diff --git a/src/vs/platform/terminal/common/terminal.ts b/src/vs/platform/terminal/common/terminal.ts
index d5407e7af06..3c9c10db0d3 100644
--- a/src/vs/platform/terminal/common/terminal.ts
+++ b/src/vs/platform/terminal/common/terminal.ts
@@ -8,6 +8,7 @@ import { Event } from 'vs/base/common/event';
 import { IProcessEnvironment, OperatingSystem } from 'vs/base/common/platform';
 import { URI, UriComponents } from 'vs/base/common/uri';
 import { IGetTerminalLayoutInfoArgs, IProcessDetails, IPtyHostProcessReplayEvent, ISetTerminalLayoutInfoArgs } from 'vs/platform/terminal/common/terminalProcess';
+import { ThemeIcon } from 'vs/platform/theme/common/themeService';
 
 export const enum TerminalSettingId {
 	ShellLinux = 'terminal.integrated.shell.linux',
@@ -116,7 +117,7 @@ export interface IPtyHostAttachTarget {
 	workspaceId: string;
 	workspaceName: string;
 	isOrphan: boolean;
-	icon: string | undefined;
+	icon: TerminalIcon | undefined;
 }
 
 export type ITerminalsLayoutInfo = IRawTerminalsLayoutInfo<IPtyHostAttachTarget | null>;
@@ -174,7 +175,7 @@ export interface IOffProcessTerminalService {
 	getShellEnvironment(): Promise<IProcessEnvironment | undefined>;
 	setTerminalLayoutInfo(layoutInfo?: ITerminalsLayoutInfoById): Promise<void>;
 	updateTitle(id: number, title: string): Promise<void>;
-	updateIcon(id: number, icon: string, color?: string): Promise<void>;
+	updateIcon(id: number, icon: TerminalIcon, color?: string): Promise<void>;
 	getTerminalLayoutInfo(): Promise<ITerminalsLayoutInfo | undefined>;
 	reduceConnectionGraceTime(): Promise<void>;
 }
@@ -240,7 +241,7 @@ export interface IPtyService {
 	/** Confirm the process is _not_ an orphan. */
 	orphanQuestionReply(id: number): Promise<void>;
 	updateTitle(id: number, title: string): Promise<void>;
-	updateIcon(id: number, icon: string, color?: string): Promise<void>;
+	updateIcon(id: number, icon: TerminalIcon, color?: string): Promise<void>;
 	getDefaultSystemShell(osOverride?: OperatingSystem): Promise<string>;
 	getProfiles?(includeDetectedProfiles?: boolean): Promise<ITerminalProfile[]>;
 	getEnvironment(): Promise<IProcessEnvironment>;
@@ -348,7 +349,7 @@ export interface IShellLaunchConfig {
 	/**
 	 * This is a terminal that attaches to an already running terminal.
 	 */
-	attachPersistentProcess?: { id: number; pid: number; title: string; cwd: string; icon?: string; color?: string };
+	attachPersistentProcess?: { id: number; pid: number; title: string; cwd: string; icon?: TerminalIcon; color?: string };
 
 	/**
 	 * Whether the terminal process environment should be exactly as provided in
@@ -388,10 +389,9 @@ export interface IShellLaunchConfig {
 	isExtensionOwnedTerminal?: boolean;
 
 	/**
-	 * The codicon ID to use for this terminal. If not specified it will use the default fallback
-	 * icon.
+	 * The icon for the terminal, used primarily in the terminal tab.
 	 */
-	icon?: string;
+	icon?: TerminalIcon;
 
 	/**
 	 * The color ID to use for this terminal. If not specified it will use the default fallback
@@ -399,6 +399,8 @@ export interface IShellLaunchConfig {
 	color?: string;
 }
 
+export type TerminalIcon = ThemeIcon | URI | { light: URI; dark: URI };
+
 export interface IShellLaunchConfigDto {
 	name?: string;
 	executable?: string;
@@ -549,7 +551,7 @@ export interface ITerminalProfile {
 	args?: string | string[] | undefined;
 	env?: ITerminalEnvironment;
 	overrideName?: boolean;
-	icon?: string;
+	icon?: ThemeIcon | URI | { light: URI, dark: URI };
 }
 
 export interface ITerminalDimensionsOverride extends Readonly<ITerminalDimensions> {
@@ -570,7 +572,7 @@ export interface IBaseUnresolvedTerminalProfile {
 	args?: string | string[] | undefined;
 	isAutoDetected?: boolean;
 	overrideName?: boolean;
-	icon?: string;
+	icon?: ThemeIcon | URI | { light: URI, dark: URI };
 	env?: ITerminalEnvironment;
 }
 
diff --git a/src/vs/platform/terminal/common/terminalProcess.ts b/src/vs/platform/terminal/common/terminalProcess.ts
index 3fd0e6bb77b..914e85c8a94 100644
--- a/src/vs/platform/terminal/common/terminalProcess.ts
+++ b/src/vs/platform/terminal/common/terminalProcess.ts
@@ -4,7 +4,7 @@
  *--------------------------------------------------------------------------------------------*/
 
 import { UriComponents } from 'vs/base/common/uri';
-import { IRawTerminalTabLayoutInfo, ITerminalEnvironment, ITerminalTabLayoutInfoById } from 'vs/platform/terminal/common/terminal';
+import { IRawTerminalTabLayoutInfo, ITerminalEnvironment, ITerminalTabLayoutInfoById, TerminalIcon } from 'vs/platform/terminal/common/terminal';
 import { ISerializableEnvironmentVariableCollection } from 'vs/platform/terminal/common/environmentVariable';
 
 export interface ISingleTerminalConfiguration<T> {
@@ -55,7 +55,7 @@ export interface IProcessDetails {
 	workspaceId: string;
 	workspaceName: string;
 	isOrphan: boolean;
-	icon: string | undefined;
+	icon: TerminalIcon | undefined;
 	color: string | undefined;
 }
 
diff --git a/src/vs/platform/terminal/node/ptyHostService.ts b/src/vs/platform/terminal/node/ptyHostService.ts
index b57f55bc25e..b9ad90e8602 100644
--- a/src/vs/platform/terminal/node/ptyHostService.ts
+++ b/src/vs/platform/terminal/node/ptyHostService.ts
@@ -5,7 +5,7 @@
 
 import { Disposable, toDisposable } from 'vs/base/common/lifecycle';
 import { ILogService } from 'vs/platform/log/common/log';
-import { IPtyService, IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, ITerminalsLayoutInfo, TerminalIpcChannels, IHeartbeatService, HeartbeatConstants, TerminalShellType, ITerminalProfile, IRequestResolveVariablesEvent, SafeConfigProvider, TerminalSettingId } from 'vs/platform/terminal/common/terminal';
+import { IPtyService, IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, ITerminalsLayoutInfo, TerminalIpcChannels, IHeartbeatService, HeartbeatConstants, TerminalShellType, ITerminalProfile, IRequestResolveVariablesEvent, SafeConfigProvider, TerminalSettingId, TerminalIcon } from 'vs/platform/terminal/common/terminal';
 import { Client } from 'vs/base/parts/ipc/node/ipc.cp';
 import { FileAccess } from 'vs/base/common/network';
 import { ProxyChannel } from 'vs/base/parts/ipc/common/ipc';
@@ -170,7 +170,7 @@ export class PtyHostService extends Disposable implements IPtyService {
 	updateTitle(id: number, title: string): Promise<void> {
 		return this._proxy.updateTitle(id, title);
 	}
-	updateIcon(id: number, icon: string, color?: string): Promise<void> {
+	updateIcon(id: number, icon: TerminalIcon, color?: string): Promise<void> {
 		return this._proxy.updateIcon(id, icon, color);
 	}
 	attachToProcess(id: number): Promise<void> {
diff --git a/src/vs/platform/terminal/node/ptyService.ts b/src/vs/platform/terminal/node/ptyService.ts
index 1d06ff418eb..950d09a069a 100644
--- a/src/vs/platform/terminal/node/ptyService.ts
+++ b/src/vs/platform/terminal/node/ptyService.ts
@@ -5,7 +5,7 @@
 
 import { Disposable, toDisposable } from 'vs/base/common/lifecycle';
 import { IProcessEnvironment, isWindows, OperatingSystem, OS } from 'vs/base/common/platform';
-import { IPtyService, IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, LocalReconnectConstants, ITerminalsLayoutInfo, IRawTerminalInstanceLayoutInfo, ITerminalTabLayoutInfoById, ITerminalInstanceLayoutInfoById, TerminalShellType, IProcessReadyEvent } from 'vs/platform/terminal/common/terminal';
+import { IPtyService, IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, LocalReconnectConstants, ITerminalsLayoutInfo, IRawTerminalInstanceLayoutInfo, ITerminalTabLayoutInfoById, ITerminalInstanceLayoutInfoById, TerminalShellType, IProcessReadyEvent, TerminalIcon } from 'vs/platform/terminal/common/terminal';
 import { AutoOpenBarrier, Queue, RunOnceScheduler } from 'vs/base/common/async';
 import { Emitter } from 'vs/base/common/event';
 import { TerminalRecorder } from 'vs/platform/terminal/common/terminalRecorder';
@@ -17,6 +17,7 @@ import { getSystemShell } from 'vs/base/node/shell';
 import { getWindowsBuildNumber } from 'vs/platform/terminal/node/terminalEnvironment';
 import { execFile } from 'child_process';
 import { escapeNonWindowsPath } from 'vs/platform/terminal/common/terminalEnvironment';
+import { URI } from 'vs/base/common/uri';
 
 type WorkspaceId = string;
 
@@ -118,7 +119,7 @@ export class PtyService extends Disposable implements IPtyService {
 		this._throwIfNoPty(id).setTitle(title);
 	}
 
-	async updateIcon(id: number, icon: string, color?: string): Promise<void> {
+	async updateIcon(id: number, icon: URI | { light: URI; dark: URI } | { id: string, color?: { id: string } }, color?: string): Promise<void> {
 		this._throwIfNoPty(id).setIcon(icon, color);
 	}
 
@@ -303,14 +304,14 @@ export class PersistentTerminalProcess extends Disposable {
 
 	get pid(): number { return this._pid; }
 	get title(): string { return this._title || this._terminalProcess.currentTitle; }
-	get icon(): string | undefined { return this._icon; }
+	get icon(): TerminalIcon | undefined { return this._icon; }
 	get color(): string | undefined { return this._color; }
 
 	setTitle(title: string): void {
 		this._title = title;
 	}
 
-	setIcon(icon: string, color?: string): void {
+	setIcon(icon: TerminalIcon, color?: string): void {
 		this._icon = icon;
 		this._color = color;
 	}
@@ -323,7 +324,7 @@ export class PersistentTerminalProcess extends Disposable {
 		readonly shouldPersistTerminal: boolean,
 		cols: number, rows: number,
 		private readonly _logService: ILogService,
-		private _icon?: string,
+		private _icon?: TerminalIcon,
 		private _color?: string
 	) {
 		super();
diff --git a/src/vs/platform/terminal/node/terminalProfiles.ts b/src/vs/platform/terminal/node/terminalProfiles.ts
index 150b2dca5bf..f2777cd794b 100644
--- a/src/vs/platform/terminal/node/terminalProfiles.ts
+++ b/src/vs/platform/terminal/node/terminalProfiles.ts
@@ -13,6 +13,8 @@ import * as pfs from 'vs/base/node/pfs';
 import { ITerminalEnvironment, ITerminalProfile, ITerminalProfileObject, ProfileSource, SafeConfigProvider, TerminalSettingId } from 'vs/platform/terminal/common/terminal';
 import { Codicon } from 'vs/base/common/codicons';
 import { isMacintosh, isWindows } from 'vs/base/common/platform';
+import { ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { URI } from 'vs/base/common/uri';
 
 let profileSources: Map<string, IPotentialTerminalProfile> | undefined;
 
@@ -80,12 +82,12 @@ async function detectAvailableWindowsProfiles(
 	if (includeDetectedProfiles) {
 		detectedProfiles.set('PowerShell', {
 			source: ProfileSource.Pwsh,
-			icon: Codicon.terminalPowershell.id,
+			icon: Codicon.terminalPowershell,
 			isAutoDetected: true
 		});
 		detectedProfiles.set('Windows PowerShell', {
 			path: `${system32Path}\\WindowsPowerShell\\v1.0\\powershell.exe`,
-			icon: Codicon.terminalPowershell.id,
+			icon: Codicon.terminalPowershell,
 			isAutoDetected: true
 		});
 		detectedProfiles.set('Git Bash', {
@@ -102,7 +104,7 @@ async function detectAvailableWindowsProfiles(
 		});
 		detectedProfiles.set('Command Prompt', {
 			path: `${system32Path}\\cmd.exe`,
-			icon: Codicon.terminalCmd.id,
+			icon: Codicon.terminalCmd,
 			isAutoDetected: true
 		});
 	}
@@ -137,7 +139,7 @@ async function transformToTerminalProfiles(
 		if (profile === null) { continue; }
 		let originalPaths: string[];
 		let args: string[] | string | undefined;
-		let icon: string | undefined;
+		let icon: ThemeIcon | URI | { light: URI, dark: URI } | undefined = undefined;
 		if ('source' in profile) {
 			const source = profileSources?.get(profile.source);
 			if (!source) {
@@ -147,11 +149,15 @@ async function transformToTerminalProfiles(
 
 			// if there are configured args, override the default ones
 			args = profile.args || source.args;
-			icon = profile.icon || source.icon;
+			if (profile.icon) {
+				icon = profile.icon;
+			} else if (source.icon) {
+				icon = source.icon;
+			}
 		} else {
 			originalPaths = Array.isArray(profile.path) ? profile.path : [profile.path];
 			args = isWindows ? profile.args : Array.isArray(profile.args) ? profile.args : undefined;
-			icon = profile.icon;
+			icon = profile.icon || undefined;
 		}
 
 		const paths = (await variableResolver?.(originalPaths)) || originalPaths.slice();
@@ -190,7 +196,7 @@ async function initializeWindowsProfiles(): Promise<void> {
 	profileSources.set('PowerShell', {
 		profileName: 'PowerShell',
 		paths: await getPowershellPaths(),
-		icon: 'terminal-powershell'
+		icon: ThemeIcon.asThemeIcon(Codicon.terminalPowershell)
 	});
 }
 
@@ -240,12 +246,12 @@ async function getWslProfiles(wslPath: string, defaultProfileName: string | unde
 			isDefault: profileName === defaultProfileName
 		};
 		if (distroName.includes('Ubuntu')) {
-			profile.icon = 'terminal-ubuntu';
+			profile.icon = ThemeIcon.asThemeIcon(Codicon.terminalUbuntu);
 		}
 		else if (distroName.includes('Debian')) {
-			profile.icon = 'terminal-debian';
+			profile.icon = ThemeIcon.asThemeIcon(Codicon.terminalDebian);
 		} else {
-			profile.icon = 'terminal-linux';
+			profile.icon = ThemeIcon.asThemeIcon(Codicon.terminalLinux);
 		}
 
 		// Add the profile
@@ -343,5 +349,5 @@ interface IPotentialTerminalProfile {
 	profileName: string;
 	paths: string[];
 	args?: string[];
-	icon?: string;
+	icon?: ThemeIcon | URI | { light: URI, dark: URI };
 }
diff --git a/src/vs/platform/theme/common/themeService.ts b/src/vs/platform/theme/common/themeService.ts
index 4032bab91fc..9867c464ae3 100644
--- a/src/vs/platform/theme/common/themeService.ts
+++ b/src/vs/platform/theme/common/themeService.ts
@@ -67,6 +67,10 @@ export namespace ThemeIcon {
 		return ti1.id === ti2.id && ti1.color?.id === ti2.color?.id;
 	}
 
+	export function asThemeIcon(codicon: Codicon): ThemeIcon {
+		return { id: codicon.id };
+	}
+
 	export const asClassNameArray: (icon: ThemeIcon) => string[] = CSSIcon.asClassNameArray;
 	export const asClassName: (icon: ThemeIcon) => string = CSSIcon.asClassName;
 	export const asCSSSelector: (icon: ThemeIcon) => string = CSSIcon.asCSSSelector;
diff --git a/src/vs/vscode.proposed.d.ts b/src/vs/vscode.proposed.d.ts
index b2985b4990f..138eb225334 100644
--- a/src/vs/vscode.proposed.d.ts
+++ b/src/vs/vscode.proposed.d.ts
@@ -891,9 +891,16 @@ declare module 'vscode' {
 
 	export interface TerminalOptions {
 		/**
-		 * A codicon ID to associate with this terminal.
+		 * The icon path or {@link ThemeIcon} for the terminal.
 		 */
-		readonly icon?: string;
+		readonly iconPath?: Uri | { light: Uri; dark: Uri } | { id: string, color?: { id: string } };
+	}
+
+	export interface ExtensionTerminalOptions {
+		/**
+		 * A themeIcon, Uri, or light and dark Uris to use as the terminal tab icon
+		 */
+		readonly iconPath?: Uri | { light: Uri; dark: Uri } | { id: string, color?: { id: string } };
 	}
 
 	//#endregion
diff --git a/src/vs/workbench/api/common/extHost.api.impl.ts b/src/vs/workbench/api/common/extHost.api.impl.ts
index 9bde67e9b9f..094d3f2ae32 100644
--- a/src/vs/workbench/api/common/extHost.api.impl.ts
+++ b/src/vs/workbench/api/common/extHost.api.impl.ts
@@ -639,7 +639,7 @@ export function createApiFactoryAndRegisterActors(accessor: ServicesAccessor): I
 					if ('pty' in nameOrOptions) {
 						return extHostTerminalService.createExtensionTerminal(nameOrOptions);
 					}
-					if (nameOrOptions.icon) {
+					if (nameOrOptions.iconPath) {
 						checkProposedApiEnabled(extension);
 					}
 					return extHostTerminalService.createTerminalFromOptions(nameOrOptions);
diff --git a/src/vs/workbench/api/common/extHost.protocol.ts b/src/vs/workbench/api/common/extHost.protocol.ts
index 4cb3d5e300d..f9068ca9931 100644
--- a/src/vs/workbench/api/common/extHost.protocol.ts
+++ b/src/vs/workbench/api/common/extHost.protocol.ts
@@ -40,7 +40,7 @@ import { ProvidedPortAttributes, TunnelCreationOptions, TunnelOptions, TunnelPro
 import { ClassifiedEvent, GDPRClassification, StrictPropertyCheck } from 'vs/platform/telemetry/common/gdprTypings';
 import { ITelemetryInfo } from 'vs/platform/telemetry/common/telemetry';
 import { IShellLaunchConfig, IShellLaunchConfigDto, ITerminalDimensions, ITerminalEnvironment, ITerminalLaunchError, ITerminalProfile } from 'vs/platform/terminal/common/terminal';
-import { ThemeColor } from 'vs/platform/theme/common/themeService';
+import { ThemeColor, ThemeIcon } from 'vs/platform/theme/common/themeService';
 import { IExtensionIdWithVersion } from 'vs/platform/userDataSync/common/extensionsStorageSync';
 import { WorkspaceTrustRequestOptions } from 'vs/platform/workspace/common/workspaceTrust';
 import { ExtensionActivationReason } from 'vs/workbench/api/common/extHostExtensionActivator';
@@ -454,7 +454,7 @@ export interface TerminalLaunchConfig {
 	shellArgs?: string[] | string;
 	cwd?: string | UriComponents;
 	env?: ITerminalEnvironment;
-	icon?: string;
+	icon?: URI | { light: URI; dark: URI } | ThemeIcon;
 	initialText?: string;
 	waitOnExit?: boolean;
 	strictEnv?: boolean;
diff --git a/src/vs/workbench/api/common/extHostTerminalService.ts b/src/vs/workbench/api/common/extHostTerminalService.ts
index 25b677b7041..be6ce95e65f 100644
--- a/src/vs/workbench/api/common/extHostTerminalService.ts
+++ b/src/vs/workbench/api/common/extHostTerminalService.ts
@@ -20,6 +20,7 @@ import { generateUuid } from 'vs/base/common/uuid';
 import { ISerializableEnvironmentVariableCollection } from 'vs/workbench/contrib/terminal/common/environmentVariable';
 import { IProcessReadyEvent, IShellLaunchConfigDto, ITerminalChildProcess, ITerminalDimensionsOverride, ITerminalEnvironment, ITerminalLaunchError, ITerminalProfile, TerminalShellType } from 'vs/platform/terminal/common/terminal';
 import { TerminalDataBufferer } from 'vs/platform/terminal/common/terminalDataBuffering';
+import { ThemeIcon } from 'vs/platform/theme/common/themeService';
 
 export interface IExtHostTerminalService extends ExtHostTerminalServiceShape, IDisposable {
 
@@ -116,7 +117,7 @@ export class ExtHostTerminal {
 		shellArgs?: string[] | string,
 		cwd?: string | URI,
 		env?: ITerminalEnvironment,
-		icon?: string,
+		icon?: URI | { light: URI; dark: URI } | ThemeIcon,
 		initialText?: string,
 		waitOnExit?: boolean,
 		strictEnv?: boolean,
@@ -130,11 +131,11 @@ export class ExtHostTerminal {
 		await this._proxy.$createTerminal(this._id, { name: this._name, shellPath, shellArgs, cwd, env, icon, initialText, waitOnExit, strictEnv, hideFromUser, isFeatureTerminal, isExtensionOwnedTerminal });
 	}
 
-	public async createExtensionTerminal(): Promise<number> {
+	public async createExtensionTerminal(iconPath?: URI | { light: URI; dark: URI } | ThemeIcon): Promise<number> {
 		if (typeof this._id !== 'string') {
 			throw new Error('Terminal has already been created');
 		}
-		await this._proxy.$createTerminal(this._id, { name: this._name, isExtensionCustomPtyTerminal: true });
+		await this._proxy.$createTerminal(this._id, { name: this._name, isExtensionCustomPtyTerminal: true, icon: iconPath });
 		// At this point, the id has been set via `$acceptTerminalOpened`
 		if (typeof this._id === 'string') {
 			throw new Error('Terminal creation failed');
@@ -348,7 +349,7 @@ export abstract class BaseExtHostTerminalService extends Disposable implements I
 	public createExtensionTerminal(options: vscode.ExtensionTerminalOptions): vscode.Terminal {
 		const terminal = new ExtHostTerminal(this._proxy, generateUuid(), options, options.name);
 		const p = new ExtHostPseudoterminal(options.pty);
-		terminal.createExtensionTerminal().then(id => {
+		terminal.createExtensionTerminal(options.iconPath).then(id => {
 			const disposable = this._setupExtHostProcessListeners(id, p);
 			this._terminalProcessDisposables[id] = disposable;
 		});
diff --git a/src/vs/workbench/api/node/extHostTerminalService.ts b/src/vs/workbench/api/node/extHostTerminalService.ts
index 91043450d7e..8173c051ff2 100644
--- a/src/vs/workbench/api/node/extHostTerminalService.ts
+++ b/src/vs/workbench/api/node/extHostTerminalService.ts
@@ -32,7 +32,7 @@ export class ExtHostTerminalService extends BaseExtHostTerminalService {
 			withNullAsUndefined(options.shellArgs),
 			withNullAsUndefined(options.cwd),
 			withNullAsUndefined(options.env),
-			withNullAsUndefined(options.icon),
+			withNullAsUndefined(options.iconPath),
 			withNullAsUndefined(options.message),
 			/*options.waitOnExit*/ undefined,
 			withNullAsUndefined(options.strictEnv),
diff --git a/src/vs/workbench/contrib/tasks/browser/terminalTaskSystem.ts b/src/vs/workbench/contrib/tasks/browser/terminalTaskSystem.ts
index 0ee3da84157..09697c78813 100644
--- a/src/vs/workbench/contrib/tasks/browser/terminalTaskSystem.ts
+++ b/src/vs/workbench/contrib/tasks/browser/terminalTaskSystem.ts
@@ -1209,7 +1209,7 @@ export class TerminalTaskSystem extends Disposable implements ITaskSystem {
 			}
 		}
 		if (this.currentTask.shellLaunchConfig) {
-			this.currentTask.shellLaunchConfig.icon = 'tools';
+			this.currentTask.shellLaunchConfig.icon = { id: 'tools' };
 		}
 
 		let prefersSameTerminal = presentationOptions.panel === PanelKind.Dedicated;
diff --git a/src/vs/workbench/contrib/terminal/browser/media/terminal.css b/src/vs/workbench/contrib/terminal/browser/media/terminal.css
index 1b1291a4c67..58cd1e99f25 100644
--- a/src/vs/workbench/contrib/terminal/browser/media/terminal.css
+++ b/src/vs/workbench/contrib/terminal/browser/media/terminal.css
@@ -290,6 +290,25 @@
 	color: inherit;
 }
 
+.monaco-workbench .pane-body.integrated-terminal .tabs-container.has-text .tabs-list .terminal-tabs-entry .uri-icon {
+	background-repeat: no-repeat;
+	background-size: contain;
+	margin-right: 4px;
+	height: 100%;
+}
+
+.monaco-workbench .terminal-uri-icon .monaco-highlighted-label .codicon,
+.monaco-action-bar .terminal-uri-icon.single-terminal-tab.action-label .codicon {
+	background-size: 16px;
+}
+.monaco-workbench .terminal-uri-icon .monaco-highlighted-label .codicon::before,
+.monaco-action-bar .terminal-uri-icon.single-terminal-tab.action-label:not(.alt-command) .codicon::before {
+	content: '';
+	display: inline-block;
+	width: 16px;
+	height: 16px;
+}
+
 .monaco-workbench .pane-body.integrated-terminal .terminal-drop-overlay {
 	display: block;
 	position: absolute;
diff --git a/src/vs/workbench/contrib/terminal/browser/remoteTerminalService.ts b/src/vs/workbench/contrib/terminal/browser/remoteTerminalService.ts
index 9495b9f928f..3ed3747df3d 100644
--- a/src/vs/workbench/contrib/terminal/browser/remoteTerminalService.ts
+++ b/src/vs/workbench/contrib/terminal/browser/remoteTerminalService.ts
@@ -16,7 +16,7 @@ import { IInstantiationService } from 'vs/platform/instantiation/common/instanti
 import { ILogService } from 'vs/platform/log/common/log';
 import { INotificationHandle, INotificationService, IPromptChoice, Severity } from 'vs/platform/notification/common/notification';
 import { IRemoteAuthorityResolverService } from 'vs/platform/remote/common/remoteAuthorityResolver';
-import { IRequestResolveVariablesEvent, IShellLaunchConfig, IShellLaunchConfigDto, ITerminalChildProcess, ITerminalProfile, ITerminalsLayoutInfo, ITerminalsLayoutInfoById } from 'vs/platform/terminal/common/terminal';
+import { IRequestResolveVariablesEvent, IShellLaunchConfig, IShellLaunchConfigDto, ITerminalChildProcess, ITerminalProfile, ITerminalsLayoutInfo, ITerminalsLayoutInfoById, TerminalIcon } from 'vs/platform/terminal/common/terminal';
 import { IWorkspaceContextService } from 'vs/platform/workspace/common/workspace';
 import { RemotePty } from 'vs/workbench/contrib/terminal/browser/remotePty';
 import { IRemoteTerminalService } from 'vs/workbench/contrib/terminal/browser/terminal';
@@ -215,7 +215,7 @@ export class RemoteTerminalService extends Disposable implements IRemoteTerminal
 		await this._remoteTerminalChannel?.updateTitle(id, title);
 	}
 
-	async updateIcon(id: number, icon: string, color?: string): Promise<void> {
+	async updateIcon(id: number, icon: TerminalIcon, color?: string): Promise<void> {
 		await this._remoteTerminalChannel?.updateIcon(id, icon, color);
 	}
 
diff --git a/src/vs/workbench/contrib/terminal/browser/terminal.ts b/src/vs/workbench/contrib/terminal/browser/terminal.ts
index 632674fa598..6c2315fc798 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminal.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminal.ts
@@ -8,7 +8,7 @@ import { IDisposable } from 'vs/base/common/lifecycle';
 import { URI } from 'vs/base/common/uri';
 import { FindReplaceState } from 'vs/editor/contrib/find/findState';
 import { createDecorator } from 'vs/platform/instantiation/common/instantiation';
-import { IOffProcessTerminalService, IShellLaunchConfig, ITerminalChildProcess, ITerminalDimensions, ITerminalLaunchError, ITerminalProfile, ITerminalTabLayoutInfoById, TerminalShellType } from 'vs/platform/terminal/common/terminal';
+import { IOffProcessTerminalService, IShellLaunchConfig, ITerminalChildProcess, ITerminalDimensions, ITerminalLaunchError, ITerminalProfile, ITerminalTabLayoutInfoById, TerminalIcon, TerminalShellType } from 'vs/platform/terminal/common/terminal';
 import { ICommandTracker, INavigationMode, IRemoteTerminalAttachTarget, IStartExtensionTerminalRequest, ITerminalConfigHelper, ITerminalProcessExtHostProxy, TitleEventSource } from 'vs/workbench/contrib/terminal/common/terminal';
 import type { Terminal as XTermTerminal } from 'xterm';
 import type { SearchAddon as XTermSearchAddon } from 'xterm-addon-search';
@@ -17,7 +17,6 @@ import type { WebglAddon as XTermWebglAddon } from 'xterm-addon-webgl';
 import { ITerminalStatusList } from 'vs/workbench/contrib/terminal/browser/terminalStatusList';
 import { ICompleteTerminalConfiguration } from 'vs/workbench/contrib/terminal/common/remoteTerminalChannel';
 import { Orientation } from 'vs/base/browser/ui/splitview/splitview';
-import { ThemeIcon } from 'vs/platform/theme/common/themeService';
 
 export const ITerminalService = createDecorator<ITerminalService>('terminalService');
 export const ITerminalInstanceService = createDecorator<ITerminalInstanceService>('terminalInstanceService');
@@ -267,7 +266,7 @@ export interface ITerminalInstance {
 	readonly rows: number;
 	readonly maxCols: number;
 	readonly maxRows: number;
-	readonly icon?: ThemeIcon;
+	readonly icon?: TerminalIcon;
 	readonly color?: string;
 
 	readonly statusList: ITerminalStatusList;
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalIcon.ts b/src/vs/workbench/contrib/terminal/browser/terminalIcon.ts
new file mode 100644
index 00000000000..b4b18a7b9bd
--- /dev/null
+++ b/src/vs/workbench/contrib/terminal/browser/terminalIcon.ts
@@ -0,0 +1,53 @@
+/*---------------------------------------------------------------------------------------------
+ *  Copyright (c) Microsoft Corporation. All rights reserved.
+ *  Licensed under the MIT License. See License.txt in the project root for license information.
+ *--------------------------------------------------------------------------------------------*/
+
+import { Codicon } from 'vs/base/common/codicons';
+import { hash } from 'vs/base/common/hash';
+import { URI } from 'vs/base/common/uri';
+import { ColorScheme } from 'vs/platform/theme/common/theme';
+import { ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { ITerminalInstance } from 'vs/workbench/contrib/terminal/browser/terminal';
+
+
+export function getColorClass(terminal: ITerminalInstance): string | undefined {
+	let color = undefined;
+	if (terminal.color) {
+		color = terminal.color;
+	} else if (ThemeIcon.isThemeIcon(terminal.icon) && terminal.icon.color) {
+		color = terminal.icon.color.id.replace('.', '_');
+	}
+	if (color) {
+		return `terminal-icon-${color}`;
+	}
+	return undefined;
+}
+
+export function getUriClasses(terminal: ITerminalInstance, colorScheme: ColorScheme): string[] | undefined {
+	const icon = terminal.icon;
+	if (!icon) {
+		return undefined;
+	}
+	const iconClasses: string[] = [];
+	let uri = undefined;
+	if (icon instanceof URI) {
+		uri = icon;
+	} else if (icon instanceof Object && 'light' in icon && 'dark' in icon) {
+		uri = colorScheme === ColorScheme.LIGHT ? icon.light : icon.dark;
+	}
+	if (uri instanceof URI) {
+		const uriIconKey = hash(uri.path).toString(36);
+		const className = `terminal-uri-icon-${uriIconKey}`;
+		iconClasses.push(className);
+		iconClasses.push(`terminal-uri-icon`);
+	}
+	return iconClasses;
+}
+
+export function getIconId(terminal: ITerminalInstance): string {
+	if (!terminal.icon || (terminal.icon instanceof Object && !('id' in terminal.icon))) {
+		return Codicon.terminal.id;
+	}
+	return terminal.icon.id;
+}
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts b/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
index ec26541a6c5..fb2acc2531f 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalInstance.ts
@@ -21,7 +21,7 @@ import { ILogService } from 'vs/platform/log/common/log';
 import { INotificationService, IPromptChoice, Severity } from 'vs/platform/notification/common/notification';
 import { IStorageService, StorageScope, StorageTarget } from 'vs/platform/storage/common/storage';
 import { activeContrastBorder, scrollbarSliderActiveBackground, scrollbarSliderBackground, scrollbarSliderHoverBackground } from 'vs/platform/theme/common/colorRegistry';
-import { ICssStyleCollector, IColorTheme, IThemeService, registerThemingParticipant, ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { ICssStyleCollector, IColorTheme, IThemeService, registerThemingParticipant } from 'vs/platform/theme/common/themeService';
 import { PANEL_BACKGROUND, SIDE_BAR_BACKGROUND } from 'vs/workbench/common/theme';
 import { TerminalWidgetManager } from 'vs/workbench/contrib/terminal/browser/widgets/widgetManager';
 import { ITerminalProcessManager, KEYBINDING_CONTEXT_TERMINAL_TEXT_SELECTED, NEVER_MEASURE_RENDER_TIME_STORAGE_KEY, ProcessState, TERMINAL_VIEW_ID, KEYBINDING_CONTEXT_TERMINAL_A11Y_TREE_FOCUS, INavigationMode, TitleEventSource, DEFAULT_COMMANDS_TO_SKIP_SHELL, TERMINAL_CREATION_COMMANDS, KEYBINDING_CONTEXT_TERMINAL_ALT_BUFFER_ACTIVE, SUGGESTED_RENDERER_TYPE, ITerminalProfileResolverService } from 'vs/workbench/contrib/terminal/common/terminal';
@@ -46,7 +46,7 @@ import { TypeAheadAddon } from 'vs/workbench/contrib/terminal/browser/terminalTy
 import { BrowserFeatures } from 'vs/base/browser/canIUse';
 import { IPreferencesService } from 'vs/workbench/services/preferences/common/preferences';
 import { IEnvironmentVariableInfo } from 'vs/workbench/contrib/terminal/common/environmentVariable';
-import { IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, TerminalShellType, TerminalSettingId } from 'vs/platform/terminal/common/terminal';
+import { IProcessDataEvent, IShellLaunchConfig, ITerminalDimensionsOverride, ITerminalLaunchError, TerminalShellType, TerminalSettingId, TerminalIcon } from 'vs/platform/terminal/common/terminal';
 import { IProductService } from 'vs/platform/product/common/productService';
 import { formatMessageForTerminal } from 'vs/workbench/contrib/terminal/common/terminalStrings';
 import { AutoOpenBarrier } from 'vs/base/common/async';
@@ -187,7 +187,7 @@ export class TerminalInstance extends Disposable implements ITerminalInstance {
 	get isDisconnected(): boolean { return this._processManager.isDisconnected; }
 	get isRemote(): boolean { return this._processManager.remoteAuthority !== undefined; }
 	get title(): string { return this._title; }
-	get icon(): ThemeIcon | undefined { return this._getIcon(); }
+	get icon(): TerminalIcon | undefined { return this._getIcon(); }
 	get color(): string | undefined { return this._getColor(); }
 
 	private readonly _onExit = new Emitter<number | undefined>();
@@ -320,17 +320,12 @@ export class TerminalInstance extends Disposable implements ITerminalInstance {
 		}));
 	}
 
-	private _getIcon(): Codicon | undefined {
-		if (this.shellLaunchConfig.icon) {
-			return iconRegistry.get(this.shellLaunchConfig.icon);
+	private _getIcon(): TerminalIcon | undefined {
+		const icon = this._shellLaunchConfig.icon || this._shellLaunchConfig.attachPersistentProcess?.icon;
+		if (!icon) {
+			return this._processManager.processState >= ProcessState.Launching ? Codicon.terminal : undefined;
 		}
-		if (this.shellLaunchConfig?.attachPersistentProcess?.icon) {
-			return iconRegistry.get(this.shellLaunchConfig.attachPersistentProcess.icon);
-		}
-		if (this._processManager.processState >= ProcessState.Launching) {
-			return Codicon.terminal;
-		}
-		return undefined;
+		return icon;
 	}
 
 	private _getColor(): string | undefined {
@@ -1804,8 +1799,8 @@ export class TerminalInstance extends Disposable implements ITerminalInstance {
 			title: nls.localize('changeTerminalIcon', "Change Icon"),
 			matchOnDescription: true
 		});
-		if (result) {
-			this.shellLaunchConfig.icon = result.description;
+		if (result && result.description) {
+			this.shellLaunchConfig.icon = iconRegistry.get(result.description);
 			this._onIconChanged.fire(this);
 		}
 	}
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalProfileResolverService.ts b/src/vs/workbench/contrib/terminal/browser/terminalProfileResolverService.ts
index 399cf6b2f63..71a5445705e 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalProfileResolverService.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalProfileResolverService.ts
@@ -13,12 +13,14 @@ import { IRemoteTerminalService, ITerminalService } from 'vs/workbench/contrib/t
 import { IConfigurationResolverService } from 'vs/workbench/services/configurationResolver/common/configurationResolver';
 import { IHistoryService } from 'vs/workbench/services/history/common/history';
 import { IProcessEnvironment, OperatingSystem, OS } from 'vs/base/common/platform';
-import { IShellLaunchConfig, ITerminalProfile, TerminalSettingId } from 'vs/platform/terminal/common/terminal';
+import { IShellLaunchConfig, ITerminalProfile, TerminalIcon, TerminalSettingId } from 'vs/platform/terminal/common/terminal';
 import { IShellLaunchConfigResolveOptions, ITerminalProfileResolverService } from 'vs/workbench/contrib/terminal/common/terminal';
 import * as path from 'vs/base/common/path';
 import { Codicon, iconRegistry } from 'vs/base/common/codicons';
 import { IRemoteAgentService } from 'vs/workbench/services/remote/common/remoteAgentService';
 import { debounce } from 'vs/base/common/decorators';
+import { ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { URI, UriComponents } from 'vs/base/common/uri';
 
 export interface IProfileContextProvider {
 	getDefaultSystemShell: (remoteAuthority: string | undefined, os: OperatingSystem) => Promise<string>;
@@ -43,7 +45,7 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 		private readonly _logService: ILogService,
 		private readonly _terminalService: ITerminalService,
 		private readonly _workspaceContextService: IWorkspaceContextService,
-		private readonly _remoteAgentService: IRemoteAgentService,
+		private readonly _remoteAgentService: IRemoteAgentService
 	) {
 		if (this._remoteAgentService.getConnection()) {
 			this._remoteAgentService.getEnvironment().then(env => this._primaryBackendOs = env?.os || OS);
@@ -71,10 +73,14 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 	}
 
 	resolveIcon(shellLaunchConfig: IShellLaunchConfig, os: OperatingSystem): void {
-		if (shellLaunchConfig.executable) {
+		if (shellLaunchConfig.icon) {
+			shellLaunchConfig.icon = this._getCustomIcon(shellLaunchConfig.icon) || Codicon.terminal;
 			return;
 		}
 
+		if (shellLaunchConfig.executable) {
+			return;
+		}
 		const defaultProfile = this._getUnresolvedRealDefaultProfile(os);
 		if (defaultProfile) {
 			shellLaunchConfig.icon = defaultProfile.icon;
@@ -106,8 +112,7 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 
 		// Verify the icon is valid, and fallback correctly to the generic terminal id if there is
 		// an issue
-		shellLaunchConfig.icon = this._verifyIcon(shellLaunchConfig.icon) || this._verifyIcon(resolvedProfile.icon) || Codicon.terminal.id;
-
+		shellLaunchConfig.icon = this._getCustomIcon(shellLaunchConfig.icon) || this._getCustomIcon(resolvedProfile.icon) || Codicon.terminal;
 		// Override the name if specified
 		if (resolvedProfile.overrideName) {
 			shellLaunchConfig.name = resolvedProfile.profileName;
@@ -119,12 +124,6 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 		}
 	}
 
-	private _verifyIcon(iconId?: string): string | undefined {
-		if (!iconId || !iconRegistry.get(iconId)) {
-			return undefined;
-		}
-		return iconId;
-	}
 
 	async getDefaultShell(options: IShellLaunchConfigResolveOptions): Promise<string> {
 		return (await this.getDefaultProfile(options)).path;
@@ -142,6 +141,36 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 		return this._context.getEnvironment(remoteAuthority);
 	}
 
+	private _getCustomIcon(icon?: unknown): TerminalIcon | undefined {
+		if (!icon) {
+			return undefined;
+		}
+		if (typeof icon === 'string') {
+			return iconRegistry.get(icon);
+		}
+		if (ThemeIcon.isThemeIcon(icon)) {
+			return icon;
+		}
+		if (URI.isUri(icon) || this._isUriComponents(icon)) {
+			return URI.revive(icon);
+		}
+		if (typeof icon === 'object' && icon && 'light' in icon && 'dark' in icon) {
+			const castedIcon = (icon as { light: unknown, dark: unknown });
+			if ((URI.isUri(castedIcon.light) || this._isUriComponents(castedIcon.light)) && (URI.isUri(castedIcon.dark) || this._isUriComponents(castedIcon.dark))) {
+				return { light: URI.revive(castedIcon.light), dark: URI.revive(castedIcon.dark) };
+			}
+		}
+		return undefined;
+	}
+
+	private _isUriComponents(thing: unknown): thing is UriComponents {
+		if (!thing) {
+			return false;
+		}
+		return typeof (<any>thing).path === 'string' &&
+			typeof (<any>thing).scheme === 'string';
+	}
+
 	private async _getUnresolvedDefaultProfile(options: IShellLaunchConfigResolveOptions): Promise<ITerminalProfile> {
 		// If automation shell is allowed, prefer that
 		if (options.allowAutomationShell) {
@@ -315,18 +344,18 @@ export abstract class BaseTerminalProfileResolverService implements ITerminalPro
 		}
 	}
 
-	private _guessProfileIcon(shell: string): string | undefined {
+	private _guessProfileIcon(shell: string): ThemeIcon | undefined {
 		const file = path.parse(shell).name;
 		switch (file) {
 			case 'bash':
-				return Codicon.terminalBash.id;
+				return Codicon.terminalBash;
 			case 'pwsh':
 			case 'powershell':
-				return Codicon.terminalPowershell.id;
+				return Codicon.terminalPowershell;
 			case 'tmux':
-				return Codicon.terminalTmux.id;
+				return Codicon.terminalTmux;
 			case 'cmd':
-				return Codicon.terminalCmd.id;
+				return Codicon.terminalCmd;
 			default:
 				return undefined;
 		}
@@ -389,7 +418,7 @@ export class BrowserTerminalProfileResolverService extends BaseTerminalProfileRe
 		@IRemoteTerminalService remoteTerminalService: IRemoteTerminalService,
 		@ITerminalService terminalService: ITerminalService,
 		@IWorkspaceContextService workspaceContextService: IWorkspaceContextService,
-		@IRemoteAgentService remoteAgentService: IRemoteAgentService,
+		@IRemoteAgentService remoteAgentService: IRemoteAgentService
 	) {
 		super(
 			{
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalQuickAccess.ts b/src/vs/workbench/contrib/terminal/browser/terminalQuickAccess.ts
index d5fd6d9db0a..d62c06f238c 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalQuickAccess.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalQuickAccess.ts
@@ -10,8 +10,9 @@ import { matchesFuzzy } from 'vs/base/common/filters';
 import { ITerminalService } from 'vs/workbench/contrib/terminal/browser/terminal';
 import { ICommandService } from 'vs/platform/commands/common/commands';
 import { TerminalCommandId } from 'vs/workbench/contrib/terminal/common/terminal';
-import { ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { IThemeService, ThemeIcon } from 'vs/platform/theme/common/themeService';
 import { killTerminalIcon, renameTerminalIcon } from 'vs/workbench/contrib/terminal/browser/terminalIcons';
+import { getColorClass, getIconId, getUriClasses } from 'vs/workbench/contrib/terminal/browser/terminalIcon';
 
 export class TerminalQuickAccessProvider extends PickerQuickAccessProvider<IPickerQuickAccessItem> {
 
@@ -20,6 +21,7 @@ export class TerminalQuickAccessProvider extends PickerQuickAccessProvider<IPick
 	constructor(
 		@ITerminalService private readonly _terminalService: ITerminalService,
 		@ICommandService private readonly _commandService: ICommandService,
+		@IThemeService private readonly _themeService: IThemeService
 	) {
 		super(TerminalQuickAccessProvider.PREFIX, { canAcceptInBackground: true });
 	}
@@ -32,8 +34,17 @@ export class TerminalQuickAccessProvider extends PickerQuickAccessProvider<IPick
 			const terminalGroup = terminalGroups[groupIndex];
 			for (let terminalIndex = 0; terminalIndex < terminalGroup.terminalInstances.length; terminalIndex++) {
 				const terminal = terminalGroup.terminalInstances[terminalIndex];
-				const label = `$(${terminal.icon?.id}) ${groupIndex + 1}.${terminalIndex + 1}: ${terminal.title}`;
-
+				const iconId = getIconId(terminal);
+				const label = `$(${iconId}) ${groupIndex + 1}.${terminalIndex + 1}: ${terminal.title}`;
+				const iconClasses: string[] = [];
+				const colorClass = getColorClass(terminal);
+				if (colorClass) {
+					iconClasses.push(colorClass);
+				}
+				const uriClasses = getUriClasses(terminal, this._themeService.getColorTheme().type);
+				if (uriClasses) {
+					iconClasses.push(...uriClasses);
+				}
 				const highlights = matchesFuzzy(filter, label, true);
 				if (highlights) {
 					terminalPicks.push({
@@ -49,6 +60,7 @@ export class TerminalQuickAccessProvider extends PickerQuickAccessProvider<IPick
 								tooltip: localize('killTerminal', "Kill Terminal Instance")
 							}
 						],
+						iconClasses,
 						trigger: buttonIndex => {
 							switch (buttonIndex) {
 								case 0:
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalService.ts b/src/vs/workbench/contrib/terminal/browser/terminalService.ts
index ab0e1e585c6..269bf44f401 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalService.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalService.ts
@@ -418,7 +418,7 @@ export class TerminalService implements ITerminalService {
 		if (!this.configHelper.config.enablePersistentSessions || !instance || !instance.persistentProcessId || !instance.icon) {
 			return;
 		}
-		this._offProcessTerminalService?.updateIcon(instance.persistentProcessId, instance.icon.id, instance.color);
+		this._offProcessTerminalService?.updateIcon(instance.persistentProcessId, instance.icon, instance.color);
 	}
 
 	private _removeGroup(group: ITerminalGroup): void {
@@ -964,7 +964,7 @@ export class TerminalService implements ITerminalService {
 			iconClass: ThemeIcon.asClassName(configureTerminalProfileIcon),
 			tooltip: nls.localize('createQuickLaunchProfile', "Configure Terminal Profile")
 		}];
-		const icon = profile.icon ? (iconRegistry.get(profile.icon) || Codicon.terminal) : Codicon.terminal;
+		const icon = (profile.icon && ThemeIcon.isThemeIcon(profile.icon)) ? profile.icon : Codicon.terminal;
 		const label = `$(${icon.id}) ${profile.profileName}`;
 		if (profile.args) {
 			if (typeof profile.args === 'string') {
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalTabsList.ts b/src/vs/workbench/contrib/terminal/browser/terminalTabsList.ts
index f1845c45f5a..70238c70884 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalTabsList.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalTabsList.ts
@@ -32,6 +32,7 @@ import { DataTransfers, IDragAndDropData } from 'vs/base/browser/dnd';
 import { disposableTimeout } from 'vs/base/common/async';
 import { ElementsDragAndDropData } from 'vs/base/browser/ui/list/listView';
 import { URI } from 'vs/base/common/uri';
+import { getColorClass, getIconId, getUriClasses } from 'vs/workbench/contrib/terminal/browser/terminalIcon';
 import { Schemas } from 'vs/base/common/network';
 
 const $ = DOM.$;
@@ -60,7 +61,8 @@ export class TerminalTabList extends WorkbenchList<ITerminalInstance> {
 		@ITerminalService private _terminalService: ITerminalService,
 		@ITerminalInstanceService _terminalInstanceService: ITerminalInstanceService,
 		@IInstantiationService instantiationService: IInstantiationService,
-		@IDecorationsService _decorationsService: IDecorationsService
+		@IDecorationsService _decorationsService: IDecorationsService,
+		@IThemeService private readonly _themeService: IThemeService
 	) {
 		super('TerminalTabsList', container,
 			{
@@ -91,6 +93,8 @@ export class TerminalTabList extends WorkbenchList<ITerminalInstance> {
 		this._terminalService.onInstanceTitleChanged(() => this.render());
 		this._terminalService.onInstanceIconChanged(() => this.render());
 		this._terminalService.onInstancePrimaryStatusChanged(() => this.render());
+		this._terminalService.onDidChangeConnectionState(() => this.render());
+		this._themeService.onDidColorThemeChange(() => this.render());
 		this._terminalService.onActiveInstanceChanged(e => {
 			if (e) {
 				const i = this._terminalService.terminalInstances.indexOf(e);
@@ -176,7 +180,8 @@ class TerminalTabsRenderer implements IListRenderer<ITerminalInstance, ITerminal
 		@IHoverService private readonly _hoverService: IHoverService,
 		@IConfigurationService private readonly _configurationService: IConfigurationService,
 		@IKeybindingService private readonly _keybindingService: IKeybindingService,
-		@IListService private readonly _listService: IListService
+		@IListService private readonly _listService: IListService,
+		@IThemeService private readonly _themeService: IThemeService
 	) {
 	}
 
@@ -254,20 +259,20 @@ class TerminalTabsRenderer implements IListRenderer<ITerminalInstance, ITerminal
 				template.context.hoverActions.push(...status.hoverActions);
 			}
 		}
-
+		const iconId = getIconId(instance);
 		const hasActionbar = !this.shouldHideActionBar();
-		let label: string;
+		let label: string = '';
 		if (!hasText) {
 			const primaryStatus = instance.statusList.primary;
 			// Don't show ignore severity
 			if (primaryStatus && primaryStatus.severity > Severity.Ignore) {
-				label = `${prefix}$(${primaryStatus.icon?.id || instance.icon?.id})`;
+				label = `${prefix}$(${primaryStatus.icon?.id || iconId})`;
 			} else {
-				label = `${prefix}$(${instance.icon?.id})`;
+				label = `${prefix}$(${iconId})`;
 			}
 		} else {
 			this.fillActionBar(instance, template);
-			label = `${prefix}$(${instance.icon?.id})`;
+			label = `${prefix}$(${iconId})`;
 			// Only add the title if the icon is set, this prevents the title jumping around for
 			// example when launching with a ShellLaunchConfig.name and no icon
 			if (instance.icon) {
@@ -275,12 +280,6 @@ class TerminalTabsRenderer implements IListRenderer<ITerminalInstance, ITerminal
 			}
 		}
 
-		const codicon = template.element.querySelector<HTMLElement>('.codicon');
-		if (codicon) {
-			codicon.style.color = instance?.icon?.color?.id || '';
-		}
-
-
 		if (!hasActionbar) {
 			template.actionBar.clear();
 		}
@@ -296,6 +295,16 @@ class TerminalTabsRenderer implements IListRenderer<ITerminalInstance, ITerminal
 			}
 		}));
 
+		const extraClasses: string[] = [];
+		const colorClass = getColorClass(instance);
+		if (colorClass) {
+			extraClasses.push(colorClass);
+		}
+		const uriClasses = getUriClasses(instance, this._themeService.getColorTheme().type);
+		if (uriClasses) {
+			extraClasses.push(...uriClasses);
+		}
+
 		template.label.setResource({
 			resource: instance.resource,
 			name: label,
@@ -309,7 +318,7 @@ class TerminalTabsRenderer implements IListRenderer<ITerminalInstance, ITerminal
 				markdown: new MarkdownString(title, { supportThemeIcons: true }),
 				markdownNotSupportedFallback: undefined
 			},
-			extraClasses: instance.color ? [`terminal-icon-${instance.color}`] : undefined
+			extraClasses
 		});
 	}
 
diff --git a/src/vs/workbench/contrib/terminal/browser/terminalView.ts b/src/vs/workbench/contrib/terminal/browser/terminalView.ts
index 380f7b43c08..a5f1b725b63 100644
--- a/src/vs/workbench/contrib/terminal/browser/terminalView.ts
+++ b/src/vs/workbench/contrib/terminal/browser/terminalView.ts
@@ -10,7 +10,7 @@ import { IConfigurationService } from 'vs/platform/configuration/common/configur
 import { IContextMenuService, IContextViewService } from 'vs/platform/contextview/browser/contextView';
 import { IInstantiationService } from 'vs/platform/instantiation/common/instantiation';
 import { ITelemetryService } from 'vs/platform/telemetry/common/telemetry';
-import { IThemeService, IColorTheme, registerThemingParticipant, ICssStyleCollector, ThemeIcon } from 'vs/platform/theme/common/themeService';
+import { IThemeService, IColorTheme, registerThemingParticipant, ICssStyleCollector, ThemeIcon, Themable } from 'vs/platform/theme/common/themeService';
 import { switchTerminalActionViewItemSeparator, switchTerminalShowTabsTitle } from 'vs/workbench/contrib/terminal/browser/terminalActions';
 import { TERMINAL_BACKGROUND_COLOR, TERMINAL_BORDER_COLOR, TERMINAL_DRAG_AND_DROP_BACKGROUND } from 'vs/workbench/contrib/terminal/common/terminalColorRegistry';
 import { INotificationService, IPromptChoice, Severity } from 'vs/platform/notification/common/notification';
@@ -39,6 +39,9 @@ import { createAndFillInContextMenuActions, MenuEntryActionViewItem } from 'vs/p
 import { TerminalTabContextMenuGroup } from 'vs/workbench/contrib/terminal/browser/terminalMenus';
 import { DropdownWithPrimaryActionViewItem } from 'vs/platform/actions/browser/dropdownWithPrimaryActionViewItem';
 import { dispose, IDisposable, toDisposable } from 'vs/base/common/lifecycle';
+import { URI } from 'vs/base/common/uri';
+import { ColorScheme } from 'vs/platform/theme/common/theme';
+import { getColorClass, getUriClasses } from 'vs/workbench/contrib/terminal/browser/terminalIcon';
 
 export class TerminalViewPane extends ViewPane {
 	private _actions: IAction[] | undefined;
@@ -104,6 +107,7 @@ export class TerminalViewPane extends ViewPane {
 		this._parentDomElement = container;
 		this._parentDomElement.classList.add('integrated-terminal');
 		this._fontStyleElement = document.createElement('style');
+		this._instantiationService.createInstance(TerminalThemeIconStyle, this._parentDomElement);
 
 		if (!this.shouldShowWelcome()) {
 			this._createTabsView();
@@ -352,6 +356,8 @@ function getTerminalSelectOpenItems(terminalService: ITerminalService): ISelectO
 
 class SingleTerminalTabActionViewItem extends MenuEntryActionViewItem {
 	private _color: string | undefined;
+	private _altCommand: string | undefined;
+	private _class: string | undefined;
 	private readonly _elementDisposables: IDisposable[] = [];
 	constructor(
 		action: IAction,
@@ -432,13 +438,33 @@ class SingleTerminalTabActionViewItem extends MenuEntryActionViewItem {
 			}
 			label.style.color = colorStyle;
 			dom.reset(label, ...renderLabelWithIcons(getSingleTabLabel(instance, ThemeIcon.isThemeIcon(this._commandAction.item.icon) ? this._commandAction.item.icon : undefined)));
+
+			if (this._altCommand) {
+				label.classList.remove(this._altCommand);
+				this._altCommand = undefined;
+			}
 			if (this._color) {
 				label.classList.remove(this._color);
 				this._color = undefined;
 			}
-			if (instance?.color) {
-				this._color = `terminal-icon-${instance.color}`;
-				label.classList.add(this._color);
+			if (this._class) {
+				label.classList.remove(this._class);
+				label.classList.remove('terminal-uri-icon');
+				this._class = undefined;
+			}
+			const colorClass = getColorClass(instance);
+			if (colorClass) {
+				this._color = colorClass;
+				label.classList.add(colorClass);
+			}
+			const uriClasses = getUriClasses(instance, this._themeService.getColorTheme().type);
+			if (uriClasses) {
+				this._class = uriClasses?.[0];
+				label.classList.add(...uriClasses);
+			}
+			if (this._commandAction.item.icon) {
+				this._altCommand = `alt-command`;
+				label.classList.add(this._altCommand);
 			}
 			this.updateTooltip();
 		}
@@ -459,7 +485,9 @@ function getSingleTabLabel(instance: ITerminalInstance | null, icon?: ThemeIcon)
 	if (!instance || !instance.title) {
 		return '';
 	}
-	const label = `$(${icon?.id || instance.icon?.id}) ${getSingleTabTooltip(instance)}`;
+	let iconClass = ThemeIcon.isThemeIcon(instance.icon) ? instance.icon?.id : Codicon.terminal.id;
+	const label = `$(${icon?.id || iconClass}) ${getSingleTabTooltip(instance)}`;
+
 	const primaryStatus = instance.statusList.primary;
 	if (!primaryStatus?.icon) {
 		return label;
@@ -476,3 +504,48 @@ function getSingleTabTooltip(instance: ITerminalInstance | null): string {
 	}
 	return `${instance.title} ${instance.shellLaunchConfig.description}`;
 }
+
+class TerminalThemeIconStyle extends Themable {
+	private _styleElement: HTMLElement;
+	constructor(
+		container: HTMLElement,
+		@IThemeService private readonly _themeService: IThemeService,
+		@ITerminalService private readonly _terminalService: ITerminalService
+	) {
+		super(_themeService);
+		this._registerListeners();
+		this._styleElement = document.createElement('style');
+		container.appendChild(this._styleElement);
+		this._register(toDisposable(() => container.removeChild(this._styleElement)));
+		this.updateStyles();
+	}
+
+	private _registerListeners(): void {
+		this._register(this._terminalService.onInstanceIconChanged(() => this.updateStyles()));
+		this._register(this._terminalService.onInstancesChanged(() => this.updateStyles()));
+	}
+
+	override updateStyles(): void {
+		super.updateStyles();
+		let css = '';
+		// TODO add a rule collector to avoid duplication
+		for (const instance of this._terminalService.terminalInstances) {
+			const icon = instance.icon;
+			if (!icon) {
+				return;
+			}
+			let uri = undefined;
+			if (icon instanceof URI) {
+				uri = icon;
+			} else if (icon instanceof Object && 'light' in icon && 'dark' in icon) {
+				uri = this._themeService.getColorTheme().type === ColorScheme.LIGHT ? icon.light : icon.dark;
+			}
+			const iconClasses = getUriClasses(instance, this._themeService.getColorTheme().type);
+			if (uri instanceof URI && iconClasses && iconClasses.length > 1) {
+				css += `.monaco-workbench .${iconClasses[0]} .monaco-highlighted-label .codicon, .monaco-action-bar .terminal-uri-icon.single-terminal-tab.action-label:not(.alt-command) .codicon {`;
+				css += `background-image: ${dom.asCSSUrl(uri)};}`;
+			}
+		}
+		this._styleElement.textContent = css;
+	}
+}
diff --git a/src/vs/workbench/contrib/terminal/common/remoteTerminalChannel.ts b/src/vs/workbench/contrib/terminal/common/remoteTerminalChannel.ts
index 3c9c2b9e797..633d8c00770 100644
--- a/src/vs/workbench/contrib/terminal/common/remoteTerminalChannel.ts
+++ b/src/vs/workbench/contrib/terminal/common/remoteTerminalChannel.ts
@@ -18,7 +18,7 @@ import { IEditorService } from 'vs/workbench/services/editor/common/editorServic
 import { Schemas } from 'vs/base/common/network';
 import { ILabelService } from 'vs/platform/label/common/label';
 import { IEnvironmentVariableService, ISerializableEnvironmentVariableCollection } from 'vs/workbench/contrib/terminal/common/environmentVariable';
-import { IProcessDataEvent, IRequestResolveVariablesEvent, IShellLaunchConfig, IShellLaunchConfigDto, ITerminalDimensionsOverride, ITerminalEnvironment, ITerminalLaunchError, ITerminalProfile, ITerminalsLayoutInfo, ITerminalsLayoutInfoById, TerminalShellType } from 'vs/platform/terminal/common/terminal';
+import { IProcessDataEvent, IRequestResolveVariablesEvent, IShellLaunchConfig, IShellLaunchConfigDto, ITerminalDimensionsOverride, ITerminalEnvironment, ITerminalLaunchError, ITerminalProfile, ITerminalsLayoutInfo, ITerminalsLayoutInfoById, TerminalIcon, TerminalShellType } from 'vs/platform/terminal/common/terminal';
 import { IGetTerminalLayoutInfoArgs, IProcessDetails, IPtyHostProcessReplayEvent, ISetTerminalLayoutInfoArgs } from 'vs/platform/terminal/common/terminalProcess';
 import { IProcessEnvironment, OperatingSystem } from 'vs/base/common/platform';
 
@@ -266,7 +266,7 @@ export class RemoteTerminalChannelClient {
 		return this._channel.call('$updateTitle', [id, title]);
 	}
 
-	updateIcon(id: number, icon: string, color?: string): Promise<string> {
+	updateIcon(id: number, icon: TerminalIcon, color?: string): Promise<string> {
 		return this._channel.call('$updateIcon', [id, icon, color]);
 	}
 
diff --git a/src/vs/workbench/contrib/terminal/common/terminal.ts b/src/vs/workbench/contrib/terminal/common/terminal.ts
index 6fb4a49568c..4788b47c4f1 100644
--- a/src/vs/workbench/contrib/terminal/common/terminal.ts
+++ b/src/vs/workbench/contrib/terminal/common/terminal.ts
@@ -12,6 +12,7 @@ import { IExtensionPointDescriptor } from 'vs/workbench/services/extensions/comm
 import { IProcessDataEvent, IProcessReadyEvent, IShellLaunchConfig, ITerminalDimensions, ITerminalDimensionsOverride, ITerminalLaunchError, ITerminalProfile, ITerminalProfileObject, TerminalShellType } from 'vs/platform/terminal/common/terminal';
 import { IEnvironmentVariableInfo } from 'vs/workbench/contrib/terminal/common/environmentVariable';
 import { createDecorator } from 'vs/platform/instantiation/common/instantiation';
+import { URI } from 'vs/base/common/uri';
 
 export const TERMINAL_VIEW_ID = 'terminal';
 
@@ -234,7 +235,7 @@ export interface IRemoteTerminalAttachTarget {
 	workspaceId: string;
 	workspaceName: string;
 	isOrphan: boolean;
-	icon: string | undefined;
+	icon: URI | { light: URI; dark: URI } | { id: string, color?: { id: string } } | undefined;
 	color: string | undefined;
 }
 
diff --git a/src/vs/workbench/contrib/terminal/electron-sandbox/localTerminalService.ts b/src/vs/workbench/contrib/terminal/electron-sandbox/localTerminalService.ts
index 7bdaa59e580..ed79d042d24 100644
--- a/src/vs/workbench/contrib/terminal/electron-sandbox/localTerminalService.ts
+++ b/src/vs/workbench/contrib/terminal/electron-sandbox/localTerminalService.ts
@@ -8,6 +8,7 @@ import { Disposable } from 'vs/base/common/lifecycle';
 import { Schemas } from 'vs/base/common/network';
 import { IProcessEnvironment, OperatingSystem } from 'vs/base/common/platform';
 import { withNullAsUndefined } from 'vs/base/common/types';
+import { URI } from 'vs/base/common/uri';
 import { localize } from 'vs/nls';
 import { IInstantiationService } from 'vs/platform/instantiation/common/instantiation';
 import { ILabelService } from 'vs/platform/label/common/label';
@@ -118,7 +119,7 @@ export class LocalTerminalService extends Disposable implements ILocalTerminalSe
 		await this._localPtyService.updateTitle(id, title);
 	}
 
-	async updateIcon(id: number, icon: string, color?: string): Promise<void> {
+	async updateIcon(id: number, icon: URI | { light: URI; dark: URI } | { id: string, color?: { id: string } }, color?: string): Promise<void> {
 		await this._localPtyService.updateIcon(id, icon, color);
 	}
 
diff --git a/src/vs/workbench/contrib/terminal/electron-sandbox/terminalProfileResolverService.ts b/src/vs/workbench/contrib/terminal/electron-sandbox/terminalProfileResolverService.ts
index 8c61df06052..93363863f9e 100644
--- a/src/vs/workbench/contrib/terminal/electron-sandbox/terminalProfileResolverService.ts
+++ b/src/vs/workbench/contrib/terminal/electron-sandbox/terminalProfileResolverService.ts
@@ -24,7 +24,7 @@ export class ElectronTerminalProfileResolverService extends BaseTerminalProfileR
 		@ILocalTerminalService localTerminalService: ILocalTerminalService,
 		@IRemoteTerminalService remoteTerminalService: IRemoteTerminalService,
 		@IWorkspaceContextService workspaceContextService: IWorkspaceContextService,
-		@IRemoteAgentService remoteAgentService: IRemoteAgentService,
+		@IRemoteAgentService remoteAgentService: IRemoteAgentService
 	) {
 		super(
 			{
diff --git a/src/vs/workbench/test/browser/workbenchTestServices.ts b/src/vs/workbench/test/browser/workbenchTestServices.ts
index 2414d2220b9..dad91802038 100644
--- a/src/vs/workbench/test/browser/workbenchTestServices.ts
+++ b/src/vs/workbench/test/browser/workbenchTestServices.ts
@@ -1611,7 +1611,7 @@ export class TestLocalTerminalService implements ILocalTerminalService {
 	async reduceConnectionGraceTime(): Promise<void> { throw new Error('Method not implemented.'); }
 	processBinary(id: number, data: string): Promise<void> { throw new Error('Method not implemented.'); }
 	updateTitle(id: number, title: string): Promise<void> { throw new Error('Method not implemented.'); }
-	updateIcon(id: number, icon: string, color?: string): Promise<void> { throw new Error('Method not implemented.'); }
+	updateIcon(id: number, icon: URI | { light: URI; dark: URI } | { id: string, color?: { id: string } }, color?: string): Promise<void> { throw new Error('Method not implemented.'); }
 }
 
 class TestTerminalChildProcess implements ITerminalChildProcess {