Powershell not launching in VS Code for some reason

Prerequisites

• I have written a descriptive issue title.
• I have searched all open and closed issues to ensure it has not already been reported.
• I have read the troubleshooting guide.
• I am sure this issue is with the extension itself and does not reproduce in a standalone PowerShell instance.
• I have verified that I am using the latest version of Visual Studio Code and the PowerShell extension.
• If this is a security issue, I have read the security issue reporting guidance.

Summary

Powershell normally runs correctly in VS Code. Supposed to work. I have Powershell 7.6.x versions, so should be using that as much as possible.

PowerShell Version

Name                           Value
----                           -----
PSVersion                      7.6.1
PSEdition                      Core
GitCommitId                    7.6.1
OS                             Microsoft Windows 10.0.26200
Platform                       Win32NT
PSCompatibleVersions           {1.0, 2.0, 3.0, 4.0.}
PSRemotingProtocolVersion      2.4
SerializationVersion           1.1.0.1
WSManStackVersion              3.0

Visual Studio Code Version

1.118.0
x64

Extension Version

ms-vscode.powershell@2025.4.0

Steps to Reproduce

Just try to launch anything with terminal or powershell in VS Code.

Visuals

No response

Logs

No response

Start with docs/troubleshooting.md and reproduce the failure in VS Code using PowerShell 7.6.1, VS Code 1.118.0, and extension 2025.4.0. Investigate why launching a terminal or PowerShell does not work, gathering the missing logs and narrowing the failure to the extension; done means PowerShell launches successfully in VS Code.