copilot 365 can not read files in a one drive folder for analysis

Copilot 365 is designed to work directly with files stored in OneDrive and SharePoint without requiring manual uploads, but several product and configuration limits can explain why it sometimes appears to “stop working.” It is not a sales hook, but the current behavior is constrained by how Copilot accesses data and by feature limitations.

Key points about how Copilot works with OneDrive files:

1. Access is limited to files the user can already open
   Copilot only uses data that the signed-in user has permission to access through Microsoft 365. It relies on Microsoft Graph to read emails, chats, and documents that are already accessible to that user. If a file or folder is not shared correctly, moved, or permissions change, Copilot will no longer be able to use it in responses.
2. OneDrive and SharePoint permissions must allow access
   Copilot can analyze files in OneDrive and in SharePoint document libraries, but only if:
   • The files are in the user’s OneDrive or shared with that user.
   • Tenant-level OneDrive/SharePoint sharing policies do not block access.
     If a folder is in OneDrive but not shared with the relevant users (for example, when used as a knowledge source for an agent), Copilot or Copilot Studio agents may behave as if the data does not exist until sharing is corrected.
3. Feature and file-type limitations in Copilot in OneDrive
   Even when permissions are correct, Copilot in OneDrive has current limits:
   • Multiple-file actions (summarize, compare, Q&A) are limited to 5 files at a time.
   • Files must be text-based (Word, PowerPoint, Excel, PDFs, TXT, RTF, HTML, etc.). Images, videos, and some other formats are not yet supported.
   • Files must be under 150 MB.
   • Folder-level Q&A is not supported; Copilot cannot query “a folder” as a unit, only selected files. If attempts are made to query unsupported formats, too many files, or very large files, the experience can look like Copilot “isn’t reading” the folder.
4. Supported formats for Microsoft 365 Personal/Family/Premium
   For consumer subscriptions, Copilot can work with:
   • Documents: .docx, .doc, .pdf, .txt, .rtf, .html, .htm
   • Spreadsheets: .xlsx, .xlsm, .xlsb
   • Presentations: .pptx, .ppt, plus .pdf and .docx as content sources These must be stored in OneDrive (or attached in Outlook, etc.) for Copilot to use them directly.
5. Governance and data protection can affect visibility
   Copilot operates inside the existing Microsoft 365 trust boundary and respects SharePoint/OneDrive governance and Microsoft Purview protections. If admins tighten sharing, apply certain protections, or use legacy IRM on documents, Copilot may no longer ground responses on those files even though they still exist in OneDrive.
6. Copilot in OneDrive capabilities and rollout
   Copilot in OneDrive is rolling out and not all features are available to all users everywhere. Current capabilities include:
   • Asking questions about selected files without opening them.
   • Summarizing one or multiple files (within limits).
   • Comparing differences between selected files.
   • Generating insights and using the context menu for quick PDF review.
     If the initial “seamless” experience was seen in a specific entry point (for example, OneDrive on the web) but later attempts are from another app or scenario that is not yet fully supported, it can feel inconsistent.
7. What to check when Copilot stops reading files as expected
   • Confirm the files are still in OneDrive or a SharePoint library and that they can be opened normally.
   • Verify that the account in use has the correct Copilot license and is signed in with that account in all apps.
   • Ensure the files are supported formats and under the size limit.
   • For multi-file actions, select no more than 5 files at a time.
   • If using Copilot Studio or agents, ensure the underlying OneDrive/SharePoint folder is shared with the intended users and that any required agent publishing steps are complete.

These behaviors align with the current design and limitations of Microsoft 365 Copilot and Copilot in OneDrive rather than being a one-time “hook.” As the service evolves, limits such as file count and supported formats are expected to expand.

References:

• Microsoft 365 Copilot architecture and how it works
• Microsoft 365 Copilot data and compliance readiness
• Frequently asked questions about Copilot in OneDrive
• Microsoft 365 Copilot in OneDrive help & learning
• Get started with Copilot in OneDrive
• File formats supported by Microsoft 365 Copilot
• Copilot Studio Agent doesn't recognize the docs in the Knowledge Base. - Microsoft Q&A