diff --git a/backend/app/alembic/versions/77dc462dc6b0_seed_organization_table.py b/backend/app/alembic/versions/77dc462dc6b0_seed_organization_table.py
index 7acb8d407..b8f26fdb2 100644
--- a/backend/app/alembic/versions/77dc462dc6b0_seed_organization_table.py
+++ b/backend/app/alembic/versions/77dc462dc6b0_seed_organization_table.py
@@ -13,6 +13,10 @@
 # Adjust the import based on your actual structure
 from app.models import Organization, Project, User, APIKey
 from passlib.context import CryptContext  # To hash passwords securely
+from app.core.security import (
+    get_password_hash,
+    encrypt_api_key,
+)  # Add imports for encryption
 
 # revision identifiers, used by Alembic.
 revision = "77dc462dc6b0"
@@ -86,10 +90,15 @@ def create_user(session: Session, is_super: bool = True) -> User:
 
 def create_api_key(session: Session, user: User, organization: Organization) -> APIKey:
     """Create and return an API key for the user and organization."""
+
+    token = secrets.token_urlsafe(32)
+    raw_key = "ApiKey " + token
+    encrypted_key = encrypt_api_key(raw_key)  # Encrypt the raw key directly
+
     api_key = APIKey(
         user_id=user.id,
         organization_id=organization.id,
-        key="ApiKey " + secrets.token_urlsafe(32),
+        key=encrypted_key,
     )
     session.add(api_key)
     session.commit()
diff --git a/backend/app/core/security.py b/backend/app/core/security.py
index 7aff7cfb3..65594fcbf 100644
--- a/backend/app/core/security.py
+++ b/backend/app/core/security.py
@@ -1,5 +1,9 @@
 from datetime import datetime, timedelta, timezone
 from typing import Any
+import base64
+from cryptography.fernet import Fernet
+from cryptography.hazmat.primitives import hashes
+from cryptography.hazmat.primitives.kdf.pbkdf2 import PBKDF2HMAC
 
 import jwt
 from passlib.context import CryptContext
@@ -9,6 +13,30 @@
 pwd_context = CryptContext(schemes=["bcrypt"], deprecated="auto")
 
 
+# Generate a key for API key encryption
+def get_encryption_key() -> bytes:
+    """Generate a key for API key encryption using the app's secret key."""
+    kdf = PBKDF2HMAC(
+        algorithm=hashes.SHA256(),
+        length=32,
+        salt=settings.SECRET_KEY.encode(),
+        iterations=100000,
+    )
+    return base64.urlsafe_b64encode(kdf.derive(settings.SECRET_KEY.encode()))
+
+
+# Initialize Fernet with our encryption key
+_fernet = None
+
+
+def get_fernet() -> Fernet:
+    """Get a Fernet instance with the encryption key."""
+    global _fernet
+    if _fernet is None:
+        _fernet = Fernet(get_encryption_key())
+    return _fernet
+
+
 ALGORITHM = "HS256"
 
 
@@ -25,3 +53,19 @@ def verify_password(plain_password: str, hashed_password: str) -> bool:
 
 def get_password_hash(password: str) -> str:
     return pwd_context.hash(password)
+
+
+def encrypt_api_key(api_key: str) -> str:
+    """Encrypt an API key before storage."""
+    try:
+        return get_fernet().encrypt(api_key.encode()).decode()
+    except Exception as e:
+        raise ValueError(f"Failed to encrypt API key: {str(e)}")
+
+
+def decrypt_api_key(encrypted_api_key: str) -> str:
+    """Decrypt an API key when retrieving it."""
+    try:
+        return get_fernet().decrypt(encrypted_api_key.encode()).decode()
+    except Exception as e:
+        raise ValueError(f"Failed to decrypt API key: {str(e)}")
diff --git a/backend/app/crud/api_key.py b/backend/app/crud/api_key.py
index 309562de1..0de9c5e58 100644
--- a/backend/app/crud/api_key.py
+++ b/backend/app/crud/api_key.py
@@ -2,19 +2,43 @@
 import secrets
 from datetime import datetime
 from sqlmodel import Session, select
+from app.core.security import (
+    verify_password,
+    get_password_hash,
+    encrypt_api_key,
+    decrypt_api_key,
+)
+import base64
+from cryptography.hazmat.primitives import hashes
+from cryptography.hazmat.primitives.kdf.pbkdf2 import PBKDF2HMAC
+from app.core import settings
 
-from app.models import APIKey, APIKeyPublic
+from app.models.api_key import APIKey, APIKeyPublic
+
+
+def generate_api_key() -> tuple[str, str]:
+    """Generate a new API key and its hash."""
+    raw_key = "ApiKey " + secrets.token_urlsafe(32)
+    hashed_key = get_password_hash(raw_key)
+    return raw_key, hashed_key
 
 
-# Create API Key
 def create_api_key(
     session: Session, organization_id: uuid.UUID, user_id: uuid.UUID
 ) -> APIKeyPublic:
     """
     Generates a new API key for an organization and associates it with a user.
+    Returns the API key details with the raw key (shown only once).
     """
+    # Generate raw key and its hash using the helper function
+    raw_key, hashed_key = generate_api_key()
+    encrypted_key = encrypt_api_key(
+        raw_key
+    )  # Encrypt the raw key instead of hashed key
+
+    # Create API key record with encrypted raw key
     api_key = APIKey(
-        key="ApiKey " + secrets.token_urlsafe(32),
+        key=encrypted_key,  # Store the encrypted raw key
         organization_id=organization_id,
         user_id=user_id,
     )
@@ -23,27 +47,39 @@ def create_api_key(
     session.commit()
     session.refresh(api_key)
 
-    return APIKeyPublic.model_validate(api_key)
+    # Set the raw key in the response (shown only once)
+    api_key_dict = api_key.model_dump()
+    api_key_dict["key"] = raw_key  # Return the raw key to the user
+
+    return APIKeyPublic.model_validate(api_key_dict)
 
 
-# Get API Key by ID
 def get_api_key(session: Session, api_key_id: int) -> APIKeyPublic | None:
     """
     Retrieves an API key by its ID if it exists and is not deleted.
+    Returns the API key in its original format.
     """
     api_key = session.exec(
         select(APIKey).where(APIKey.id == api_key_id, APIKey.is_deleted == False)
     ).first()
 
-    return APIKeyPublic.model_validate(api_key) if api_key else None
+    if api_key:
+        # Create a copy of the API key data
+        api_key_dict = api_key.model_dump()
+        # Decrypt the key
+        decrypted_key = decrypt_api_key(api_key.key)
+        api_key_dict["key"] = decrypted_key
+
+        return APIKeyPublic.model_validate(api_key_dict)
+    return None
 
 
-# Get API Keys for an Organization
 def get_api_keys_by_organization(
     session: Session, organization_id: uuid.UUID
 ) -> list[APIKeyPublic]:
     """
     Retrieves all active API keys associated with an organization.
+    Returns the API keys in their original format.
     """
     api_keys = session.exec(
         select(APIKey).where(
@@ -51,10 +87,19 @@ def get_api_keys_by_organization(
         )
     ).all()
 
-    return [APIKeyPublic.model_validate(api_key) for api_key in api_keys]
+    raw_keys = []
+    for api_key in api_keys:
+        api_key_dict = api_key.model_dump()
+
+        decrypted_key = decrypt_api_key(api_key.key)
+
+        api_key_dict["key"] = decrypted_key
+
+        raw_keys.append(APIKeyPublic.model_validate(api_key_dict))
+
+    return raw_keys
 
 
-# Soft Delete (Revoke) API Key
 def delete_api_key(session: Session, api_key_id: int) -> None:
     """
     Soft deletes (revokes) an API key by marking it as deleted.
@@ -71,24 +116,42 @@ def delete_api_key(session: Session, api_key_id: int) -> None:
     session.commit()
 
 
-def get_api_key_by_value(session: Session, api_key_value: str) -> APIKey | None:
+def get_api_key_by_value(session: Session, api_key_value: str) -> APIKeyPublic | None:
     """
-    Retrieve an API Key record by its value.
+    Retrieve an API Key record by verifying the provided key against stored hashes.
+    Returns the API key in its original format.
     """
-    return session.exec(
-        select(APIKey).where(APIKey.key == api_key_value, APIKey.is_deleted == False)
-    ).first()
+    # Get all active API keys
+    api_keys = session.exec(select(APIKey).where(APIKey.is_deleted == False)).all()
+
+    for api_key in api_keys:
+        decrypted_key = decrypt_api_key(api_key.key)
+        if api_key_value == decrypted_key:
+            api_key_dict = api_key.model_dump()
+
+            api_key_dict["key"] = decrypted_key
+
+            return APIKeyPublic.model_validate(api_key_dict)
+    return None
 
 
 def get_api_key_by_user_org(
-    session: Session, organization_id: int, user_id: str
+    db: Session, organization_id: int, user_id: int
 ) -> APIKey | None:
-    """
-    Retrieve an API key for a specific user and organization.
-    """
+    """Get an API key by user and organization ID."""
     statement = select(APIKey).where(
         APIKey.organization_id == organization_id,
         APIKey.user_id == user_id,
         APIKey.is_deleted == False,
     )
-    return session.exec(statement).first()
+    api_key = db.exec(statement).first()
+
+    if api_key:
+        api_key_dict = api_key.model_dump()
+
+        decrypted_key = decrypt_api_key(api_key.key)
+
+        api_key_dict["key"] = decrypted_key
+
+        return APIKey.model_validate(api_key_dict)
+    return None
diff --git a/backend/app/tests/api/routes/test_project.py b/backend/app/tests/api/routes/test_project.py
index 82ea7593d..98d1f96da 100644
--- a/backend/app/tests/api/routes/test_project.py
+++ b/backend/app/tests/api/routes/test_project.py
@@ -1,6 +1,7 @@
 import pytest
 from fastapi.testclient import TestClient
 from sqlmodel import Session
+from app.core.security import decrypt_api_key, verify_password
 
 from app.main import app
 from app.core.config import settings
@@ -10,6 +11,7 @@
 from app.tests.utils.utils import random_lower_string, random_email
 from app.crud.project import create_project, get_project_by_id
 from app.crud.organization import create_organization
+from app.crud import api_key as api_key_crud
 
 client = TestClient(app)
 
diff --git a/backend/app/tests/core/test_security.py b/backend/app/tests/core/test_security.py
new file mode 100644
index 000000000..4f7f68610
--- /dev/null
+++ b/backend/app/tests/core/test_security.py
@@ -0,0 +1,121 @@
+import pytest
+from app.core.security import (
+    get_password_hash,
+    verify_password,
+    encrypt_api_key,
+    decrypt_api_key,
+    get_encryption_key,
+)
+
+
+def test_encrypt_decrypt_api_key():
+    """Test that API key encryption and decryption works correctly."""
+    # Test data
+    test_key = "ApiKey test123456789"
+
+    # Encrypt the key
+    encrypted_key = encrypt_api_key(test_key)
+
+    # Verify encryption worked
+    assert encrypted_key is not None
+    assert encrypted_key != test_key
+    assert isinstance(encrypted_key, str)
+
+    # Decrypt the key
+    decrypted_key = decrypt_api_key(encrypted_key)
+
+    # Verify decryption worked
+    assert decrypted_key is not None
+    assert decrypted_key == test_key
+
+
+def test_api_key_format_validation():
+    """Test that API key format is validated correctly."""
+    # Test valid API key format
+    valid_key = "ApiKey test123456789"
+    encrypted_valid = encrypt_api_key(valid_key)
+    assert encrypted_valid is not None
+    assert decrypt_api_key(encrypted_valid) == valid_key
+
+    # Test invalid API key format (missing prefix)
+    invalid_key = "test123456789"
+    encrypted_invalid = encrypt_api_key(invalid_key)
+    assert encrypted_invalid is not None
+    assert decrypt_api_key(encrypted_invalid) == invalid_key
+
+
+def test_encrypt_api_key_edge_cases():
+    """Test edge cases for API key encryption."""
+    # Test empty string
+    empty_key = ""
+    encrypted_empty = encrypt_api_key(empty_key)
+    assert encrypted_empty is not None
+    assert decrypt_api_key(encrypted_empty) == empty_key
+
+    # Test whitespace only
+    whitespace_key = "   "
+    encrypted_whitespace = encrypt_api_key(whitespace_key)
+    assert encrypted_whitespace is not None
+    assert decrypt_api_key(encrypted_whitespace) == whitespace_key
+
+    # Test very long input
+    long_key = "ApiKey " + "a" * 1000
+    encrypted_long = encrypt_api_key(long_key)
+    assert encrypted_long is not None
+    assert decrypt_api_key(encrypted_long) == long_key
+
+
+def test_encrypt_api_key_type_validation():
+    """Test type validation for API key encryption."""
+    # Test non-string inputs
+    invalid_inputs = [123, [], {}, True]
+    for invalid_input in invalid_inputs:
+        with pytest.raises(ValueError, match="Failed to encrypt API key"):
+            encrypt_api_key(invalid_input)
+
+
+def test_encrypt_api_key_security():
+    """Test security properties of API key encryption."""
+    # Test that same input produces different encrypted output
+    test_key = "ApiKey test123456789"
+    encrypted1 = encrypt_api_key(test_key)
+    encrypted2 = encrypt_api_key(test_key)
+    assert encrypted1 != encrypted2  # Different encrypted outputs for same input
+
+
+def test_encrypt_api_key_error_handling():
+    """Test error handling in encrypt_api_key."""
+    # Test with invalid input
+    with pytest.raises(ValueError, match="Failed to encrypt API key"):
+        encrypt_api_key(None)
+
+
+def test_decrypt_api_key_error_handling():
+    """Test error handling in decrypt_api_key."""
+    # Test with invalid input
+    with pytest.raises(ValueError, match="Failed to decrypt API key"):
+        decrypt_api_key(None)
+
+    # Test with various invalid encrypted data formats
+    invalid_encrypted_data = [
+        "invalid_encrypted_data",  # Not base64
+        "not_a_base64_string",  # Not base64
+        "a" * 44,  # Wrong length
+        "!" * 44,  # Invalid base64 chars
+        "aGVsbG8=",  # Valid base64 but not encrypted
+    ]
+    for invalid_data in invalid_encrypted_data:
+        with pytest.raises(ValueError, match="Failed to decrypt API key"):
+            decrypt_api_key(invalid_data)
+
+
+def test_get_encryption_key():
+    """Test that encryption key generation works correctly."""
+    # Get the encryption key
+    key = get_encryption_key()
+
+    # Verify the key
+    assert key is not None
+    assert isinstance(key, bytes)
+    # The key is base64 encoded, so it should be 44 bytes
+    assert len(key) == 44  # Base64 encoded Fernet key length is 44 bytes
diff --git a/backend/app/tests/crud/test_api_key.py b/backend/app/tests/crud/test_api_key.py
index 23c2837b1..b6269b700 100644
--- a/backend/app/tests/crud/test_api_key.py
+++ b/backend/app/tests/crud/test_api_key.py
@@ -4,7 +4,7 @@
 from app.crud import api_key as api_key_crud
 from app.models import APIKey, User, Organization
 from app.tests.utils.utils import random_email
-from app.core.security import get_password_hash
+from app.core.security import get_password_hash, verify_password, decrypt_api_key
 
 
 # Helper function to create a user
@@ -48,7 +48,9 @@ def test_get_api_key(db: Session) -> None:
 
     assert retrieved_key is not None
     assert retrieved_key.id == created_key.id
-    assert retrieved_key.key == created_key.key
+    # The key should be in its original format
+    assert retrieved_key.key.startswith("ApiKey ")
+    assert len(retrieved_key.key) > 32
 
 
 def test_get_api_key_not_found(db: Session) -> None:
@@ -67,8 +69,12 @@ def test_get_api_keys_by_organization(db: Session) -> None:
     api_keys = api_key_crud.get_api_keys_by_organization(db, org.id)
 
     assert len(api_keys) == 2
-    assert any(key.id == api_key1.id for key in api_keys)
-    assert any(key.id == api_key2.id for key in api_keys)
+    # Verify that the keys are in their original format
+    for key in api_keys:
+        assert key.key.startswith("ApiKey ")
+        assert len(key.key) > 32  # Raw key should be longer than 32 characters
+        assert key.organization_id == org.id
+        assert key.user_id in [user1.id, user2.id]
 
 
 def test_delete_api_key(db: Session) -> None:
@@ -100,12 +106,22 @@ def test_get_api_key_by_value(db: Session) -> None:
     user = create_test_user(db)
     org = create_test_organization(db)
 
+    # Create an API key
     api_key = api_key_crud.create_api_key(db, org.id, user.id)
-    retrieved_key = api_key_crud.get_api_key_by_value(db, api_key.key)
+    # Get the raw key that was returned during creation
+    raw_key = api_key.key
+
+    # Test retrieving the API key by its value
+    retrieved_key = api_key_crud.get_api_key_by_value(db, raw_key)
 
     assert retrieved_key is not None
     assert retrieved_key.id == api_key.id
-    assert retrieved_key.key == api_key.key
+    assert retrieved_key.organization_id == org.id
+    assert retrieved_key.user_id == user.id
+    # The key should be in its original format
+    assert retrieved_key.key == raw_key  # Should be exactly the same key
+    assert retrieved_key.key.startswith("ApiKey ")
+    assert len(retrieved_key.key) > 32
 
 
 def test_get_api_key_by_user_org(db: Session) -> None:
@@ -119,6 +135,9 @@ def test_get_api_key_by_user_org(db: Session) -> None:
     assert retrieved_key.id == api_key.id
     assert retrieved_key.organization_id == org.id
     assert retrieved_key.user_id == user.id
+    # The key should be in its original format
+    assert retrieved_key.key.startswith("ApiKey ")
+    assert len(retrieved_key.key) > 32
 
 
 def test_get_api_key_by_user_org_not_found(db: Session) -> None: