To set up test-driven development (TDD) with Python, pytest, and Vim: 1. Install pytest and pytest-xdist using pip. Create a "tests" folder and name test files with "test_" prefix. 2. In Vim, open files by project directory and use :vsplit to view code and tests side-by-side in split windows. Ctrl-wx swaps windows. 3. Run pytest from the project root with -f -v to watch for changes and rerun tests automatically on save.