository or message us on our [Discord server](https://discord.gg/9GEQrxmVyE).