diff --git a/README.md b/README.md
index d6b5a2c..2d53154 100644
--- a/README.md
+++ b/README.md
@@ -141,7 +141,13 @@ shellmcp validate my-server.yml --verbose
 ### `shellmcp generate`
 Generate a FastMCP server from YAML configuration.
 
+**Default behavior**: Creates a subdirectory with the server name to prevent overwriting existing files.
+
 ```bash
+# Generate with default output directory (creates ./my-server/ subdirectory)
+shellmcp generate my-server.yml --verbose
+
+# Generate with custom output directory
 shellmcp generate my-server.yml --output-dir ./output --verbose
 ```
 
diff --git a/docs/agentdocs/cli/README.md b/docs/agentdocs/cli/README.md
index 0a31b2f..dace3b4 100644
--- a/docs/agentdocs/cli/README.md
+++ b/docs/agentdocs/cli/README.md
@@ -42,7 +42,53 @@ shellmcp validate config.yml
 shellmcp validate config.yml --verbose
 ```
 
-**Output:**
+### `generate`
+
+Generate a FastMCP server from YAML configuration.
+
+```bash
+shellmcp generate <config_file> [--output-dir <dir>] [--verbose]
+```
+
+**Arguments:**
+- `config_file`: Path to the YAML configuration file
+
+**Flags:**
+- `--output-dir`: Optional output directory (defaults to creating a subdirectory with the server name)
+- `--verbose` / `-v`: Show detailed generation information
+
+**Default Behavior:**
+When no `--output-dir` is specified, the generator automatically creates a subdirectory named after the server (with spaces and hyphens converted to underscores). This prevents accidentally overwriting existing files like README.md in your current directory.
+
+**Examples:**
+
+```bash
+# Generate with default output directory (creates ./my-server/ subdirectory)
+shellmcp generate my-server.yml --verbose
+
+# Generate with custom output directory
+shellmcp generate my-server.yml --output-dir ./output --verbose
+```
+
+**Generate Output:**
+
+The `generate` command creates a complete FastMCP server with the following files:
+
+```
+✅ FastMCP server generated successfully!
+📁 Output directory: /path/to/my_mcp_server
+🐍 Server file: /path/to/my_mcp_server/my_mcp_server_server.py
+📦 Requirements: /path/to/my_mcp_server/requirements.txt
+📖 Documentation: /path/to/my_mcp_server/README.md
+
+🚀 To run the server:
+   cd /path/to/my_mcp_server
+   python3 -m venv venv && source venv/bin/activate
+   pip install -r requirements.txt
+   python my_mcp_server_server.py
+```
+
+**Validation Output:**
 
 The `validate` command performs comprehensive validation including:
 
diff --git a/docs/agentdocs/generator/README.md b/docs/agentdocs/generator/README.md
index 6726747..16245e3 100644
--- a/docs/agentdocs/generator/README.md
+++ b/docs/agentdocs/generator/README.md
@@ -26,13 +26,22 @@ The generator takes a YAML configuration file and produces:
 ### Command Line Interface
 
 ```bash
-# Generate server from YAML configuration
+# Generate server from YAML configuration (creates ./server-name/ subdirectory by default)
 python -m shellmcp.cli generate config.yml --verbose
 
 # Generate with custom output directory
 python -m shellmcp.cli generate config.yml --output-dir ./output --verbose
 ```
 
+**Default Output Directory Behavior**
+
+When no `--output-dir` is specified, the generator automatically creates a subdirectory named after the server (with spaces and hyphens converted to underscores). This prevents accidentally overwriting existing files like README.md in your current directory.
+
+For example, if your server is named "my-mcp-server", the generator will create a `my_mcp_server/` directory containing:
+- `my_mcp_server_server.py` - The generated server
+- `requirements.txt` - Python dependencies
+- `README.md` - Documentation
+
 ### Programmatic Usage
 
 ```python
diff --git a/shellmcp/cli.py b/shellmcp/cli.py
index 96249c5..7a8c633 100644
--- a/shellmcp/cli.py
+++ b/shellmcp/cli.py
@@ -93,7 +93,7 @@ def generate(config_file: str, output_dir: str = None, verbose: bool = False) ->
     
     Args:
         config_file: Path to the YAML configuration file
-        output_dir: Optional output directory (defaults to same directory as config file)
+        output_dir: Optional output directory (defaults to creating a subdirectory with the server name)
         verbose: Show detailed generation information
     
     Returns:
@@ -116,6 +116,8 @@ def generate(config_file: str, output_dir: str = None, verbose: bool = False) ->
         
         # Determine output directory
         if output_dir is None:
+            # Default behavior: create a subdirectory with the server name
+            # This prevents accidentally overwriting existing files like README.md
             config_dir = Path(config_file).parent
             server_name = config.server.name.replace('-', '_').replace(' ', '_').lower()
             output_dir = config_dir / server_name