@jimmerioles seems to have found the answer. It is still more confusion than it is worth though. If it takes a whole thread of engineers to understand the difference, the features are likely poorly named, or some additional separation between the features needs to be made.

Preview: #codebase variable
This iteration, in the pre-release version of GitHub Copilot Chat, we introduced a new chat variable called #codebase. This variable can be used to provide workspace context, based on your query, to Copilot or a chat participant you are talking to.

In this example, you can think of #codebase as asking @workspace the question first, and then adding that response to the question you're asking @terminal.

Now to break it down:

• #codebase: This variable can be used to provide workspace context, based on your query, to Copilot or a chat participant you are talking to.
  • Used by itself, this is identical to @workspace. Both #codebase and @workspace can provide workspace context to Copilot
  • When used with another chat participant (@terminal, @vscode, @github etc.), it provides context to that participant. You can only use one participant at a time, so that is why it is needed.
  • I guess the rule of thumb could be always just use #codebase? By itself it gives you your workspace context like you would want, and it can also be paired with any other chat participants.
  • I wonder what @workspace #codebase would mean :] Theoretically that would be valid.

Here are some additional thoughts beyond the scope of this question. I would say the current GitHub copilot experience is confusing. There are three different chat experiences (Chat, Edit, and Agent), and different augmentation options in each (Slash commands /, Chat participants @, Chat variables (Context) #, and Tools # (MCP etc.)).

Ask Mode:

• Slash commands /
• Chat participants @
• Chat variables (Context) #

Edit Mode:

• Chat variables (Context) #

Agent Mode:

• Tools # (MCP etc.)

Another confusing aspect is I don't even see most of these chat variables in Ask and Edit modes: https://docs.github.com/en/copilot/using-github-copilot/copilot-chat/github-copilot-chat-cheat-sheet I am on the preview build, so maybe that is why. I use the #githubRepo chat variable most often, and find it extremely helpful since it uses the remote codebase index context, but I do not see it listed on the cheat sheet, nor this link: https://docs.github.com/en/copilot/using-github-copilot/copilot-chat/getting-started-with-prompts-for-copilot-chat Also, my MCP server tools are showing up in Ask and Edit modes when I type #, even though I have them unselected within the Tools section of Agent mode. I am not sure if Tools are supported in Ask and Edit modes.

In short, GitHub Copilot has done great to add many powerful features lately, but adoption and ease of using it to its full capacity is difficult, owing to the fact that the feature set and spread is confusing. I follow the GitHub Copilot changelog and VSCode changelog daily, but I still struggle to get the most out of this tool. The best example being that I was ready to build a custom GitHub Copilot extension, Copilot Knowledgebase, MCP server, or RAG solution, until I realized there was a #githubRepo chat variable that gave me exactly what I needed.

#codebase is a chat variable that references relevant context in your chat prompt. When used, it adds pertinent workspace content to your prompt. For example, asking "How do I build this #codebase?" will provide steps to build the project by analyzing documentation, scripts, and configurations.

@workspace is a built-in chat participant that enhances chat interactions by providing domain-specific knowledge. For example, when you ask "@workspace how is authentication implemented?" it will provide an overview of the authentication flow with references to the relevant code.

Okay, maybe some closure here. The key sentence is at the very end: "It's recommended to use #codebase in your chat prompts, as it provides more flexibility." Again, it makes me think the @workspace command may just disappear some day.

https://code.visualstudio.com/docs/copilot/reference/workspace-context#_what-is-the-difference-between-workspace-and-codebase

What is the difference between @workspace and #codebase?
Conceptually, both @workspace and #codebase enable you to ask questions about your entire codebase. However, there are some differences in how you can use them:

@workspace

• Chat participant, dedicated to answering questions about your codebase.
• Takes control of the user prompt and uses the codebase to provide an answer.
• Can't invoke other tools.
• Can only be used in ask mode.
• Example: "@workspace how can I validate a date?"

#codebase

• Tool that performs a codebase search based on the user prompt and adds the relevant code as context to the chat prompt.
• The LLM remains in control and can combine it with other tools for editing scenarios.
• Can be used in all chat modes (ask, edit, and agent).
• Examples: "add a tooltip to this button, consistent with other button #codebase", "add unit tests and run them #codebase"

It's recommended to use #codebase in your chat prompts, as it provides more flexibility.

Okay, I find it extremely odd that this is not differentiated in any documentation.

Referencing @workspace in Copilot Chat lets you ask questions about your entire codebase.
Source: https://code.visualstudio.com/docs/copilot/workspace-context

Sounds oddly a lot like #codebase to me. My best guess reading around is that #codebase could be useful paired with something like @terminal. In that case you have your terminal agent with context from your codebase. Besides that, I am still confused on the actual difference.

I asked Copilot:

This still seems confusing and I couldn't find an exact clarification for it.