diff --git a/src/basic_memory/config.py b/src/basic_memory/config.py
index d5f849815..02abd0d1b 100644
--- a/src/basic_memory/config.py
+++ b/src/basic_memory/config.py
@@ -686,11 +686,8 @@ def add_project(self, name: str, path: str) -> ProjectConfig:
         if project_name:  # pragma: no cover
             raise ValueError(f"Project '{name}' already exists")
 
-        # Ensure the path exists
-        project_path = Path(path)
-        project_path.mkdir(parents=True, exist_ok=True)  # pragma: no cover
-
         # Load config, modify it, and save it
+        project_path = Path(path)
         config = self.load_config()
         config.projects[name] = ProjectEntry(path=str(project_path))
         self.save_config(config)
diff --git a/src/basic_memory/deps/services.py b/src/basic_memory/deps/services.py
index 6e41c469e..7d7572f40 100644
--- a/src/basic_memory/deps/services.py
+++ b/src/basic_memory/deps/services.py
@@ -9,6 +9,7 @@
 
 import asyncio
 import os
+from pathlib import Path
 from typing import Annotated, Any, Callable, Coroutine, Mapping, Protocol
 
 from fastapi import Depends
@@ -549,9 +550,15 @@ async def _reindex_project(**_: Any) -> None:
 
 async def get_project_service(
     project_repository: ProjectRepositoryDep,
+    app_config: AppConfigDep,
 ) -> ProjectService:
-    """Create ProjectService with repository."""
-    return ProjectService(repository=project_repository)
+    """Create ProjectService with repository and a system-level FileService for directory operations."""
+    # A system-level FileService for project directory creation (no project-specific base_path needed).
+    # ensure_directory() accepts absolute paths and ignores base_path for those, so Path.home() is safe.
+    entity_parser = EntityParser(Path.home())
+    markdown_processor = MarkdownProcessor(entity_parser, app_config=app_config)
+    file_service = FileService(Path.home(), markdown_processor, app_config=app_config)
+    return ProjectService(repository=project_repository, file_service=file_service)
 
 
 ProjectServiceDep = Annotated[ProjectService, Depends(get_project_service)]
diff --git a/src/basic_memory/mcp/tools/project_management.py b/src/basic_memory/mcp/tools/project_management.py
index 27af35ca5..f4323bf93 100644
--- a/src/basic_memory/mcp/tools/project_management.py
+++ b/src/basic_memory/mcp/tools/project_management.py
@@ -64,7 +64,12 @@ async def list_memory_projects(
 
         result = "Available projects:\n"
         for project in project_list.projects:
-            result += f"• {project.name}\n"
+            label = (
+                f"{project.display_name} ({project.name})"
+                if project.display_name
+                else project.name
+            )
+            result += f"• {label}\n"
 
         result += "\n" + "─" * 40 + "\n"
         result += "Next: Ask which project to use for this session.\n"
diff --git a/src/basic_memory/repository/fastembed_provider.py b/src/basic_memory/repository/fastembed_provider.py
index b8c2bde39..ef257eb51 100644
--- a/src/basic_memory/repository/fastembed_provider.py
+++ b/src/basic_memory/repository/fastembed_provider.py
@@ -9,7 +9,7 @@
 from basic_memory.repository.semantic_errors import SemanticDependenciesMissingError
 
 if TYPE_CHECKING:
-    from fastembed import TextEmbedding  # pragma: no cover
+    from fastembed import TextEmbedding  # type: ignore[import-not-found]  # pragma: no cover
 
 
 class FastEmbedEmbeddingProvider(EmbeddingProvider):
@@ -42,7 +42,7 @@ async def _load_model(self) -> "TextEmbedding":
 
             def _create_model() -> "TextEmbedding":
                 try:
-                    from fastembed import TextEmbedding
+                    from fastembed import TextEmbedding  # type: ignore[import-not-found]
                 except (
                     ImportError
                 ) as exc:  # pragma: no cover - exercised via tests with monkeypatch
diff --git a/src/basic_memory/repository/openai_provider.py b/src/basic_memory/repository/openai_provider.py
index 69c4acfa6..4d3198b9c 100644
--- a/src/basic_memory/repository/openai_provider.py
+++ b/src/basic_memory/repository/openai_provider.py
@@ -41,7 +41,7 @@ async def _get_client(self) -> Any:
                 return self._client
 
             try:
-                from openai import AsyncOpenAI
+                from openai import AsyncOpenAI  # type: ignore[import-not-found]
             except ImportError as exc:  # pragma: no cover - covered via monkeypatch tests
                 raise SemanticDependenciesMissingError(
                     "OpenAI dependency is missing. "
diff --git a/src/basic_memory/repository/sqlite_search_repository.py b/src/basic_memory/repository/sqlite_search_repository.py
index a0bdb20d7..b63ebdc9c 100644
--- a/src/basic_memory/repository/sqlite_search_repository.py
+++ b/src/basic_memory/repository/sqlite_search_repository.py
@@ -343,7 +343,7 @@ async def _ensure_sqlite_vec_loaded(self, session) -> None:
             pass
 
         try:
-            import sqlite_vec
+            import sqlite_vec  # type: ignore[import-not-found]
         except ImportError as exc:
             raise SemanticDependenciesMissingError(
                 "sqlite-vec package is missing. "
diff --git a/src/basic_memory/schemas/project_info.py b/src/basic_memory/schemas/project_info.py
index 4168b70ed..c1dd18f29 100644
--- a/src/basic_memory/schemas/project_info.py
+++ b/src/basic_memory/schemas/project_info.py
@@ -178,6 +178,9 @@ class ProjectItem(BaseModel):
     name: str
     path: str
     is_default: bool = False
+    # Optional metadata injected by cloud hosting layer (not stored in DB)
+    display_name: Optional[str] = None
+    is_private: bool = False
 
     @property
     def permalink(self) -> str:  # pragma: no cover
diff --git a/src/basic_memory/services/file_service.py b/src/basic_memory/services/file_service.py
index 044ac952c..a1d0ea808 100644
--- a/src/basic_memory/services/file_service.py
+++ b/src/basic_memory/services/file_service.py
@@ -43,7 +43,7 @@ class FileService:
     def __init__(
         self,
         base_path: Path,
-        markdown_processor: MarkdownProcessor,
+        markdown_processor: Optional[MarkdownProcessor] = None,
         max_concurrent_files: int = 10,
         app_config: Optional["BasicMemoryConfig"] = None,
     ):
@@ -79,6 +79,10 @@ async def read_entity_content(self, entity: EntityModel) -> str:
         """
         logger.debug(f"Reading entity content, entity_id={entity.id}, permalink={entity.permalink}")
 
+        # markdown_processor is required for entity content reads — fail fast if not configured
+        if self.markdown_processor is None:
+            raise ValueError("markdown_processor is required for read_entity_content")
+
         file_path = self.get_entity_path(entity)
         markdown = await self.markdown_processor.read_file(file_path)
         return markdown.content or ""
diff --git a/src/basic_memory/services/project_service.py b/src/basic_memory/services/project_service.py
index 36d314e74..d45b405da 100644
--- a/src/basic_memory/services/project_service.py
+++ b/src/basic_memory/services/project_service.py
@@ -6,7 +6,7 @@
 import shutil
 from datetime import datetime
 from pathlib import Path
-from typing import Dict, Optional, Sequence
+from typing import TYPE_CHECKING, Dict, Optional, Sequence
 
 
 from loguru import logger
@@ -30,16 +30,22 @@
 )
 from basic_memory.utils import generate_permalink
 
+if TYPE_CHECKING:  # pragma: no cover
+    from basic_memory.services.file_service import FileService
+
 
 class ProjectService:
     """Service for managing Basic Memory projects."""
 
     repository: ProjectRepository
 
-    def __init__(self, repository: ProjectRepository):
+    def __init__(
+        self, repository: ProjectRepository, file_service: Optional["FileService"] = None
+    ):
         """Initialize the project service."""
         super().__init__()
         self.repository = repository
+        self.file_service = file_service
 
     @property
     def config_manager(self) -> ConfigManager:
@@ -205,6 +211,16 @@ async def add_project(self, name: str, path: str, set_default: bool = False) ->
                         f"Projects cannot share directory trees."
                     )
 
+        # Ensure the project directory exists on disk.
+        # Trigger: project_root not set means local filesystem mode (not S3/cloud)
+        # Why: FileService (or future S3FileService) provides cloud-compatible directory creation;
+        #      direct Path.mkdir() bypasses this abstraction
+        # Outcome: directory exists before config/DB entries are written
+        if not self.config_manager.config.project_root:
+            if self.file_service is None:
+                raise ValueError("file_service is required for local project directory creation")
+            await self.file_service.ensure_directory(Path(resolved_path))
+
         # First add to config file (this validates project uniqueness and keeps
         # config + database aligned for all backends).
         self.config_manager.add_project(name, resolved_path)
@@ -459,8 +475,14 @@ async def move_project(self, name: str, new_path: str) -> None:
         if name not in self.config_manager.projects:
             raise ValueError(f"Project '{name}' not found in configuration")
 
-        # Create the new directory if it doesn't exist
-        Path(resolved_path).mkdir(parents=True, exist_ok=True)
+        # Create the new directory if it doesn't exist (skip in cloud mode where storage is S3)
+        # Trigger: project_root not set means local filesystem mode
+        # Why: FileService (or future S3FileService) provides cloud-compatible directory creation
+        # Outcome: destination directory exists before config/DB are updated
+        if not self.config_manager.config.project_root:
+            if self.file_service is None:
+                raise ValueError("file_service is required for local project directory creation")
+            await self.file_service.ensure_directory(Path(resolved_path))
 
         # Update in configuration
         config = self.config_manager.load_config()
diff --git a/tests/conftest.py b/tests/conftest.py
index 2606aa1d3..662a56495 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -466,9 +466,10 @@ async def sample_entity(entity_repository: EntityRepository) -> Entity:
 @pytest_asyncio.fixture
 async def project_service(
     project_repository: ProjectRepository,
+    file_service: FileService,
 ) -> ProjectService:
-    """Create ProjectService with repository."""
-    return ProjectService(repository=project_repository)
+    """Create ProjectService with repository and file service for directory operations."""
+    return ProjectService(repository=project_repository, file_service=file_service)
 
 
 @pytest_asyncio.fixture
diff --git a/tests/mcp/test_tool_project_management.py b/tests/mcp/test_tool_project_management.py
index a059c5876..aacb96f58 100644
--- a/tests/mcp/test_tool_project_management.py
+++ b/tests/mcp/test_tool_project_management.py
@@ -15,6 +15,75 @@ async def test_list_memory_projects_unconstrained(app, test_project):
     assert f"• {test_project.name}" in result
 
 
+@pytest.mark.asyncio
+async def test_list_memory_projects_shows_display_name(app, client, test_project):
+    """When a project has display_name set, list_memory_projects shows 'display_name (name)' format."""
+    # Inject display_name into the project list response by patching the API response.
+    # In production, the cloud proxy adds display_name to the JSON before deserialization.
+    from unittest.mock import AsyncMock, patch
+    from basic_memory.schemas.project_info import ProjectItem, ProjectList
+
+    mock_project = ProjectItem(
+        id=1,
+        external_id="00000000-0000-0000-0000-000000000001",
+        name="private-fb83af23",
+        path="/tmp/private",
+        is_default=False,
+        display_name="My Notes",
+        is_private=True,
+    )
+    regular_project = ProjectItem(
+        id=2,
+        external_id="00000000-0000-0000-0000-000000000002",
+        name="main",
+        path="/tmp/main",
+        is_default=True,
+    )
+    mock_list = ProjectList(
+        projects=[regular_project, mock_project],
+        default_project="main",
+    )
+
+    with patch(
+        "basic_memory.mcp.clients.project.ProjectClient.list_projects",
+        new_callable=AsyncMock,
+        return_value=mock_list,
+    ):
+        result = await list_memory_projects.fn()
+
+    # Regular project shows just the name
+    assert "• main\n" in result
+    # Private project shows display_name with slug in parentheses
+    assert "• My Notes (private-fb83af23)" in result
+
+
+@pytest.mark.asyncio
+async def test_list_memory_projects_no_display_name_shows_name_only(app, client, test_project):
+    """When a project has no display_name, list_memory_projects shows just the name."""
+    from unittest.mock import AsyncMock, patch
+    from basic_memory.schemas.project_info import ProjectItem, ProjectList
+
+    project = ProjectItem(
+        id=1,
+        external_id="00000000-0000-0000-0000-000000000001",
+        name="my-project",
+        path="/tmp/my-project",
+        is_default=True,
+    )
+    mock_list = ProjectList(projects=[project], default_project="my-project")
+
+    with patch(
+        "basic_memory.mcp.clients.project.ProjectClient.list_projects",
+        new_callable=AsyncMock,
+        return_value=mock_list,
+    ):
+        result = await list_memory_projects.fn()
+
+    assert "• my-project\n" in result
+    # Should NOT have parenthetical format
+    assert "(" not in result.split("• my-project")[1].split("\n")[0]
+
+
 @pytest.mark.asyncio
 async def test_list_memory_projects_constrained_env(monkeypatch, app, test_project):
     monkeypatch.setenv("BASIC_MEMORY_MCP_PROJECT", test_project.name)
diff --git a/tests/schemas/test_schemas.py b/tests/schemas/test_schemas.py
index 3f6dc279b..42f9e7db0 100644
--- a/tests/schemas/test_schemas.py
+++ b/tests/schemas/test_schemas.py
@@ -511,6 +511,106 @@ class TestModel(BaseModel):
         assert time_diff < 3600, f"'today' and '1d' should be similar times, diff: {time_diff}s"
 
 
+class TestProjectItemSchema:
+    """Test ProjectItem schema with optional cloud-injected fields."""
+
+    def test_project_item_defaults(self):
+        """ProjectItem has sensible defaults for cloud-injected fields."""
+        from basic_memory.schemas.project_info import ProjectItem
+
+        project = ProjectItem(
+            id=1,
+            external_id="00000000-0000-0000-0000-000000000001",
+            name="main",
+            path="/tmp/main",
+        )
+        assert project.display_name is None
+        assert project.is_private is False
+        assert project.is_default is False
+
+    def test_project_item_with_display_name(self):
+        """ProjectItem accepts display_name from cloud proxy enrichment."""
+        from basic_memory.schemas.project_info import ProjectItem
+
+        project = ProjectItem(
+            id=1,
+            external_id="00000000-0000-0000-0000-000000000001",
+            name="private-fb83af23",
+            path="/tmp/private",
+            display_name="My Notes",
+            is_private=True,
+        )
+        assert project.display_name == "My Notes"
+        assert project.is_private is True
+        assert project.name == "private-fb83af23"
+
+    def test_project_item_deserialization_from_json(self):
+        """ProjectItem correctly deserializes display_name and is_private from JSON.
+
+        This is the actual path: the cloud proxy enriches the JSON response from
+        basic-memory API, and the MCP tools deserialize it back into ProjectItem.
+        """
+        from basic_memory.schemas.project_info import ProjectItem
+
+        json_data = {
+            "id": 1,
+            "external_id": "00000000-0000-0000-0000-000000000001",
+            "name": "private-fb83af23",
+            "path": "/tmp/private",
+            "is_default": False,
+            "display_name": "My Notes",
+            "is_private": True,
+        }
+        project = ProjectItem.model_validate(json_data)
+        assert project.display_name == "My Notes"
+        assert project.is_private is True
+
+    def test_project_item_deserialization_without_cloud_fields(self):
+        """ProjectItem works when cloud fields are absent (non-cloud usage)."""
+        from basic_memory.schemas.project_info import ProjectItem
+
+        json_data = {
+            "id": 1,
+            "external_id": "00000000-0000-0000-0000-000000000001",
+            "name": "main",
+            "path": "/tmp/main",
+            "is_default": True,
+        }
+        project = ProjectItem.model_validate(json_data)
+        assert project.display_name is None
+        assert project.is_private is False
+
+    def test_project_list_with_mixed_projects(self):
+        """ProjectList can contain a mix of regular and private projects."""
+        from basic_memory.schemas.project_info import ProjectItem, ProjectList
+
+        projects = ProjectList(
+            projects=[
+                ProjectItem(
+                    id=1,
+                    external_id="00000000-0000-0000-0000-000000000001",
+                    name="main",
+                    path="/tmp/main",
+                    is_default=True,
+                ),
+                ProjectItem(
+                    id=2,
+                    external_id="00000000-0000-0000-0000-000000000002",
+                    name="private-fb83af23",
+                    path="/tmp/private",
+                    display_name="My Notes",
+                    is_private=True,
+                ),
+            ],
+            default_project="main",
+        )
+        assert len(projects.projects) == 2
+        assert projects.projects[0].display_name is None
+        assert projects.projects[0].is_private is False
+        assert projects.projects[1].display_name == "My Notes"
+        assert projects.projects[1].is_private is True
+
+
 class TestObservationContentLength:
     """Test observation content length validation matches DB schema."""
 
diff --git a/tests/test_config.py b/tests/test_config.py
index 63961b5ef..294bc60a4 100644
--- a/tests/test_config.py
+++ b/tests/test_config.py
@@ -580,6 +580,36 @@ def test_add_project_uses_platform_native_separators(self, monkeypatch):
                 assert "/" in saved_path
                 assert saved_path == str(project_path)
 
+    def test_add_project_never_creates_directory(self):
+        """Test that ConfigManager.add_project() is pure config management — no mkdir.
+
+        Directory creation is delegated to ProjectService via FileService, which
+        supports both local and cloud (S3) backends.
+        """
+        with tempfile.TemporaryDirectory() as temp_dir:
+            temp_path = Path(temp_dir)
+
+            config_manager = ConfigManager()
+            config_manager.config_dir = temp_path / "basic-memory"
+            config_manager.config_file = config_manager.config_dir / "config.json"
+            config_manager.config_dir.mkdir(parents=True, exist_ok=True)
+
+            initial_config = BasicMemoryConfig(projects={})
+            config_manager.save_config(initial_config)
+
+            # Use a path that does not exist — ConfigManager should not create it
+            nonexistent_path = str(temp_path / "nonexistent" / "project")
+            config_manager.add_project("test-project", nonexistent_path)
+
+            # Check directory does NOT exist right after add_project(),
+            # before load_config() which triggers the model validator
+            assert not Path(nonexistent_path).exists()
+
+            # Verify project was persisted in config
+            config = config_manager.load_config()
+            assert "test-project" in config.projects
+            assert config.projects["test-project"].path == nonexistent_path
+
     def test_model_post_init_uses_platform_native_separators(self, config_home, monkeypatch):
         """Test that model_post_init uses platform-native separators."""
         import platform