diff --git a/docker-compose.yml b/docker-compose.yml
index 95f020d..ba516b6 100644
--- a/docker-compose.yml
+++ b/docker-compose.yml
@@ -92,21 +92,19 @@ services:
     ports:
       - 127.0.0.1:8002:8002
     environment:
-      #- NEXTCLOUD_HOST=http://app:80
-      - NEXTCLOUD_HOST=http://host.docker.internal:8080
+      - NEXTCLOUD_HOST=http://app:80
       - NEXTCLOUD_MCP_SERVER_URL=http://127.0.0.1:8002
-      - NEXTCLOUD_PUBLIC_ISSUER_URL=http://localhost:8080
-      - NEXTCLOUD_OIDC_CLIENT_STORAGE=/var/www/html/.oauth-jwt/nextcloud_oauth_client.json
+      - NEXTCLOUD_PUBLIC_ISSUER_URL=http://127.0.0.1:8080
+      - NEXTCLOUD_OIDC_CLIENT_STORAGE=/app/.oauth-jwt/nextcloud_oauth_client.json
       - NEXTCLOUD_OIDC_SCOPES=openid profile email nc:read nc:write
-      # No USERNAME/PASSWORD - will use OAuth with JWT tokens
-      # Client credentials auto-generated by app container post-installation hook
+      - NEXTCLOUD_OIDC_TOKEN_TYPE=jwt
+      # No USERNAME/PASSWORD - will use OAuth with Dynamic Client Registration (DCR)
+      # Client will be registered with token_type=JWT on first startup
     volumes:
-      # NOTE: JWT-enabled OIDC client credentials created during nextcloud installation scripts
-      - nextcloud:/var/www/html:ro
-    extra_hosts:
-      - host.docker.internal:host-gateway
+      - oauth-jwt-client-storage:/app/.oauth-jwt
 
 volumes:
   nextcloud:
   db:
   oauth-client-storage:
+  oauth-jwt-client-storage:
diff --git a/nextcloud_mcp_server/app.py b/nextcloud_mcp_server/app.py
index 4e87e56..ac54de2 100644
--- a/nextcloud_mcp_server/app.py
+++ b/nextcloud_mcp_server/app.py
@@ -19,6 +19,7 @@ from nextcloud_mcp_server.auth import (
     NextcloudTokenVerifier,
     get_access_token_scopes,
     has_required_scopes,
+    is_jwt_token,
 )
 from nextcloud_mcp_server.client import NextcloudClient
 from nextcloud_mcp_server.config import LOGGING_CONFIG, setup_logging
@@ -195,6 +196,14 @@ async def load_oauth_client_credentials(
         )
         logger.info(f"Requesting OAuth scopes: {scopes}")
 
+        # Get token type from environment (Bearer or jwt)
+        # Note: Must be lowercase "jwt" to match OIDC app's check
+        token_type = os.getenv("NEXTCLOUD_OIDC_TOKEN_TYPE", "Bearer").lower()
+        # Special case: "bearer" should remain capitalized for compatibility
+        if token_type != "jwt":
+            token_type = "Bearer"
+        logger.info(f"Requesting token type: {token_type}")
+
         # Load or register client
         from nextcloud_mcp_server.auth.client_registration import (
             load_or_register_client,
@@ -207,6 +216,7 @@ async def load_oauth_client_credentials(
             client_name="Nextcloud MCP Server",
             redirect_uris=redirect_uris,
             scopes=scopes,
+            token_type=token_type,
         )
 
         logger.info(f"OAuth client ready: {client_info.client_id[:16]}...")
@@ -464,40 +474,48 @@ def get_app(transport: str = "sse", enabled_apps: list[str] | None = None):
         original_list_tools = mcp._tool_manager.list_tools
 
         def list_tools_filtered():
-            """List tools filtered by user's token scopes."""
+            """List tools filtered by user's token scopes (JWT tokens only)."""
             # Get user's scopes from token using MCP SDK's contextvar
             # This works for all request types including list_tools
             user_scopes = get_access_token_scopes()
-            logger.info(f"🔍 list_tools called - User scopes: {user_scopes}")
+            is_jwt = is_jwt_token()
+            logger.info(
+                f"🔍 list_tools called - Token type: {'JWT' if is_jwt else 'opaque/none'}, "
+                f"User scopes: {user_scopes}"
+            )
 
             # Get all tools
             all_tools = original_list_tools()
 
-            # If OAuth mode and user has scopes, filter by them
-            # TODO: Re-enable once OIDC clients respect allowed_scopes from PRM
-            if 1 == 0:  # user_scopes:
+            # Only filter for JWT tokens (opaque tokens show all tools)
+            # JWT tokens have scopes embedded, so we can reliably filter
+            # Opaque tokens may not have accurate scope information from introspection
+            if is_jwt and user_scopes:
                 allowed_tools = [
                     tool
                     for tool in all_tools
                     if has_required_scopes(tool.fn, user_scopes)
                 ]
                 logger.info(
-                    f"✂️ Filtered tools: {len(allowed_tools)}/{len(all_tools)} tools "
+                    f"✂️ JWT scope filtering: {len(allowed_tools)}/{len(all_tools)} tools "
                     f"available for scopes: {user_scopes}"
                 )
             else:
-                # BasicAuth mode or no token - show all tools
+                # Opaque token, BasicAuth mode, or no token - show all tools
                 allowed_tools = all_tools
-                logger.info(
-                    f"📋 No scope filtering: showing all {len(all_tools)} tools"
+                reason = (
+                    "opaque token (no filtering)"
+                    if not is_jwt and user_scopes
+                    else "no token/BasicAuth"
                 )
+                logger.info(f"📋 Showing all {len(all_tools)} tools ({reason})")
 
             # Return the Tool objects directly (they're already in the correct format)
             return allowed_tools
 
         # Replace the tool manager's list_tools method
         mcp._tool_manager.list_tools = list_tools_filtered
-        logger.info("Dynamic tool filtering enabled for OAuth mode")
+        logger.info("Dynamic tool filtering enabled for OAuth mode (JWT tokens only)")
 
     if transport == "sse":
         mcp_app = mcp.sse_app()
diff --git a/nextcloud_mcp_server/auth/__init__.py b/nextcloud_mcp_server/auth/__init__.py
index 9756e93..b8580bd 100644
--- a/nextcloud_mcp_server/auth/__init__.py
+++ b/nextcloud_mcp_server/auth/__init__.py
@@ -10,6 +10,7 @@ from .scope_authorization import (
     get_access_token_scopes,
     get_required_scopes,
     has_required_scopes,
+    is_jwt_token,
     require_scopes,
 )
 from .token_verifier import NextcloudTokenVerifier
@@ -27,4 +28,5 @@ __all__ = [
     "get_access_token_scopes",
     "get_required_scopes",
     "has_required_scopes",
+    "is_jwt_token",
 ]
diff --git a/nextcloud_mcp_server/auth/scope_authorization.py b/nextcloud_mcp_server/auth/scope_authorization.py
index 6263ae5..debecd2 100644
--- a/nextcloud_mcp_server/auth/scope_authorization.py
+++ b/nextcloud_mcp_server/auth/scope_authorization.py
@@ -213,6 +213,30 @@ def get_required_scopes(func: Callable) -> list[str]:
     return getattr(func, "_required_scopes", [])
 
 
+def is_jwt_token() -> bool:
+    """
+    Check if the current access token is in JWT format.
+
+    JWT tokens have 3 parts separated by dots (header.payload.signature).
+    Opaque tokens are random strings without this structure.
+
+    Returns:
+        True if current token is JWT format, False if opaque or no token
+    """
+    access_token: AccessToken | None = get_access_token()
+
+    if access_token is None:
+        logger.debug("No access token found - not JWT")
+        return False
+
+    # JWT tokens have exactly 2 dots (3 parts)
+    token_string = access_token.token
+    is_jwt = "." in token_string and token_string.count(".") == 2
+
+    logger.debug(f"Token format check: is_jwt={is_jwt}")
+    return is_jwt
+
+
 def has_required_scopes(func: Callable, user_scopes: set[str]) -> bool:
     """
     Check if a user has all scopes required by a function.
diff --git a/third_party/oidc b/third_party/oidc
index 536dab2..f7f80b7 160000
--- a/third_party/oidc
+++ b/third_party/oidc
@@ -1 +1 @@
-Subproject commit 536dab20b32644ba1d815c7c73e182c5c0415e43
+Subproject commit f7f80b72d51b7beb1113d3e78fdb89b443a90346