Visual Studio Code Adds Built-In Copilot Chat and Agent Debug Logs

Microsoft has released Visual Studio Code version 1.116, introducing a set of AI-focused improvements that refine developer workflows and make Copilot available out of the box.

The update is now available through the app’s built-in update system as well as manual download, bringing notable changes across debugging, terminal interaction, and AI configuration.

Agent debug logs bring more transparency

One of the biggest additions is Agent Debug Logs. Developers can now view a full chronological history of agent interactions, including both current and previous sessions.

This feature helps track how prompts behave over time and makes it easier to troubleshoot unexpected AI responses. It also adds much-needed visibility into how coding assistants process requests behind the scenes.

Copilot CLI gets smarter controls

Microsoft is expanding control over AI reasoning with improvements to the Copilot CLI. Users can now configure the “thinking effort” for supported reasoning models directly from the language model picker.

The available effort levels vary depending on the model, and the feature remains limited to reasoning-capable models. This change signals a more granular approach to balancing speed and accuracy in AI-assisted development.

Terminal integration becomes more powerful

Terminal functionality receives a meaningful upgrade in this release. Agent tools now support foreground terminals, allowing developers to interact directly with active sessions.

This means developers can send input to visible terminals, such as REPL environments or running scripts, while also retrieving real-time output. The update strengthens the connection between AI assistance and live execution workflows.

Copilot now built directly into VS Code

Another major shift comes with GitHub Copilot Chat now integrated directly into Visual Studio Code. Users no longer need to install a separate extension to access AI features.

This simplifies setup and ensures immediate availability, especially for new users. Microsoft clearly aims to reduce friction and accelerate the adoption of Copilot across its developer ecosystem.

Broader push toward AI-first development

Version 1.116 reflects Microsoft’s ongoing strategy to embed AI deeper into development tools. The focus remains on improving control, visibility, and real-time interaction between developers and AI systems.

In other news, Claude Desktop continues to face performance issues on Windows, with some users reporting unusable WSL environments. At the same time, Microsoft is introducing a fast-track process to restore recently suspended developer accounts and is testing OpenClaw features as it moves toward turning Microsoft 365 Copilot into a full AI agent.

Via Neowin