diff --git a/src/client/envExt/api.internal.ts b/src/client/envExt/api.internal.ts
index 5edfb712072e..44fa9640b220 100644
--- a/src/client/envExt/api.internal.ts
+++ b/src/client/envExt/api.internal.ts
@@ -55,14 +55,19 @@ export function shouldEnvExtHandleActivation(): boolean {
 }
 
 let _useExt: boolean | undefined;
+export function shouldUseEnvExtension(): boolean {
+    const config = getConfiguration('python');
+    const inExpSetting = config?.get<boolean>('useEnvironmentsExtension', false) ?? false;
+    return inExpSetting && shouldEnvExtHandleActivation();
+}
+
 export function useEnvExtension(): boolean {
     if (_useExt !== undefined) {
         return _useExt;
     }
-    const config = getConfiguration('python');
-    const inExpSetting = config?.get<boolean>('useEnvironmentsExtension', false) ?? false;
-    // If extension is installed and in experiment, then use it.
-    _useExt = !!getExtension(ENVS_EXTENSION_ID) && inExpSetting;
+    // Use the extension only when it is enabled and its own activation logic
+    // will expose the API.
+    _useExt = shouldUseEnvExtension();
     return _useExt;
 }
 
diff --git a/src/test/common/terminals/activator/index.unit.test.ts b/src/test/common/terminals/activator/index.unit.test.ts
index 34d1cf8f1bcd..ef6a9492acd2 100644
--- a/src/test/common/terminals/activator/index.unit.test.ts
+++ b/src/test/common/terminals/activator/index.unit.test.ts
@@ -174,6 +174,15 @@ suite('shouldEnvExtHandleActivation', () => {
         assert.strictEqual(extapi.shouldEnvExtHandleActivation(), false);
     });
 
+    test('Does not use envs extension when workspace enables it but user settings disable activation', () => {
+        getExtensionStub.returns({ id: extapi.ENVS_EXTENSION_ID });
+        getConfigurationStub.returns({
+            get: () => true,
+            inspect: () => ({ globalValue: false, workspaceValue: true }),
+        });
+        assert.strictEqual(extapi.shouldUseEnvExtension(), false);
+    });
+
     test('Returns false when envs extension is installed but workspaceValue is false', () => {
         getExtensionStub.returns({ id: extapi.ENVS_EXTENSION_ID });
         getConfigurationStub.returns({