diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index b90c6139..e9704fe4 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -2,6 +2,10 @@
 
 ## [Unreleased]
 
+### Fixed
+
+- Fixed `.pi` folder being created unnecessarily when only reading settings. The folder is now only created when writing project-specific settings.
+
 ## [0.54.1] - 2026-02-22
 
 ### Fixed
diff --git a/packages/coding-agent/src/core/settings-manager.ts b/packages/coding-agent/src/core/settings-manager.ts
index f6ac85e2..b3cd8863 100644
--- a/packages/coding-agent/src/core/settings-manager.ts
+++ b/packages/coding-agent/src/core/settings-manager.ts
@@ -147,16 +147,24 @@ export class FileSettingsStorage implements SettingsStorage {
 	withLock(scope: SettingsScope, fn: (current: string | undefined) => string | undefined): void {
 		const path = scope === "global" ? this.globalSettingsPath : this.projectSettingsPath;
 		const dir = dirname(path);
-		if (!existsSync(dir)) {
-			mkdirSync(dir, { recursive: true });
-		}
 
 		let release: (() => void) | undefined;
 		try {
-			release = lockfile.lockSync(path, { realpath: false });
-			const current = existsSync(path) ? readFileSync(path, "utf-8") : undefined;
+			// Only create directory and lock if file exists or we need to write
+			const fileExists = existsSync(path);
+			if (fileExists) {
+				release = lockfile.lockSync(path, { realpath: false });
+			}
+			const current = fileExists ? readFileSync(path, "utf-8") : undefined;
 			const next = fn(current);
 			if (next !== undefined) {
+				// Only create directory when we actually need to write
+				if (!existsSync(dir)) {
+					mkdirSync(dir, { recursive: true });
+				}
+				if (!release) {
+					release = lockfile.lockSync(path, { realpath: false });
+				}
 				writeFileSync(path, next, "utf-8");
 			}
 		} finally {
diff --git a/packages/coding-agent/test/settings-manager.test.ts b/packages/coding-agent/test/settings-manager.test.ts
index df8199e2..263dac6e 100644
--- a/packages/coding-agent/test/settings-manager.test.ts
+++ b/packages/coding-agent/test/settings-manager.test.ts
@@ -212,6 +212,50 @@ describe("SettingsManager", () => {
 		});
 	});
 
+	describe("project settings directory creation", () => {
+		it("should not create .pi folder when only reading project settings", () => {
+			// Create agent dir with global settings, but NO .pi folder in project
+			const settingsPath = join(agentDir, "settings.json");
+			writeFileSync(settingsPath, JSON.stringify({ theme: "dark" }));
+
+			// Delete the .pi folder that beforeEach created
+			rmSync(join(projectDir, ".pi"), { recursive: true });
+
+			// Create SettingsManager (reads both global and project settings)
+			const manager = SettingsManager.create(projectDir, agentDir);
+
+			// .pi folder should NOT have been created just from reading
+			expect(existsSync(join(projectDir, ".pi"))).toBe(false);
+
+			// Settings should still be loaded from global
+			expect(manager.getTheme()).toBe("dark");
+		});
+
+		it("should create .pi folder when writing project settings", async () => {
+			// Create agent dir with global settings, but NO .pi folder in project
+			const settingsPath = join(agentDir, "settings.json");
+			writeFileSync(settingsPath, JSON.stringify({ theme: "dark" }));
+
+			// Delete the .pi folder that beforeEach created
+			rmSync(join(projectDir, ".pi"), { recursive: true });
+
+			const manager = SettingsManager.create(projectDir, agentDir);
+
+			// .pi folder should NOT exist yet
+			expect(existsSync(join(projectDir, ".pi"))).toBe(false);
+
+			// Write a project-specific setting
+			manager.setProjectPackages([{ source: "npm:test-pkg" }]);
+			await manager.flush();
+
+			// Now .pi folder should exist
+			expect(existsSync(join(projectDir, ".pi"))).toBe(true);
+
+			// And settings file should be created
+			expect(existsSync(join(projectDir, ".pi", "settings.json"))).toBe(true);
+		});
+	});
+
 	describe("shellCommandPrefix", () => {
 		it("should load shellCommandPrefix from settings", () => {
 			const settingsPath = join(agentDir, "settings.json");