VS Code not selecting environment in .venv/ on open with Environments extension installed

On Mac OS with the Python & Python Environments extensions installed, VS Code is failing to automatically activate a virtual environment in the .venv/ folder of the project when opened via code . in the terminal, or via opening the folder via the UI.

Despite being present in the Select Python Environment List.

.venv is present in the Python-envs: Workspace Search Paths setting.

To reproduce:

➜  projects uv init pyenvtest
Initialized project `pyenvtest` at `/Users/nina/projects/pyenvtest`
➜  projects cd pyenvtest
➜  pyenvtest git:(main) ✗ uv venv
Using CPython 3.14.4 interpreter at: /opt/homebrew/opt/python@3.14/bin/python3.14
Creating virtual environment at: .venv
Activate with: source .venv/bin/activate
➜  pyenvtest git:(main) ✗ code .

Uninstalling the Python Environments extension fixes the issue, and the environment in .venv/ is automatically selected when VS Code opens.