What's New in VS Code Copilot: January 2026 Update

The past week has brought a wave of updates to VS Code’s Copilot experience, with major improvements to how agents work together, a new skills system, deeper Claude integration, and significant terminal enhancements. Here’s what you need to know—with concrete examples you can try today.

For those who want to dive deeper into the implementation details, I’ve included links to the relevant GitHub pull requests and issues throughout this post.

Subagents Get Smarter (and Faster)#

Two significant changes make subagents far more practical for complex workflows.

Parallel Execution#

Previously, if you kicked off multiple runSubagent calls, they’d run one after another. Now they can run simultaneously when tasks are independent, dramatically reducing wait times for research and code review operations.

Example prompt:

Research the best approaches for:
1. Rate limiting in our REST API
2. Caching strategies for our database queries
3. Error handling patterns for our microservices

Use a subagent for each topic and compile the findings.

With parallel execution, all three research subagents run concurrently instead of sequentially—cutting total wait time significantly.

Parallel subagent execution visualization

Fine-Grained Tool Access#

You can now constrain which tools a subagent can access. This is critical for safety-conscious workflows where you want AI help without the risk of unintended changes.

Creating a custom agent with restricted tools:

Create a file at .github/agents/github-researcher.md:

---
name: github-researcher
description: Research agent with access to GitHub. Use for searching issues,
             reading documentation, and gathering information. Cannot edit files.
tools: ['read', 'search', 'web', 'github/*']
argument-hint: The research task to complete
---

You are a research assistant with read-only access to the codebase and GitHub.

Your capabilities:
- Search and read files in the repository
- Search GitHub issues and pull requests
- Fetch web documentation

You cannot:
- Edit or create files
- Run terminal commands
- Make commits

When researching, provide citations and links to sources.

Now you can ask: “Use a subagent to find all issues assigned to me about authentication and summarize them” — and the subagent will be limited to read-only operations.

If you’ve used Claude Code’s subagent system, you’ll recognize this pattern—it’s similar to how Claude Code handles skills and subagents with tool restrictions.

Control Subagent Availability#

Use the infer attribute to control whether an agent can be used as a subagent:

---
name: dangerous-deployer
description: Handles production deployments
tools: ['execute', 'edit', 'read']
infer: false  # This agent cannot be auto-invoked as a subagent
---

Skills Are Now a First-Class Feature#

Skills are now enabled by default for all users. They’re folders containing instructions and resources that Copilot loads on-demand when relevant to your task.

Related PRs:

Creating Your First Skill#

Create a directory structure:

SKILL.md:

---
name: webapp-testing
description: Guide for testing web applications using Playwright.
             Use this when asked to create or run browser-based tests.
---

# Web Application Testing with Playwright

When creating tests for this project, follow these patterns:

## Test Structure
- Use `describe` blocks for feature groupings
- Use `test` for individual test cases
- Always include setup and teardown

## Assertions
- Prefer `toBeVisible()` over `toHaveCount(1)`
- Use `waitFor` for async operations
- Include accessibility checks

## Example Template
Reference the [test template](./test-template.js) for the standard structure.

## Naming Convention
- Test files: `*.spec.ts`
- Test descriptions: "should [expected behavior] when [condition]"

Now when you ask “Write Playwright tests for the login form”, Copilot automatically loads this skill and follows your project’s testing conventions.

Loading Skills from Custom Locations#

For teams sharing skills across repos, use the new setting:

{
  "chat.agentSkillsLocations": [
    ".github/skills",
    "~/shared-skills",
    "/team/copilot-skills"
  ]
}

Extension-Contributed Skills#

Extensions can now contribute skills via their package.json:

{
  "contributes": {
    "copilotSkills": [
      {
        "name": "docker-compose",
        "description": "Helps create and debug Docker Compose configurations",
        "path": "./skills/docker-compose"
      }
    ]
  }
}

Or dynamically via the new API:

vscode.chat.registerSkill({
  name: 'dynamic-skill',
  description: 'A skill registered at runtime',
  async getInstructions(context) {
    // Return context-aware instructions
    return generateInstructionsFor(context.workspace);
  }
});

Instruction Files Work Everywhere#

Instruction files now apply to non-coding tasks like code exploration, architecture explanation, and documentation. #287152

Before: Your .github/copilot-instructions.md was ignored when you asked “Explain how authentication works in this codebase”

After: Those instructions are now read for all codebase-related work.

This aligns with the progressive disclosure approach where context is loaded on-demand rather than crammed into a single file.

Example copilot-instructions.md:

# Project Context

This is a microservices architecture with:
- API Gateway (Node.js/Express)
- Auth Service (Go)
- User Service (Python/FastAPI)
- Shared message queue (RabbitMQ)

When explaining code:
- Always mention which service a file belongs to
- Reference the architecture diagram at docs/architecture.md
- Note any cross-service dependencies

Now “How does user registration work?” will include this context automatically.

Claude Code Gets Extended Thinking#

The Claude Code integration now supports extended thinking, showing Claude’s chain-of-thought reasoning in a collapsible section. #287658

What It Looks Like#

When you ask Claude to solve a complex problem, you’ll see:

▼ Thinking...
  Let me analyze the codebase structure first. I see there are
  three main modules: auth, api, and database. The user is asking
  about the authentication flow, so I should trace the request
  from the API gateway through to the auth service...

  The JWT validation happens in middleware/auth.ts, but the token
  generation is in services/auth/token.go. I need to explain how
  these connect via the shared Redis cache...

Here's how authentication works in your codebase:
[Final response]

Configuration#

Enable/disable thinking display in settings:

{
  "github.copilot.chat.claude.showThinking": true
}

Model Picker#

You can now select which Claude model to use:

Open the Chat view
Click the model selector dropdown
Choose from available Claude models (Sonnet, Opus, etc.)

Different models offer different speed/capability tradeoffs—use faster models for simple tasks, more capable models for complex reasoning.

Terminal Gets Major Upgrades#

The integrated terminal received significant keyboard handling improvements this release, with two new protocol implementations.

Related PRs:

Kitty Keyboard Protocol (CSI u)#

VS Code’s terminal now supports the kitty keyboard protocol, enabling more sophisticated keyboard input handling. This unlocks previously unavailable key combinations and provides better support for terminal applications that use this modern standard.

Important: This feature is disabled by default as it’s experimental. Enable it in settings:

{
  "terminal.integrated.enableKittyKeyboardProtocol": true
}

The protocol improves handling of modifiers, key events, repeat detection, and escape sequences—particularly useful if you use tools like fish shell, neovim, or other terminal applications that support CSI u.

Win32 Input Mode#

For Windows users, the terminal now supports win32-input-mode, improving keyboard handling compatibility with Windows console applications. VT sequences alone can’t send everything that Windows console programs expect (encoded as win32 INPUT_RECORDs), so this mode bridges that gap.

Also disabled by default. Enable with:

{
  "terminal.integrated.enableWin32InputMode": true
}

Terminal Command Output Streams Inline#

When using Copilot in agent mode, terminal command output now streams inline inside the Chat view instead of requiring you to switch to the terminal panel. #257468 The output auto-expands on command execution and collapses on success #287664—keeping you focused on the conversation flow.

Terminal Timeout Parameter#

The terminal tool now supports a timeout parameter to control how long commands run before timing out. #286598 This prevents unnecessary polling and gives you more control over long-running operations.

Terminal Command Sandboxing#

Terminal command sandboxing is now available for macOS and Linux #277286, adding an extra layer of security when running commands through the terminal tool.

Syntax Highlighting in Confirmation Dialogs#

The terminal tool now presents Python, Node.js, and Ruby commands with syntax highlighting in the confirmation dialog #287772, #287773, #288360—making it easier to review commands before execution.

Expanded Auto-Approved Commands#

More commands are now automatically approved for execution:

dir in PowerShell #288431
sed -i when editing files within the workspace #288318
od, xxd, and safe docker commands #287652

SGR 221/222 Escape Sequences#

The terminal now supports SGR 221 and 222 escape sequences #286810, allowing independent control of bold and faint text attributes for more granular formatting.

MCP Gets More Powerful#

Model Context Protocol continues to evolve with significant new capabilities.

Dynamic Context Updates#

MCP apps now support model context update methods, enabling servers to update the context model dynamically. #289473 This means MCP servers can push new context to your chat sessions without requiring a refresh.

Custom Package Registries#

Added support for registryBaseUrl in MCP packages #287549, allowing teams to use private package registries for their MCP servers.

Built-in MCP Apps Support#

Built-in support for MCP Apps enables servers to provide custom UI for tool invocation. #260218 This opens the door for richer, more interactive MCP experiences beyond simple text-based tools.

Quality of Life Improvements#

The OpenAI Codex agent now appears directly in the agents dropdown #289040 for quick access:

Agents ▼
├── Local Agent
├── Background Agent
├── Cloud Agent
└── Codex Agent       ← New!

New MCP Server Command#

A new workbench.mcp.startServer command #283959 lets you programmatically start specific or all MCP servers to discover their tools. This is useful for automation scenarios where you need to ensure servers are running before invoking their tools.

The `/clear` Command Archives Sessions#

The /clear command now archives the current session and starts a new one automatically #285854—no more losing your chat history when you want a fresh start.

New Local Chat Command#

A new “New Local Chat” command #288467 lets you start a local chat session quickly.

Chat Session Imports#

You can now import a chat session directly into the Chat view #283954, instead of only being able to open it in a new editor tab. This makes it easier to continue conversations from exported sessions.

Chat Session Exports with MCP Info#

Exported sessions now include MCP server configuration #283945:

{
  "session": {
    "messages": [...],
    "mcpServers": [
      {
        "name": "github",
        "url": "https://mcp.github.com",
        "tools": ["search_issues", "get_pr", "list_repos"]
      }
    ]
  }
}

This makes sessions reproducible—share them with teammates and they can recreate your exact setup.

Multi-Select in Sessions View#

Select multiple chat sessions with Cmd/Ctrl+Click #288448:

Archive all selected
Mark all as read
Batch delete

Additional session management improvements include “Mark All Read”, “Archive All”, and “Unarchive All” actions in context menus #288147, and increased locally persisted chat sessions #283123.

You can now resize the sessions sidebar in the Chat view by dragging the separator #281258, similar to how terminal tabs work.

Extension Context Tooltips#

Hover over extension-contributed context items to see additional information about what they provide. #280658

Accessible View Streams Thinking Content#

The Accessible View now dynamically streams thinking content #289223, making Claude’s chain-of-thought reasoning accessible to screen reader users in real-time.

Multi-Model Selection in Language Models Editor#

Select multiple models in the Language Models editor and toggle their visibility at once #287511. Enterprise and Business users also get access to the Manage Models action #287814.

Editor & Language Improvements#

Improved Shebang Detection#

VS Code now recognizes Deno, Bun, and other modern JavaScript runtimes #287819 for better language detection when opening scripts.

Better Ghost Text Visibility#

Improved visibility of ghost text in next edit suggestions #284517, making it easier to distinguish AI suggestions from regular text.

Double-Click Selects Block Content#

Double-clicking immediately after a curly brace or bracket now selects the content inside it #9123—a small but impactful change for manipulating code blocks.

Match File Path Case Toggle#

A new “Match File Path Case” toggle in the Search view’s “files to include” input #10633 lets you control whether file paths and glob patterns match case-sensitively.

Bracket Match Foreground Color#

New editorBracketMatch.foreground theme color #85775 enables customization of matched bracket text color.

Parallel Build Tasks#

Dependent build tasks can now run in parallel #288439, improving build performance for projects with multiple independent compilation steps.

Git Delete File Command#

A new “Git: Delete File” command #111767 performs git rm on the current file directly from the command palette.

Try It Today#

Here’s a quick workflow to test the new features:

Create a custom agent at .github/agents/researcher.md with restricted tools
Create a skill at .github/skills/my-skill/SKILL.md
Ask Copilot: “What skills and subagents do you have available?”
Test parallel execution: “Use subagents to research three different topics simultaneously”
Enable Claude thinking and ask a complex architecture question

Looking Ahead#

These updates signal a clear direction: Copilot is evolving from a single-agent assistant into a coordinated multi-agent system. The combination of parallel subagents, constrained tool access, and shareable skills creates a foundation for sophisticated automated workflows.

If you’re interested in building your own agent systems, check out Building Your Own Coding Agent from Scratch for a hands-on guide to the underlying patterns.

Key settings to know:

{
  "chat.useAgentSkills": true,
  "chat.agentSkillsLocations": [".github/skills"],
  "chat.customAgentInSubagent.enabled": true,
  "github.copilot.chat.claude.showThinking": true,
  "terminal.integrated.enableKittyKeyboardProtocol": true,
  "terminal.integrated.enableWin32InputMode": true
}

The ecosystem is about to get a lot more interesting.

For those who want to dig into the implementation details:

Agent & Skills#

Claude Integration#

Terminal#

MCP#

Chat & Sessions#

Editor & Other#

Iteration Plan#

#286040 - January 2026 Iteration Plan

These features are rolling out in VS Code Insiders (1.109) now, with stable release expected in early February. Note that some features like kitty keyboard protocol and win32-input-mode are disabled by default and require manual opt-in.

Stay Updated!