diff --git a/bundled/tool/_debug_server.py b/bundled/tool/_debug_server.py
index 00a3aae..79d482e 100644
--- a/bundled/tool/_debug_server.py
+++ b/bundled/tool/_debug_server.py
@@ -15,23 +15,24 @@ def update_sys_path(path_to_add: str) -> None:
 
 
 # Ensure debugger is loaded before we load anything else, to debug initialization.
-debugger_path = os.getenv("DEBUGPY_PATH", None)
-if debugger_path:
-    if debugger_path.endswith("debugpy"):
-        debugger_path = os.fspath(pathlib.Path(debugger_path).parent)
+if os.getenv("USE_DEBUGPY", "").strip().lower() in ["true", "1", "t", "yes"]:
+    debugger_path = os.getenv("DEBUGPY_PATH", None)
+    if debugger_path:
+        if debugger_path.endswith("debugpy"):
+            debugger_path = os.fspath(pathlib.Path(debugger_path).parent)
 
-    update_sys_path(debugger_path)
+        update_sys_path(debugger_path)
 
-    import debugpy
+        import debugpy
 
-    # 5678 is the default port, If you need to change it update it here
-    # and in launch.json.
-    debugpy.connect(5678)
+        # 5678 is the default port, If you need to change it update it here
+        # and in launch.json.
+        debugpy.connect(5678)
 
-    # This will ensure that execution is paused as soon as the debugger
-    # connects to VS Code. If you don't want to pause here comment this
-    # line and set breakpoints as appropriate.
-    debugpy.breakpoint()
+        # This will ensure that execution is paused as soon as the debugger
+        # connects to VS Code. If you don't want to pause here comment this
+        # line and set breakpoints as appropriate.
+        debugpy.breakpoint()
 
 SERVER_PATH = os.fspath(pathlib.Path(__file__).parent / "lsp_server.py")
 # NOTE: Set breakpoint in `server.py` before continuing.
diff --git a/bundled/tool/lsp_jsonrpc.py b/bundled/tool/lsp_jsonrpc.py
index 2817d50..35e31ea 100644
--- a/bundled/tool/lsp_jsonrpc.py
+++ b/bundled/tool/lsp_jsonrpc.py
@@ -6,6 +6,7 @@
 import contextlib
 import io
 import json
+import os
 import pathlib
 import subprocess
 import threading
@@ -135,13 +136,23 @@ def stop_all_processes(self):
                 i.send_data({"id": str(uuid.uuid4()), "method": "exit"})
         self._thread_pool.shutdown(wait=False)
 
-    def start_process(self, workspace: str, args: Sequence[str], cwd: str) -> None:
+    def start_process(
+        self,
+        workspace: str,
+        args: Sequence[str],
+        cwd: str,
+        env: Optional[Dict[str, str]] = None,
+    ) -> None:
         """Starts a process and establishes JSON-RPC communication over stdio."""
+        _env = os.environ.copy()
+        if env is not None:
+            _env.update(env)
         proc = subprocess.Popen(
             args,
             cwd=cwd,
             stdout=subprocess.PIPE,
             stdin=subprocess.PIPE,
+            env=_env,
         )
         self._processes[workspace] = proc
         self._rpc[workspace] = create_json_rpc(proc.stdout, proc.stdin)
@@ -212,7 +223,7 @@ def run_over_json_rpc(
     """Uses JSON-RPC to execute a command."""
     rpc: Union[JsonRpc, None] = get_or_start_json_rpc(workspace, interpreter, cwd)
     if not rpc:
-        raise Exception("Failed to run over JSON-RPC.")
+        raise ConnectionError("Failed to run over JSON-RPC.")
 
     msg_id = str(uuid.uuid4())
     msg = {
diff --git a/bundled/tool/lsp_server.py b/bundled/tool/lsp_server.py
index c5d6eea..385337b 100644
--- a/bundled/tool/lsp_server.py
+++ b/bundled/tool/lsp_server.py
@@ -697,6 +697,23 @@ def _get_settings_by_document(document: TextDocument | None):
     }
 
 
+def _get_settings_by_path(file_path: pathlib.Path):
+    # Note: WORKSPACE_SETTINGS is keyed by normalized workspaceFS path
+    # (see _update_workspace_settings), so dict lookup by workspaceFS value is correct.
+    workspaces = {s["workspaceFS"] for s in WORKSPACE_SETTINGS.values()}
+
+    while file_path != file_path.parent:
+        str_file_path = utils.normalize_path(file_path)
+        if str_file_path in workspaces:
+            return WORKSPACE_SETTINGS[str_file_path]
+        file_path = file_path.parent
+
+    setting_values = list(WORKSPACE_SETTINGS.values())
+    if not setting_values:
+        return {}
+    return setting_values[0]
+
+
 # *****************************************************
 # Internal execution APIs.
 # *****************************************************
diff --git a/src/common/envFile.ts b/src/common/envFile.ts
index 9775efd..d49673f 100644
--- a/src/common/envFile.ts
+++ b/src/common/envFile.ts
@@ -8,8 +8,9 @@ import { WorkspaceFolder } from 'vscode';
 import { traceInfo, traceWarn } from './logging';
 import { getConfiguration } from './vscodeapi';
 
-function expandTilde(value: string): string {
-    const home = process.env.HOME || process.env.USERPROFILE || '';
+export function expandTilde(value: string): string {
+    const home = process.env.HOME || process.env.USERPROFILE;
+    if (!home) return value;
     if (value === '~') {
         return home;
     }
diff --git a/src/common/settings.ts b/src/common/settings.ts
index 7b1b0fa..e5bbaf9 100644
--- a/src/common/settings.ts
+++ b/src/common/settings.ts
@@ -6,6 +6,7 @@ import { traceLog, traceWarn } from './logging';
 import { getInterpreterDetails } from './python';
 import { getConfiguration, getWorkspaceFolders } from './vscodeapi';
 import { getInterpreterFromSetting } from './utilities';
+import { expandTilde } from './envFile';
 
 /* eslint-disable @typescript-eslint/naming-convention */
 const DEFAULT_SEVERITY: Record<string, string> = {
@@ -149,13 +150,6 @@ export async function getWorkspaceSettings(
     return workspaceSetting;
 }
 
-function expandTilde(value: string): string {
-    const home = process.env.HOME || process.env.USERPROFILE || '';
-    if (value === '~') return home;
-    if (value.startsWith('~/') || value.startsWith('~\\')) return home + value.slice(1);
-    return value;
-}
-
 function getGlobalValue<T>(config: WorkspaceConfiguration, key: string, defaultValue: T): T {
     const inspect = config.inspect<T>(key);
     return inspect?.globalValue ?? inspect?.defaultValue ?? defaultValue;