diff --git a/src/vs/workbench/contrib/terminal/browser/terminalTabbedView.ts b/src/vs/workbench/contrib/terminal/browser/terminalTabbedView.ts
index db3775dc0d8..e26e28b96a9 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalTabbedView.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalTabbedView.ts
@@ -342,7 +342,8 @@ export class TerminalTabbedView extends Disposable {
 	}
 
 	layout(width: number, height: number): void {
-		this._height = height;
+		const chatItemHeight = this._chatEntry?.element.style.display === 'none' ? 0 : this._chatEntry?.element.clientHeight;
+		this._height = height - (chatItemHeight ?? 0);
 		this._width = width;
 		this._splitView.layout(width);
 		if (this._shouldShowTabs()) {
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalView.ts b/src/vs/workbench/contrib/terminal/browser/terminalView.ts
index 7c0f6bad08b..5eed1d4f713 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalView.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalView.ts
@@ -106,10 +106,7 @@ export class TerminalViewPane extends ViewPane {
 			if (!this._terminalTabbedView) {
 				this._createTabsView();
 			}
-			// If we just opened our first terminal, layout
-			if (this._terminalGroupService.instances.length === 1) {
-				this.layoutBody(this._parentDomElement.offsetHeight, this._parentDomElement.offsetWidth);
-			}
+			this.layoutBody(this._parentDomElement.offsetHeight, this._parentDomElement.offsetWidth);
 		}));
 		this._dropdownMenu = this._register(this._menuService.createMenu(MenuId.TerminalNewDropdownContext, this._contextKeyService));
 		this._singleTabMenu = this._register(this._menuService.createMenu(MenuId.TerminalTabContext, this._contextKeyService));