diff --git a/docs/ai/PHASE2.md b/docs/ai/PHASE2.md
index 647c854..d7d603a 100644
--- a/docs/ai/PHASE2.md
+++ b/docs/ai/PHASE2.md
@@ -1,7 +1,7 @@
 # Phase 2 Implementation Plan: Flask Web App Core
 
-**Status:** Step 3 Complete ✅ - Background Job Queue (Days 5-6)
-**Progress:** 6/14 days complete (43%)
+**Status:** Step 4 Complete ✅ - Authentication System (Days 7-8)
+**Progress:** 8/14 days complete (57%)
 **Estimated Duration:** 14 days (2 weeks)
 **Dependencies:** Phase 1 Complete ✅
 
@@ -25,8 +25,17 @@
   - Database migration for scan timing fields
   - 13 unit tests (scheduler, timing, errors)
   - 600+ lines of code added
-- ⏳ **Step 4: Authentication System** (Days 7-8) - NEXT
-- 📋 **Step 5: Basic UI Templates** (Days 9-10) - Pending
+- ✅ **Step 4: Authentication System** (Days 7-8) - COMPLETE
+  - Flask-Login integration with single-user support
+  - User model with bcrypt password hashing
+  - Login, logout, and password setup routes
+  - @login_required and @api_auth_required decorators
+  - All API endpoints protected with authentication
+  - Bootstrap 5 dark theme UI templates
+  - 30+ authentication tests
+  - 1,200+ lines of code added
+- ⏳ **Step 5: Basic UI Templates** (Days 9-10) - NEXT
+- 📋 **Step 6: Docker & Deployment** (Day 11) - Pending
 - 📋 **Step 6: Docker & Deployment** (Day 11) - Pending
 - 📋 **Step 7: Error Handling & Logging** (Day 12) - Pending
 - 📋 **Step 8: Testing & Documentation** (Days 13-14) - Pending