diff --git a/src/services/worker/agents/ResponseProcessor.ts b/src/services/worker/agents/ResponseProcessor.ts
index 78c7cf62..c724fe06 100644
--- a/src/services/worker/agents/ResponseProcessor.ts
+++ b/src/services/worker/agents/ResponseProcessor.ts
@@ -16,6 +16,8 @@ import { parseObservations, parseSummary, type ParsedObservation, type ParsedSum
 import { updateCursorContextForProject } from '../../integrations/CursorHooksInstaller.js';
 import { updateFolderClaudeMdFiles } from '../../../utils/claude-md-utils.js';
 import { getWorkerPort } from '../../../shared/worker-utils.js';
+import { SettingsDefaultsManager } from '../../../shared/SettingsDefaultsManager.js';
+import { USER_SETTINGS_PATH } from '../../../shared/paths.js';
 import type { ActiveSession } from '../../worker-types.js';
 import type { DatabaseManager } from '../DatabaseManager.js';
 import type { SessionManager } from '../SessionManager.js';
@@ -215,21 +217,29 @@ async function syncAndBroadcastObservations(
 
   // Update folder CLAUDE.md files for touched folders (fire-and-forget)
   // This runs per-observation batch to ensure folders are updated as work happens
-  const allFilePaths: string[] = [];
-  for (const obs of observations) {
-    allFilePaths.push(...(obs.files_modified || []));
-    allFilePaths.push(...(obs.files_read || []));
-  }
+  // Only runs if CLAUDE_MEM_FOLDER_CLAUDEMD_ENABLED is true (default: false)
+  const settings = SettingsDefaultsManager.loadFromFile(USER_SETTINGS_PATH);
+  // Handle both string 'true' and boolean true from JSON settings
+  const settingValue = settings.CLAUDE_MEM_FOLDER_CLAUDEMD_ENABLED;
+  const folderClaudeMdEnabled = settingValue === 'true' || settingValue === true;
 
-  if (allFilePaths.length > 0) {
-    updateFolderClaudeMdFiles(
-      allFilePaths,
-      session.project,
-      getWorkerPort(),
-      projectRoot
-    ).catch(error => {
-      logger.warn('FOLDER_INDEX', 'CLAUDE.md update failed (non-critical)', { project: session.project }, error as Error);
-    });
+  if (folderClaudeMdEnabled) {
+    const allFilePaths: string[] = [];
+    for (const obs of observations) {
+      allFilePaths.push(...(obs.files_modified || []));
+      allFilePaths.push(...(obs.files_read || []));
+    }
+
+    if (allFilePaths.length > 0) {
+      updateFolderClaudeMdFiles(
+        allFilePaths,
+        session.project,
+        getWorkerPort(),
+        projectRoot
+      ).catch(error => {
+        logger.warn('FOLDER_INDEX', 'CLAUDE.md update failed (non-critical)', { project: session.project }, error as Error);
+      });
+    }
   }
 }
 
diff --git a/src/services/worker/http/routes/SettingsRoutes.ts b/src/services/worker/http/routes/SettingsRoutes.ts
index 162a2b9e..0633e9f1 100644
--- a/src/services/worker/http/routes/SettingsRoutes.ts
+++ b/src/services/worker/http/routes/SettingsRoutes.ts
@@ -121,6 +121,7 @@ export class SettingsRoutes extends BaseRouteHandler {
       // Feature Toggles
       'CLAUDE_MEM_CONTEXT_SHOW_LAST_SUMMARY',
       'CLAUDE_MEM_CONTEXT_SHOW_LAST_MESSAGE',
+      'CLAUDE_MEM_FOLDER_CLAUDEMD_ENABLED',
     ];
 
     for (const key of settingKeys) {
diff --git a/src/shared/SettingsDefaultsManager.ts b/src/shared/SettingsDefaultsManager.ts
index a5c8571e..5adc82dc 100644
--- a/src/shared/SettingsDefaultsManager.ts
+++ b/src/shared/SettingsDefaultsManager.ts
@@ -51,6 +51,7 @@ export interface SettingsDefaults {
   // Feature Toggles
   CLAUDE_MEM_CONTEXT_SHOW_LAST_SUMMARY: string;
   CLAUDE_MEM_CONTEXT_SHOW_LAST_MESSAGE: string;
+  CLAUDE_MEM_FOLDER_CLAUDEMD_ENABLED: string;
 }
 
 export class SettingsDefaultsManager {
@@ -96,6 +97,7 @@ export class SettingsDefaultsManager {
     // Feature Toggles
     CLAUDE_MEM_CONTEXT_SHOW_LAST_SUMMARY: 'true',
     CLAUDE_MEM_CONTEXT_SHOW_LAST_MESSAGE: 'false',
+    CLAUDE_MEM_FOLDER_CLAUDEMD_ENABLED: 'false',
   };
 
   /**
@@ -122,10 +124,11 @@ export class SettingsDefaultsManager {
 
   /**
    * Get a boolean default value
+   * Handles both string 'true' and boolean true from JSON
    */
   static getBool(key: keyof SettingsDefaults): boolean {
     const value = this.get(key);
-    return value === 'true';
+    return value === 'true' || value === true;
   }
 
   /**