diff --git a/src/extension.ts b/src/extension.ts
index 5dfa3db4..b00ebb1c 100644
--- a/src/extension.ts
+++ b/src/extension.ts
@@ -89,7 +89,7 @@ import { cleanupStartupScripts } from './features/terminal/shellStartupSetupHand
 import { TerminalActivationImpl } from './features/terminal/terminalActivationState';
 import { TerminalEnvVarInjector } from './features/terminal/terminalEnvVarInjector';
 import { TerminalManager, TerminalManagerImpl } from './features/terminal/terminalManager';
-import { getEnvironmentForTerminal } from './features/terminal/utils';
+import { getEnvironmentForTerminal, migrateLegacyTerminalActivationSetting } from './features/terminal/utils';
 import { openSearchSettings } from './features/views/envManagerSearch';
 import { EnvManagerView } from './features/views/envManagersView';
 import { ProjectView } from './features/views/projectView';
@@ -184,6 +184,12 @@ export async function activate(context: ExtensionContext): Promise<PythonEnviron
         traceError(`[migration] migrateGlobalDefaultEnvManagerSetting threw: ${err}`);
     }
 
+    try {
+        await migrateLegacyTerminalActivationSetting();
+    } catch (err) {
+        traceError(`[migration] migrateLegacyTerminalActivationSetting threw: ${err}`);
+    }
+
     const statusBar = new PythonStatusBarImpl();
     context.subscriptions.push(statusBar);
 
diff --git a/src/features/terminal/utils.ts b/src/features/terminal/utils.ts
index 866a7486..7e4175a2 100644
--- a/src/features/terminal/utils.ts
+++ b/src/features/terminal/utils.ts
@@ -379,6 +379,7 @@ export const ACT_TYPE_SHELL = 'shellStartup';
 export const ACT_TYPE_COMMAND = 'command';
 export const ACT_TYPE_OFF = 'off';
 export type AutoActivationType = 'off' | 'command' | 'shellStartup';
+
 /**
  * Determines the auto-activation type for Python environments in terminals.
  *
@@ -392,7 +393,7 @@ export type AutoActivationType = 'off' | 'command' | 'shellStartup';
  *    a. globalRemoteValue
  *    b. globalLocalValue
  *    c. globalValue
- * 2. python.terminal.activateEnvironment setting (if false, returns 'off' & sets autoActivationType to 'off')
+ * 2. python.terminal.activateEnvironment setting (if false, returns 'off')
  * 3. Default to 'command' if no setting is found
  *
  * @returns {AutoActivationType} The determined auto-activation type
@@ -420,8 +421,6 @@ export function getAutoActivationType(): AutoActivationType {
     const pythonConfig = getConfiguration('python');
     const pythonActivateSetting = pythonConfig.get<boolean | undefined>('terminal.activateEnvironment', undefined);
     if (pythonActivateSetting === false) {
-        // Set autoActivationType to 'off' if python.terminal.activateEnvironment is false
-        pyEnvsConfig.update('terminal.autoActivationType', ACT_TYPE_OFF);
         return ACT_TYPE_OFF;
     }
 
@@ -429,6 +428,33 @@ export function getAutoActivationType(): AutoActivationType {
     return ACT_TYPE_COMMAND;
 }
 
+/**
+ * Migrates the disabled legacy terminal activation setting to User settings.
+ *
+ * The migration is skipped when `python-envs.terminal.autoActivationType` is already set.
+ * The returned promise rejects if the setting cannot be updated.
+ */
+export async function migrateLegacyTerminalActivationSetting(): Promise<void> {
+    const pyEnvsConfig = getConfiguration('python-envs');
+    const pyEnvsActivationType = pyEnvsConfig.inspect<AutoActivationType>('terminal.autoActivationType');
+
+    if (pyEnvsActivationType) {
+        const activationType = pyEnvsActivationType as Record<string, unknown>;
+        if (
+            ('globalRemoteValue' in pyEnvsActivationType && activationType.globalRemoteValue !== undefined) ||
+            ('globalLocalValue' in pyEnvsActivationType && activationType.globalLocalValue !== undefined) ||
+            pyEnvsActivationType.globalValue !== undefined
+        ) {
+            return;
+        }
+    }
+
+    const pythonConfig = getConfiguration('python');
+    if (pythonConfig.get<boolean | undefined>('terminal.activateEnvironment', undefined) === false) {
+        await setAutoActivationType(ACT_TYPE_OFF);
+    }
+}
+
 export async function setAutoActivationType(value: AutoActivationType): Promise<void> {
     const config = getConfiguration('python-envs');
     return await config.update('terminal.autoActivationType', value, true);
diff --git a/src/test/features/terminal/utils.unit.test.ts b/src/test/features/terminal/utils.unit.test.ts
index ff890a56..e47fdbbd 100644
--- a/src/test/features/terminal/utils.unit.test.ts
+++ b/src/test/features/terminal/utils.unit.test.ts
@@ -14,6 +14,7 @@ import {
     AutoActivationType,
     getAutoActivationType,
     getEnvironmentForTerminal,
+    migrateLegacyTerminalActivationSetting,
     shouldActivateInCurrentTerminal,
     shouldSkipTerminalActivation,
     waitForShellIntegration,
@@ -484,19 +485,29 @@ suite('Terminal Utils - getAutoActivationType', () => {
     });
 
     suite('Legacy Python Setting Fallback', () => {
-        test('should return ACT_TYPE_OFF and update config when python.terminal.activateEnvironment is false', () => {
+        test('should migrate python.terminal.activateEnvironment false to User settings only once', async () => {
             // Mock - no python-envs settings, python.terminal.activateEnvironment is false
             pyEnvsConfig.inspect.withArgs('terminal.autoActivationType').returns(undefined);
             pythonConfig.get.withArgs('terminal.activateEnvironment', undefined).returns(false);
+            pyEnvsConfig.update.rejects(new Error('Unable to update User settings'));
 
             // Run
+            await assert.rejects(migrateLegacyTerminalActivationSetting(), /Unable to update User settings/);
             const result = getAutoActivationType();
+            const repeatedResult = getAutoActivationType();
 
             // Assert
             assert.strictEqual(result, ACT_TYPE_OFF, 'Should return ACT_TYPE_OFF when legacy setting is false');
-            assert.ok(
-                pyEnvsConfig.update.calledWithExactly('terminal.autoActivationType', ACT_TYPE_OFF),
-                'Should update python-envs config to ACT_TYPE_OFF',
+            assert.strictEqual(
+                repeatedResult,
+                ACT_TYPE_OFF,
+                'Should continue returning ACT_TYPE_OFF after a failed migration',
+            );
+            sinon.assert.calledOnceWithExactly(
+                pyEnvsConfig.update,
+                'terminal.autoActivationType',
+                ACT_TYPE_OFF,
+                true,
             );
         });
 
@@ -572,7 +583,7 @@ suite('Terminal Utils - getAutoActivationType', () => {
             );
         });
 
-        test('should prioritize python-envs settings over legacy python settings', () => {
+        test('should prioritize python-envs settings over legacy python settings', async () => {
             // Mock - python-envs has globalValue, python has conflicting setting
             const mockInspectResult = {
                 globalValue: ACT_TYPE_SHELL,
@@ -581,6 +592,7 @@ suite('Terminal Utils - getAutoActivationType', () => {
             pythonConfig.get.withArgs('terminal.activateEnvironment', undefined).returns(false);
 
             // Run
+            await migrateLegacyTerminalActivationSetting();
             const result = getAutoActivationType();
 
             // Assert