diff --git a/install-prerequisites.ps1 b/install-prerequisites.ps1
index 5635efe..1d98d80 100644
--- a/install-prerequisites.ps1
+++ b/install-prerequisites.ps1
@@ -257,12 +257,13 @@ $results = @{
     PowerShell = $false
     Git = $false
     VSCode = $false
+    VSCodeExtensions = $false
     Python = $null  # null = not attempted, true = success, false = failed
     WindowsTerminal = $null
 }
 
 # Progress tracking
-$totalSteps = 3  # Required installations
+$totalSteps = 4  # Required installations + extensions
 $currentStep = 0
 
 Write-Host "`nStarting installation..." -ForegroundColor Cyan
@@ -280,6 +281,91 @@ function Write-ProgressIndicator {
     Write-Progress -Activity $Activity -Status $Status -PercentComplete $PercentComplete
 }
 
+function Install-VSCodeExtension {
+    param(
+        [string]$ExtensionId,
+        [string]$ExtensionName
+    )
+    
+    Write-Host "  Installing VSCode extension: $ExtensionName" -ForegroundColor Cyan
+    
+    try {
+        # Refresh environment to ensure code command is available
+        $env:Path = [System.Environment]::GetEnvironmentVariable("Path", "Machine") + ";" + [System.Environment]::GetEnvironmentVariable("Path", "User")
+        
+        $result = & code --install-extension $ExtensionId 2>&1
+        
+        if ($LASTEXITCODE -eq 0) {
+            Write-Success "VSCode extension '$ExtensionName' installed successfully"
+            return $true
+        }
+        else {
+            Write-Warning "Failed to install VSCode extension '$ExtensionName'"
+            Write-Host "  You can install it manually later: Ctrl+Shift+X → Search '$ExtensionName'" -ForegroundColor Gray
+            return $false
+        }
+    }
+    catch {
+        Write-Warning "Could not install VSCode extension '$ExtensionName`: $_"
+        Write-Host "  You can install it manually later: Ctrl+Shift+X → Search '$ExtensionName'" -ForegroundColor Gray
+        return $false
+    }
+}
+
+function Set-VSCodePowerShellIntegration {
+    Write-Host "  Configuring PowerShell 7 integration with VSCode..." -ForegroundColor Cyan
+    
+    try {
+        # Set PowerShell 7 as the default terminal in VSCode
+        $vscodeSettingsPath = Join-Path $env:APPDATA "Code\User\settings.json"
+        $vscodeSettingsDir = Split-Path $vscodeSettingsPath -Parent
+        
+        # Create directory if it doesn't exist
+        if (-not (Test-Path $vscodeSettingsDir)) {
+            New-Item -Path $vscodeSettingsDir -ItemType Directory -Force | Out-Null
+        }
+        
+        # Read existing settings or create new
+        if (Test-Path $vscodeSettingsPath) {
+            $settings = Get-Content $vscodeSettingsPath -Raw | ConvertFrom-Json
+        }
+        else {
+            $settings = @{}
+        }
+        
+        # Set PowerShell 7 as default terminal
+        if (-not $settings.PSObject.Properties.Name -contains "terminal.integrated.defaultProfile.windows") {
+            $settings | Add-Member -NotePropertyName "terminal.integrated.defaultProfile.windows" -NotePropertyValue "PowerShell"
+        }
+        else {
+            $settings."terminal.integrated.defaultProfile.windows" = "PowerShell"
+        }
+        
+        # Add terminal profiles if not present
+        if (-not $settings.PSObject.Properties.Name -contains "terminal.integrated.profiles.windows") {
+            $profiles = @{
+                "PowerShell" = @{
+                    "source" = "PowerShell"
+                    "icon" = "terminal-powershell"
+                    "path" = "pwsh.exe"
+                }
+            }
+            $settings | Add-Member -NotePropertyName "terminal.integrated.profiles.windows" -NotePropertyValue $profiles
+        }
+        
+        # Save settings
+        $settings | ConvertTo-Json -Depth 10 | Set-Content $vscodeSettingsPath
+        
+        Write-Success "VSCode configured to use PowerShell 7 as default terminal"
+        return $true
+    }
+    catch {
+        Write-Warning "Could not configure VSCode PowerShell integration automatically"
+        Write-Host "  You can configure it manually in VSCode: Ctrl+Shift+P → Terminal: Select Default Profile → PowerShell" -ForegroundColor Gray
+        return $false
+    }
+}
+
 #region Required Installations
 
 # Install PowerShell 7
@@ -310,12 +396,36 @@ if ($results.Git) {
 
 # Install Visual Studio Code
 $currentStep++
-Write-ProgressIndicator -Activity "Installing Required Tools" -Status "Installing Visual Studio Code (3/3)" -PercentComplete (($currentStep / $totalSteps) * 100)
+Write-ProgressIndicator -Activity "Installing Required Tools" -Status "Installing Visual Studio Code (3/4)" -PercentComplete (($currentStep / $totalSteps) * 100)
 $results.VSCode = Install-Package `
     -Name "Visual Studio Code" `
     -WingetId "Microsoft.VisualStudioCode" `
     -CheckCommand "code"
 
+# Install VSCode Extensions and configure PowerShell integration
+if ($results.VSCode) {
+    $currentStep++
+    Write-ProgressIndicator -Activity "Installing Required Tools" -Status "Installing VSCode Extensions (4/4)" -PercentComplete (($currentStep / $totalSteps) * 100)
+    
+    Write-Host ""
+    Write-Step "Configuring VSCode"
+    
+    # Install PowerShell extension
+    $powershellExtensionResult = Install-VSCodeExtension -ExtensionId "ms-vscode.PowerShell" -ExtensionName "PowerShell"
+    
+    # Install other recommended extensions
+    $gitLensResult = Install-VSCodeExtension -ExtensionId "eamodio.gitlens" -ExtensionName "GitLens"
+    $gitGraphResult = Install-VSCodeExtension -ExtensionId "mhutchie.git-graph" -ExtensionName "Git Graph"
+    
+    # Configure PowerShell 7 integration
+    $powershellIntegrationResult = Set-VSCodePowerShellIntegration
+    
+    $results.VSCodeExtensions = $powershellExtensionResult -or $gitLensResult -or $gitGraphResult
+}
+else {
+    $results.VSCodeExtensions = $false
+}
+
 # Clear progress bar
 Write-Progress -Activity "Installing Required Tools" -Completed
 
@@ -380,6 +490,16 @@ else {
 
 if ($results.VSCode) {
     Write-Success "Visual Studio Code"
+    
+    if ($results.VSCodeExtensions) {
+        Write-Success "  • PowerShell extension"
+        Write-Success "  • GitLens extension" 
+        Write-Success "  • Git Graph extension"
+        Write-Success "  • PowerShell 7 terminal integration"
+    }
+    else {
+        Write-Warning "  • Some VSCode extensions may need manual installation"
+    }
 }
 else {
     Write-Error "Visual Studio Code - Installation failed or needs restart"