Microsoft Takes Its First Step to Make VS Code an Open-Source AI Editor

Microsoft has taken its first concrete step towards making Visual Studio Code an open-source AI editor by open-sourcing the GitHub Copilot Chat extension under the MIT license. The company announced the milestone on June 30 via the VS Code team’s blog, calling it a move toward transparency, extensibility, and developer-centric AI tooling.

The newly open-sourced code reveals how Copilot Chat handles agent mode, context engineering, and telemetry. According to the blog post, “Everything, from our system prompts, implementation details, to the telemetry we capture, is available in all transparency.” Contributions and feedback from developers are welcome on GitHub, with the long-term goal of integrating this extension into the core VS Code codebase.

The announcement follows Microsoft CEO Satya Nadella’s keynote at Build 2025, where he confirmed the company’s commitment to AI-powered development. “This is a big deal. We will integrate these AI-powered capabilities directly into the core of VS Code, bringing them into the same open source repo that powers the world’s most loved dev tool,” said Nadella.

Erich Gamma, creator of VS Code, reinforced the motivation by highlighting that some organisations really don’t like closed-source IDEs, and for them, VS Code would be a great choice. The company will also open-source its prompt testing infrastructure to support third-party extension developers.

This strategic shift comes amid growing demand for openness in developer tooling. According to Microsoft, the rapid advancement in LLMs and the convergence of best practices across AI coding UIs have reduced the need for proprietary techniques.

While the GitHub Copilot extension for inline completions remains closed, Microsoft plans to bring that functionality into the open-sourced Chat extension in the coming months.

The move invites comparison with AI-first VS Code forks, such as Cursor and Windsurf, both valued in billions. “Is it just me or is it kinda funny that OpenAI bought Windsurf for $3B and then Microsoft just open-sourced Copilot,” quipped a user on X.

Whether it’s community-driven extensibility or agentic DevOps, Microsoft appears ready to reshape how developers interact with AI, on their own terms, and increasingly in the open.