diff --git a/.env.example b/.env.example
index 910d31ca3..e164f4b33 100644
--- a/.env.example
+++ b/.env.example
@@ -1198,28 +1198,28 @@ PAGINATION_INCLUDE_LINKS=true
 
 # Enable observability tracing and metrics collection
 # When enabled, all HTTP requests will be traced with detailed timing, status codes, and context
-# OBSERVABILITY_ENABLED=false
+OBSERVABILITY_ENABLED=false
 
 # Automatically trace HTTP requests
-# OBSERVABILITY_TRACE_HTTP_REQUESTS=true
+OBSERVABILITY_TRACE_HTTP_REQUESTS=true
 
 # Number of days to retain trace data
-# OBSERVABILITY_TRACE_RETENTION_DAYS=7
+OBSERVABILITY_TRACE_RETENTION_DAYS=7
 
 # Maximum number of traces to retain (prevents unbounded growth)
-# OBSERVABILITY_MAX_TRACES=100000
+OBSERVABILITY_MAX_TRACES=100000
 
 # Trace sampling rate (0.0-1.0) - 1.0 means trace everything, 0.1 means trace 10%
-# OBSERVABILITY_SAMPLE_RATE=1.0
+OBSERVABILITY_SAMPLE_RATE=1.0
 
 # Paths to exclude from tracing (comma-separated regex patterns)
-# OBSERVABILITY_EXCLUDE_PATHS=/health,/healthz,/ready,/metrics,/static/.*
+OBSERVABILITY_EXCLUDE_PATHS='["/health", "/healthz", "/ready", "/metrics", "/static/.*"]'
 
 # Enable metrics collection
-# OBSERVABILITY_METRICS_ENABLED=true
+OBSERVABILITY_METRICS_ENABLED=true
 
 # Enable event logging within spans
-# OBSERVABILITY_EVENTS_ENABLED=true
+OBSERVABILITY_EVENTS_ENABLED=true
 
 #####################################
 # Ed25519 Key Support
diff --git a/mcpgateway/config.py b/mcpgateway/config.py
index 9d3017876..24c8bb46a 100644
--- a/mcpgateway/config.py
+++ b/mcpgateway/config.py
@@ -768,7 +768,7 @@ def _parse_allowed_origins(cls, v: Any) -> Set[str]:
     observability_sample_rate: float = Field(default=1.0, ge=0.0, le=1.0, description="Trace sampling rate (0.0-1.0)")
 
     # Exclude paths from tracing (regex patterns)
-    observability_exclude_paths: List[str] = Field(default_factory=lambda: ["/health", "/healthz", "/ready", "/metrics", "/static/.*"], description="Paths to exclude from tracing (regex)")
+    observability_exclude_paths: List[str] = Field(default_factory=lambda: ["/health", "/healthz", "/ready", "/metrics", "/static/.*"], description="Paths to exclude from tracing")
 
     # Enable performance metrics
     observability_metrics_enabled: bool = Field(default=True, description="Enable metrics collection")
@@ -1102,6 +1102,7 @@ def _auto_enable_security_txt(cls, v: Any, info: ValidationInfo) -> bool:
         "sso_auto_admin_domains",
         "sso_github_admin_orgs",
         "sso_google_admin_domains",
+        "observability_exclude_paths",
         mode="before",
     )
     @classmethod