diff --git a/CHANGELOG.md b/CHANGELOG.md
index 419c4b5..67ea088 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,6 +7,12 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ## [Unreleased]
 
+## [0.4.1] - 2026-01-11
+
+### Fixed
+- Replace `litellm` with `tiktoken` for token counting (dependency conflict with pydantic-ai)
+- Update documentation (README.md, architecture.md) with conversation layer info
+
 ## [0.4.0] - 2026-01-11
 
 ### Added
@@ -15,7 +21,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
   - SQLite (dev) and PostgreSQL (prod) support via async engines
   - Lazy database initialization pattern
 - Context management infrastructure
-  - Token counting utilities using `litellm`
+  - Token counting utilities using `tiktoken`
   - Context summarization at 80% token threshold
   - XML-tagged context prompt building for agent injection
 - REST API for multi-turn conversations
@@ -24,7 +30,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
   - `GET /conversations/{id}` - Get conversation with history
   - `POST /conversations/{id}/messages` - Add message (triggers agent)
   - `DELETE /conversations/{id}` - Delete conversation
-- New dependencies: `sqlalchemy[asyncio]~=2.0.36`, `aiosqlite~=0.21.0`, `litellm~=1.57.0`
+- New dependencies: `sqlalchemy[asyncio]~=2.0.36`, `aiosqlite~=0.21.0`, `tiktoken>=0.12.0`
 - Config settings: `database_url`, `summarization_threshold`, `keep_recent_messages`
 - 19 conversation tests, 6 token counting tests (176 total tests passing)
 
diff --git a/README.md b/README.md
index 1794884..8ccb88d 100644
--- a/README.md
+++ b/README.md
@@ -4,8 +4,9 @@ A Claude Code-inspired development assistant powered by local LLMs via Ollama.
 
 ## Features
 
-- **Explore Agent** - Search, read, and understand codebases
-- **8 Tools** - File read/write, glob, grep, bash, web search
+- **3 Agents** - Explore (read-only), Plan (architecture), Task (orchestrator)
+- **8 Tools** - File read/write/edit, glob, grep, bash, web search
+- **Conversations** - Multi-turn memory with context summarization
 - **Streaming** - Real-time response display
 - **Self-hosted** - Runs on your own hardware with Ollama
 
@@ -74,11 +75,33 @@ webber-cli chat -d /path/to/project
 | `bash` | Full bash with safety controls |
 | `web_search` | Search web via SearXNG |
 
+## Agents
+
+| Agent | Purpose | Tools |
+|-------|---------|-------|
+| **Explore** | Fast codebase navigation, search | Read-only (glob, grep, read, bash_readonly) |
+| **Plan** | Design implementation strategies | Read-only (same as Explore) |
+| **Task** | Autonomous multi-step execution | All tools + spawn_agent |
+
+## API Endpoints
+
+```bash
+# Stateless agent execution
+POST /agents/run          # Execute agent, get response
+POST /agents/stream       # Execute with SSE streaming
+GET  /agents/             # List available agents
+
+# Stateful conversations (multi-turn memory)
+POST /conversations/              # Create conversation
+GET  /conversations/              # List conversations
+POST /conversations/{id}/messages # Add message, get agent response
+```
+
 ## Versioning
 
 This project uses prefixed tags for independent release cycles:
 
-- `api/v0.3.0` - Triggers API Docker build and deployment
+- `api/v0.4.0` - Triggers API Docker build and deployment
 - `cli/v0.1.0` - Triggers CLI installer build (future)
 
 ## Requirements
diff --git a/webber-api/docs/architecture.md b/webber-api/docs/architecture.md
index e19f268..f1a6d14 100644
--- a/webber-api/docs/architecture.md
+++ b/webber-api/docs/architecture.md
@@ -24,18 +24,30 @@ webber/
 ├── src/
 │   ├── main.py              # App entry point (NO routes)
 │   │
+│   ├── db/                  # Database layer
+│   │   ├── __init__.py      # Exports: Database, get_database, get_session
+│   │   ├── database.py      # SQLAlchemy async engine, session factory
+│   │   └── models.py        # Base declarative model
+│   │
 │   ├── shared/              # Cross-cutting concerns
 │   │   ├── base.py          # BaseController, BaseSchema
 │   │   ├── config.py        # Pydantic Settings
 │   │   ├── logging.py       # @logged decorator, trace_span
 │   │   ├── exceptions.py    # Custom exception hierarchy
 │   │   ├── auth.py          # API key validation
-│   │   └── context.py       # UserProvider singleton
+│   │   ├── context.py       # UserProvider singleton
+│   │   └── tokens.py        # Token counting utilities (litellm)
 │   │
 │   └── domains/             # Feature domains
 │       ├── router.py        # Root router (composes all)
 │       ├── health/          # Health endpoints
 │       ├── auth/            # Authentication
+│       ├── conversations/   # Multi-turn conversation memory
+│       │   ├── models.py    # Conversation, Message SQLAlchemy models
+│       │   ├── schemas.py   # Pydantic request/response models
+│       │   ├── service.py   # ConversationService business logic
+│       │   ├── router.py    # REST API endpoints
+│       │   └── summarize.py # Context summarization logic
 │       ├── agents/          # Agent orchestration
 │       │   ├── explore/     # Codebase navigation
 │       │   ├── plan/        # Implementation design
@@ -201,6 +213,10 @@ All settings via environment variables or `.env`:
 | ALLOWED_PATHS | [] | Paths accessible to tools |
 | SESSION_TTL_HOURS | 24 | Session expiry |
 | MAX_CONTEXT_TOKENS | 128000 | Max context window |
+| DATABASE_URL | sqlite+aiosqlite:///./webber.db | Database connection URL |
+| SUMMARIZATION_THRESHOLD | 0.8 | Summarize at N% of max tokens |
+| SUMMARIZATION_TARGET_TOKENS | 500 | Target summary size |
+| KEEP_RECENT_MESSAGES | 6 | Messages to keep unsummarized |
 
 ---
 
@@ -250,6 +266,53 @@ Tools are sandboxed operations agents can invoke:
 
 ---
 
+## Database Layer
+
+SQLAlchemy 2.0 async with lazy initialization pattern.
+
+### Supported Databases
+- **Development**: SQLite via `aiosqlite`
+- **Production**: PostgreSQL via `asyncpg`
+
+### Pattern
+```python
+from src.db import get_session
+from sqlalchemy.ext.asyncio import AsyncSession
+
+async def my_endpoint(session: AsyncSession = Depends(get_session)):
+    # Session auto-commits on success, rollbacks on exception
+    result = await session.execute(query)
+```
+
+Tables are created lazily on first `get_session()` call.
+
+---
+
+## Conversation API
+
+Multi-turn conversation memory with automatic context summarization.
+
+### Endpoints
+| Endpoint | Method | Description |
+|----------|--------|-------------|
+| `/conversations/` | POST | Create new conversation |
+| `/conversations/` | GET | List user's conversations |
+| `/conversations/{id}` | GET | Get conversation with history |
+| `/conversations/{id}/messages` | POST | Add message, triggers agent |
+| `/conversations/{id}` | DELETE | Delete conversation |
+
+### Models
+- **Conversation**: User session with agent type, working directory
+- **Message**: Individual messages with role, content, token count
+
+### Context Summarization
+When total tokens exceed 80% of `MAX_CONTEXT_TOKENS`:
+1. Keep last 6 messages intact
+2. Summarize older messages into a single summary message
+3. Mark old messages as summarized (soft delete)
+
+---
+
 ## Authentication Flow
 
 1. Client sends `X-API-Key` header
diff --git a/webber-api/pyproject.toml b/webber-api/pyproject.toml
index 6d0a987..df23fda 100644
--- a/webber-api/pyproject.toml
+++ b/webber-api/pyproject.toml
@@ -1,6 +1,6 @@
 [project]
 name = "webber-api"
-version = "0.4.0"
+version = "0.4.1"
 description = "Webber API - Multi-Agent AI Development Server"
 authors = [
     {name = "jpmschweitzer"}
diff --git a/webber-api/requirements.txt b/webber-api/requirements.txt
index 6225a17..40e49a8 100644
--- a/webber-api/requirements.txt
+++ b/webber-api/requirements.txt
@@ -31,4 +31,4 @@ sqlalchemy[asyncio]~=2.0.36
 aiosqlite~=0.21.0                      # SQLite async driver (dev)
 
 # Token counting
-litellm~=1.57.0                        # Multi-model token counting
+tiktoken>=0.12.0                       # OpenAI tokenizer (used for estimation)
diff --git a/webber-api/src/shared/tokens.py b/webber-api/src/shared/tokens.py
index b2063d5..058cb14 100644
--- a/webber-api/src/shared/tokens.py
+++ b/webber-api/src/shared/tokens.py
@@ -1,53 +1,64 @@
 """
 Token counting utilities for context management.
 
-Uses litellm for accurate multi-model token counting.
+Uses tiktoken for token counting. While tiktoken is OpenAI's tokenizer,
+cl100k_base encoding provides reasonable estimates for most LLMs.
 """
+from functools import lru_cache
+
 from src.shared.logging import get_logger
 
 logger = get_logger(__name__)
 
-# Default model for token counting (Mistral Nemo)
-DEFAULT_MODEL = "mistral/mistral-nemo"
+
+@lru_cache(maxsize=1)
+def _get_encoding():
+    """Get tiktoken encoding (cached)."""
+    import tiktoken
+    # cl100k_base is used by GPT-4 and provides reasonable estimates for most models
+    return tiktoken.get_encoding("cl100k_base")
 
 
-def count_tokens(text: str, model: str = DEFAULT_MODEL) -> int:
+def count_tokens(text: str) -> int:
     """
     Count tokens in a text string.
 
     Args:
         text: Text to count tokens for
-        model: Model identifier for tokenizer selection
 
     Returns:
         Token count
     """
     try:
-        from litellm import token_counter
-        return token_counter(model=model, text=text)
+        encoding = _get_encoding()
+        return len(encoding.encode(text))
     except Exception as e:
-        # Fallback to rough estimate if litellm fails
+        # Fallback to rough estimate if tiktoken fails
         logger.warning(f"Token counting failed, using estimate: {e}")
         return len(text) // 4
 
 
-def count_message_tokens(
-    messages: list[dict[str, str]],
-    model: str = DEFAULT_MODEL
-) -> int:
+def count_message_tokens(messages: list[dict[str, str]]) -> int:
     """
     Count tokens for a list of chat messages.
 
     Args:
         messages: List of message dicts with 'role' and 'content' keys
-        model: Model identifier for tokenizer selection
 
     Returns:
         Total token count including message overhead
     """
     try:
-        from litellm import token_counter
-        return token_counter(model=model, messages=messages)
+        encoding = _get_encoding()
+        total = 0
+        for msg in messages:
+            # Each message has ~4 tokens overhead for role/formatting
+            total += 4
+            total += len(encoding.encode(msg.get("content", "")))
+            total += len(encoding.encode(msg.get("role", "")))
+        # Add 2 tokens for assistant response priming
+        total += 2
+        return total
     except Exception as e:
         # Fallback to rough estimate
         logger.warning(f"Token counting failed, using estimate: {e}")
diff --git a/webber-api/tests/test_tokens.py b/webber-api/tests/test_tokens.py
index 56c16c5..514b4ca 100644
--- a/webber-api/tests/test_tokens.py
+++ b/webber-api/tests/test_tokens.py
@@ -59,7 +59,7 @@ class TestTokenCounting:
     def test_count_message_tokens_empty_list(self):
         """Test counting empty message list."""
         tokens = count_message_tokens([])
-        # litellm may return small overhead even for empty list
+        # tiktoken returns small overhead for empty list (assistant priming)
         assert tokens < 10