diff --git a/src/OpenTelemetry.Instrumentation.AWSLambda/README.md b/src/OpenTelemetry.Instrumentation.AWSLambda/README.md
index 28adbb4bb6..a41913b46d 100644
--- a/src/OpenTelemetry.Instrumentation.AWSLambda/README.md
+++ b/src/OpenTelemetry.Instrumentation.AWSLambda/README.md
@@ -15,17 +15,44 @@ Add `AddAWSLambdaConfigurations()` to `TracerProvider`.
 ```csharp
 TracerProvider tracerProvider = Sdk.CreateTracerProviderBuilder()
         // add other instrumentations
-        .AddAWSLambdaConfigurations()
+        .AddAWSLambdaConfigurations(options => options.DisableAwsXRayContextExtraction = true)
         .Build();
 ```
 
+### AWSLambdaInstrumentationOptions
+
+`AWSLambdaInstrumentationOptions` contains various properties to configure
+AWS lambda instrumentation:
+
+* [`DisableAwsXRayContextExtraction`](/src/OpenTelemetry.Instrumentation.AWSLambda/AWSLambdaInstrumentationOptions.cs)
+* [`SetParentFromBatch`](/src/OpenTelemetry.Instrumentation.AWSLambda/AWSLambdaInstrumentationOptions.cs)
+
 ## Instrumentation
 
+`AWSLambdaWrapper` contains tracing methods covering different types of
+function handler method signatures. `AWSLambdaWrapper.Trace()` and
+`AWSLambdaWrapper.TraceAsync()` are used for wrapping synchronous
+and asynchronous function handlers respectively. The `ActivityContext parentContext`
+parameter is optional and used to pass a custom parent context. If the parent
+is not passed explicitly then it's either extracted from the
+input parameter or uses AWS X-Ray headers if AWS X-Ray context extraction is
+enabled (see configuration property `DisableAwsXRayContextExtraction`).
+The sequence of the parent extraction:
+`explicit parent` -> `parent from input parameter` -> `AWS X-Ray headers` -> `default`
+The parent extraction is supported for the input types listed in the table below:
+
+| Type | Parent extraction source |
+|------|--------------------------|
+| `APIGatewayProxyRequest, APIGatewayHttpApiV2ProxyRequest` | HTTP headers of the request |
+| `SQSEvent` | Attributes of the last `SQSMessage` (if `SetParentFromMessageBatch` is `true`) |
+| `SNSEvent` | Attributes of the last `SNSRecord` |
+
 ### Lambda Function
 
-1. Create a wrapper function with the same signature as the original Lambda function.
-Call `AWSLambdaWrapper.Trace()` API and pass `TracerProvider`, original Lambda function
-and its inputs as parameters.
+1. Create a wrapper function with the same signature as the original Lambda
+function but an added ILambdaContext parameter if it was not already present.
+Call `AWSLambdaWrapper.Trace()` or `AWSLambdaWrapper.TraceAsync()` API and pass
+`TracerProvider`, original Lambda function and its parameters.
 
 2. Set the wrapper function as the Lambda handler input.
 
@@ -48,14 +75,14 @@ public string OriginalFunctionHandler(JObject input, ILambdaContext context)
 
 For using base classes from package [Amazon.Lambda.AspNetCoreServer](https://github.com/aws/aws-lambda-dotnet/tree/master/Libraries/src/Amazon.Lambda.AspNetCoreServer#amazonlambdaaspnetcoreserver),
 override the `FunctionHandlerAsync` function in `LambdaEntryPoint.cs` file. Call
-`AWSLambdaWrapper.Trace()` API and pass `TracerProvider`, original Lambda function
+`AWSLambdaWrapper.TraceAsync()` API and pass `TracerProvider`, original Lambda function
 and its inputs as parameters. Below is an example if using `APIGatewayProxyFunction`
 as base class.
 
 ```csharp
 public override async Task<APIGatewayProxyResponse> FunctionHandlerAsync(
     APIGatewayProxyRequest request, ILambdaContext lambdaContext)
-=> await AWSLambdaWrapper.Trace(tracerProvider, base.FunctionHandlerAsync,
+=> await AWSLambdaWrapper.TraceAsync(tracerProvider, base.FunctionHandlerAsync,
     request, lambdaContext);
 ```
 
@@ -75,7 +102,7 @@ public class Function
                 .AddHttpClientInstrumentation()
                 .AddAWSInstrumentation()
                 .AddOtlpExporter()
-                .AddAWSLambdaConfigurations()
+                .AddAWSLambdaConfigurations(options => options.DisableAwsXRayContextExtraction = true)
                 .Build();
     }