diff --git a/.github/copilot-instructions.md b/.github/copilot-instructions.md
index 206ee388df7..a65a6541493 100644
--- a/.github/copilot-instructions.md
+++ b/.github/copilot-instructions.md
@@ -16,12 +16,6 @@ This is the Azure Developer CLI - a Go-based CLI tool for managing Azure applica
   ```
 
 ### Development flow
-**Prerequisites:**
-- [Go](https://go.dev/dl/) 1.24
-- [cspell](https://github.com/streetsidesoftware/cspell)
-- [golangci-lint](https://golangci-lint.run/)
-
-If any of these tools aren't installed, install them first before proceeding.
 
 **Build `azd` binary:**
 ```bash
@@ -61,11 +55,6 @@ When preparing a new release changelog, update `cli/azd/CHANGELOG.md` and `cli/v
 Rename any existing `## 1.x.x-beta.1 (Unreleased)` section to the version being released, without the `-beta.1` and `Unreleased` parts. Do the same for `cli/version.txt`.
 
 ### Step 2: Gather commits
-**IMPORTANT**: Ensure you have the latest commits from main by first running these `git fetch` commands:
-```bash
-git fetch --unshallow origin && git fetch origin main:refs/remotes/origin/main
-```
-
 **Find cutoff commit**: 
 ```bash
 git --no-pager log --grep="Increment CLI version" --invert-grep -n 3 --follow -p -- cli/azd/CHANGELOG.md
diff --git a/.github/workflows/copilot-setup-steps.yml b/.github/workflows/copilot-setup-steps.yml
new file mode 100644
index 00000000000..ca7bf9695cc
--- /dev/null
+++ b/.github/workflows/copilot-setup-steps.yml
@@ -0,0 +1,51 @@
+name: "Copilot Setup Steps"
+
+# This workflow is used to set up the environment for GitHub Copilot coding agent.
+# https://docs.github.com/copilot/customizing-copilot/customizing-the-development-environment-for-copilot-coding-agent
+
+# Automatically run the setup steps when they are changed to allow for easy validation, and
+# allow manual testing through the repository's "Actions" tab
+on:
+  workflow_dispatch:
+  push:
+    paths:
+      - .github/workflows/copilot-setup-steps.yml
+  pull_request:
+    paths:
+      - .github/workflows/copilot-setup-steps.yml
+
+jobs:
+  # The job MUST be called `copilot-setup-steps` or it will not be picked up by Copilot.
+  copilot-setup-steps:
+    runs-on: ubuntu-latest
+
+    permissions:
+      # To clone repo
+      contents: read
+
+    steps:
+      - name: Checkout code
+        uses: actions/checkout@v4
+        with:
+          # Fetch full history for writing changelogs
+          fetch-depth: 0
+
+      # Workaround for fetch-depth being overridden by coding agent orchestration
+      - run: git fetch --unshallow origin && git fetch origin main:refs/remotes/origin/main
+        continue-on-error: true
+
+      - name: Set up Go
+        uses: actions/setup-go@v5
+        with:
+          go-version: "^1.24"
+
+      - name: Set up Node.js
+        uses: actions/setup-node@v4
+        with:
+          node-version: "20"
+
+      - name: Install golangci-lint
+        run: curl -sSfL https://raw.githubusercontent.com/golangci/golangci-lint/HEAD/install.sh | sh -s -- -b $(go env GOPATH)/bin v2.0.0
+
+      - name: Install cspell
+        run: npm install -g cspell@8.13.1
diff --git a/cli/azd/.vscode/cspell.yaml b/cli/azd/.vscode/cspell.yaml
index 0fb4fe464b4..e2f7dcbe075 100644
--- a/cli/azd/.vscode/cspell.yaml
+++ b/cli/azd/.vscode/cspell.yaml
@@ -8,6 +8,7 @@ words:
   - chinacloudapi
   - Codespace
   - Codespaces
+  - containerd
   - devcontainers
   - extendee
   - eiannone
diff --git a/cli/azd/pkg/tools/docker/docker.go b/cli/azd/pkg/tools/docker/docker.go
index 29d4c127c8d..38b9fd5a046 100644
--- a/cli/azd/pkg/tools/docker/docker.go
+++ b/cli/azd/pkg/tools/docker/docker.go
@@ -14,6 +14,7 @@ import (
 	"strconv"
 	"strings"
 
+	"github.com/azure/azure-dev/cli/azd/internal"
 	"github.com/azure/azure-dev/cli/azd/pkg/exec"
 	"github.com/azure/azure-dev/cli/azd/pkg/tools"
 	"github.com/blang/semver/v4"
@@ -118,6 +119,17 @@ func (d *Cli) Build(
 
 	_, err = d.commandRunner.Run(ctx, runArgs)
 	if err != nil {
+		// Check if this is a containerd-related error
+		if d.isContainerdBuildError(err) {
+			containerdEnabled, checkErr := d.IsContainerdEnabled(ctx)
+			if checkErr == nil && containerdEnabled {
+				return "", &internal.ErrorWithSuggestion{
+					Err: fmt.Errorf("building image: %w", err),
+					//nolint:lll
+					Suggestion: "Docker build failed with containerd image store enabled. Try disabling the containerd image store in Docker Desktop settings under 'Features in development' and run 'azd package' again",
+				}
+			}
+		}
 		return "", fmt.Errorf("building image: %w", err)
 	}
 
@@ -164,6 +176,26 @@ func (d *Cli) Inspect(ctx context.Context, imageName string, format string) (str
 	return out.Stdout, nil
 }
 
+// IsContainerdEnabled checks if Docker is using containerd as the image store
+func (d *Cli) IsContainerdEnabled(ctx context.Context) (bool, error) {
+	out, err := d.executeCommand(ctx, "", "info", "-f", "{{ .DriverStatus }}")
+	if err != nil {
+		return false, fmt.Errorf("checking docker driver status: %w", err)
+	}
+
+	// When containerd is enabled, the output contains "driver-type io.containerd.snapshotter.v1"
+	return strings.Contains(out.Stdout, "driver-type io.containerd.snapshotter.v1"), nil
+}
+
+// isContainerdBuildError checks if the error is related to containerd image store issues
+func (d *Cli) isContainerdBuildError(err error) bool {
+	errStr := err.Error()
+	// Check for the specific error pattern that occurs with containerd enabled
+	return strings.Contains(errStr, "saving image") &&
+		strings.Contains(errStr, "No such image") &&
+		strings.Contains(errStr, "pack.local/builder")
+}
+
 func (d *Cli) versionInfo() tools.VersionInfo {
 	return tools.VersionInfo{
 		MinimumVersion: semver.Version{
diff --git a/cli/azd/pkg/tools/docker/docker_test.go b/cli/azd/pkg/tools/docker/docker_test.go
index bcb780e89e6..aeee83bf187 100644
--- a/cli/azd/pkg/tools/docker/docker_test.go
+++ b/cli/azd/pkg/tools/docker/docker_test.go
@@ -11,6 +11,7 @@ import (
 	"strings"
 	"testing"
 
+	"github.com/azure/azure-dev/cli/azd/internal"
 	"github.com/azure/azure-dev/cli/azd/pkg/exec"
 	"github.com/azure/azure-dev/cli/azd/test/mocks"
 	"github.com/stretchr/testify/require"
@@ -18,6 +19,14 @@ import (
 
 const mockedDockerImgId = "fake-docker-image-id"
 
+const containerdBuildError = "ERROR: failed to build: failed to write image to the following tags: " +
+	"[pack.local/builder/657662746b6877776b68:latest: saving image " +
+	"\"pack.local/builder/657662746b6877776b68:latest\": Error response from daemon: " +
+	"No such image: sha256:1a3f079e7ffed5eb4c02ecf6fdcc38c8fe459b021b4803471703dbded90181c4]"
+
+const dockerInfoContainerdDisabled = "[[Backing Filesystem extfs] [Supports d_type true] " +
+	"[Using metacopy false] [Native Overlay Diff true] [userxattr false]]"
+
 func Test_DockerBuild(t *testing.T) {
 	cwd := "."
 	dockerFile := "./Dockerfile"
@@ -596,3 +605,212 @@ func TestSplitDockerImage(t *testing.T) {
 		})
 	}
 }
+
+func TestIsContainerdEnabled(t *testing.T) {
+	t.Run("ContainerdEnabled", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			require.Equal(t, "docker", args.Cmd)
+			require.Equal(t, []string{"info", "-f", "{{ .DriverStatus }}"}, args.Args)
+
+			return exec.RunResult{
+				Stdout:   "[[driver-type io.containerd.snapshotter.v1]]",
+				Stderr:   "",
+				ExitCode: 0,
+			}, nil
+		})
+
+		enabled, err := docker.IsContainerdEnabled(context.Background())
+		require.NoError(t, err)
+		require.True(t, enabled)
+	})
+
+	t.Run("ContainerdDisabled", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			require.Equal(t, "docker", args.Cmd)
+			require.Equal(t, []string{"info", "-f", "{{ .DriverStatus }}"}, args.Args)
+
+			return exec.RunResult{
+				Stdout:   dockerInfoContainerdDisabled,
+				Stderr:   "",
+				ExitCode: 0,
+			}, nil
+		})
+
+		enabled, err := docker.IsContainerdEnabled(context.Background())
+		require.NoError(t, err)
+		require.False(t, enabled)
+	})
+
+	t.Run("ErrorExecutingCommand", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				ExitCode: 1,
+			}, errors.New("docker daemon not running")
+		})
+
+		enabled, err := docker.IsContainerdEnabled(context.Background())
+		require.Error(t, err)
+		require.False(t, enabled)
+		require.Contains(t, err.Error(), "checking docker driver status")
+	})
+}
+
+func TestBuildWithContainerdError(t *testing.T) {
+	cwd := "."
+	dockerFile := "./Dockerfile"
+	dockerContext := "../"
+	platform := DefaultPlatform
+	imageName := "IMAGE_NAME"
+
+	t.Run("ContainerdBuildErrorWithSuggestion", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		// Mock the docker build command to return containerd-related error
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker build")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				ExitCode: 1,
+			}, errors.New(containerdBuildError)
+		})
+
+		// Mock the docker info command to return containerd enabled
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				Stdout:   "[[driver-type io.containerd.snapshotter.v1]]",
+				Stderr:   "",
+				ExitCode: 0,
+			}, nil
+		})
+
+		_, err := docker.Build(
+			context.Background(),
+			cwd,
+			dockerFile,
+			platform,
+			"",
+			dockerContext,
+			imageName,
+			[]string{},
+			[]string{},
+			[]string{},
+			nil,
+		)
+
+		require.Error(t, err)
+
+		// Check if it's an ErrorWithSuggestion
+		var errWithSuggestion *internal.ErrorWithSuggestion
+		require.True(t, errors.As(err, &errWithSuggestion))
+		require.Contains(t, errWithSuggestion.Suggestion, "containerd image store")
+		require.Contains(t, errWithSuggestion.Suggestion, "Docker Desktop settings")
+	})
+
+	t.Run("ContainerdBuildErrorButContainerdCheckFails", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		// Mock the docker build command to return containerd-related error
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker build")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				ExitCode: 1,
+			}, errors.New(containerdBuildError)
+		})
+
+		// Mock the docker info command to fail
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				ExitCode: 1,
+			}, errors.New("docker daemon not running")
+		})
+
+		_, err := docker.Build(
+			context.Background(),
+			cwd,
+			dockerFile,
+			platform,
+			"",
+			dockerContext,
+			imageName,
+			[]string{},
+			[]string{},
+			[]string{},
+			nil,
+		)
+
+		require.Error(t, err)
+
+		// Should not be ErrorWithSuggestion since containerd check failed
+		var errWithSuggestion *internal.ErrorWithSuggestion
+		require.False(t, errors.As(err, &errWithSuggestion))
+		require.Contains(t, err.Error(), "building image")
+	})
+
+	t.Run("ContainerdBuildErrorButContainerdDisabled", func(t *testing.T) {
+		mockContext := mocks.NewMockContext(context.Background())
+		docker := NewCli(mockContext.CommandRunner)
+
+		// Mock the docker build command to return containerd-related error
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker build")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				ExitCode: 1,
+			}, errors.New(containerdBuildError)
+		})
+
+		// Mock the docker info command to return containerd disabled
+		mockContext.CommandRunner.When(func(args exec.RunArgs, command string) bool {
+			return strings.Contains(command, "docker info")
+		}).RespondFn(func(args exec.RunArgs) (exec.RunResult, error) {
+			return exec.RunResult{
+				Stdout:   dockerInfoContainerdDisabled,
+				Stderr:   "",
+				ExitCode: 0,
+			}, nil
+		})
+
+		_, err := docker.Build(
+			context.Background(),
+			cwd,
+			dockerFile,
+			platform,
+			"",
+			dockerContext,
+			imageName,
+			[]string{},
+			[]string{},
+			[]string{},
+			nil,
+		)
+
+		require.Error(t, err)
+
+		// Should not be ErrorWithSuggestion since containerd is disabled
+		var errWithSuggestion *internal.ErrorWithSuggestion
+		require.False(t, errors.As(err, &errWithSuggestion))
+		require.Contains(t, err.Error(), "building image")
+	})
+}