diff --git a/compose.yaml b/compose.yaml
index 0ecdadb1..f6d13abc 100644
--- a/compose.yaml
+++ b/compose.yaml
@@ -49,9 +49,12 @@ services:
       - VLLM_API_BASE=${VLLM_API_BASE}
       - OPENLLM_AUTH_TYPE=${OPENLLM_AUTH_TYPE}
       - OPENLLM_API_KEY=${OPENLLM_API_KEY}
-    #volumes:
-    #- ./configs/server_config.yaml:/root/.letta/config # config file
-    #- ~/.letta/credentials:/root/.letta/credentials # credentials file
+    # volumes:
+    # - ./configs/server_config.yaml:/root/.letta/config # config file
+    # - ~/.letta/credentials:/root/.letta/credentials # credentials file
+    # Uncomment this line to mount a local directory for tool execution, and specify the mount path
+    # before running docker compose: `export LETTA_SANDBOX_MOUNT_PATH=$PWD/directory`
+    # - ${LETTA_SANDBOX_MOUNT_PATH:?}:/root/.letta/tool_execution_dir # mounted volume for tool execution
   letta_nginx:
     hostname: letta-nginx
     image: nginx:stable-alpine3.17-slim
diff --git a/letta/constants.py b/letta/constants.py
index 95db4282..bf6679e5 100644
--- a/letta/constants.py
+++ b/letta/constants.py
@@ -2,7 +2,7 @@ import os
 from logging import CRITICAL, DEBUG, ERROR, INFO, NOTSET, WARN, WARNING
 
 LETTA_DIR = os.path.join(os.path.expanduser("~"), ".letta")
-LETTA_DIR_TOOL_SANDBOX = os.path.join(LETTA_DIR, "tool_sandbox_dir")
+LETTA_TOOL_EXECUTION_DIR = os.path.join(LETTA_DIR, "tool_execution_dir")
 
 ADMIN_PREFIX = "/v1/admin"
 API_PREFIX = "/v1"
diff --git a/letta/schemas/sandbox_config.py b/letta/schemas/sandbox_config.py
index 51f13919..80e93c11 100644
--- a/letta/schemas/sandbox_config.py
+++ b/letta/schemas/sandbox_config.py
@@ -6,6 +6,7 @@ from typing import Any, Dict, List, Literal, Optional, Union
 
 from pydantic import BaseModel, Field, model_validator
 
+from letta.constants import LETTA_TOOL_EXECUTION_DIR
 from letta.schemas.agent import AgentState
 from letta.schemas.letta_base import LettaBase, OrmMetadataBase
 from letta.settings import tool_settings
@@ -71,7 +72,7 @@ class LocalSandboxConfig(BaseModel):
             if tool_settings.local_sandbox_dir:
                 data["sandbox_dir"] = tool_settings.local_sandbox_dir
             else:
-                data["sandbox_dir"] = "~/.letta"
+                data["sandbox_dir"] = LETTA_TOOL_EXECUTION_DIR
 
         return data
 
diff --git a/letta/server/startup.sh b/letta/server/startup.sh
index d4523cce..44b790f1 100755
--- a/letta/server/startup.sh
+++ b/letta/server/startup.sh
@@ -38,6 +38,15 @@ if ! alembic upgrade head; then
 fi
 echo "Database migration completed successfully."
 
+# Set permissions for tool execution directory if configured
+if [ -n "$LETTA_SANDBOX_MOUNT_PATH" ]; then
+    if ! chmod 777 "$LETTA_SANDBOX_MOUNT_PATH"; then
+        echo "ERROR: Failed to set permissions for tool execution directory at: $LETTA_SANDBOX_MOUNT_PATH"
+        echo "Please check that the directory exists and is accessible"
+        exit 1
+    fi
+fi
+
 # If ADE is enabled, add the --ade flag to the command
 CMD="letta server --host $HOST --port $PORT"
 if [ "${SECURE:-false}" = "true" ]; then
diff --git a/letta/services/sandbox_config_manager.py b/letta/services/sandbox_config_manager.py
index e4e01111..9feaf2a0 100644
--- a/letta/services/sandbox_config_manager.py
+++ b/letta/services/sandbox_config_manager.py
@@ -1,6 +1,6 @@
 from typing import Dict, List, Optional
 
-from letta.constants import LETTA_DIR_TOOL_SANDBOX
+from letta.constants import LETTA_TOOL_EXECUTION_DIR
 from letta.log import get_logger
 from letta.orm.errors import NoResultFound
 from letta.orm.sandbox_config import SandboxConfig as SandboxConfigModel
@@ -35,7 +35,7 @@ class SandboxConfigManager:
                 default_config = {}  # Empty
             else:
                 # TODO: May want to move this to environment variables v.s. persisting in database
-                default_local_sandbox_path = LETTA_DIR_TOOL_SANDBOX
+                default_local_sandbox_path = LETTA_TOOL_EXECUTION_DIR
                 default_config = LocalSandboxConfig(sandbox_dir=default_local_sandbox_path).model_dump(exclude_none=True)
 
             sandbox_config = self.create_or_update_sandbox_config(SandboxConfigCreate(config=default_config), actor=actor)
diff --git a/tests/test_managers.py b/tests/test_managers.py
index 52206d72..334e72ed 100644
--- a/tests/test_managers.py
+++ b/tests/test_managers.py
@@ -8,7 +8,7 @@ from openai.types.chat.chat_completion_message_tool_call import Function as Open
 from sqlalchemy.exc import IntegrityError
 
 from letta.config import LettaConfig
-from letta.constants import BASE_MEMORY_TOOLS, BASE_TOOLS, MULTI_AGENT_TOOLS
+from letta.constants import BASE_MEMORY_TOOLS, BASE_TOOLS, LETTA_TOOL_EXECUTION_DIR, MULTI_AGENT_TOOLS
 from letta.embeddings import embedding_model
 from letta.functions.functions import derive_openai_json_schema, parse_source_code
 from letta.orm import Base
@@ -2340,7 +2340,7 @@ def test_create_local_sandbox_config_defaults(server: SyncServer, default_user):
     # Assertions
     assert created_config.type == SandboxType.LOCAL
     assert created_config.get_local_config() == sandbox_config_create.config
-    assert created_config.get_local_config().sandbox_dir in {"~/.letta", tool_settings.local_sandbox_dir}
+    assert created_config.get_local_config().sandbox_dir in {LETTA_TOOL_EXECUTION_DIR, tool_settings.local_sandbox_dir}
     assert created_config.organization_id == default_user.organization_id