diff --git a/cli/azd/extensions/azure.ai.agents/internal/cmd/init_foundry_resources_helpers.go b/cli/azd/extensions/azure.ai.agents/internal/cmd/init_foundry_resources_helpers.go
index 663d6d7b480..ff1fc9ea3f1 100644
--- a/cli/azd/extensions/azure.ai.agents/internal/cmd/init_foundry_resources_helpers.go
+++ b/cli/azd/extensions/azure.ai.agents/internal/cmd/init_foundry_resources_helpers.go
@@ -532,8 +532,13 @@ func configureAppInsightsConnection(
 		selectedConnection = &appInsightsConnections[int(*selectResp.Value)]
 	}
 
-	if selectedConnection != nil && selectedConnection.Credentials.Key != "" {
-		if err := setEnvValue(ctx, azdClient, envName, "APPLICATIONINSIGHTS_CONNECTION_STRING", selectedConnection.Credentials.Key); err != nil {
+	if selectedConnection != nil {
+		if err := setEnvValue(ctx, azdClient, envName, "APPLICATIONINSIGHTS_CONNECTION_NAME", selectedConnection.Name); err != nil {
+			return err
+		}
+		if err := setEnvValue(
+			ctx, azdClient, envName, "APPLICATIONINSIGHTS_CONNECTION_STRING", selectedConnection.Credentials.Key,
+		); err != nil {
 			return err
 		}
 	}
diff --git a/cli/azd/extensions/azure.ai.agents/internal/cmd/listen.go b/cli/azd/extensions/azure.ai.agents/internal/cmd/listen.go
index a4f8b5ecdee..07708b5e4d5 100644
--- a/cli/azd/extensions/azure.ai.agents/internal/cmd/listen.go
+++ b/cli/azd/extensions/azure.ai.agents/internal/cmd/listen.go
@@ -9,6 +9,7 @@ import (
 	"fmt"
 	"os"
 	"path/filepath"
+	"strconv"
 	"strings"
 
 	"azureaiagent/internal/pkg/agents/agent_yaml"
@@ -186,6 +187,19 @@ func kindEnvUpdate(ctx context.Context, azdClient *azdext.AzdClient, project *az
 		if err := setEnvVar(ctx, azdClient, envName, "ENABLE_HOSTED_AGENTS", "true"); err != nil {
 			return err
 		}
+
+		vnextValue := os.Getenv("enableHostedAgentVNext")
+		if vnextValue == "" {
+			azdEnv, err := loadAzdEnvironment(ctx, azdClient)
+			if err == nil {
+				vnextValue = azdEnv["enableHostedAgentVNext"]
+			}
+		}
+		if enabled, err := strconv.ParseBool(vnextValue); err == nil && enabled {
+			if err := setEnvVar(ctx, azdClient, envName, "ENABLE_CAPABILITY_HOST", "false"); err != nil {
+				return err
+			}
+		}
 	}
 
 	return nil