diff --git a/.devenv/docker/otel-collector/README.md b/.devenv/docker/otel-collector/README.md
new file mode 100644
index 000000000000..f74346ee13d5
--- /dev/null
+++ b/.devenv/docker/otel-collector/README.md
@@ -0,0 +1,44 @@
+# SigNoz OTel Collector Development Environment
+
+This directory contains the Docker Compose setup for running the SigNoz OpenTelemetry Collector locally during development.
+
+## What it does
+
+- Starts the SigNoz OTel Collector container
+- Exposes OTLP endpoints for receiving telemetry data:
+  - **gRPC**: `localhost:4317`
+  - **HTTP**: `localhost:4318`
+- Connects to ClickHouse running on the host machine
+- Processes and forwards telemetry data to ClickHouse
+
+## Usage
+
+```bash
+# Start the OTel Collector
+make devenv-otel-collector
+
+# Or start both ClickHouse and OTel Collector together
+make devenv-up
+```
+
+## Prerequisites
+
+- ClickHouse must be running (use `make devenv-clickhouse`)
+- Docker must be installed and running
+
+## Testing
+
+Send a test trace to verify everything is working:
+
+```bash
+curl -X POST http://localhost:4318/v1/traces \
+  -H "Content-Type: application/json" \
+  -d '{"resourceSpans":[{"resource":{"attributes":[{"key":"service.name","value":{"stringValue":"test-service"}}]},"scopeSpans":[{"spans":[{"traceId":"12345678901234567890123456789012","spanId":"1234567890123456","name":"test-span","startTimeUnixNano":"1609459200000000000","endTimeUnixNano":"1609459201000000000"}]}]}]}'
+```
+
+## Configuration
+
+- `compose.yaml`: Docker Compose configuration for the OTel Collector
+- `otel-collector-config.yaml`: OpenTelemetry Collector configuration file
+
+The configuration is set up to connect to ClickHouse via `host.docker.internal:9000`, which allows the containerized collector to reach ClickHouse running on the host machine.
\ No newline at end of file
diff --git a/.devenv/docker/otel-collector/compose.yaml b/.devenv/docker/otel-collector/compose.yaml
new file mode 100644
index 000000000000..e344abf2e5fd
--- /dev/null
+++ b/.devenv/docker/otel-collector/compose.yaml
@@ -0,0 +1,29 @@
+services:
+  otel-collector:
+    image: signoz/signoz-otel-collector:v0.128.2
+    container_name: signoz-otel-collector-dev
+    command:
+      - --config=/etc/otel-collector-config.yaml
+      - --feature-gates=-pkg.translator.prometheus.NormalizeName
+    volumes:
+      - ./otel-collector-config.yaml:/etc/otel-collector-config.yaml
+    environment:
+      - OTEL_RESOURCE_ATTRIBUTES=host.name=signoz-host,os.type=linux
+      - LOW_CARDINAL_EXCEPTION_GROUPING=false
+    ports:
+      - "4317:4317" # OTLP gRPC receiver
+      - "4318:4318" # OTLP HTTP receiver
+      - "13133:13133" # health check extension
+    healthcheck:
+      test:
+        - CMD
+        - wget
+        - --spider
+        - -q
+        - localhost:13133
+      interval: 30s
+      timeout: 5s
+      retries: 3
+    restart: unless-stopped
+    extra_hosts:
+      - "host.docker.internal:host-gateway"
\ No newline at end of file
diff --git a/.devenv/docker/otel-collector/otel-collector-config.yaml b/.devenv/docker/otel-collector/otel-collector-config.yaml
new file mode 100644
index 000000000000..43a888fffb79
--- /dev/null
+++ b/.devenv/docker/otel-collector/otel-collector-config.yaml
@@ -0,0 +1,96 @@
+receivers:
+  otlp:
+    protocols:
+      grpc:
+        endpoint: 0.0.0.0:4317
+      http:
+        endpoint: 0.0.0.0:4318
+  prometheus:
+    config:
+      global:
+        scrape_interval: 60s
+      scrape_configs:
+        - job_name: otel-collector
+          static_configs:
+          - targets:
+              - localhost:8888
+            labels:
+              job_name: otel-collector
+
+processors:
+  batch:
+    send_batch_size: 10000
+    send_batch_max_size: 11000
+    timeout: 10s
+  resourcedetection:
+    # Using OTEL_RESOURCE_ATTRIBUTES envvar, env detector adds custom labels.
+    detectors: [env, system]
+    timeout: 2s
+  signozspanmetrics/delta:
+    metrics_exporter: signozclickhousemetrics
+    metrics_flush_interval: 60s
+    latency_histogram_buckets: [100us, 1ms, 2ms, 6ms, 10ms, 50ms, 100ms, 250ms, 500ms, 1000ms, 1400ms, 2000ms, 5s, 10s, 20s, 40s, 60s ]
+    dimensions_cache_size: 100000
+    aggregation_temporality: AGGREGATION_TEMPORALITY_DELTA
+    enable_exp_histogram: true
+    dimensions:
+      - name: service.namespace
+        default: default
+      - name: deployment.environment
+        default: default
+      # This is added to ensure the uniqueness of the timeseries
+      # Otherwise, identical timeseries produced by multiple replicas of
+      # collectors result in incorrect APM metrics
+      - name: signoz.collector.id
+      - name: service.version
+      - name: browser.platform
+      - name: browser.mobile
+      - name: k8s.cluster.name
+      - name: k8s.node.name
+      - name: k8s.namespace.name
+      - name: host.name
+      - name: host.type
+      - name: container.name
+
+extensions:
+  health_check:
+    endpoint: 0.0.0.0:13133
+  pprof:
+    endpoint: 0.0.0.0:1777
+
+exporters:
+  clickhousetraces:
+    datasource: tcp://host.docker.internal:9000/signoz_traces
+    low_cardinal_exception_grouping: ${env:LOW_CARDINAL_EXCEPTION_GROUPING}
+    use_new_schema: true
+  signozclickhousemetrics:
+    dsn: tcp://host.docker.internal:9000/signoz_metrics
+  clickhouselogsexporter:
+    dsn: tcp://host.docker.internal:9000/signoz_logs
+    timeout: 10s
+    use_new_schema: true
+
+service:
+  telemetry:
+    logs:
+      encoding: json
+  extensions:
+    - health_check
+    - pprof
+  pipelines:
+    traces:
+      receivers: [otlp]
+      processors: [signozspanmetrics/delta, batch]
+      exporters: [clickhousetraces]
+    metrics:
+      receivers: [otlp]
+      processors: [batch]
+      exporters: [signozclickhousemetrics]
+    metrics/prometheus:
+      receivers: [prometheus]
+      processors: [batch]
+      exporters: [signozclickhousemetrics]
+    logs:
+      receivers: [otlp]
+      processors: [batch]
+      exporters: [clickhouselogsexporter]
\ No newline at end of file
diff --git a/Makefile b/Makefile
index a8743a561ae9..14e692ca58c4 100644
--- a/Makefile
+++ b/Makefile
@@ -61,6 +61,25 @@ devenv-postgres: ## Run postgres in devenv
 	@cd .devenv/docker/postgres; \
 	docker compose -f compose.yaml up -d
 
+.PHONY: devenv-otel-collector
+devenv-otel-collector: ## Run otel-collector in devenv (requires clickhouse to be running)
+	@cd .devenv/docker/otel-collector; \
+	docker compose -f compose.yaml up -d
+
+.PHONY: devenv-up
+devenv-up: ## Start both clickhouse and otel-collector for local development
+	@echo "Starting ClickHouse..."
+	@cd .devenv/docker/clickhouse; \
+	docker compose -f compose.yaml up -d
+	@echo "Waiting for ClickHouse to be ready..."
+	@sleep 10
+	@echo "Starting OTel Collector..."
+	@cd .devenv/docker/otel-collector; \
+	docker compose -f compose.yaml up -d
+	@echo "✅ Development environment is ready!"
+	@echo "   - ClickHouse: http://localhost:8123"
+	@echo "   - OTel Collector: grpc://localhost:4317, http://localhost:4318"
+
 ##############################################################
 # go commands
 ##############################################################
diff --git a/docs/contributing/development.md b/docs/contributing/development.md
index 27cbc0355722..5854b05c141f 100644
--- a/docs/contributing/development.md
+++ b/docs/contributing/development.md
@@ -44,20 +44,35 @@ Before diving in, make sure you have these tools installed:
 
 SigNoz has three main components: Clickhouse, Backend, and Frontend. Let's set them up one by one.
 
-### 1. Setting up Clickhouse
+### 1. Setting up ClickHouse
 
-First, we need to get Clickhouse running:
+First, we need to get ClickHouse running:
 
 ```bash
 make devenv-clickhouse
 ```
 
 This command:
-- Starts Clickhouse in a single-shard, single-replica cluster
+- Starts ClickHouse in a single-shard, single-replica cluster
 - Sets up Zookeeper
 - Runs the latest schema migrations
 
-### 2. Starting the Backend
+### 2. Setting up OpenTelemetry Collector
+
+Next, start the OpenTelemetry Collector to receive telemetry data:
+
+```bash
+make devenv-otel-collector
+```
+
+This command:
+- Starts the SigNoz OpenTelemetry Collector
+- Listens on port 4317 (gRPC) and 4318 (HTTP) for incoming telemetry data
+- Forwards data to ClickHouse for storage
+
+> 💡 **Quick Setup**: Use `make devenv-up` to start both ClickHouse and OTel Collector together
+
+### 3. Starting the Backend
 
 1. Run the backend server:
    ```bash
@@ -73,7 +88,7 @@ This command:
 
 > 💡 **Tip**: The API server runs at `http://localhost:8080/` by default
 
-### 3. Setting up the Frontend
+### 4. Setting up the Frontend
 
 1. Navigate to the frontend directory:
    ```bash
@@ -98,3 +113,26 @@ This command:
 > 💡 **Tip**: `yarn dev` will automatically rebuild when you make changes to the code
 
 Now you're all set to start developing! Happy coding! 🎉
+
+## Testing Your Setup
+
+To verify everything is working correctly:
+
+1. **Check ClickHouse**: `curl http://localhost:8123/ping` (should return "Ok.")
+2. **Check OTel Collector**: `curl http://localhost:13133` (should return health status)
+3. **Check Backend**: `curl http://localhost:8080/api/v1/health` (should return `{"status":"ok"}`)
+4. **Check Frontend**: Open `http://localhost:3301` in your browser
+
+## Sending Test Data
+
+You can now send telemetry data to your local SigNoz instance:
+
+- **OTLP gRPC**: `localhost:4317`
+- **OTLP HTTP**: `localhost:4318`
+
+For example, using `curl` to send a test trace:
+```bash
+curl -X POST http://localhost:4318/v1/traces \
+  -H "Content-Type: application/json" \
+  -d '{"resourceSpans":[{"resource":{"attributes":[{"key":"service.name","value":{"stringValue":"test-service"}}]},"scopeSpans":[{"spans":[{"traceId":"12345678901234567890123456789012","spanId":"1234567890123456","name":"test-span","startTimeUnixNano":"1609459200000000000","endTimeUnixNano":"1609459201000000000"}]}]}]}'
+```