diff --git a/CHANGELOG.md b/CHANGELOG.md
index 1cbf611..238785f 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,3 +1,7 @@
+## 3.5.4 - 2026-02-15
+
+1. fix: Move Rails generator template to `lib/generators/posthog/templates/` to ensure it's included in the gem package ([#103](https://github.com/PostHog/posthog-ruby/issues/103))
+
 ## 3.5.3 - 2026-02-08
 
 1. fix: Fix Railtie middleware insertion crashing on Rails initialization — changed `insert_middleware_after` from a class method to an instance method (matching how Rails executes initializer blocks via `instance_exec`), and removed the unsupported `include?` query on `MiddlewareStackProxy` ([#97](https://github.com/PostHog/posthog-ruby/issues/97))
diff --git a/lib/posthog/version.rb b/lib/posthog/version.rb
index 00464c0..8766c8f 100644
--- a/lib/posthog/version.rb
+++ b/lib/posthog/version.rb
@@ -1,5 +1,5 @@
 # frozen_string_literal: true
 
 module PostHog
-  VERSION = '3.5.3'
+  VERSION = '3.5.4'
 end
diff --git a/posthog-rails/lib/generators/posthog/install_generator.rb b/posthog-rails/lib/generators/posthog/install_generator.rb
index f13b10e..5c3a04a 100644
--- a/posthog-rails/lib/generators/posthog/install_generator.rb
+++ b/posthog-rails/lib/generators/posthog/install_generator.rb
@@ -7,10 +7,10 @@ module Generators
     class InstallGenerator < ::Rails::Generators::Base
       desc 'Creates a PostHog initializer file at config/initializers/posthog.rb'
 
-      source_root File.expand_path('../../..', __dir__)
+      source_root File.expand_path('templates', __dir__)
 
       def copy_initializer
-        copy_file 'examples/posthog.rb', 'config/initializers/posthog.rb'
+        copy_file 'posthog.rb', 'config/initializers/posthog.rb'
       end
 
       def show_readme
diff --git a/posthog-rails/lib/generators/posthog/templates/posthog.rb b/posthog-rails/lib/generators/posthog/templates/posthog.rb
new file mode 100644
index 0000000..3b6fc81
--- /dev/null
+++ b/posthog-rails/lib/generators/posthog/templates/posthog.rb
@@ -0,0 +1,129 @@
+# frozen_string_literal: true
+
+# PostHog Rails Initializer
+# Place this file in config/initializers/posthog.rb
+
+# ============================================================================
+# RAILS-SPECIFIC CONFIGURATION
+# ============================================================================
+# Configure Rails-specific options via PostHog::Rails.configure
+# These settings control how PostHog integrates with Rails features.
+
+PostHog::Rails.configure do |config|
+  # Automatically capture exceptions (default: false)
+  # Set to true to enable automatic exception tracking
+  # config.auto_capture_exceptions = true
+
+  # Report exceptions that Rails rescues (e.g., with rescue_from) (default: false)
+  # Set to true to capture rescued exceptions
+  # config.report_rescued_exceptions = true
+
+  # Automatically instrument ActiveJob background jobs (default: false)
+  # Set to true to enable automatic ActiveJob exception tracking
+  # config.auto_instrument_active_job = true
+
+  # Capture user context with exceptions (default: true)
+  # config.capture_user_context = true
+
+  # Controller method name to get current user (default: :current_user)
+  # Change this if your app uses a different method name (e.g., :authenticated_user)
+  # When configured, exceptions will include user context (distinct_id, email, name),
+  # making it easier to identify affected users and debug user-specific issues.
+  # config.current_user_method = :current_user
+
+  # Additional exception classes to exclude from reporting
+  # These are added to the default excluded exceptions
+  # config.excluded_exceptions = [
+  #   # 'MyCustom404Error',
+  #   # 'MyCustomValidationError'
+  # ]
+end
+
+# You can also configure Rails options directly:
+# PostHog::Rails.config.auto_capture_exceptions = true
+
+# ============================================================================
+# CORE POSTHOG CONFIGURATION
+# ============================================================================
+# Initialize the PostHog client with core SDK options.
+
+PostHog.init do |config|
+  # ============================================================================
+  # REQUIRED CONFIGURATION
+  # ============================================================================
+
+  # Your PostHog project API key (required)
+  # Get this from: PostHog Project Settings > API Keys
+  # https://app.posthog.com/settings/project-details#variables
+  config.api_key = ENV.fetch('POSTHOG_API_KEY', nil)
+
+  # ============================================================================
+  # OPTIONAL CONFIGURATION
+  # ============================================================================
+
+  # For PostHog Cloud, use: https://us.i.posthog.com or https://eu.i.posthog.com
+  config.host = ENV.fetch('POSTHOG_HOST', 'https://us.i.posthog.com')
+
+  # Personal API key (optional, but required for local feature flag evaluation)
+  # Get this from: PostHog Settings > Personal API Keys
+  # https://app.posthog.com/settings/user-api-keys
+  config.personal_api_key = ENV.fetch('POSTHOG_PERSONAL_API_KEY', nil)
+
+  # Maximum number of events to queue before dropping (default: 10000)
+  config.max_queue_size = 10_000
+
+  # Feature flags polling interval in seconds (default: 30)
+  config.feature_flags_polling_interval = 30
+
+  # Feature flag request timeout in seconds (default: 3)
+  config.feature_flag_request_timeout_seconds = 3
+
+  # Error callback - called when PostHog encounters an error
+  # config.on_error = proc { |status, message|
+  #   Rails.logger.error("[PostHog] Error #{status}: #{message}")
+  # }
+
+  # Before send callback - modify or filter events before sending
+  # Return nil to prevent the event from being sent
+  # config.before_send = proc { |event|
+  #   # Filter out test users
+  #   return nil if event[:properties]&.dig('$user_email')&.end_with?('@test.com')
+  #
+  #   # Add custom properties to all events
+  #   event[:properties] ||= {}
+  #   event[:properties]['environment'] = Rails.env
+  #
+  #   event
+  # }
+
+  # ============================================================================
+  # ENVIRONMENT-SPECIFIC CONFIGURATION
+  # ============================================================================
+
+  # Disable in test environment
+  config.test_mode = true if Rails.env.test?
+
+  # Optional: Disable in development
+  # config.test_mode = true if Rails.env.test? || Rails.env.development?
+end
+
+# ============================================================================
+# DEFAULT EXCLUDED EXCEPTIONS
+# ============================================================================
+# The following exceptions are excluded by default:
+#
+# - AbstractController::ActionNotFound
+# - ActionController::BadRequest
+# - ActionController::InvalidAuthenticityToken
+# - ActionController::InvalidCrossOriginRequest
+# - ActionController::MethodNotAllowed
+# - ActionController::NotImplemented
+# - ActionController::ParameterMissing
+# - ActionController::RoutingError
+# - ActionController::UnknownFormat
+# - ActionController::UnknownHttpMethod
+# - ActionDispatch::Http::Parameters::ParseError
+# - ActiveRecord::RecordNotFound
+# - ActiveRecord::RecordNotUnique
+#
+# These can be re-enabled by removing them from the exclusion list if needed.