diff --git a/src/client/interpreter/activation/terminalEnvVarCollectionService.ts b/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
index 660dbdece257..489dd1b7c6eb 100644
--- a/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
+++ b/src/client/interpreter/activation/terminalEnvVarCollectionService.ts
@@ -37,6 +37,7 @@ import { EnvironmentVariables } from '../../common/variables/types';
 import { TerminalShellType } from '../../common/terminal/types';
 import { OSType } from '../../common/utils/platform';
 import { normCase } from '../../common/platform/fs-paths';
+import { PythonEnvType } from '../../pythonEnvironments/base/info';
 
 @injectable()
 export class TerminalEnvVarCollectionService implements IExtensionActivationService, ITerminalEnvVarCollectionService {
@@ -264,8 +265,8 @@ export class TerminalEnvVarCollectionService implements IExtensionActivationServ
         if (this.platform.osType !== OSType.Windows) {
             // These shells are expected to set PS1 variable for terminal prompt for virtual/conda environments.
             const interpreter = await this.interpreterService.getActiveInterpreter(resource);
-            const shouldPS1BeSet = interpreter?.type !== undefined;
-            if (shouldPS1BeSet && !env.PS1) {
+            const shouldSetPS1 = shouldPS1BeSet(interpreter?.type, env);
+            if (shouldSetPS1 && !env.PS1) {
                 // PS1 should be set but no PS1 was set.
                 return;
             }
@@ -291,8 +292,8 @@ export class TerminalEnvVarCollectionService implements IExtensionActivationServ
         if (this.platform.osType !== OSType.Windows) {
             // These shells are expected to set PS1 variable for terminal prompt for virtual/conda environments.
             const interpreter = await this.interpreterService.getActiveInterpreter(resource);
-            const shouldPS1BeSet = interpreter?.type !== undefined;
-            if (shouldPS1BeSet && !env.PS1) {
+            const shouldSetPS1 = shouldPS1BeSet(interpreter?.type, env);
+            if (shouldSetPS1 && !env.PS1) {
                 // PS1 should be set but no PS1 was set.
                 return getPromptForEnv(interpreter);
             }
@@ -367,6 +368,15 @@ export class TerminalEnvVarCollectionService implements IExtensionActivationServ
     }
 }
 
+function shouldPS1BeSet(type: PythonEnvType | undefined, env: EnvironmentVariables): boolean {
+    if (type === PythonEnvType.Virtual) {
+        const promptDisabledVar = env.VIRTUAL_ENV_DISABLE_PROMPT;
+        const isPromptDisabled = promptDisabledVar && promptDisabledVar !== undefined;
+        return !isPromptDisabled;
+    }
+    return type !== undefined;
+}
+
 function shouldSkip(env: string) {
     return ['_', 'SHLVL'].includes(env);
 }