diff --git a/.gitignore b/.gitignore
new file mode 100644
index 0000000..7b1dbc2
--- /dev/null
+++ b/.gitignore
@@ -0,0 +1,52 @@
+# Terraform / OpenTofu
+**/.terraform/
+**/.terraform.lock.hcl
+**/*.tfstate
+**/*.tfstate.backup
+**/*.tfstate.*.backup
+**/crash.log
+**/crash.*.log
+**/.terraformrc
+**/terraform.rc
+**/override.tf
+**/override.tf.json
+**/*_override.tf
+**/*_override.tf.json
+**/.terraform.tfstate.lock.info
+
+# Keep encrypted state files
+!**/*.tfstate.enc
+
+# SOPS
+.sops/key.txt
+**/.decrypted~*
+
+# Environment files with secrets
+**/.env
+!**/.env.example
+
+# Sensitive data directories
+**/data/
+**/config/
+!**/config/*.example
+!**/config/.gitkeep
+
+# Logs
+**/logs/
+**/*.log
+
+# OS files
+.DS_Store
+Thumbs.db
+*.swp
+*.swo
+*~
+
+# Editor files
+.vscode/
+.idea/
+*.sublime-*
+
+# Temporary files
+*.tmp
+*.temp
diff --git a/terraform/proxmox-examples/docker-host/.gitignore b/terraform/proxmox-examples/docker-host/.gitignore
new file mode 100644
index 0000000..f444af8
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/.gitignore
@@ -0,0 +1,34 @@
+# Terraform state files (unencrypted)
+*.tfstate
+*.tfstate.backup
+*.tfstate.*.backup
+
+# Keep encrypted state files
+!*.tfstate.enc
+
+# Terraform directory
+.terraform/
+.terraform.lock.hcl
+
+# SOPS configuration with your private key
+.sops.yaml
+
+# Actual terraform.tfvars (may contain secrets)
+terraform.tfvars
+
+# Keep encrypted version
+!terraform.tfvars.enc
+
+# Crash logs
+crash.log
+crash.*.log
+
+# Override files
+override.tf
+override.tf.json
+*_override.tf
+*_override.tf.json
+
+# Terraform RC files
+.terraformrc
+terraform.rc
diff --git a/terraform/proxmox-examples/docker-host/.sops.yaml.example b/terraform/proxmox-examples/docker-host/.sops.yaml.example
new file mode 100644
index 0000000..56e84e5
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/.sops.yaml.example
@@ -0,0 +1,34 @@
+# SOPS Configuration for Terraform State Encryption
+#
+# Setup Instructions:
+# 1. Install age and sops:
+#    - Debian/Ubuntu: sudo apt install age
+#    - macOS: brew install age sops
+#    - Manual: https://github.com/FiloSottile/age/releases
+#               https://github.com/getsops/sops/releases
+#
+# 2. Generate an age key:
+#    mkdir -p ~/.sops
+#    age-keygen -o ~/.sops/homelab-terraform.txt
+#
+# 3. Copy this file:
+#    cp .sops.yaml.example .sops.yaml
+#
+# 4. Replace YOUR_AGE_PUBLIC_KEY_HERE with the public key from step 2
+#    (the line starting with "age1...")
+#
+# 5. DO NOT commit .sops.yaml to git (it's in .gitignore)
+#    Keep your private key (~/.sops/homelab-terraform.txt) secure!
+
+creation_rules:
+  # Encrypt all .tfstate files with age
+  - path_regex: \.tfstate$
+    age: YOUR_AGE_PUBLIC_KEY_HERE
+
+  # Encrypt any .secret files
+  - path_regex: \.secret$
+    age: YOUR_AGE_PUBLIC_KEY_HERE
+
+  # Encrypt terraform.tfvars (contains API tokens)
+  - path_regex: terraform\.tfvars$
+    age: YOUR_AGE_PUBLIC_KEY_HERE
diff --git a/terraform/proxmox-examples/docker-host/README.md b/terraform/proxmox-examples/docker-host/README.md
index d2e90ac..0cb40d5 100644
--- a/terraform/proxmox-examples/docker-host/README.md
+++ b/terraform/proxmox-examples/docker-host/README.md
@@ -474,6 +474,80 @@ Type `yes` to confirm deletion.
 
 ## Troubleshooting
 
+### Datastore Does Not Support Snippets
+
+Error: `the datastore "local" does not support content type "snippets"`
+
+**Cause:** The storage you specified doesn't have snippets enabled
+
+**Solution 1 - Enable snippets on existing storage:**
+```bash
+# On Proxmox host, check current content types
+pvesm status
+
+# Enable snippets on local storage
+pvesm set local --content backup,iso,vztmpl,snippets
+
+# Verify
+pvesm status | grep local
+```
+
+**Solution 2 - Create dedicated directory storage:**
+```bash
+# On Proxmox host
+# Create directory for snippets
+mkdir -p /var/lib/vz/snippets
+
+# Add directory storage via Proxmox UI:
+# Datacenter → Storage → Add → Directory
+# ID: local-snippets
+# Directory: /var/lib/vz/snippets
+# Content: Snippets
+
+# Or via CLI:
+pvesm add dir local-snippets --path /var/lib/vz/snippets --content snippets
+
+# Update terraform.tfvars:
+# snippets_storage = "local-snippets"
+```
+
+### SSH Authentication Failed
+
+Error: `failed to open SSH client: unable to authenticate`
+
+**Cause:** The Proxmox provider needs SSH access to upload cloud-init files
+
+**Solution 1 - Add SSH key to Proxmox (Recommended):**
+```bash
+# On your workstation, generate SSH key if you don't have one
+ssh-keygen -t ed25519 -C "terraform@homelab"
+
+# Copy to Proxmox host
+ssh-copy-id root@proxmox.local
+
+# Add key to ssh-agent
+eval "$(ssh-agent -s)"
+ssh-add ~/.ssh/id_ed25519
+
+# Verify
+ssh-add -L
+ssh root@proxmox.local "echo 'SSH works!'"
+```
+
+**Solution 2 - Use API token only (workaround):**
+
+If SSH is problematic, you can create the cloud-init snippet manually:
+
+```bash
+# On Proxmox host, create the snippet
+nano /var/lib/vz/snippets/cloud-init-docker-host.yaml
+# Paste the cloud-init content from main.tf
+
+# Then remove the proxmox_virtual_environment_file resource from main.tf
+# and reference the file directly in the VM resource:
+# user_data_file_id = "local:snippets/cloud-init-docker-host.yaml"
+```
+
 ### Template Not Found
 
 Error: `template with ID 9000 not found`
diff --git a/terraform/proxmox-examples/docker-host/STATE_MANAGEMENT.md b/terraform/proxmox-examples/docker-host/STATE_MANAGEMENT.md
new file mode 100644
index 0000000..a1ff79f
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/STATE_MANAGEMENT.md
@@ -0,0 +1,378 @@
+# Terraform State Management with SOPS
+
+This project uses [SOPS](https://github.com/getsops/sops) (Secrets OPerationS) with [age](https://github.com/FiloSottile/age) encryption to securely store Terraform state files in Git.
+
+## Why SOPS + age?
+
+✅ **Encrypted at rest** - State files contain sensitive data (IPs, tokens)
+✅ **Version controlled** - Track infrastructure changes over time
+✅ **No infrastructure required** - No need for S3, PostgreSQL, or other backends
+✅ **Perfect for homelabs** - Simple, secure, self-contained
+✅ **FOSS** - Fully open source tools
+
+## Prerequisites
+
+### 1. Install age
+
+**Debian/Ubuntu:**
+```bash
+sudo apt update
+sudo apt install age
+```
+
+**macOS:**
+```bash
+brew install age
+```
+
+**Manual installation:**
+```bash
+# Download from https://github.com/FiloSottile/age/releases
+wget https://github.com/FiloSottile/age/releases/download/v1.1.1/age-v1.1.1-linux-amd64.tar.gz
+tar xzf age-v1.1.1-linux-amd64.tar.gz
+sudo mv age/age age/age-keygen /usr/local/bin/
+```
+
+### 2. Install SOPS
+
+**Debian/Ubuntu:**
+```bash
+# Download from https://github.com/getsops/sops/releases
+wget https://github.com/getsops/sops/releases/download/v3.8.1/sops-v3.8.1.linux.amd64
+sudo mv sops-v3.8.1.linux.amd64 /usr/local/bin/sops
+sudo chmod +x /usr/local/bin/sops
+```
+
+**macOS:**
+```bash
+brew install sops
+```
+
+Verify installation:
+```bash
+age --version
+sops --version
+```
+
+## Initial Setup
+
+### 1. Generate Age Encryption Key
+
+```bash
+# Create SOPS directory
+mkdir -p ~/.sops
+
+# Generate a new age key pair
+age-keygen -o ~/.sops/homelab-terraform.txt
+
+# View the key (you'll need the public key)
+cat ~/.sops/homelab-terraform.txt
+```
+
+Output will look like:
+```
+# created: 2025-11-11T12:34:56Z
+# public key: age1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
+AGE-SECRET-KEY-1XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXx
+```
+
+**⚠️ IMPORTANT:**
+- The line starting with `AGE-SECRET-KEY-1` is your **private key** - keep it secret!
+- The line starting with `age1` is your **public key** - you'll use this in .sops.yaml
+- **Backup this file** to a secure location (password manager, encrypted backup, etc.)
+- If you lose this key, you **cannot decrypt** your state files!
+
+### 2. Configure SOPS
+
+```bash
+cd terraform/proxmox-examples/docker-host
+
+# Copy the example config
+cp .sops.yaml.example .sops.yaml
+
+# Edit and replace YOUR_AGE_PUBLIC_KEY_HERE with your public key from step 1
+nano .sops.yaml
+```
+
+Your `.sops.yaml` should look like:
+```yaml
+creation_rules:
+  - path_regex: \.tfstate$
+    age: age1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
+  - path_regex: \.secret$
+    age: age1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
+  - path_regex: terraform\.tfvars$
+    age: age1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
+```
+
+### 3. Set Environment Variable (Optional but Recommended)
+
+```bash
+# Add to your ~/.bashrc or ~/.zshrc
+echo 'export SOPS_AGE_KEY_FILE=~/.sops/homelab-terraform.txt' >> ~/.bashrc
+source ~/.bashrc
+```
+
+This tells SOPS where to find your private key for decryption.
+
+## Usage
+
+### Option A: Automatic Wrapper Script (Recommended)
+
+Use the `./scripts/tf` wrapper that handles encryption/decryption automatically:
+
+```bash
+# Initialize (first time)
+./scripts/tf init
+
+# Plan changes
+./scripts/tf plan
+
+# Apply changes (automatically encrypts after)
+./scripts/tf apply
+
+# Destroy infrastructure (automatically encrypts after)
+./scripts/tf destroy
+
+# View state
+./scripts/tf show
+```
+
+The wrapper script:
+1. Decrypts state files before running
+2. Runs your terraform/tofu command
+3. Encrypts state files after (if state was modified)
+
+### Option B: Manual Encryption/Decryption
+
+If you prefer manual control:
+
+```bash
+# 1. Decrypt state files
+./scripts/tf-decrypt
+
+# 2. Run terraform commands
+tofu init
+tofu plan
+tofu apply
+
+# 3. Encrypt state files
+./scripts/tf-encrypt
+
+# 4. Commit encrypted files to Git
+git add *.enc
+git commit -m "Update infrastructure"
+git push
+```
+
+## Workflow Examples
+
+### First Time Setup
+
+```bash
+cd terraform/proxmox-examples/docker-host
+
+# 1. Configure your variables
+cp terraform.tfvars.example terraform.tfvars
+nano terraform.tfvars  # Add your API tokens, SSH keys, etc.
+
+# 2. Initialize Terraform
+./scripts/tf init
+
+# 3. Plan infrastructure
+./scripts/tf plan
+
+# 4. Apply infrastructure
+./scripts/tf apply
+
+# 5. Encrypted state files are automatically created
+# terraform.tfstate.enc now exists
+
+# 6. Commit encrypted state to Git
+git add terraform.tfstate.enc .sops.yaml.example
+git commit -m "Add encrypted Terraform state"
+git push
+```
+
+### Making Infrastructure Changes
+
+```bash
+# 1. Decrypt, apply changes, re-encrypt (all automatic)
+./scripts/tf apply
+
+# 2. Commit updated encrypted state
+git add terraform.tfstate.enc
+git commit -m "Update VM configuration"
+git push
+```
+
+### Cloning on a New Machine
+
+```bash
+# 1. Clone the repository
+git clone https://github.com/efigueroa/homelab.git
+cd homelab/terraform/proxmox-examples/docker-host
+
+# 2. Copy your age private key to the new machine
+# (Securely transfer ~/.sops/homelab-terraform.txt)
+mkdir -p ~/.sops
+# Copy the key file here
+
+# 3. Set up SOPS config
+cp .sops.yaml.example .sops.yaml
+# Edit with your public key
+
+# 4. Decrypt state
+./scripts/tf-decrypt
+
+# 5. Now you can run terraform commands
+./scripts/tf plan
+```
+
+## Security Best Practices
+
+### DO ✅
+
+- **Backup your age private key** to multiple secure locations
+- **Use different keys** for different projects/environments
+- **Commit `.sops.yaml.example`** to Git (without your actual key)
+- **Commit encrypted `*.enc` files** to Git
+- **Use the wrapper script** to avoid forgetting to encrypt
+
+### DON'T ❌
+
+- **Never commit `.sops.yaml`** with your actual key (it's in .gitignore)
+- **Never commit unencrypted `.tfstate`** files (they're in .gitignore)
+- **Never commit unencrypted `terraform.tfvars`** with secrets
+- **Never share your private age key** publicly
+- **Don't lose your private key** - you can't decrypt without it!
+
+## File Structure
+
+```
+terraform/proxmox-examples/docker-host/
+├── .gitignore                    # Ignores unencrypted files
+├── .sops.yaml                    # Your SOPS config (NOT in Git)
+├── .sops.yaml.example            # Template (in Git)
+├── terraform.tfstate             # Unencrypted state (NOT in Git)
+├── terraform.tfstate.enc         # Encrypted state (in Git) ✅
+├── terraform.tfvars              # Your config with secrets (NOT in Git)
+├── terraform.tfvars.enc          # Encrypted config (in Git) ✅
+├── terraform.tfvars.example      # Template without secrets (in Git)
+├── scripts/
+│   ├── tf                        # Wrapper script
+│   ├── tf-encrypt                # Manual encrypt
+│   └── tf-decrypt                # Manual decrypt
+└── STATE_MANAGEMENT.md           # This file
+```
+
+## Troubleshooting
+
+### Error: "no key could decrypt the data"
+
+**Cause:** SOPS can't find your private key
+
+**Solution:**
+```bash
+# Set the key file location
+export SOPS_AGE_KEY_FILE=~/.sops/homelab-terraform.txt
+
+# Or add to ~/.bashrc permanently
+echo 'export SOPS_AGE_KEY_FILE=~/.sops/homelab-terraform.txt' >> ~/.bashrc
+```
+
+### Error: "YOUR_AGE_PUBLIC_KEY_HERE"
+
+**Cause:** You didn't replace the placeholder in `.sops.yaml`
+
+**Solution:**
+```bash
+# Edit .sops.yaml and replace with your actual public key
+nano .sops.yaml
+```
+
+### Error: "failed to get the data key"
+
+**Cause:** The file was encrypted with a different key
+
+**Solution:**
+- Ensure you're using the same age key that encrypted the file
+- If you lost the original key, you'll need to re-create the state by running `tofu import`
+
+### Accidentally Committed Unencrypted State
+
+**Solution:**
+```bash
+# Remove from Git history (DANGEROUS - coordinate with team if not solo)
+git filter-branch --force --index-filter \
+  'git rm --cached --ignore-unmatch terraform.tfstate' \
+  --prune-empty --tag-name-filter cat -- --all
+
+# Force push (only if solo or coordinated)
+git push origin --force --all
+```
+
+### Lost Private Key
+
+**Solution:**
+- Restore from your backup (you made a backup, right?)
+- If truly lost, you'll need to:
+  1. Manually recreate infrastructure or import existing resources
+  2. Generate a new age key
+  3. Re-encrypt everything with the new key
+
+## Advanced: Multiple Keys (Team Access)
+
+If multiple people need access:
+
+```yaml
+# .sops.yaml
+creation_rules:
+  - path_regex: \.tfstate$
+    age: >-
+      age1person1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx,
+      age1person2xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx,
+      age1person3xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
+```
+
+Each person's private key can decrypt the files.
+
+## Backup Strategy
+
+### Recommended Backup Locations:
+
+1. **Password Manager** (1Password, Bitwarden, etc.)
+   ```bash
+   # Copy the contents
+   cat ~/.sops/homelab-terraform.txt
+   # Store as a secure note in your password manager
+   ```
+
+2. **Encrypted USB Drive**
+   ```bash
+   # Copy to encrypted drive
+   cp ~/.sops/homelab-terraform.txt /media/encrypted-usb/
+   ```
+
+3. **Encrypted Cloud Storage**
+   ```bash
+   # Encrypt with gpg before uploading
+   gpg -c ~/.sops/homelab-terraform.txt
+   # Upload homelab-terraform.txt.gpg to cloud
+   ```
+
+## Resources
+
+- [SOPS Documentation](https://github.com/getsops/sops)
+- [age Documentation](https://github.com/FiloSottile/age)
+- [Terraform State Security](https://developer.hashicorp.com/terraform/language/state/sensitive-data)
+- [OpenTofu Documentation](https://opentofu.org/docs/)
+
+## Questions?
+
+Common questions answered in this document:
+- ✅ How do I set up SOPS? → See [Initial Setup](#initial-setup)
+- ✅ How do I use it daily? → See [Option A: Automatic Wrapper](#option-a-automatic-wrapper-script-recommended)
+- ✅ What if I lose my key? → See [Lost Private Key](#lost-private-key)
+- ✅ How do I backup my key? → See [Backup Strategy](#backup-strategy)
+- ✅ Can multiple people access? → See [Advanced: Multiple Keys](#advanced-multiple-keys-team-access)
diff --git a/terraform/proxmox-examples/docker-host/main.tf b/terraform/proxmox-examples/docker-host/main.tf
index 6fa0fe3..8232977 100644
--- a/terraform/proxmox-examples/docker-host/main.tf
+++ b/terraform/proxmox-examples/docker-host/main.tf
@@ -114,7 +114,7 @@ resource "proxmox_virtual_environment_vm" "docker_host" {
 # Cloud-init user data for Docker installation
 resource "proxmox_virtual_environment_file" "cloud_init_user_data" {
   content_type = "snippets"
-  datastore_id = "local"
+  datastore_id = var.snippets_storage
   node_name    = var.proxmox_node
 
   source_raw {
diff --git a/terraform/proxmox-examples/docker-host/scripts/tf b/terraform/proxmox-examples/docker-host/scripts/tf
new file mode 100755
index 0000000..0c8c131
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/scripts/tf
@@ -0,0 +1,76 @@
+#!/usr/bin/env bash
+#
+# tf - Wrapper for OpenTofu/Terraform with automatic SOPS encryption/decryption
+#
+# Usage:
+#   ./scripts/tf init
+#   ./scripts/tf plan
+#   ./scripts/tf apply
+#   ./scripts/tf destroy
+#
+# This script automatically:
+#   1. Decrypts state before running tofu commands
+#   2. Runs your tofu command
+#   3. Encrypts state after running tofu commands
+#
+
+set -euo pipefail
+
+SCRIPT_DIR="$(cd "$(dirname "${BASH_SOURCE[0]}")" && pwd)"
+TF_DIR="$(dirname "$SCRIPT_DIR")"
+
+cd "$TF_DIR"
+
+# Colors for output
+RED='\033[0;31m'
+GREEN='\033[0;32m'
+YELLOW='\033[1;33m'
+BLUE='\033[0;34m'
+NC='\033[0m' # No Color
+
+error() {
+    echo -e "${RED}ERROR: $1${NC}" >&2
+    exit 1
+}
+
+success() {
+    echo -e "${GREEN}✓ $1${NC}"
+}
+
+info() {
+    echo -e "${BLUE}ℹ $1${NC}"
+}
+
+# Check if tofu or terraform is installed
+if command -v tofu &> /dev/null; then
+    TF_CMD="tofu"
+elif command -v terraform &> /dev/null; then
+    TF_CMD="terraform"
+else
+    error "Neither tofu nor terraform is installed"
+fi
+
+# Decrypt state if encrypted files exist
+if [[ -f terraform.tfstate.enc || -f terraform.tfvars.enc ]]; then
+    info "Decrypting state files..."
+    "$SCRIPT_DIR/tf-decrypt"
+    echo
+fi
+
+# Run the terraform/tofu command
+echo -e "${BLUE}Running: $TF_CMD $*${NC}"
+echo
+$TF_CMD "$@"
+TF_EXIT_CODE=$?
+
+# If the command succeeded and modified state, encrypt it
+if [[ $TF_EXIT_CODE -eq 0 ]]; then
+    # Commands that modify state
+    if [[ "$1" =~ ^(apply|destroy|import|refresh|state)$ ]]; then
+        echo
+        info "Encrypting state files..."
+        "$SCRIPT_DIR/tf-encrypt"
+    fi
+fi
+
+exit $TF_EXIT_CODE
diff --git a/terraform/proxmox-examples/docker-host/scripts/tf-decrypt b/terraform/proxmox-examples/docker-host/scripts/tf-decrypt
new file mode 100755
index 0000000..48da7b1
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/scripts/tf-decrypt
@@ -0,0 +1,87 @@
+#!/usr/bin/env bash
+#
+# tf-decrypt - Decrypt Terraform state and tfvars files with SOPS
+#
+# Usage: ./scripts/tf-decrypt
+#
+
+set -euo pipefail
+
+SCRIPT_DIR="$(cd "$(dirname "${BASH_SOURCE[0]}")" && pwd)"
+TF_DIR="$(dirname "$SCRIPT_DIR")"
+
+cd "$TF_DIR"
+
+# Colors for output
+RED='\033[0;31m'
+GREEN='\033[0;32m'
+YELLOW='\033[1;33m'
+NC='\033[0m' # No Color
+
+error() {
+    echo -e "${RED}ERROR: $1${NC}" >&2
+    exit 1
+}
+
+success() {
+    echo -e "${GREEN}✓ $1${NC}"
+}
+
+warn() {
+    echo -e "${YELLOW}⚠ $1${NC}"
+}
+
+# Check if SOPS is installed
+if ! command -v sops &> /dev/null; then
+    error "sops is not installed. Install it from: https://github.com/getsops/sops/releases"
+fi
+
+# Check if .sops.yaml exists
+if [[ ! -f .sops.yaml ]]; then
+    error ".sops.yaml not found. Copy .sops.yaml.example and configure your age key."
+fi
+
+# Check if SOPS_AGE_KEY_FILE is set or exists in default location
+if [[ -z "${SOPS_AGE_KEY_FILE:-}" ]]; then
+    if [[ -f ~/.sops/homelab-terraform.txt ]]; then
+        export SOPS_AGE_KEY_FILE=~/.sops/homelab-terraform.txt
+    else
+        warn "SOPS_AGE_KEY_FILE not set. Trying default age identities..."
+    fi
+fi
+
+echo "🔓 Decrypting Terraform files..."
+echo
+
+# Decrypt terraform.tfstate.enc if it exists
+if [[ -f terraform.tfstate.enc ]]; then
+    echo "Decrypting terraform.tfstate.enc..."
+    sops -d terraform.tfstate.enc > terraform.tfstate
+    success "terraform.tfstate.enc → terraform.tfstate"
+else
+    warn "terraform.tfstate.enc not found (this is normal for first-time setup)"
+fi
+
+# Decrypt terraform.tfvars.enc if it exists
+if [[ -f terraform.tfvars.enc ]]; then
+    echo "Decrypting terraform.tfvars.enc..."
+    sops -d terraform.tfvars.enc > terraform.tfvars
+    success "terraform.tfvars.enc → terraform.tfvars"
+else
+    warn "terraform.tfvars.enc not found"
+fi
+
+# Decrypt backup state files if they exist
+for backup_enc in terraform.tfstate.backup.enc terraform.tfstate.*.backup.enc; do
+    if [[ -f "$backup_enc" ]]; then
+        backup="${backup_enc%.enc}"
+        echo "Decrypting $backup_enc..."
+        sops -d "$backup_enc" > "$backup"
+        success "$backup_enc → $backup"
+    fi
+done
+
+echo
+success "All Terraform files decrypted successfully!"
+echo
+warn "Remember to encrypt files after making changes: ./scripts/tf-encrypt"
diff --git a/terraform/proxmox-examples/docker-host/scripts/tf-encrypt b/terraform/proxmox-examples/docker-host/scripts/tf-encrypt
new file mode 100755
index 0000000..0d5855a
--- /dev/null
+++ b/terraform/proxmox-examples/docker-host/scripts/tf-encrypt
@@ -0,0 +1,94 @@
+#!/usr/bin/env bash
+#
+# tf-encrypt - Encrypt Terraform state and tfvars files with SOPS
+#
+# Usage: ./scripts/tf-encrypt
+#
+
+set -euo pipefail
+
+SCRIPT_DIR="$(cd "$(dirname "${BASH_SOURCE[0]}")" && pwd)"
+TF_DIR="$(dirname "$SCRIPT_DIR")"
+
+cd "$TF_DIR"
+
+# Colors for output
+RED='\033[0;31m'
+GREEN='\033[0;32m'
+YELLOW='\033[1;33m'
+NC='\033[0m' # No Color
+
+error() {
+    echo -e "${RED}ERROR: $1${NC}" >&2
+    exit 1
+}
+
+success() {
+    echo -e "${GREEN}✓ $1${NC}"
+}
+
+warn() {
+    echo -e "${YELLOW}⚠ $1${NC}"
+}
+
+# Check if SOPS is installed
+if ! command -v sops &> /dev/null; then
+    error "sops is not installed. Install it from: https://github.com/getsops/sops/releases"
+fi
+
+# Check if .sops.yaml exists
+if [[ ! -f .sops.yaml ]]; then
+    error ".sops.yaml not found. Copy .sops.yaml.example and configure your age key."
+fi
+
+# Check if age key placeholder is still present
+if grep -q "YOUR_AGE_PUBLIC_KEY_HERE" .sops.yaml; then
+    error ".sops.yaml contains placeholder. Replace YOUR_AGE_PUBLIC_KEY_HERE with your actual age public key."
+fi
+
+echo "🔐 Encrypting Terraform files..."
+echo
+
+# Encrypt terraform.tfstate if it exists
+if [[ -f terraform.tfstate ]]; then
+    echo "Encrypting terraform.tfstate..."
+    sops -e terraform.tfstate > terraform.tfstate.enc
+    success "terraform.tfstate → terraform.tfstate.enc"
+
+    # Securely delete unencrypted state
+    shred -u terraform.tfstate 2>/dev/null || rm -f terraform.tfstate
+    success "Deleted unencrypted terraform.tfstate"
+else
+    warn "terraform.tfstate not found (this is normal if you haven't run 'tofu apply' yet)"
+fi
+
+# Encrypt terraform.tfvars if it exists
+if [[ -f terraform.tfvars ]]; then
+    echo "Encrypting terraform.tfvars..."
+    sops -e terraform.tfvars > terraform.tfvars.enc
+    success "terraform.tfvars → terraform.tfvars.enc"
+
+    # Keep original tfvars (don't delete, just warn)
+    warn "Remember to not commit unencrypted terraform.tfvars to Git"
+else
+    warn "terraform.tfvars not found"
+fi
+
+# Encrypt backup state files if they exist
+for backup in terraform.tfstate.backup terraform.tfstate.*.backup; do
+    if [[ -f "$backup" ]]; then
+        echo "Encrypting $backup..."
+        sops -e "$backup" > "${backup}.enc"
+        success "$backup → ${backup}.enc"
+        shred -u "$backup" 2>/dev/null || rm -f "$backup"
+        success "Deleted unencrypted $backup"
+    fi
+done
+
+echo
+success "All Terraform files encrypted successfully!"
+echo
+echo "Next steps:"
+echo "  1. git add *.enc"
+echo "  2. git commit -m 'Update encrypted Terraform state'"
+echo "  3. git push"
diff --git a/terraform/proxmox-examples/docker-host/terraform.tfvars.example b/terraform/proxmox-examples/docker-host/terraform.tfvars.example
index 533cdb3..879a934 100644
--- a/terraform/proxmox-examples/docker-host/terraform.tfvars.example
+++ b/terraform/proxmox-examples/docker-host/terraform.tfvars.example
@@ -8,6 +8,12 @@ pm_tls_insecure     = true
 proxmox_node = "pve"
 template_vm_id = 9000
 storage = "local-lvm"
+
+# Storage for cloud-init snippets (must support 'snippets' content type)
+# Common options: "local" (directory storage), or create a directory storage
+# See README.md for setup instructions if you get datastore errors
+snippets_storage = "local"
+
 network_bridge = "vmbr0"
 
 # VM Configuration
diff --git a/terraform/proxmox-examples/docker-host/variables.tf b/terraform/proxmox-examples/docker-host/variables.tf
index 35e91d0..ce6c0f7 100644
--- a/terraform/proxmox-examples/docker-host/variables.tf
+++ b/terraform/proxmox-examples/docker-host/variables.tf
@@ -59,11 +59,17 @@ variable "disk_size" {
 }
 
 variable "storage" {
-  description = "Storage pool name"
+  description = "Storage pool name for VM disks"
   type        = string
   default     = "local-lvm"
 }
 
+variable "snippets_storage" {
+  description = "Storage pool name for cloud-init snippets (must support 'snippets' content type)"
+  type        = string
+  default     = "local"
+}
+
 variable "network_bridge" {
   description = "Network bridge"
   type        = string