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At its Build 2025 conference, Microsoft announced plans to open source over the next few months the code behind the GitHub Copilot Chat extension under the MIT license and refactor core AI capabilities directly into the main VS Code codebase. The move, if completed, may affect the ability of current for-pay AI code editors to compete purely on features.

Microsoft cited several reasons for open-sourcing Copilot Chat. They noted the significant advancements in large language models, which have reduced the need for and value of proprietary prompting strategies. In fact, the company Anthropic regularly releases the system prompts for their Claude models. Keeping prompts secret for long remains a difficult endeavor in the face of community-led transparency efforts. AI prompts additionally can be protected by copyright only under certain restrictive circumstances. The same applies for patenting.

Microsoft’s open-sourcing decision also addresses requests from extension authors who needed a tighter integration into VS Code than offered by the current extension public APIs. The Copilot Chat extension was using VSCode’s Proposed APIs, a set of unstable APIs that are implemented in VS Code but not exposed to the public as stable. Regular extension authors, on the other hand, were not able to publish extensions using the Proposed APIs on the Visual Studio Code Marketplace.

The alternative was, as Cursor, Windsurf, et. al. did, to fork Visual Studio Code. As those forks grew in popularity and raised a significant amount of venture capital, Microsoft started to enforce its extension marketplace rules so that forks like Cursor could no longer fetch Microsoft-licensed extensions (e.g., C/C++ extension). By moving the Copilot Chat extension to an MIT license, with its core features integrated into the VS Code core, Microsoft may severely restrict the ability of forks with a limited software development team to compete based purely on features against the extended community of extension authors.

Microsoft also quoted the need for increased transparency regarding data collection and improved community-driven security as driving factors for open-sourcing the extension.

This initiative positions VS Code to evolve beyond supporting AI extensions to becoming an “AI-native editor” by default.

Initial developer reactions on platforms like Reddit, and Hacker News have shown general approval for the open-sourcing. Discussions often focus on the potential for integrating local AI models, the impact on the competitive editor landscape, and the potential for community contributions to the core AI features. The move is largely seen as a positive step for transparency and the broader developer tools ecosystem.

Visual Studio Code’s product manager chimed in on Reddit:

(vscode pm here)
We do want to open-source the Github Copilot suggestion functionality as well. The current plan is to move all that functionality to the open-source Copilot Chat extension (as step 2). Timeline – next couple of months.
[…] See the engineering plan here

Chat is compatible [with ollama]!

See https://code.visualstudio.com/docs/copilot/language-models#_bring-your-own-language-model-key

Suggestions are not yet compatible – if you want that, we have a feature request that you can upvote. I do want us to add this https://github.com/microsoft/vscode-copilot-release/issues/7690

Microsoft made a flurry of announcements at its Build 2025 conference regarding future products and improvements on current products. The TypeScript team has announced an experimental native port of the TypeScript compiler (tsc) aimed at providing 10x improvement on build time, drastically reducing cold editor startup times, and substantially improving memory usage. Microsoft announced Edit, a new open-source command-line text editor, to be distributed in the future as part of Windows 11. Edit aims to provide a lightweight native, modern command-line editing experience similar to Nano and Vim.