diff --git a/.dockerignore b/.dockerignore
index cede6cc78..7739a9d3d 100644
--- a/.dockerignore
+++ b/.dockerignore
@@ -1,4 +1,6 @@
 .git
 *.egg-info
 deps
-jmvenv
\ No newline at end of file
+jmvenv
+compose.yml
+Dockerfile
\ No newline at end of file
diff --git a/Dockerfile b/Dockerfile
index 30779464d..bd445c5e2 100644
--- a/Dockerfile
+++ b/Dockerfile
@@ -1,16 +1,34 @@
-FROM debian:bookworm-slim
-
-RUN mkdir -p /jm/clientserver
+ARG BITCOIN_VERSION=29.2
+ARG PYTHON_IMAGE_TAG=3.13-slim-trixie
+FROM bitcoin/bitcoin:${BITCOIN_VERSION} AS bitcoin
+FROM python:${PYTHON_IMAGE_TAG} AS python
 WORKDIR /jm/clientserver
 
-COPY . .
-
-RUN apt-get update && apt-get install -y --no-install-recommends gnupg ca-certificates=* curl=* \
-  python3-pip=* python3=* \
-  && pip3 config set global.break-system-packages true \
-  && pip3 install 'wheel>=0.35.1' \
-  && ./install.sh --docker-install \
-  && apt-get purge -y --autoremove python3-pip \
+FROM python AS base-deps
+RUN DEBIAN_FRONTEND=noninteractive \
+  apt-get update \
+  && apt-get install -y --no-install-recommends \
+    libsecp256k1-2 \
+    libsodium23 \
+    openssl \
+    tor \
   && apt-get clean \
   && rm -rf /var/lib/apt/lists/*
 
+FROM base-deps AS builder
+COPY . .
+RUN python -m venv jmvenv \
+  && . ./jmvenv/bin/activate \
+  && pip install -e .[services]
+
+FROM base-deps AS base
+COPY --from=builder /jm/clientserver /jm/clientserver
+ENTRYPOINT ["./scripts/docker-entrypoint.sh"]
+
+FROM base AS test
+ARG BITCOIN_VERSION
+COPY --from=bitcoin /opt/bitcoin-${BITCOIN_VERSION}/bin /usr/local/bin/
+RUN . ./jmvenv/bin/activate \ 
+  && pip install -e .[test]
+
+FROM base AS joinmarket
\ No newline at end of file
diff --git a/README.md b/README.md
index b3caa4b0b..b78692acc 100644
--- a/README.md
+++ b/README.md
@@ -62,6 +62,18 @@ Alternative to this "quickstart": follow the [install guide](docs/INSTALL.md).
 * [Installation guide for Qubes+Whonix](https://github.com/qubenix/qubes-whonix-bitcoin/blob/master/1_joinmarket.md).
 * [Youtube video installation tutorial for Ubuntu](https://www.youtube.com/watch?v=zTCC86IUzWo).
 
+### Docker
+
+JoinMarket can be built and run using Docker. To build the Docker image:
+
+    docker build -t joinmarket .
+
+To run tests using Docker Compose:
+
+    docker compose up test
+
+This will run the full test suite in an isolated environment with all necessary dependencies including Bitcoin Core.
+
 ### Usage
 
 If you are new, follow and read the links in the [usage guide](docs/USAGE.md).
diff --git a/compose.yml b/compose.yml
new file mode 100644
index 000000000..119c0a501
--- /dev/null
+++ b/compose.yml
@@ -0,0 +1,18 @@
+services:
+  x-jmbase:
+    build:
+      context: .
+      args:
+        BITCOIN_VERSION: 29.2
+        PYTHON_IMAGE_TAG: 3.13-slim-trixie
+    volumes:
+      - ./src:/jm/clientserver/src
+      - ./test:/jm/clientserver/test
+      - ./scripts:/jm/clientserver/scripts
+  test:
+    extends: x-jmbase
+    image: joinmarket:test
+    build:
+      target: test
+    shm_size: '2gb'
+    command: ["./test/run_tests.sh", "-v"]
diff --git a/docs/INSTALL.md b/docs/INSTALL.md
index b8bc17d00..f57cfe6e4 100644
--- a/docs/INSTALL.md
+++ b/docs/INSTALL.md
@@ -265,14 +265,34 @@ There, you need to install the client code (without Joinmarket's bitcoin):
 
 #### Docker Installation
 
-The [Dockerfile](../Dockerfile) provided builds a minimal Docker image which can help in getting started with a custom Docker setup. An example of building and running the [wallet-tool.py](../scripts/wallet-tool.py) script:
+The [Dockerfile](../Dockerfile) provided builds an optimized multi-stage Docker image for JoinMarket. The build process is optimized for layer caching and includes all necessary dependencies.
 
-```
-docker build -t joinmarket-test ./
-docker run --rm -it joinmarket-test bash -c "cd scripts && python3 wallet-tool.py --help"
-```
+##### Building the Docker image
+
+To build the production image:
+
+    docker build -t joinmarket .
+
+This creates a minimal production image with JoinMarket installed.
+
+##### Running JoinMarket scripts in Docker
+
+Example of running the [wallet-tool.py](../scripts/wallet-tool.py) script:
+
+    docker run --rm -it joinmarket python ./scripts/wallet-tool.py --help"
+
+##### Building custom images
+
+The Dockerfile uses multi-stage builds with the following targets:
+
+* `joinmarket` (default) - Production image with JoinMarket installed
+* `test` - Testing image that includes Bitcoin Core binaries
+
+You can build a specific target:
+
+    docker build --target test -t joinmarket:test .
 
-A new Docker image can be built using `joinmarket-test` as a base using `FROM joinmarket-test`. See [Docker documentation](https://docs.docker.com/engine/reference/builder/) for more details.
+See [Docker documentation](https://docs.docker.com/engine/reference/builder/) for more details on multi-stage builds.
 
 #### Development (or making other changes to the code)
 
diff --git a/docs/TESTING.md b/docs/TESTING.md
index 821aa4249..8db3411e0 100644
--- a/docs/TESTING.md
+++ b/docs/TESTING.md
@@ -1,5 +1,22 @@
 ### Test instructions (for developers):
 
+#### Quick start: Running tests with Docker
+
+The easiest way to run the full test suite is using Docker Compose, which handles all dependencies automatically:
+
+    docker compose run --rm test
+
+This will:
+
+* Build a Docker image with all dependencies (Python, Bitcoin Core 29.2, miniircd)
+* Run the complete test suite in an isolated environment
+* Automatically download and set up miniircd
+* No need to install bitcoind or other dependencies on your host machine
+
+For development, the Docker setup mounts the `src`, `scripts`, and `test` directories, so you can make changes locally and re-run tests without rebuilding the image.
+
+#### Manual setup
+
 Work in your `jmvenv` virtual environment as for all Joinmarket work. Make sure to have [bitcoind](https://bitcoin.org/en/full-node) 28.1 or newer installed. Also need miniircd installed to the root (i.e. in your `joinmarket-clientserver` directory):
 
     (jmvenv)$ cd /path/to/joinmarket-clientserver
diff --git a/scripts/docker-entrypoint.sh b/scripts/docker-entrypoint.sh
new file mode 100755
index 000000000..f1c202725
--- /dev/null
+++ b/scripts/docker-entrypoint.sh
@@ -0,0 +1,5 @@
+#!/bin/bash
+
+# shellcheck disable=SC1091
+source jmvenv/bin/activate
+exec "$@"
\ No newline at end of file