diff --git a/src/managers/common/utils.ts b/src/managers/common/utils.ts
index 8bc8a081..828f6e10 100644
--- a/src/managers/common/utils.ts
+++ b/src/managers/common/utils.ts
@@ -172,10 +172,22 @@ export async function getShellActivationCommands(binDir: string): Promise<{
     shellDeactivation.set(ShellConstants.KSH, [{ executable: 'deactivate' }]);
 
     if (await fs.pathExists(path.join(binDir, 'Activate.ps1'))) {
-        shellActivation.set(ShellConstants.PWSH, [{ executable: '&', args: [path.join(binDir, `Activate.ps1`)] }]);
+        shellActivation.set(ShellConstants.PWSH, [
+            {
+                executable: 'Set-ExecutionPolicy',
+                args: ['-Scope', 'Process', '-ExecutionPolicy', 'RemoteSigned'],
+            },
+            { executable: '&', args: [path.join(binDir, `Activate.ps1`)] },
+        ]);
         shellDeactivation.set(ShellConstants.PWSH, [{ executable: 'deactivate' }]);
     } else if (await fs.pathExists(path.join(binDir, 'activate.ps1'))) {
-        shellActivation.set(ShellConstants.PWSH, [{ executable: '&', args: [path.join(binDir, `activate.ps1`)] }]);
+        shellActivation.set(ShellConstants.PWSH, [
+            {
+                executable: 'Set-ExecutionPolicy',
+                args: ['-Scope', 'Process', '-ExecutionPolicy', 'RemoteSigned'],
+            },
+            { executable: '&', args: [path.join(binDir, `activate.ps1`)] },
+        ]);
         shellDeactivation.set(ShellConstants.PWSH, [{ executable: 'deactivate' }]);
     }
 
diff --git a/src/test/managers/common/utils.getShellActivationCommands.unit.test.ts b/src/test/managers/common/utils.getShellActivationCommands.unit.test.ts
new file mode 100644
index 00000000..350cd013
--- /dev/null
+++ b/src/test/managers/common/utils.getShellActivationCommands.unit.test.ts
@@ -0,0 +1,132 @@
+import assert from 'assert';
+import * as fs from 'fs-extra';
+import * as os from 'os';
+import path from 'path';
+import * as sinon from 'sinon';
+import * as platformUtils from '../../../common/utils/platformUtils';
+import { ShellConstants } from '../../../features/common/shellConstants';
+import { getShellActivationCommands } from '../../../managers/common/utils';
+
+suite('getShellActivationCommands', () => {
+    let isWindowsStub: sinon.SinonStub;
+    let tmpDir: string;
+
+    setup(async () => {
+        isWindowsStub = sinon.stub(platformUtils, 'isWindows');
+        tmpDir = await fs.mkdtemp(path.join(os.tmpdir(), 'venv-test-'));
+    });
+
+    teardown(async () => {
+        sinon.restore();
+        await fs.remove(tmpDir);
+    });
+
+    suite('PowerShell activation includes Set-ExecutionPolicy', () => {
+        test('Activate.ps1 (capitalized) includes Set-ExecutionPolicy before activation', async () => {
+            isWindowsStub.returns(true);
+            await fs.writeFile(path.join(tmpDir, 'Activate.ps1'), '');
+
+            const result = await getShellActivationCommands(tmpDir);
+            const pwshActivation = result.shellActivation.get(ShellConstants.PWSH);
+
+            assert.ok(pwshActivation, 'PowerShell activation should be defined');
+            assert.strictEqual(pwshActivation.length, 2, 'Should have 2 commands: Set-ExecutionPolicy + activate');
+
+            // First command: Set-ExecutionPolicy
+            assert.strictEqual(pwshActivation[0].executable, 'Set-ExecutionPolicy');
+            assert.deepStrictEqual(pwshActivation[0].args, ['-Scope', 'Process', '-ExecutionPolicy', 'RemoteSigned']);
+
+            // Second command: & Activate.ps1
+            assert.strictEqual(pwshActivation[1].executable, '&');
+            assert.ok(pwshActivation[1].args);
+            assert.strictEqual(pwshActivation[1].args.length, 1);
+            assert.ok(
+                pwshActivation[1].args[0].endsWith('Activate.ps1'),
+                `Expected path ending with Activate.ps1, got: ${pwshActivation[1].args[0]}`,
+            );
+        });
+
+        test('activate.ps1 (lowercase) includes Set-ExecutionPolicy before activation', async () => {
+            isWindowsStub.returns(true);
+            // Only create lowercase variant
+            await fs.writeFile(path.join(tmpDir, 'activate.ps1'), '');
+
+            const result = await getShellActivationCommands(tmpDir);
+            const pwshActivation = result.shellActivation.get(ShellConstants.PWSH);
+
+            assert.ok(pwshActivation, 'PowerShell activation should be defined');
+            assert.strictEqual(pwshActivation.length, 2, 'Should have 2 commands: Set-ExecutionPolicy + activate');
+
+            assert.strictEqual(pwshActivation[0].executable, 'Set-ExecutionPolicy');
+            assert.deepStrictEqual(pwshActivation[0].args, ['-Scope', 'Process', '-ExecutionPolicy', 'RemoteSigned']);
+
+            assert.strictEqual(pwshActivation[1].executable, '&');
+            assert.ok(pwshActivation[1].args);
+        });
+
+        test('Set-ExecutionPolicy uses Process scope (session-only, no system-wide changes)', async () => {
+            isWindowsStub.returns(true);
+            await fs.writeFile(path.join(tmpDir, 'Activate.ps1'), '');
+
+            const result = await getShellActivationCommands(tmpDir);
+            const pwshActivation = result.shellActivation.get(ShellConstants.PWSH);
+
+            assert.ok(pwshActivation);
+            const policyArgs = pwshActivation[0].args;
+            assert.ok(policyArgs);
+            const scopeIndex = policyArgs.indexOf('-Scope');
+            assert.ok(scopeIndex >= 0, 'Should have -Scope parameter');
+            assert.strictEqual(policyArgs[scopeIndex + 1], 'Process', 'Scope must be Process');
+        });
+    });
+
+    suite('No PowerShell activation when Activate.ps1 is absent', () => {
+        test('No pwsh activation when no ps1 file exists', async () => {
+            isWindowsStub.returns(true);
+            // Empty tmpDir — no ps1 files
+
+            const result = await getShellActivationCommands(tmpDir);
+            const pwshActivation = result.shellActivation.get(ShellConstants.PWSH);
+
+            assert.strictEqual(pwshActivation, undefined, 'No PowerShell activation when no ps1 file exists');
+        });
+    });
+
+    suite('Other shells are not affected by execution policy change', () => {
+        test('Bash activation does not include Set-ExecutionPolicy', async () => {
+            isWindowsStub.returns(false);
+
+            const result = await getShellActivationCommands(tmpDir);
+            const bashActivation = result.shellActivation.get(ShellConstants.BASH);
+
+            assert.ok(bashActivation, 'Bash activation should be defined');
+            assert.strictEqual(bashActivation.length, 1, 'Bash should have only 1 command');
+            assert.strictEqual(bashActivation[0].executable, 'source');
+        });
+
+        test('CMD activation does not include Set-ExecutionPolicy', async () => {
+            isWindowsStub.returns(true);
+            await fs.writeFile(path.join(tmpDir, 'activate.bat'), '');
+
+            const result = await getShellActivationCommands(tmpDir);
+            const cmdActivation = result.shellActivation.get(ShellConstants.CMD);
+
+            assert.ok(cmdActivation, 'CMD activation should be defined');
+            assert.strictEqual(cmdActivation.length, 1, 'CMD should have only 1 command');
+            assert.ok(cmdActivation[0].executable.endsWith('activate.bat'), 'CMD should use activate.bat');
+        });
+    });
+
+    suite('Windows unknown shell fallback', () => {
+        test('Windows unknown shell uses activate without Set-ExecutionPolicy', async () => {
+            isWindowsStub.returns(true);
+
+            const result = await getShellActivationCommands(tmpDir);
+            const unknownActivation = result.shellActivation.get('unknown');
+
+            assert.ok(unknownActivation, 'Unknown shell activation should be defined');
+            assert.strictEqual(unknownActivation.length, 1);
+            assert.ok(unknownActivation[0].executable.endsWith('activate'));
+        });
+    });
+});