diff --git a/src/vs/editor/common/codecs/markdownCodec/markdownDecoder.ts b/src/vs/editor/common/codecs/markdownCodec/markdownDecoder.ts
index 9da1394cf82..bec961719c9 100644
--- a/src/vs/editor/common/codecs/markdownCodec/markdownDecoder.ts
+++ b/src/vs/editor/common/codecs/markdownCodec/markdownDecoder.ts
@@ -6,14 +6,14 @@
 import { MarkdownToken } from './tokens/markdownToken.js';
 import { VSBuffer } from '../../../../base/common/buffer.js';
 import { LeftBracket } from '../simpleCodec/tokens/brackets.js';
+import { PartialMarkdownImage } from './parsers/markdownImage.js';
 import { ReadableStream } from '../../../../base/common/stream.js';
 import { LeftAngleBracket } from '../simpleCodec/tokens/angleBrackets.js';
+import { ExclamationMark } from '../simpleCodec/tokens/exclamationMark.js';
 import { BaseDecoder } from '../../../../base/common/codecs/baseDecoder.js';
 import { SimpleDecoder, TSimpleToken } from '../simpleCodec/simpleDecoder.js';
 import { MarkdownCommentStart, PartialMarkdownCommentStart } from './parsers/markdownComment.js';
 import { MarkdownLinkCaption, PartialMarkdownLink, PartialMarkdownLinkCaption } from './parsers/markdownLink.js';
-import { ExclamationMark } from '../simpleCodec/tokens/exclamationMark.js';
-import { PartialMarkdownImage } from './parsers/markdownImage.js';
 
 /**
  * Tokens handled by this decoder.
diff --git a/src/vs/platform/prompts/common/constants.ts b/src/vs/platform/prompts/common/constants.ts
index a7ea766894b..835233a0f7d 100644
--- a/src/vs/platform/prompts/common/constants.ts
+++ b/src/vs/platform/prompts/common/constants.ts
@@ -13,14 +13,22 @@ import { basename } from '../../../base/common/path.js';
 export const PROMPT_FILE_EXTENSION = '.prompt.md';
 
 /**
- * Check if provided path is a prompt file.
+ * Copilot custom instructions file name.
+ */
+const COPILOT_CUSTOM_INSTRUCTIONS_FILENAME = 'copilot-instructions.md';
+
+/**
+ * Check if provided path is a reusable prompt file.
  */
 export const isPromptFile = (
 	fileUri: URI,
 ): boolean => {
-	return fileUri
-		.path
-		.endsWith(PROMPT_FILE_EXTENSION);
+	const filename = basename(fileUri.path);
+
+	const hasPromptFileExtension = filename.endsWith(PROMPT_FILE_EXTENSION);
+	const isCustomInstructionsFile = (filename === COPILOT_CUSTOM_INSTRUCTIONS_FILENAME);
+
+	return hasPromptFileExtension || isCustomInstructionsFile;
 };
 
 /**
@@ -37,5 +45,12 @@ export const getCleanPromptName = (
 		`Provided path '${fileUri.fsPath}' is not a prompt file.`,
 	);
 
-	return basename(fileUri.path, PROMPT_FILE_EXTENSION);
+	// if a Copilot custom instructions file, remove `markdown` file extension
+	// otherwise, remove the `prompt` file extension
+	const fileExtension = (fileUri.path.endsWith(COPILOT_CUSTOM_INSTRUCTIONS_FILENAME))
+		? '.md'
+		: PROMPT_FILE_EXTENSION;
+
+	// otherwise, remove the prompt file extension
+	return basename(fileUri.path, fileExtension);
 };
diff --git a/src/vs/platform/prompts/test/common/constants.test.ts b/src/vs/platform/prompts/test/common/constants.test.ts
index 376f8318c40..547cbab9087 100644
--- a/src/vs/platform/prompts/test/common/constants.test.ts
+++ b/src/vs/platform/prompts/test/common/constants.test.ts
@@ -5,8 +5,8 @@
 
 import assert from 'assert';
 import { URI } from '../../../../base/common/uri.js';
-import { getCleanPromptName, isPromptFile } from '../../common/constants.js';
 import { randomInt } from '../../../../base/common/numbers.js';
+import { getCleanPromptName, isPromptFile } from '../../common/constants.js';
 import { ensureNoDisposablesAreLeakedInTestSuite } from '../../../../base/test/common/utils.js';
 
 
@@ -30,6 +30,11 @@ suite('Prompt Constants', () => {
 				getCleanPromptName(URI.file(`./${expectedPromptName}.prompt.md`)),
 				expectedPromptName,
 			);
+
+			assert.strictEqual(
+				getCleanPromptName(URI.file('.github/copilot-instructions.md')),
+				'copilot-instructions',
+			);
 		});
 
 		test('• throws if not a prompt file URI provided', () => {
@@ -65,6 +70,10 @@ suite('Prompt Constants', () => {
 			assert(
 				isPromptFile(URI.file(`./some-${randomInt(1000)}.prompt.md`)),
 			);
+
+			assert(
+				isPromptFile(URI.file('.github/copilot-instructions.md')),
+			);
 		});
 
 		test('• returns `false` for non-prompt files', () => {
diff --git a/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/filePromptContentsProvider.ts b/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/filePromptContentsProvider.ts
index 4f35897df0a..6d9249cb65c 100644
--- a/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/filePromptContentsProvider.ts
+++ b/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/filePromptContentsProvider.ts
@@ -11,6 +11,7 @@ import { CancellationError } from '../../../../../../base/common/errors.js';
 import { PromptContentsProviderBase } from './promptContentsProviderBase.js';
 import { VSBufferReadableStream } from '../../../../../../base/common/buffer.js';
 import { CancellationToken } from '../../../../../../base/common/cancellation.js';
+import { isPromptFile } from '../../../../../../platform/prompts/common/constants.js';
 import { OpenFailed, NotPromptFile, ResolveError, FolderReference } from '../../promptFileReferenceErrors.js';
 import { FileChangesEvent, FileChangeType, IFileService } from '../../../../../../platform/files/common/files.js';
 
@@ -102,7 +103,7 @@ export class FilePromptContentProvider extends PromptContentsProviderBase<FileCh
 		}
 
 		// if URI doesn't point to a prompt snippet file, don't try to resolve it
-		if (!this.isPromptSnippet()) {
+		if (isPromptFile(this.uri) === false) {
 			throw new NotPromptFile(this.uri);
 		}
 
diff --git a/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/promptContentsProviderBase.ts b/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/promptContentsProviderBase.ts
index 2aa8a3d0628..ee87ebed80b 100644
--- a/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/promptContentsProviderBase.ts
+++ b/src/vs/workbench/contrib/chat/common/promptSyntax/contentProviders/promptContentsProviderBase.ts
@@ -10,7 +10,6 @@ import { assert } from '../../../../../../base/common/assert.js';
 import { CancellationError } from '../../../../../../base/common/errors.js';
 import { VSBufferReadableStream } from '../../../../../../base/common/buffer.js';
 import { CancellationToken } from '../../../../../../base/common/cancellation.js';
-import { isPromptFile } from '../../../../../../platform/prompts/common/constants.js';
 import { ObservableDisposable } from '../../../../../../base/common/observableDisposable.js';
 import { FailedToResolveContentsStream, ResolveError } from '../../promptFileReferenceErrors.js';
 import { cancelPreviousCalls } from '../../../../../../base/common/decorators/cancelPreviousCalls.js';
@@ -140,11 +139,4 @@ export abstract class PromptContentsProviderBase<
 
 		return this;
 	}
-
-	/**
-	 * Check if the current URI points to a prompt snippet.
-	 */
-	public isPromptSnippet(): boolean {
-		return isPromptFile(this.uri);
-	}
 }