diff --git a/hooks/ponytail-runtime.js b/hooks/ponytail-runtime.js
index 2aa61a31..d73f3fcf 100644
--- a/hooks/ponytail-runtime.js
+++ b/hooks/ponytail-runtime.js
@@ -3,12 +3,28 @@ const path = require('path');
 const { getClaudeDir } = require('./ponytail-config');
 
 const STATE_FILE = '.ponytail-active';
-const isCopilot = Boolean(process.env.COPILOT_PLUGIN_DATA);
+
+// VS Code Copilot's agent-plugin host never sets COPILOT_PLUGIN_DATA — it only
+// injects CLAUDE_PLUGIN_ROOT, pointed at its own install dir under
+// <home>/.vscode/agent-plugins/... . Without this fallback, ponytail mistakes
+// it for native Claude Code (issue #528): wrong hook output shape, and a
+// statusLine setup nudge for a settings.json VS Code Copilot never reads.
+function looksLikeVSCodeCopilotPluginRoot(pluginRoot) {
+  if (!pluginRoot) return false;
+  const segments = pluginRoot.split(/[\\/]+/);
+  return segments.includes('agent-plugins') &&
+    segments.some((s) => s.toLowerCase() === '.vscode');
+}
+
+const isCopilot = Boolean(process.env.COPILOT_PLUGIN_DATA) ||
+  looksLikeVSCodeCopilotPluginRoot(process.env.CLAUDE_PLUGIN_ROOT);
 const isCodex = !isCopilot && Boolean(process.env.PLUGIN_DATA);
 
 let stateDir = getClaudeDir();
 if (isCodex) stateDir = process.env.PLUGIN_DATA;
-if (isCopilot) stateDir = process.env.COPILOT_PLUGIN_DATA;
+// Only redirect state into COPILOT_PLUGIN_DATA when it's actually set — the
+// VS Code Copilot fallback above detects Copilot without it being present.
+if (process.env.COPILOT_PLUGIN_DATA) stateDir = process.env.COPILOT_PLUGIN_DATA;
 
 const statePath = path.join(stateDir, STATE_FILE);
 
diff --git a/tests/hooks.test.js b/tests/hooks.test.js
index 53465dcd..872f6710 100644
--- a/tests/hooks.test.js
+++ b/tests/hooks.test.js
@@ -173,6 +173,40 @@ assert.equal(
 output = JSON.parse(result.stdout);
 assert.deepEqual(output, {});
 
+// VS Code Copilot's agent-plugin host never sets COPILOT_PLUGIN_DATA — only
+// CLAUDE_PLUGIN_ROOT, pointed at its own install dir (issue #528). Without
+// detecting that, ponytail treats it as native Claude Code: writeHookOutput
+// writes raw text instead of JSON (so JSON.parse below would throw), and the
+// statusLine setup nudge fires for a settings.json Copilot never reads.
+const vscodeCopilotHome = path.join(temp, 'vscode-copilot-home');
+fs.mkdirSync(vscodeCopilotHome, { recursive: true });
+const vscodeCopilotPluginRoot = path.join(
+  vscodeCopilotHome, '.vscode', 'agent-plugins', 'github.com', 'DietrichGebert', 'ponytail',
+);
+result = run('ponytail-activate.js', {
+  HOME: vscodeCopilotHome,
+  USERPROFILE: vscodeCopilotHome,
+  CLAUDE_PLUGIN_ROOT: vscodeCopilotPluginRoot,
+  PONYTAIL_DEFAULT_MODE: 'full',
+});
+assert.equal(result.status, 0, result.stderr);
+assert.equal(
+  fs.readFileSync(path.join(vscodeCopilotHome, '.claude', '.ponytail-active'), 'utf8'),
+  'full',
+  'without COPILOT_PLUGIN_DATA, state must still land in the ~/.claude fallback',
+);
+output = JSON.parse(result.stdout);
+assert.ok(
+  !('systemMessage' in output),
+  'must use the Copilot output shape (additionalContext only), not the Codex systemMessage shape',
+);
+assert.match(output.additionalContext, /PONYTAIL MODE ACTIVE — level: full/);
+assert.doesNotMatch(
+  output.additionalContext,
+  /STATUSLINE SETUP NEEDED/,
+  'VS Code Copilot never reads settings.json statusLine — must not nudge for it',
+);
+
 // SubagentStart hook: when ponytail mode is active it injects the ruleset into
 // each subagent (issue #252). Native Claude must get the hookSpecificOutput JSON
 // form, not raw stdout, or the context is dropped.