News

VS Code Update: Chat Checkpoints and Improved MCP Tooling

• By David Ramel
• 08/07/2025

The July 2025 update to Visual Studio Code, taking it to version 1.103, adds support for chat checkpoints, allowing developers to restore their workspace and conversation to earlier states during AI sessions, alongside enhancements to MCP tooling that expand tool capacity and improve session reliability.

Those headlining features continue the dev team's focus on advanced AI in the super-popular code editor, which Microsoft is actually turning into an open-source AI editor.

Here's a look at what's new with MCP tooling and those chat checkpoints that are fully detailed in the v1.103 announcement.

Chat Checkpoints
Chat Checkpoints bring snapshot-style versioning to AI chat sessions, letting developers restore both their workspace and conversation history to a previous state. This helps recover from undesired edits or experiments during complex Copilot sessions that modify multiple files.

Microsoft said the feature is useful when multiple files were changed in a chat session, enabling developers to return to an earlier point in both the code and the chat. After restoring a checkpoint, it's also possible to redo the action that was undone.

Key capabilities include:

• Reverting workspace and chat history to a previous state
• Redoing undone changes after restoring a checkpoint
• Reducing risk when working with large-scale AI-driven changes

The feature is enabled by default and can be toggled via the chat.checkpoints.enabled setting. Microsoft explained that "VS Code reverts workspace changes and the chat history to that point" when a checkpoint is selected.

For developers using Copilot in agent mode, checkpoints offer a built-in recovery mechanism that complements source control while providing more immediate, session-aware rollback options.

Improved MCP Tooling

This release also includes several updates to MCP (Model Context Protocol), which governs how tools are discovered, grouped, and invoked in agent-mode sessions. These changes improve the way developers configure and interact with AI tools within Copilot Chat, particularly when working with custom or large-scale setups.

A key limitation addressed in this release is the 128-tool cap on single chat requests. With version 1.103, VS Code introduces an experimental tool grouping mode that activates automatically when this threshold is exceeded. Tools are grouped, and the AI model is given the ability to activate and call entire groups of tools. Microsoft said this change helps avoid the need to manually deselect tools just to proceed with a request.

Tool grouping behavior is governed by the github.copilot.chat.virtualTools.threshold setting, which can be adjusted to test or tune the grouping mechanism.

Other changes include:

• Revamped Tool Picker: A redesigned interface uses a new Quick Tree component with expand/collapse controls, sticky scrolling, and improved icon rendering.

  

• Server Autostart: Developers can now use the chat.mcp.autostart setting to automatically start MCP servers after configuration changes, eliminating the need for manual refreshes.
• Trust Prompts: When an MCP server starts for the first time after being updated, VS Code now prompts users to confirm trust before allowing execution, particularly important when autostart is enabled.
• Client Credentials Flow: For MCP servers that don't support Dynamic Client Registration (DCR), developers can now manually supply a client ID and optional secret to authenticate with the server.
• Spec Update: VS Code now supports Model Context Protocol version 2025-06-18, which adds features like resource_link and structured output formatting in tool responses.

These enhancements are aimed at increasing scalability, security, and usability for teams building advanced agent-mode workflows in Visual Studio Code.

Other AI Enhancements

• Task List Tracking: A new experimental feature displays AI-generated task breakdowns and tracks progress in real time within chat.
• Edit Previous Requests: Inline editing is now the default for chat messages, allowing developers to revise and resend prompts directly from the message bubble.
• Math Rendering in Chat: Initial support for displaying inline and block equations using KaTeX, controlled by the chat.math.enabled setting.
• Improved Model Picker: Users can now control which models appear in the chat model selector for a more tailored experience.
• Terminal Auto-Approve Improvements: Expanded regex support, consolidated configuration, and new logging help streamline command approvals in terminal-based agent actions.
• Azure DevOps Remote Indexing: Chat code search now works instantly with Azure DevOps repos using remote indexes, previously available only for GitHub.
• Coding Agent Session View: New UI lets developers monitor Copilot coding agent progress and provide follow-up instructions in a dedicated chat editor.
• Chat Sessions View (Experimental): Adds a Side Bar view for managing both local and coding agent chat histories.
• Chat Output Renderer API: Extensions can now render custom HTML-based output (e.g., Mermaid diagrams) inside chat responses.
• Chat Session Provider API: Enables extensions to supply their own chat backends and control agent interaction flows within the native chat UI.

Other Improvements

• Git Worktree Support: View, create, and manage multiple branches simultaneously using the new worktree integration in the Source Control view.
• Editor Tab Context Menu Cleanup: Related split and move options are now grouped in a submenu for better organization.
• AI Statistics (Preview): Displays per-project data on how much code was AI-generated versus typed manually.
• Notebook Inline Chat Tools: New agent tool support in Jupyter notebooks allows running cells and installing packages via inline chat.
• Python Enhancements: Adds shell integration for Python 3.13+ and continued rollout of the Python Environments extension.
• TypeScript 5.9.2: Includes new language features and improved documentation support for many DOM APIs.
• Expandable Type Hovers: JavaScript and TypeScript hovers now allow expanding complex types inline to explore their structure.
• Terminal Documentation Hints: Terminal suggestions now show inline docs when supported by the language server (starting with Python).
• Voice Dictation in Terminal: Reintroduces voice dictation support, including commands to start and stop dictation.
• Shell Integration Diagnostics: Enhanced diagnostics UI helps identify issues with terminal features like sticky scroll and quick fixes.
• Electron 37 Upgrade: Ships with Chromium 138 and Node.js 22.17.0 for better performance and compatibility.
• Accessibility Updates: Includes screen reader support for chat prompts, Side Bar visibility announcements, and new automated accessibility tests using Playwright.

Microsoft listed an array of pull requests from some 70 contributors to the project.