diff --git a/database/migrations/008_notifications.sql b/database/migrations/008_notifications.sql
new file mode 100644
index 0000000..616b4d5
--- /dev/null
+++ b/database/migrations/008_notifications.sql
@@ -0,0 +1,23 @@
+CREATE TABLE IF NOT EXISTS notifications (
+  id UUID PRIMARY KEY DEFAULT uuid_generate_v4(),
+  user_id UUID NOT NULL REFERENCES users(id) ON DELETE CASCADE,
+  type VARCHAR(50) NOT NULL,
+  title VARCHAR(255) NOT NULL,
+  description TEXT,
+  link TEXT,
+  is_read BOOLEAN NOT NULL DEFAULT FALSE,
+  created_at TIMESTAMPTZ NOT NULL DEFAULT NOW()
+);
+
+CREATE INDEX IF NOT EXISTS idx_notifications_user ON notifications(user_id, created_at DESC);
+CREATE INDEX IF NOT EXISTS idx_notifications_unread ON notifications(user_id, created_at DESC) WHERE is_read = FALSE;
+
+CREATE TABLE IF NOT EXISTS notification_preferences (
+  user_id UUID PRIMARY KEY REFERENCES users(id) ON DELETE CASCADE,
+  lead_assigned BOOLEAN NOT NULL DEFAULT TRUE,
+  lead_status BOOLEAN NOT NULL DEFAULT TRUE,
+  note_added BOOLEAN NOT NULL DEFAULT FALSE,
+  daily_digest BOOLEAN NOT NULL DEFAULT FALSE,
+  weekly_report BOOLEAN NOT NULL DEFAULT TRUE,
+  updated_at TIMESTAMPTZ NOT NULL DEFAULT NOW()
+);
diff --git a/database/migrations/run_all.sql b/database/migrations/run_all.sql
index 19380f0..c5d75d0 100644
--- a/database/migrations/run_all.sql
+++ b/database/migrations/run_all.sql
@@ -10,6 +10,24 @@
 \echo '=== Running 002_seed.sql (RBAC + Test Accounts + Reference Data) ==='
 \i 002_seed.sql
 
+\echo '=== Running 003_chat.sql (Chat Tables) ==='
+\i 003_chat.sql
+
+\echo '=== Running 004_avatar_url.sql (Avatar URL Column) ==='
+\i 004_avatar_url.sql
+
+\echo '=== Running 005_last_read_at.sql (Last Read At Column) ==='
+\i 005_last_read_at.sql
+
+\echo '=== Running 006_test_leads.sql (Test Lead Data) ==='
+\i 006_test_leads.sql
+
+\echo '=== Running 007_ai_features.sql (AI Features) ==='
+\i 007_ai_features.sql
+
+\echo '=== Running 008_notifications.sql (Notifications + Preferences) ==='
+\i 008_notifications.sql
+
 \echo '=== Migration Complete ==='
 \echo ''
 \echo 'Test accounts created:'
diff --git a/package-lock.json b/package-lock.json
index 7f6eddc..03119b8 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -3297,7 +3297,6 @@
       "resolved": "https://registry.npmjs.org/concurrently/-/concurrently-10.0.3.tgz",
       "integrity": "sha512-hc3LH4UaKWd/bbyDK/IGVa4RB6PtQ3CUYwtrkzqHn+wIG3Hr5fhpRlk0L/gCa8ZE1L/Ufj50Zho69cI5w8SQBA==",
       "dev": true,
-      "license": "MIT",
       "dependencies": {
         "chalk": "5.6.2",
         "rxjs": "7.8.2",
diff --git a/src/app/api/notifications/[id]/route.ts b/src/app/api/notifications/[id]/route.ts
new file mode 100644
index 0000000..f6404f8
--- /dev/null
+++ b/src/app/api/notifications/[id]/route.ts
@@ -0,0 +1,49 @@
+import { NextRequest, NextResponse } from "next/server"
+import { getSessionUser } from "@/lib/auth"
+import { query } from "@/lib/db"
+
+export async function PATCH(request: NextRequest, { params }: { params: Promise<{ id: string }> }) {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const { id } = await params
+
+    const result = await query(
+      `UPDATE notifications SET is_read = TRUE WHERE id = $1 AND user_id = $2 RETURNING id`,
+      [id, user.id],
+    )
+
+    if (result.rowCount === 0) {
+      return NextResponse.json({ error: "Notification not found" }, { status: 404 })
+    }
+
+    return NextResponse.json({ success: true })
+  } catch (error) {
+    console.error("Notification PATCH error:", error)
+    return NextResponse.json({ error: "Failed to mark notification as read" }, { status: 500 })
+  }
+}
+
+export async function DELETE(request: NextRequest, { params }: { params: Promise<{ id: string }> }) {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const { id } = await params
+
+    const result = await query(
+      `DELETE FROM notifications WHERE id = $1 AND user_id = $2 RETURNING id`,
+      [id, user.id],
+    )
+
+    if (result.rowCount === 0) {
+      return NextResponse.json({ error: "Notification not found" }, { status: 404 })
+    }
+
+    return NextResponse.json({ success: true })
+  } catch (error) {
+    console.error("Notification DELETE error:", error)
+    return NextResponse.json({ error: "Failed to dismiss notification" }, { status: 500 })
+  }
+}
diff --git a/src/app/api/notifications/preferences/route.ts b/src/app/api/notifications/preferences/route.ts
new file mode 100644
index 0000000..dd1682a
--- /dev/null
+++ b/src/app/api/notifications/preferences/route.ts
@@ -0,0 +1,69 @@
+import { NextRequest, NextResponse } from "next/server"
+import { getSessionUser } from "@/lib/auth"
+import { query } from "@/lib/db"
+
+export async function GET() {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const result = await query(
+      `SELECT lead_assigned, lead_status, note_added, daily_digest, weekly_report
+       FROM notification_preferences
+       WHERE user_id = $1`,
+      [user.id],
+    )
+
+    if (result.rowCount === 0) {
+      return NextResponse.json({
+        leadAssigned: true,
+        leadStatus: true,
+        noteAdded: false,
+        dailyDigest: false,
+        weeklyReport: true,
+      })
+    }
+
+    const r = result.rows[0]
+    return NextResponse.json({
+      leadAssigned: r.lead_assigned,
+      leadStatus: r.lead_status,
+      noteAdded: r.note_added,
+      dailyDigest: r.daily_digest,
+      weeklyReport: r.weekly_report,
+    })
+  } catch (error) {
+    console.error("Preferences GET error:", error)
+    return NextResponse.json({ error: "Failed to load preferences" }, { status: 500 })
+  }
+}
+
+export async function PATCH(request: NextRequest) {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const body = await request.json()
+
+    await query(
+      `INSERT INTO notification_preferences (user_id, lead_assigned, lead_status, note_added, daily_digest, weekly_report, updated_at)
+       VALUES ($1, $2, $3, $4, $5, $6, NOW())
+       ON CONFLICT (user_id)
+       DO UPDATE SET lead_assigned = $2, lead_status = $3, note_added = $4,
+                     daily_digest = $5, weekly_report = $6, updated_at = NOW()`,
+      [
+        user.id,
+        body.leadAssigned ?? true,
+        body.leadStatus ?? true,
+        body.noteAdded ?? false,
+        body.dailyDigest ?? false,
+        body.weeklyReport ?? true,
+      ],
+    )
+
+    return NextResponse.json({ success: true })
+  } catch (error) {
+    console.error("Preferences PATCH error:", error)
+    return NextResponse.json({ error: "Failed to save preferences" }, { status: 500 })
+  }
+}
diff --git a/src/app/api/notifications/route.ts b/src/app/api/notifications/route.ts
new file mode 100644
index 0000000..d8c2c00
--- /dev/null
+++ b/src/app/api/notifications/route.ts
@@ -0,0 +1,90 @@
+import { NextRequest, NextResponse } from "next/server"
+import { getSessionUser } from "@/lib/auth"
+import { query } from "@/lib/db"
+
+export async function GET() {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const result = await query(
+      `SELECT id, type, title, description, link, is_read, created_at
+       FROM notifications
+       WHERE user_id = $1
+       ORDER BY created_at DESC
+       LIMIT 50`,
+      [user.id],
+    )
+
+    const notifications = result.rows.map((r: any) => ({
+      id: r.id,
+      type: r.type,
+      title: r.title,
+      description: r.description,
+      link: r.link,
+      read: r.is_read,
+      timestamp: r.created_at,
+    }))
+
+    const unreadResult = await query(
+      `SELECT COUNT(*) AS count FROM notifications WHERE user_id = $1 AND is_read = FALSE`,
+      [user.id],
+    )
+
+    return NextResponse.json({
+      notifications,
+      unreadCount: parseInt(unreadResult.rows[0].count, 10),
+    })
+  } catch (error) {
+    console.error("Notifications GET error:", error)
+    return NextResponse.json({ error: "Failed to load notifications" }, { status: 500 })
+  }
+}
+
+export async function POST(request: NextRequest) {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    const { type, title, description, link, userId } = await request.json()
+    const targetUserId = userId || user.id
+
+    const result = await query(
+      `INSERT INTO notifications (user_id, type, title, description, link)
+       VALUES ($1, $2, $3, $4, $5)
+       RETURNING id, type, title, description, link, is_read, created_at`,
+      [targetUserId, type, title, description || null, link || null],
+    )
+
+    const notif = result.rows[0]
+    return NextResponse.json({
+      id: notif.id,
+      type: notif.type,
+      title: notif.title,
+      description: notif.description,
+      link: notif.link,
+      read: notif.is_read,
+      timestamp: notif.created_at,
+    }, { status: 201 })
+  } catch (error) {
+    console.error("Notifications POST error:", error)
+    return NextResponse.json({ error: "Failed to create notification" }, { status: 500 })
+  }
+}
+
+export async function PATCH() {
+  try {
+    const user = await getSessionUser()
+    if (!user) return NextResponse.json({ error: "Unauthorized" }, { status: 401 })
+
+    await query(
+      `UPDATE notifications SET is_read = TRUE WHERE user_id = $1 AND is_read = FALSE`,
+      [user.id],
+    )
+
+    return NextResponse.json({ success: true })
+  } catch (error) {
+    console.error("Notifications PATCH error:", error)
+    return NextResponse.json({ error: "Failed to mark all as read" }, { status: 500 })
+  }
+}
diff --git a/src/components/layout/topbar.tsx b/src/components/layout/topbar.tsx
index b28720c..f1bbebb 100644
--- a/src/components/layout/topbar.tsx
+++ b/src/components/layout/topbar.tsx
@@ -134,7 +134,7 @@ export function Topbar({ onMenuClick }: TopbarProps) {
             >
               <Bell className="h-5 w-5" />
               <span className="absolute -right-0.5 -top-0.5 flex h-4 w-4 items-center justify-center rounded-full bg-primary text-[10px] font-medium text-primary-foreground">
-                3
+                {unreadCount}
               </span>
             </Button>
           </DropdownMenuTrigger>
diff --git a/src/components/settings/notification-settings.tsx b/src/components/settings/notification-settings.tsx
index 80d092c..60d2cfc 100644
--- a/src/components/settings/notification-settings.tsx
+++ b/src/components/settings/notification-settings.tsx
@@ -1,45 +1,82 @@
 "use client"
 
+import { useEffect, useState } from "react"
 import { Card, CardContent, CardDescription, CardHeader, CardTitle } from "@/components/ui/card"
 import { Label } from "@/components/ui/label"
 import { Switch } from "@/components/ui/switch"
 import { Button } from "@/components/ui/button"
 import { toast } from "sonner"
 
+interface Preferences {
+  leadAssigned: boolean
+  leadStatus: boolean
+  noteAdded: boolean
+  dailyDigest: boolean
+  weeklyReport: boolean
+}
+
+const defaultPreferences: Preferences = {
+  leadAssigned: true,
+  leadStatus: true,
+  noteAdded: false,
+  dailyDigest: false,
+  weeklyReport: true,
+}
+
 const notifications = [
-  {
-    id: "lead-assigned",
-    title: "Lead Assigned",
-    description: "When a lead is assigned to you",
-    defaultChecked: true,
-  },
-  {
-    id: "lead-status",
-    title: "Status Changes",
-    description: "When a lead's status is updated",
-    defaultChecked: true,
-  },
-  {
-    id: "note-added",
-    title: "Note Added",
-    description: "When a note is added to your lead",
-    defaultChecked: false,
-  },
-  {
-    id: "daily-digest",
-    title: "Daily Digest",
-    description: "Receive a daily summary of lead activity",
-    defaultChecked: false,
-  },
-  {
-    id: "weekly-report",
-    title: "Weekly Report",
-    description: "Receive a weekly performance report",
-    defaultChecked: true,
-  },
+  { id: "leadAssigned", title: "Lead Assigned", description: "When a lead is assigned to you" },
+  { id: "leadStatus", title: "Status Changes", description: "When a lead's status is updated" },
+  { id: "noteAdded", title: "Note Added", description: "When a note is added to your lead" },
+  { id: "dailyDigest", title: "Daily Digest", description: "Receive a daily summary of lead activity" },
+  { id: "weeklyReport", title: "Weekly Report", description: "Receive a weekly performance report" },
 ]
 
 export function NotificationSettings() {
+  const [prefs, setPrefs] = useState<Preferences>(defaultPreferences)
+  const [loading, setLoading] = useState(true)
+  const [saving, setSaving] = useState(false)
+
+  useEffect(() => {
+    async function load() {
+      try {
+        const res = await fetch("/api/notifications/preferences")
+        if (res.ok) {
+          const data = await res.json()
+          setPrefs(data)
+        }
+      } catch {
+        // ignore
+      } finally {
+        setLoading(false)
+      }
+    }
+    load()
+  }, [])
+
+  async function handleSave() {
+    setSaving(true)
+    try {
+      const res = await fetch("/api/notifications/preferences", {
+        method: "PATCH",
+        headers: { "Content-Type": "application/json" },
+        body: JSON.stringify(prefs),
+      })
+      if (res.ok) {
+        toast.success("Notification preferences saved")
+      } else {
+        toast.error("Failed to save preferences")
+      }
+    } catch {
+      toast.error("Failed to save preferences")
+    } finally {
+      setSaving(false)
+    }
+  }
+
+  function toggle(key: keyof Preferences) {
+    setPrefs((prev) => ({ ...prev, [key]: !prev[key] }))
+  }
+
   return (
     <Card>
       <CardHeader>
@@ -60,11 +97,18 @@ export function NotificationSettings() {
               </Label>
               <p className="text-sm text-muted-foreground">{n.description}</p>
             </div>
-            <Switch id={n.id} defaultChecked={n.defaultChecked} />
+            <Switch
+              id={n.id}
+              disabled={loading}
+              checked={prefs[n.id as keyof Preferences]}
+              onCheckedChange={() => toggle(n.id as keyof Preferences)}
+            />
           </div>
         ))}
         <div className="flex justify-end pt-4">
-          <Button onClick={() => toast.success("Notification preferences saved")}>Save Preferences</Button>
+          <Button onClick={handleSave} disabled={loading || saving}>
+            {saving ? "Saving..." : "Save Preferences"}
+          </Button>
         </div>
       </CardContent>
     </Card>
diff --git a/src/providers/notification-provider.tsx b/src/providers/notification-provider.tsx
index 2275e51..fb28489 100644
--- a/src/providers/notification-provider.tsx
+++ b/src/providers/notification-provider.tsx
@@ -2,7 +2,6 @@
 
 import { createContext, useContext, useState, useCallback, useMemo, useEffect, ReactNode } from "react"
 import { Notification, NotificationType } from "@/types"
-import { leads } from "@/data/leads"
 
 interface NotificationContextValue {
   notifications: Notification[]
@@ -16,62 +15,29 @@ interface NotificationContextValue {
 
 const NotificationContext = createContext<NotificationContextValue | null>(null)
 
-function generateId(): string {
-  return `notif-${Date.now()}-${Math.random().toString(36).slice(2, 7)}`
-}
-
-function seedInitialNotifications(): Notification[] {
-  const result: Notification[] = []
-
-  const recentLeads = leads.slice(0, 5)
-  recentLeads.forEach((lead) => {
-    result.push({
-      id: generateId(),
-      type: "lead_created",
-      title: "New Lead Created",
-      description: `${lead.companyName} — ${lead.contactName}`,
-      timestamp: lead.createdAt,
-      read: false,
-      link: `/leads/${lead.id}`,
-    })
-  })
-
-  const statusChanged = leads.filter((l) => l.status !== "open").slice(0, 3)
-  statusChanged.forEach((lead) => {
-    result.push({
-      id: generateId(),
-      type: "lead_status_changed",
-      title: "Lead Status Updated",
-      description: `${lead.companyName} moved to ${lead.status}`,
-      timestamp: lead.updatedAt,
-      read: false,
-      link: `/leads/${lead.id}`,
-    })
-  })
-
-  const assignedLeads = leads.filter((l) => l.assignedUser).slice(0, 3)
-  assignedLeads.forEach((lead) => {
-    result.push({
-      id: generateId(),
-      type: "lead_assigned",
-      title: "Lead Assigned",
-      description: `${lead.companyName} assigned to ${lead.assignedUser!.name}`,
-      timestamp: lead.updatedAt,
-      read: false,
-      link: `/leads/${lead.id}`,
-    })
-  })
-
-  result.sort((a, b) => new Date(b.timestamp).getTime() - new Date(a.timestamp).getTime())
-
-  return result
-}
-
 export function NotificationProvider({ children }: { children: ReactNode }) {
-  const [notifications, setNotifications] = useState<Notification[]>(seedInitialNotifications)
-
+  const [notifications, setNotifications] = useState<Notification[]>([])
+  const [loading, setLoading] = useState(true)
   const [unreadChatCount, setUnreadChatCount] = useState(0)
 
+  useEffect(() => {
+    async function fetchNotifications() {
+      try {
+        const res = await fetch("/api/notifications")
+        if (!res.ok) return
+        const data = await res.json()
+        if (data.notifications) {
+          setNotifications(data.notifications)
+        }
+      } catch {
+        // ignore
+      } finally {
+        setLoading(false)
+      }
+    }
+    fetchNotifications()
+  }, [])
+
   useEffect(() => {
     let cancelled = false
     async function fetchUnread() {
@@ -99,9 +65,9 @@ export function NotificationProvider({ children }: { children: ReactNode }) {
   )
 
   const addNotification = useCallback(
-    (type: NotificationType, title: string, description: string, link?: string) => {
+    async (type: NotificationType, title: string, description: string, link?: string) => {
       const notif: Notification = {
-        id: generateId(),
+        id: `temp-${Date.now()}`,
         type,
         title,
         description,
@@ -110,22 +76,48 @@ export function NotificationProvider({ children }: { children: ReactNode }) {
         link,
       }
       setNotifications((prev) => [notif, ...prev])
+      try {
+        await fetch("/api/notifications", {
+          method: "POST",
+          headers: { "Content-Type": "application/json" },
+          body: JSON.stringify({ type, title, description, link }),
+        })
+      } catch {
+        // ignore
+      }
     },
     []
   )
 
-  const markAsRead = useCallback((id: string) => {
+  const markAsRead = useCallback(async (id: string) => {
+    if (id.startsWith("temp-")) return
     setNotifications((prev) =>
       prev.map((n) => (n.id === id ? { ...n, read: true } : n))
     )
+    try {
+      await fetch(`/api/notifications/${id}`, { method: "PATCH" })
+    } catch {
+      // ignore
+    }
   }, [])
 
-  const markAllAsRead = useCallback(() => {
+  const markAllAsRead = useCallback(async () => {
     setNotifications((prev) => prev.map((n) => ({ ...n, read: true })))
+    try {
+      await fetch("/api/notifications", { method: "PATCH" })
+    } catch {
+      // ignore
+    }
   }, [])
 
-  const dismiss = useCallback((id: string) => {
+  const dismiss = useCallback(async (id: string) => {
     setNotifications((prev) => prev.filter((n) => n.id !== id))
+    if (id.startsWith("temp-")) return
+    try {
+      await fetch(`/api/notifications/${id}`, { method: "DELETE" })
+    } catch {
+      // ignore
+    }
   }, [])
 
   return (