diff --git a/extension/src/setup/__tests__/setup-steps.test.ts b/extension/src/setup/__tests__/setup-steps.test.ts
new file mode 100644
index 0000000..e8212ad
--- /dev/null
+++ b/extension/src/setup/__tests__/setup-steps.test.ts
@@ -0,0 +1,24 @@
+import { describe, it, expect, afterEach } from 'vitest';
+import { state, clearWizardState, renderVaultNew } from '../setup-steps';
+
+describe('renderVaultNew — second-factor container choice', () => {
+  afterEach(() => clearWizardState());
+
+  it('default (image) mode shows the stego note', () => {
+    const html = renderVaultNew();
+    expect(html).toContain('A 256-bit secret will be steganographically embedded');
+  });
+
+  it('keyfile mode shows "Key File" and hides the carrier drop / stego note', () => {
+    state.secondFactor = 'keyfile';
+    const html = renderVaultNew();
+    expect(html).toContain('Key File');
+    expect(html).not.toContain('A 256-bit secret will be steganographically embedded');
+  });
+
+  it('keyfile mode shows the key-file note copy', () => {
+    state.secondFactor = 'keyfile';
+    const html = renderVaultNew();
+    expect(html).toContain('A 32-byte key file will be generated');
+  });
+});
diff --git a/extension/src/setup/setup-steps.ts b/extension/src/setup/setup-steps.ts
index 8382072..db8984b 100644
--- a/extension/src/setup/setup-steps.ts
+++ b/extension/src/setup/setup-steps.ts
@@ -45,6 +45,7 @@ export interface WizardState {
   connectionTested: boolean;
   vaultProbe: VaultProbe | null;
   carrierImageBytes: Uint8Array | null;
+  secondFactor: 'image' | 'keyfile';
   referenceImageBytesAttach: Uint8Array | null;
   passphrase: string;
   passphraseConfirm: string;
@@ -61,7 +62,7 @@ export interface WizardState {
 
 export const state: WizardState = {
   stepId: 'mode', mode: null, hostType: 'gitea', hostUrl: '', repoPath: '', apiToken: '',
-  connectionTested: false, vaultProbe: null, carrierImageBytes: null, referenceImageBytesAttach: null,
+  connectionTested: false, vaultProbe: null, carrierImageBytes: null, secondFactor: 'image', referenceImageBytesAttach: null,
   passphrase: '', passphraseConfirm: '', passphraseScore: -1, passphraseGuessesLog10: -1,
   passphraseVisible: false, confirmVisible: false, referenceImageBytes: null,
   creating: false, attaching: false, error: null, deviceName: '',
@@ -375,7 +376,7 @@ function renderVaultAttach(): string {
     </div>`;
 }
 
-function renderVaultNew(): string {
+export function renderVaultNew(): string {
   const score = state.passphraseScore;
   const hasScore = score >= 0;
   const meterClass = hasScore ? `s${score}` : '';
@@ -397,6 +398,14 @@ function renderVaultNew(): string {
   return `
     <div class="wizard-step glass" style="padding: 24px; margin-top: 16px;">
       <h3>create vault</h3>
+      <div class="form-group">
+        <label class="label">second factor</label>
+        <div class="toggle-group">
+          <button class="${state.secondFactor === 'image' ? 'active' : ''}" data-factor="image">Reference Image</button>
+          <button class="${state.secondFactor === 'keyfile' ? 'active' : ''}" data-factor="keyfile">Key File</button>
+        </div>
+      </div>
+      ${state.secondFactor === 'image' ? `
       <div class="form-group">
         <label class="label">carrier image (JPEG)</label>
         <div class="file-drop ${state.carrierImageBytes ? 'has-file' : ''}" id="file-drop">
@@ -404,7 +413,10 @@ function renderVaultNew(): string {
           ${state.carrierImageBytes ? '<p class="secondary">image loaded</p>' : '<p class="secondary">click to select a JPEG photo</p>'}
         </div>
         <p class="muted" style="margin-top:4px;">A 256-bit secret will be steganographically embedded in this image.</p>
-      </div>
+      </div>` : `
+      <div class="form-group">
+        <p class="muted" style="margin-top:4px;">A 32-byte key file will be generated for you to save — it is your second factor.</p>
+      </div>`}
       <div class="pass-help">A long phrase of unrelated words is stronger than a short complex password. Your vault needs <strong>good</strong> (score&nbsp;≥&nbsp;3) to continue.</div>
       <div class="form-group">
         <label class="label" for="passphrase">passphrase</label>
@@ -492,20 +504,28 @@ function attachVaultAttach(ctx: StepContext): () => void {
 }
 
 function attachVaultNew(ctx: StepContext): () => void {
-  const fileDrop = document.getElementById('file-drop')!;
-  const fileInput = document.getElementById('file-input') as HTMLInputElement;
-  fileDrop.addEventListener('click', () => fileInput.click());
-  fileInput.addEventListener('change', () => {
-    const file = fileInput.files?.[0];
-    if (!file) return;
-    const reader = new FileReader();
-    reader.onload = () => {
-      state.carrierImageBytes = new Uint8Array(reader.result as ArrayBuffer);
-      state.error = null;
+  document.querySelectorAll('[data-factor]').forEach((btn) => {
+    btn.addEventListener('click', () => {
+      state.secondFactor = (btn as HTMLElement).dataset.factor as 'image' | 'keyfile';
       ctx.rerender();
-    };
-    reader.readAsArrayBuffer(file);
+    });
   });
+  if (state.secondFactor === 'image') {
+    const fileDrop = document.getElementById('file-drop')!;
+    const fileInput = document.getElementById('file-input') as HTMLInputElement;
+    fileDrop.addEventListener('click', () => fileInput.click());
+    fileInput.addEventListener('change', () => {
+      const file = fileInput.files?.[0];
+      if (!file) return;
+      const reader = new FileReader();
+      reader.onload = () => {
+        state.carrierImageBytes = new Uint8Array(reader.result as ArrayBuffer);
+        state.error = null;
+        ctx.rerender();
+      };
+      reader.readAsArrayBuffer(file);
+    });
+  }
   // Track passphrase changes inline (no full re-render) so the input keeps focus.
   // zxcvbn score is computed via the SW on a 150ms debounce — see scheduleRate.
   const passInput = document.getElementById('passphrase') as HTMLInputElement | null;
@@ -778,6 +798,7 @@ export function clearWizardState(): void {
   state.connectionTested = false;
   state.vaultProbe = null;
   state.carrierImageBytes = null;
+  state.secondFactor = 'image';
   state.referenceImageBytesAttach = null;
   state.passphrase = '';
   state.passphraseConfirm = '';