diff --git a/capsule-core/src/main.zig b/capsule-core/src/main.zig
index 75da307..fe0c4f7 100644
--- a/capsule-core/src/main.zig
+++ b/capsule-core/src/main.zig
@@ -178,9 +178,20 @@ fn printUsage() void {
 }
 
 fn runDaemon(allocator: std.mem.Allocator, port_override: ?u16, data_dir_override: ?[]const u8) !void {
-    // Load Config
-    // Check for config.json, otherwise use default
-    const config_path = "config.json";
+    // Determine data directory
+    const data_dir = data_dir_override orelse "data";
+    
+    // Create data directory if it doesn't exist
+    std.fs.cwd().makeDir(data_dir) catch |err| {
+        if (err != error.PathAlreadyExists) {
+            std.log.err("Failed to create data directory {s}: {}", .{data_dir, err});
+            return err;
+        }
+    };
+    
+    // Load Config from data directory
+    const config_path = try std.fs.path.join(allocator, &[_][]const u8{ data_dir, "config.json" });
+    defer allocator.free(config_path);
     var config = config_mod.NodeConfig.loadFromJsonFile(allocator, config_path) catch |err| {
         if (err == error.FileNotFound) {
             std.log.info("Config missing, using defaults", .{});
@@ -189,6 +200,11 @@ fn runDaemon(allocator: std.mem.Allocator, port_override: ?u16, data_dir_overrid
             if (data_dir_override) |d| {
                 allocator.free(cfg.data_dir);
                 cfg.data_dir = try allocator.dupe(u8, d);
+                // Regenerate socket and key paths based on new data_dir
+                allocator.free(cfg.control_socket_path);
+                cfg.control_socket_path = try std.fmt.allocPrint(allocator, "{s}/capsule.sock", .{d});
+                allocator.free(cfg.identity_key_path);
+                cfg.identity_key_path = try std.fmt.allocPrint(allocator, "{s}/identity.key", .{d});
             }
             const node = try node_mod.CapsuleNode.init(allocator, cfg);
             defer node.deinit();
@@ -205,6 +221,11 @@ fn runDaemon(allocator: std.mem.Allocator, port_override: ?u16, data_dir_overrid
     if (data_dir_override) |d| {
         allocator.free(config.data_dir);
         config.data_dir = try allocator.dupe(u8, d);
+        // Regenerate socket and key paths based on new data_dir
+        allocator.free(config.control_socket_path);
+        config.control_socket_path = try std.fmt.allocPrint(allocator, "{s}/capsule.sock", .{d});
+        allocator.free(config.identity_key_path);
+        config.identity_key_path = try std.fmt.allocPrint(allocator, "{s}/identity.key", .{d});
     }
 
     // Initialize Node
@@ -216,15 +237,18 @@ fn runDaemon(allocator: std.mem.Allocator, port_override: ?u16, data_dir_overrid
 }
 
 fn runCliCommand(allocator: std.mem.Allocator, cmd: control_mod.Command, data_dir_override: ?[]const u8) !void {
-    // Load config to find socket path
-    const config_path = "config.json";
+    // Determine data directory
+    const data_dir = data_dir_override orelse "data";
+    
+    // Load config from data directory
+    const config_path = try std.fs.path.join(allocator, &[_][]const u8{ data_dir, "config.json" });
+    defer allocator.free(config_path);
     var config = config_mod.NodeConfig.loadFromJsonFile(allocator, config_path) catch {
         std.log.err("Failed to load config to find control socket. Is config.json present?", .{});
         return error.ConfigLoadFailed;
     };
     defer config.deinit(allocator);
 
-    const data_dir = data_dir_override orelse config.data_dir;
     const socket_path = if (std.fs.path.isAbsolute(config.control_socket_path))
         try allocator.dupe(u8, config.control_socket_path)
     else