diff --git a/README.md b/README.md
index b651584..20a1e50 100644
--- a/README.md
+++ b/README.md
@@ -12,16 +12,13 @@
 ## Why mgrep?
 - Natural-language search that feels as immediate as `grep`.
 - Semantic, multilingual & multimodal (audio, video support coming soon!)
-- Smooth background indexing via `mgrep watch`, designed to detect and keep up-to-date everything that matters inside any git repository.
+- Automatic background indexing that starts lazily on first search, keeping everything up-to-date inside any git repository.
 - Friendly device-login flow and first-class coding agent integrations.
 - Built for agents and humans alike, and **designed to be a helpful tool**, not a restrictive harness: quiet output, thoughtful defaults, and escape hatches everywhere.
 - Reduces the token usage of your agent by 2x while maintaining superior performance
 
 ```bash
-# index once
-mgrep watch
-
-# then ask your repo things in natural language
+# just ask your repo things in natural language
 mgrep "where do we set up auth?"
 ```
 
@@ -45,28 +42,22 @@ mgrep "where do we set up auth?"
    ```
    This bypasses the browser login flow entirely.
 
-3. **Index a project**
+3. **Search anything**
    ```bash
    cd path/to/repo
-   mgrep watch
-   ```
-   `watch` performs an initial sync, respects `.gitignore`, then keeps the Mixedbread store updated as files change.
-
-4. **Search anything**
-   ```bash
    mgrep "where do we set up auth?" src/lib
    mgrep -m 25 "store schema"
    ```
-   Searches default to the current working directory unless you pass a path.
+   On first search, mgrep automatically starts a background daemon that indexes your files and keeps them in sync. Searches default to the current working directory unless you pass a path.
 
 **Today, `mgrep` works great on:** code, text, PDFs, images.  
 **Coming soon:** audio & video.
 
 ## Using it with Coding Agents
 
-- **Claude Code (today)**  
-  1. Run `mgrep install-claude-code`. The command signs you in (if needed), adds the Mixedbread mgrep plugin to the marketplace, and installs it.  
-  2. Open Claude Code, enable the plugin, and point your agent at the repo you are indexing with `mgrep watch`.  
+- **Claude Code (today)**
+  1. Run `mgrep install-claude-code`. The command signs you in (if needed), adds the Mixedbread mgrep plugin to the marketplace, and installs it.
+  2. Open Claude Code, enable the plugin, and point your agent at your repo.
   3. Ask Claude something just like you do locally; results stream straight into the chat with file paths and line hints.  
   
 - More agents (Codex, Cursor, Windsurf, etc.) are on the way—this section will grow as soon as each integration lands.
@@ -110,8 +101,10 @@ We designed `mgrep` to complement `grep`, not replace it. The best code search c
 
 | Command | Purpose |
 | --- | --- |
-| `mgrep` / `mgrep search <pattern> [path]` | Natural-language search with many `grep`-style flags (`-i`, `-r`, `-m`...). |
-| `mgrep watch` | Index current repo and keep the Mixedbread store in sync via file watchers. |
+| `mgrep` / `mgrep search <pattern> [path]` | Natural-language search with many `grep`-style flags (`-i`, `-r`, `-m`...). Automatically starts background indexing on first use. |
+| `mgrep watch` | Manually start file watching (usually not needed - starts automatically on search). |
+| `mgrep daemon:list` | List all running background daemons. |
+| `mgrep daemon:stop [dir]` | Stop the daemon for a directory (defaults to current directory). |
 | `mgrep login` & `mgrep logout` | Manage device-based authentication with Mixedbread. |
 | `mgrep install-claude-code` | Log in, add the Mixedbread mgrep plugin to Claude Code, and install it for you. |
 
@@ -142,16 +135,22 @@ mgrep -a "What code parsers are available?"  # generate an answer to the questio
 
 ### mgrep watch
 
-`mgrep watch` is used to index the current repository and keep the Mixedbread
-store in sync via file watchers.
+`mgrep watch` manually starts the file watcher daemon. This is usually not
+needed since `mgrep search` automatically starts a daemon on first use.
 
-It respects the current `.gitignore`, as well as a `.mgrepignore` file in the
-root of the repository. The `.mgrepignore` file follows the same syntax as the
-[`.gitignore`](https://git-scm.com/docs/gitignore) file.
+The daemon respects `.gitignore` as well as `.mgrepignore` files (same syntax as
+[`.gitignore`](https://git-scm.com/docs/gitignore)).
+
+### Daemon Management
+
+mgrep automatically manages background daemons with hierarchy awareness:
+- Running `mgrep` in a subdirectory reuses the parent directory's daemon if one exists
+- Running `mgrep` in a parent directory consolidates child daemons into one
 
-**Examples:**
 ```bash
-mgrep watch  # index the current repository and keep the Mixedbread store in sync via file watchers
+mgrep daemon:list              # show all running daemons
+mgrep daemon:stop              # stop daemon for current directory
+mgrep daemon:stop /path/to/dir # stop daemon for specific directory
 ```
 
 ## Mixedbread under the hood
@@ -167,7 +166,7 @@ mgrep watch  # index the current repository and keep the Mixedbread store in syn
 
 - `--store <name>` lets you isolate workspaces (per repo, per team, per experiment). Stores are created on demand if they do not exist yet.
 - Ignore rules come straight from git, so temp files, build outputs, and vendored deps stay out of your embeddings.
-- `watch` reports progress (`processed / uploaded`) as it scans; leave it running in a terminal tab to keep your store fresh.
+- The background daemon reports progress as it scans and keeps your store fresh automatically.
 - `search` accepts most `grep`-style switches, and politely ignores anything it cannot support, so existing muscle memory still works.
 
 ## Environment Variables
@@ -236,7 +235,7 @@ The tests are written using [bats](https://bats-core.readthedocs.io/en/stable/).
 ## Troubleshooting
 
 - **Login keeps reopening**: run `mgrep logout` to clear cached tokens, then try `mgrep login` again.
-- **Watcher feels noisy**: set `MXBAI_STORE` or pass `--store` to separate experiments, or pause the watcher and restart after large refactors.
+- **Daemon feels noisy**: use `mgrep daemon:stop` to stop it, or set `MXBAI_STORE` / `--store` to separate experiments.
 - **Need a fresh store**: delete it from the Mixedbread dashboard, then run `mgrep watch`. It will auto-create a new one.
 
 ## License
diff --git a/src/commands/search.ts b/src/commands/search.ts
index f028f98..6ee202b 100644
--- a/src/commands/search.ts
+++ b/src/commands/search.ts
@@ -2,6 +2,7 @@ import { join, normalize } from "node:path";
 import type { Command } from "commander";
 import { Command as CommanderCommand } from "commander";
 import { createFileSystem, createStore } from "../lib/context";
+import { ensureDaemon } from "../lib/daemon";
 import type {
   AskResponse,
   ChunkType,
@@ -165,6 +166,10 @@ export const search: Command = new CommanderCommand("search")
       const store = await createStore();
       const root = process.cwd();
 
+      if (!options.sync) {
+        ensureDaemon(options.store, root);
+      }
+
       if (options.sync) {
         const fileSystem = createFileSystem({
           ignorePatterns: ["*.lock", "*.bin", "*.ipynb", "*.pyc"],
diff --git a/src/commands/watch.ts b/src/commands/watch.ts
index 0ccaa31..f7e2b61 100644
--- a/src/commands/watch.ts
+++ b/src/commands/watch.ts
@@ -61,6 +61,11 @@ export const watch = new Command("watch")
         throw e;
       }
 
+      process.on("SIGTERM", () => {
+        console.log("Daemon received SIGTERM, shutting down");
+        process.exit(0);
+      });
+
       console.log("Watching for file changes in", watchRoot);
       fileSystem.loadMgrepignore(watchRoot);
       fs.watch(watchRoot, { recursive: true }, (eventType, rawFilename) => {
diff --git a/src/index.ts b/src/index.ts
index 8de3e15..be06e9e 100644
--- a/src/index.ts
+++ b/src/index.ts
@@ -1,12 +1,13 @@
 #!/usr/bin/env node
 import * as fs from "node:fs";
 import * as path from "node:path";
-import { program } from "commander";
+import { Command, program } from "commander";
 import { login } from "./commands/login";
 import { logout } from "./commands/logout";
 import { search } from "./commands/search";
 import { watch } from "./commands/watch";
 import { installClaudeCode, uninstallClaudeCode } from "./install/claude-code";
+import { listDaemons, stopDaemon } from "./lib/daemon";
 import { setupLogger } from "./lib/logger";
 
 setupLogger();
@@ -32,4 +33,32 @@ program.addCommand(uninstallClaudeCode);
 program.addCommand(login);
 program.addCommand(logout);
 
+const daemonList = new Command("daemon:list")
+  .description("List all running daemons")
+  .action(() => {
+    const daemons = listDaemons();
+    if (daemons.length === 0) {
+      console.log("No daemons running");
+    } else {
+      for (const d of daemons) {
+        console.log(`PID ${d.pid}: ${d.dir}`);
+      }
+    }
+  });
+
+const daemonStop = new Command("daemon:stop")
+  .description("Stop daemon for directory (default: cwd)")
+  .argument("[dir]", "Directory to stop daemon for")
+  .action((dir) => {
+    const target = dir || process.cwd();
+    if (stopDaemon(target)) {
+      console.log("Daemon stopped");
+    } else {
+      console.log(`No daemon was running for ${target}`);
+    }
+  });
+
+program.addCommand(daemonList);
+program.addCommand(daemonStop);
+
 program.parse();
diff --git a/src/lib/daemon.ts b/src/lib/daemon.ts
new file mode 100644
index 0000000..3be39d9
--- /dev/null
+++ b/src/lib/daemon.ts
@@ -0,0 +1,164 @@
+import { spawn } from "node:child_process";
+import { createHash } from "node:crypto";
+import * as fs from "node:fs";
+import * as path from "node:path";
+import { getLogDir } from "./logger";
+
+interface DaemonInfo {
+  pid: number;
+  dir: string;
+}
+
+function getStateDir(): string {
+  return path.dirname(getLogDir("mgrep"));
+}
+
+function getDaemonsDir(): string {
+  return path.join(getStateDir(), "daemons");
+}
+
+function hashPath(dir: string): string {
+  return createHash("sha256").update(dir).digest("hex").slice(0, 16);
+}
+
+function getDaemonFile(dir: string): string {
+  return path.join(getDaemonsDir(), `${hashPath(dir)}.json`);
+}
+
+function getLockFile(dir: string): string {
+  return path.join(getDaemonsDir(), `${hashPath(dir)}.lock`);
+}
+
+/**
+ * Check if process is alive by sending signal 0.
+ * Signal 0 doesn't actually send anything - it just checks if we have
+ * permission to send signals to the process (i.e., it exists and we own it).
+ */
+function isProcessAlive(pid: number): boolean {
+  try {
+    process.kill(pid, 0);
+    return true;
+  } catch {
+    return false;
+  }
+}
+
+function readDaemonInfo(file: string): DaemonInfo | null {
+  try {
+    return JSON.parse(fs.readFileSync(file, "utf-8"));
+  } catch {
+    return null;
+  }
+}
+
+function getAllDaemons(): DaemonInfo[] {
+  const dir = getDaemonsDir();
+  if (!fs.existsSync(dir)) return [];
+  return fs
+    .readdirSync(dir)
+    .filter((f) => f.endsWith(".json"))
+    .map((f) => readDaemonInfo(path.join(dir, f)))
+    .filter((d): d is DaemonInfo => d !== null && isProcessAlive(d.pid));
+}
+
+function isParentWatching(targetDir: string): boolean {
+  const daemons = getAllDaemons();
+  const target = path.resolve(targetDir);
+  return daemons.some(
+    (d) => target.startsWith(d.dir + path.sep) || target === d.dir,
+  );
+}
+
+function getChildDaemons(targetDir: string): DaemonInfo[] {
+  const daemons = getAllDaemons();
+  const target = path.resolve(targetDir);
+  return daemons.filter((d) => d.dir.startsWith(target + path.sep));
+}
+
+function killDaemonProcess(info: DaemonInfo): void {
+  try {
+    process.kill(info.pid, "SIGTERM");
+    fs.unlinkSync(getDaemonFile(info.dir));
+  } catch {}
+}
+
+/**
+ * Ensures a daemon is running for the given directory.
+ * Implements hierarchy awareness: parent daemons cover children,
+ * and starting a parent daemon kills child daemons.
+ */
+export function ensureDaemon(storeId: string, watchRoot: string): void {
+  const targetDir = path.resolve(watchRoot);
+
+  if (isParentWatching(targetDir)) return;
+
+  const daemonsDir = getDaemonsDir();
+  fs.mkdirSync(daemonsDir, { recursive: true });
+
+  // Atomic lock using O_EXCL: file creation fails if it already exists.
+  // This is cross-platform (POSIX + Windows) and prevents race conditions
+  // when multiple mgrep processes try to start a daemon simultaneously.
+  // Unlike flock(), this doesn't require cleanup on crash - we delete the
+  // lock file in the finally block, and stale locks from crashes are
+  // handled by checking if the daemon process is actually alive.
+  const lockFile = getLockFile(targetDir);
+  let lockFd: number;
+  try {
+    lockFd = fs.openSync(
+      lockFile,
+      fs.constants.O_CREAT | fs.constants.O_EXCL | fs.constants.O_RDWR,
+    );
+  } catch {
+    // Lock file exists - another process is starting the daemon
+    return;
+  }
+
+  try {
+    if (isParentWatching(targetDir)) return;
+
+    for (const child of getChildDaemons(targetDir)) {
+      killDaemonProcess(child);
+    }
+
+    const logFile = path.join(getStateDir(), "daemon.log");
+    const logFd = fs.openSync(logFile, "a");
+
+    // Spawn daemon as detached process with stdio redirected to log file.
+    // detached: true creates a new process group so daemon survives parent exit.
+    // unref() allows the parent to exit without waiting for the child.
+    const child = spawn(
+      process.execPath,
+      [path.join(__dirname, "../index.js"), "watch", "--store", storeId],
+      { cwd: targetDir, detached: true, stdio: ["ignore", logFd, logFd] },
+    );
+
+    if (child.pid) {
+      const info: DaemonInfo = { pid: child.pid, dir: targetDir };
+      fs.writeFileSync(getDaemonFile(targetDir), JSON.stringify(info));
+      child.unref();
+    }
+    fs.closeSync(logFd);
+  } finally {
+    fs.closeSync(lockFd);
+    try {
+      fs.unlinkSync(lockFile);
+    } catch {}
+  }
+}
+
+/**
+ * Stops the daemon watching the specified directory.
+ */
+export function stopDaemon(dir: string): boolean {
+  const info = readDaemonInfo(getDaemonFile(path.resolve(dir)));
+  if (!info) return false;
+  killDaemonProcess(info);
+  return true;
+}
+
+/**
+ * Lists all running daemons.
+ */
+export function listDaemons(): DaemonInfo[] {
+  return getAllDaemons();
+}