diff --git a/package.json b/package.json
index eb6cb461..31887629 100644
--- a/package.json
+++ b/package.json
@@ -103,6 +103,12 @@
                         "%python-envs.terminal.autoActivationType.off%"
                     ],
                     "scope": "machine"
+                },
+                "python.terminal.useEnvFile": {
+                    "type": "boolean",
+                    "description": "%python-envs.terminal.useEnvFile.description%",
+                    "default": false,
+                    "scope": "resource"
                 }
             }
         },
diff --git a/package.nls.json b/package.nls.json
index 2a62f1c3..0885ff5b 100644
--- a/package.nls.json
+++ b/package.nls.json
@@ -10,6 +10,7 @@
     "python-envs.terminal.autoActivationType.command": "Activation by executing a command in the terminal.",
     "python-envs.terminal.autoActivationType.shellStartup": "Activation by modifying the terminal shell startup script. To use this feature we will need to modify your shell startup scripts.",
     "python-envs.terminal.autoActivationType.off": "No automatic activation of environments.",
+    "python-envs.terminal.useEnvFile.description": "Controls whether environment variables from .env files and python.envFile setting are injected into terminals.",
     "python-envs.terminal.revertStartupScriptChanges.title": "Revert Shell Startup Script Changes",
     "python-envs.reportIssue.title": "Report Issue",
     "python-envs.setEnvManager.title": "Set Environment Manager",
diff --git a/src/features/terminal/terminalEnvVarInjector.ts b/src/features/terminal/terminalEnvVarInjector.ts
index 4bf48039..3f08a0cd 100644
--- a/src/features/terminal/terminalEnvVarInjector.ts
+++ b/src/features/terminal/terminalEnvVarInjector.ts
@@ -7,6 +7,7 @@ import {
     Disposable,
     EnvironmentVariableScope,
     GlobalEnvironmentVariableCollection,
+    window,
     workspace,
     WorkspaceFolder,
 } from 'vscode';
@@ -55,6 +56,18 @@ export class TerminalEnvVarInjector implements Disposable {
                     return;
                 }
 
+                // Check if env file injection is enabled when variables change
+                const config = getConfiguration('python', args.uri);
+                const useEnvFile = config.get<boolean>('terminal.useEnvFile', false);
+                const envFilePath = config.get<string>('envFile');
+
+                // Only show notification when env vars change and we have an env file but injection is disabled
+                if (!useEnvFile && envFilePath) {
+                    window.showInformationMessage(
+                        'An environment file is configured but terminal environment injection is disabled. Enable "python.terminal.useEnvFile" to use environment variables from .env files in terminals.',
+                    );
+                }
+
                 if (args.changeType === 2) {
                     // FileChangeType.Deleted
                     this.clearWorkspaceVariables(affectedWorkspace);
@@ -66,6 +79,20 @@ export class TerminalEnvVarInjector implements Disposable {
             }),
         );
 
+        // Listen for changes to the python.envFile setting
+        this.disposables.push(
+            workspace.onDidChangeConfiguration((e) => {
+                if (e.affectsConfiguration('python.envFile')) {
+                    traceVerbose(
+                        'TerminalEnvVarInjector: python.envFile setting changed, updating environment variables',
+                    );
+                    this.updateEnvironmentVariables().catch((error) => {
+                        traceError('Failed to update environment variables:', error);
+                    });
+                }
+            }),
+        );
+
         // Initial load of environment variables
         await this.updateEnvironmentVariables();
     }
@@ -115,9 +142,19 @@ export class TerminalEnvVarInjector implements Disposable {
             const envVarScope = this.getEnvironmentVariableCollectionScoped({ workspaceFolder });
             envVarScope.clear(); // Clear existing variables for this workspace
 
-            // Track which .env file is being used for logging
+            // Check if env file injection is enabled
             const config = getConfiguration('python', workspaceUri);
+            const useEnvFile = config.get<boolean>('terminal.useEnvFile', false);
             const envFilePath = config.get<string>('envFile');
+
+            if (!useEnvFile) {
+                traceVerbose(
+                    `TerminalEnvVarInjector: Env file injection disabled for workspace: ${workspaceUri.fsPath}`,
+                );
+                return;
+            }
+
+            // Track which .env file is being used for logging
             const resolvedEnvFilePath: string | undefined = envFilePath
                 ? path.resolve(resolveVariables(envFilePath, workspaceUri))
                 : undefined;