Restricting File Processing in Microsoft 365 Copilot to Only Sensitivity-Labeled Files

Question

Hello,

I am experiencing an issue with a Defender for Cloud Apps Session Policy. The policy does not work when users upload files to Microsoft Copilot using SharePoint or OneDrive integration instead of the standard local file upload window.

My goal is to allow Copilot to process only files that have a specific sensitivity label applied.

Currently, we have created a label in Microsoft Purview that is used to encrypt and classify files permitted for upload to Microsoft 365 Copilot. The encryption successfully prevents these files from being uploaded to any external services except our corporate AI service (Copilot).

However, the second part of the requirement is to ensure that only files with this specific sensitivity label can be processed by Copilot. All other company files stored in SharePoint should remain unavailable for Copilot processing.

I created a Defender for Cloud Apps Session Policy, and it works correctly when users upload files from local storage into Copilot. However, if users choose files directly from SharePoint or OneDrive, the policy cannot intercept this action and therefore does not apply.

Could you please advise on possible implementation options? For example:

Allowing Copilot to process files only from a specific SharePoint site

Restricting Copilot access only to files with a particular sensitivity label

Completely disabling file uploads from SharePoint and OneDrive into Copilot

Thank you in advance for your assistance.

Answer 1

Welcome to Microsoft Q&A

Hello Mountain Pond,

To achieve your governance goals, you must shift from a proxy-based defense to native Microsoft 365 Purview and SharePoint controls.

Restrict Copilot to a Specific Sensitivity Label (Recommended) Microsoft Purview Data Loss Prevention to protect interactions with Microsoft 365 Copilot and Copilot Chat

You cannot achieve this through MDA, but you can achieve it using Microsoft Purview Data Loss Prevention (DLP), which now natively supports Microsoft 365 Copilot as a location.

To create an "Allow-List" approach where only files with your specific label can be processed:

Navigate to the Microsoft Purview compliance portal.

Create a new DLP Policy.

Under Locations, select Microsoft 365 Copilot (and optionally SharePoint/OneDrive).

Condition: Leave the condition broad (so it applies to all files).

Exception: Add an exception for "Content contains: Sensitivity Label" and select your specific approved label.

Action: Select the specific action Prevent Copilot from processing content.

Copilot will silently ignore and refuse to ground its responses on any SharePoint or OneDrive file unless it has your approved sensitivity label applied. https://learn.microsoft.com/en-us/sharepoint/restricted-sharepoint-search

😊 If my answer helped you resolve your issue, please consider marking it as the correct answer. This helps others in the community find solutions more easily. Thanks!

Answer 2

Defender for Cloud Apps session policies cannot control what Microsoft 365 Copilot can access when users pick files directly from SharePoint or OneDrive. Session policies inspect and control file upload/download traffic in real time between the user and the cloud app, but they do not govern how Copilot later uses files already stored in SharePoint/OneDrive and accessed via Microsoft 365’s internal APIs.

To meet the requirement “only files with a specific sensitivity label can be processed by Copilot,” and keep all other SharePoint content out of Copilot processing, use Microsoft Purview DLP for Microsoft 365 Copilot instead of (or in addition to) Defender for Cloud Apps session policies.

Below are the supported implementation options based on the provided information.

1. Restrict Copilot processing to files with a specific sensitivity label

Use Microsoft Purview DLP with the Microsoft 365 Copilot and Copilot Chat policy location:

1. In the Purview portal, create a custom DLP policy.
2. Set the location to Microsoft 365 Copilot and Copilot Chat or Microsoft 365 Copilot (for agents), as described in:
   • “Create a custom DLP policy with Microsoft 365 Copilot as the location.”
3. Add a condition:
   • Content contains → Sensitivity labels
   • Select the sensitivity label that is allowed (for example, the label used to encrypt and classify files permitted for Copilot).
4. Configure the action:
   • For all labels other than the allowed one, create a rule with action Prevent Copilot from processing content.
   • This ensures that when Copilot encounters a file or email with a disallowed label, “the content of the item isn't processed by Copilot or used in the response summary, but the item could be available in the citations of the response.”
5. Run the policy in simulation mode first to validate impact, then enforce.

This approach aligns with:

• “Create DLP policies that use the Microsoft 365 Copilot and Copilot Chat policy location with the Content contains > Sensitivity labels condition to exclude items from being processed.”
• “Set conditions to detect content labeled with specific sensitivity labels (for example, Highly Confidential). Set the action to restrict Copilot from processing the file.”

Important behaviors:

• Coverage includes “file items, which are stored and items that are actively open” in SharePoint Online and OneDrive for Business.
• In Word, Excel, and PowerPoint, the policy is evaluated at file open; if a label is applied mid‑session, enforcement starts next time the file is opened.

2. Ensure unlabeled or differently labeled files are not processed by Copilot

To ensure that only the special “Copilot‑allowed” label is processed and everything else is excluded:

1. Use Purview Information Protection to:
   • Configure default and/or auto‑labeling policies so that sensitive files get appropriate labels.
2. In the Copilot DLP policy, create rules such as:
   • Rule A: If Content contains → Sensitivity labels = [Copilot‑allowed label] → Allow (no Copilot restriction).
   • Rule B: If Content contains → Sensitivity labels = [any other label] → Prevent Copilot from processing content.
   • Optionally, a catch‑all rule for unlabeled content to also Prevent Copilot from processing content.

This matches the guidance: “Are there files or emails that shouldn't be used by Copilot for grounding? If yes, setup Microsoft Purview DLP for Copilot policies to restrict Copilot processing of files and emails with specific sensitivity label.”

3. Limiting Copilot by SharePoint site (grounding data scope)

The provided context does not describe a way to restrict Copilot processing by SharePoint site using Defender for Cloud Apps or Purview DLP. The documented control surface for Copilot processing is:

• Sensitivity labels
• Sensitive information types in prompts
• DLP policies for Copilot

What can be done instead is:

• Use site sensitivity labels and access controls (for example, Restricted Access Control) to limit who can access specific sites.
• Since “All Microsoft 365 Copilot prompts run in the security context of the user,” users can only see items they already have permission to access. DLP for Copilot then adds an extra layer to exclude certain labeled items from processing.

4. Disabling or controlling file uploads from SharePoint/OneDrive into Copilot

Defender for Cloud Apps session policies can:

• “Block upload of unclassified documents in real time” by inspecting file uploads and enforcing that only files with certain sensitivity labels are uploaded to cloud apps.

However, this applies to traffic where Defender for Cloud Apps can act as a proxy (for example, browser‑based uploads to SaaS apps). It does not control internal Microsoft 365 flows where Copilot accesses files already stored in SharePoint/OneDrive.

To control Copilot’s use of SharePoint/OneDrive content, use Purview DLP for Copilot as described above; there is no documented option in the provided material to “completely disable file uploads from SharePoint and OneDrive into Copilot” via Defender for Cloud Apps.

5. Recommended combined approach
6. Use Defender for Cloud Apps session policies to:
   • Block uploads of unclassified or unlabeled documents to external cloud apps.
   • Example: “Select the file filter Sensitivity label does not equal and then select the labels your company uses to tag classified files. Under Actions, select Block.”
7. Use Purview sensitivity labels and auto‑labeling to classify and protect content in SharePoint/OneDrive.
8. Use Purview DLP for Microsoft 365 Copilot and Copilot Chat to:
   • Allow Copilot processing only for the specific “Copilot‑allowed” label.
   • Prevent Copilot from processing all other labeled or unlabeled content.

This combination enforces:

• Only properly labeled content can be uploaded to external services.
• Within Microsoft 365, only files with the designated label are processed by Copilot, regardless of whether users select them from local storage or directly from SharePoint/OneDrive.

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References:

• Learn about using Microsoft Purview Data Loss Prevention to protect interactions with Microsoft 365 Copilot and Copilot Chat
• Step 2: Protect sensitive info in grounding data
• Use Microsoft Purview to manage data security & compliance for Microsoft 365 Copilot & Microsoft 365 Copilot Chat
• Commonly used Microsoft Defender for Cloud Apps information protection policies
• Configure a secure and governed foundation for Microsoft 365 Copilot