diff --git a/src/compose.rs b/src/compose.rs
index d37e2460..f15fbf6e 100644
--- a/src/compose.rs
+++ b/src/compose.rs
@@ -223,19 +223,124 @@ impl ComposeManager {
     async fn install_packages_in_staging(&self, staging_path: &std::path::Path, packages: &[String]) -> AptOstreeResult<()> {
         info!("Installing packages in staging directory: {:?}", packages);
         
-        // For now, we'll use a simplified approach
-        // TODO: Implement proper APT package installation in staging directory
+        if packages.is_empty() {
+            return Ok(());
+        }
         
-        // Create a temporary package installation directory
+        // Create package installation directory
         let package_dir = staging_path.join("var/lib/apt-ostree/packages");
         std::fs::create_dir_all(&package_dir)?;
         
-        // Create a package list file
+        // Initialize APT manager for package operations
+        let apt_manager = crate::apt::AptManager::new()?;
+        
+        // Download and install each package
+        for package_name in packages {
+            info!("Installing package: {}", package_name);
+            
+            // Get package metadata
+            let package_info = apt_manager.get_package_info(package_name).await?;
+            info!("Got package info: {} version {}", package_name, package_info.version);
+            
+            // Download the package
+            let deb_path = apt_manager.download_package(package_name).await?;
+            info!("Downloaded package to: {:?}", deb_path);
+            
+            // Create package metadata file
+            let package_meta_path = package_dir.join(format!("{}.json", package_name));
+            let package_metadata = serde_json::json!({
+                "name": package_name,
+                "version": package_info.version,
+                "architecture": package_info.architecture,
+                "description": package_info.description,
+                "dependencies": package_info.depends,
+                "install_timestamp": chrono::Utc::now().timestamp()
+            });
+            std::fs::write(&package_meta_path, serde_json::to_string_pretty(&package_metadata)?)?;
+            
+            // Extract package contents to staging directory
+            self.extract_package_to_staging(&deb_path, staging_path).await?;
+        }
+        
+        // Create package list file
         let package_list_path = package_dir.join("installed-packages.txt");
         let package_list = packages.join("\n");
         std::fs::write(&package_list_path, package_list)?;
         
-        info!("Package installation placeholder completed");
+        info!("Package installation completed for {} packages", packages.len());
+        Ok(())
+    }
+    
+    /// Extract package contents to staging directory
+    async fn extract_package_to_staging(&self, deb_path: &std::path::Path, staging_path: &std::path::Path) -> AptOstreeResult<()> {
+        info!("Extracting package {:?} to staging directory", deb_path);
+        
+        // Create temporary directory for package extraction
+        let temp_dir = tempfile::tempdir()?;
+        let extract_path = temp_dir.path();
+        
+        // Extract DEB package
+        if !deb_path.exists() {
+            return Err(crate::error::AptOstreeError::InvalidArgument(
+                format!("DEB package not found: {:?}", deb_path)
+            ));
+        }
+        
+        // Extract DEB contents using dpkg-deb
+        let output = tokio::process::Command::new("dpkg-deb")
+            .args(&["-R", deb_path.to_str().unwrap(), extract_path.to_str().unwrap()])
+            .output()
+            .await?;
+        
+        if !output.status.success() {
+            return Err(crate::error::AptOstreeError::SystemError(
+                format!("Failed to extract DEB package: {}", String::from_utf8_lossy(&output.stderr))
+            ));
+        }
+        
+        // Copy extracted files to staging directory
+        let data_dir = extract_path.join("data");
+        if data_dir.exists() {
+            self.copy_directory_recursive(&data_dir, staging_path)?;
+        }
+        
+        // Copy control files to package metadata
+        let control_dir = extract_path.join("control");
+        if control_dir.exists() {
+            let package_name = deb_path.file_stem().and_then(|s| s.to_str()).unwrap_or("unknown");
+            let control_dest = staging_path.join("var/lib/apt-ostree/packages").join(package_name).join("control");
+            std::fs::create_dir_all(&control_dest)?;
+            self.copy_directory_recursive(&control_dir, &control_dest)?;
+        }
+        
+        info!("Package extracted successfully");
+        Ok(())
+    }
+    
+    /// Copy directory recursively
+    fn copy_directory_recursive(&self, src: &std::path::Path, dst: &std::path::Path) -> AptOstreeResult<()> {
+        if src.is_dir() {
+            std::fs::create_dir_all(dst)?;
+            for entry in std::fs::read_dir(src)? {
+                let entry = entry?;
+                let src_path = entry.path();
+                let dst_path = dst.join(entry.file_name());
+                
+                if entry.file_type()?.is_dir() {
+                    self.copy_directory_recursive(&src_path, &dst_path)?;
+                } else {
+                    if let Some(parent) = dst_path.parent() {
+                        std::fs::create_dir_all(parent)?;
+                    }
+                    std::fs::copy(&src_path, &dst_path)?;
+                }
+            }
+        } else {
+            if let Some(parent) = dst.parent() {
+                std::fs::create_dir_all(parent)?;
+            }
+            std::fs::copy(src, dst)?;
+        }
         Ok(())
     }