diff --git a/Editor/Commands/MaterialCommandHandler.cs b/Editor/Commands/MaterialCommandHandler.cs
index 0e161ca4..66f8bf04 100644
--- a/Editor/Commands/MaterialCommandHandler.cs
+++ b/Editor/Commands/MaterialCommandHandler.cs
@@ -2,6 +2,8 @@
 using Newtonsoft.Json.Linq;
 using UnityEngine.Rendering.Universal;
 using UnityEngine.Rendering;
+using UnityEditor;
+using System.IO;
 
 namespace MCPServer.Editor.Commands
 {
@@ -22,26 +24,72 @@ public static object SetMaterial(JObject @params)
             // Check if URP is being used
             bool isURP = GraphicsSettings.currentRenderPipeline is UniversalRenderPipelineAsset;
 
-            // Create material with appropriate shader based on render pipeline
-            Material material;
-            if (isURP)
+            Material material = null;
+            string materialName = (string)@params["material_name"];
+            bool createIfMissing = (bool)(@params["create_if_missing"] ?? true);
+            string materialPath = null;
+
+            // If material name is specified, try to find or create it
+            if (!string.IsNullOrEmpty(materialName))
             {
-                material = new Material(Shader.Find("Universal Render Pipeline/Lit"));
+                // Ensure Materials folder exists
+                const string materialsFolder = "Assets/Materials";
+                if (!Directory.Exists(materialsFolder))
+                {
+                    Directory.CreateDirectory(materialsFolder);
+                }
+
+                materialPath = $"{materialsFolder}/{materialName}.mat";
+                material = AssetDatabase.LoadAssetAtPath<Material>(materialPath);
+
+                if (material == null && createIfMissing)
+                {
+                    // Create new material with appropriate shader
+                    material = new Material(isURP ? Shader.Find("Universal Render Pipeline/Lit") : Shader.Find("Standard"));
+                    material.name = materialName;
+
+                    // Save the material asset
+                    AssetDatabase.CreateAsset(material, materialPath);
+                    AssetDatabase.SaveAssets();
+                }
+                else if (material == null)
+                {
+                    throw new System.Exception($"Material '{materialName}' not found and create_if_missing is false.");
+                }
             }
             else
             {
-                material = new Material(Shader.Find("Standard"));
+                // Create a temporary material if no name specified
+                material = new Material(isURP ? Shader.Find("Universal Render Pipeline/Lit") : Shader.Find("Standard"));
             }
 
-            if (@params.ContainsKey("material_name")) material.name = (string)@params["material_name"];
+            // Apply color if specified
             if (@params.ContainsKey("color"))
             {
-                var colorArray = (JArray)@params["color"] ?? throw new System.Exception("Invalid color parameter.");
-                if (colorArray.Count != 3) throw new System.Exception("Color must be an array of 3 floats [r, g, b].");
-                material.color = new Color((float)colorArray[0], (float)colorArray[1], (float)colorArray[2]);
+                var colorArray = (JArray)@params["color"];
+                if (colorArray.Count < 3 || colorArray.Count > 4)
+                    throw new System.Exception("Color must be an array of 3 (RGB) or 4 (RGBA) floats.");
+
+                Color color = new Color(
+                    (float)colorArray[0],
+                    (float)colorArray[1],
+                    (float)colorArray[2],
+                    colorArray.Count > 3 ? (float)colorArray[3] : 1.0f
+                );
+                material.color = color;
+
+                // If this is a saved material, make sure to save the color change
+                if (!string.IsNullOrEmpty(materialPath))
+                {
+                    EditorUtility.SetDirty(material);
+                    AssetDatabase.SaveAssets();
+                }
             }
+
+            // Apply the material to the renderer
             renderer.material = material;
-            return new { material_name = material.name };
+
+            return new { material_name = material.name, path = materialPath };
         }
     }
 }
\ No newline at end of file
diff --git a/Python/tools/material_tools.py b/Python/tools/material_tools.py
index 47cbf2d5..01df0f8a 100644
--- a/Python/tools/material_tools.py
+++ b/Python/tools/material_tools.py
@@ -1,5 +1,5 @@
 from mcp.server.fastmcp import FastMCP, Context
-from typing import List
+from typing import List, Optional
 from unity_connection import get_unity_connection
 
 def register_material_tools(mcp: FastMCP):
@@ -9,18 +9,22 @@ def register_material_tools(mcp: FastMCP):
     def set_material(
         ctx: Context,
         object_name: str,
-        material_name: str = None,
-        color: List[float] = None,
+        material_name: Optional[str] = None,
+        color: Optional[List[float]] = None,
         create_if_missing: bool = True
     ) -> str:
         """
-        Apply or create a material for a game object.
+        Apply or create a material for a game object. If material_name is provided,
+        the material will be saved as a shared asset in the Materials folder.
         
         Args:
             object_name: Target game object.
-            material_name: Optional material name.
-            color: Optional [R, G, B] values (0.0-1.0).
+            material_name: Optional material name. If provided, creates/uses a shared material asset.
+            color: Optional [R, G, B] or [R, G, B, A] values (0.0-1.0).
             create_if_missing: Whether to create the material if it doesn't exist (default: True).
+            
+        Returns:
+            str: Status message indicating success or failure.
         """
         try:
             unity = get_unity_connection()
@@ -63,14 +67,23 @@ def set_material(
                         return f"Error: Color {channel} value must be in the range 0.0-1.0, but got {value}."
             
             # Set up parameters for the command
-            params = {"object_name": object_name}
+            params = {
+                "object_name": object_name,
+                "create_if_missing": create_if_missing
+            }
             if material_name:
                 params["material_name"] = material_name
-                params["create_if_missing"] = create_if_missing
             if color:
                 params["color"] = color
                 
             result = unity.send_command("SET_MATERIAL", params)
-            return f"Applied material to {object_name}: {result.get('material_name', 'unknown')}"
+            material_name = result.get("material_name", "unknown")
+            material_path = result.get("path")
+            
+            if material_path:
+                return f"Applied shared material '{material_name}' to {object_name} (saved at {material_path})"
+            else:
+                return f"Applied instance material '{material_name}' to {object_name}"
+                
         except Exception as e:
             return f"Error setting material: {str(e)}" 
\ No newline at end of file