diff --git a/.eslintrc.yaml b/.eslintrc.yaml
index b579a9a24671..962251cd0ea1 100644
--- a/.eslintrc.yaml
+++ b/.eslintrc.yaml
@@ -36,8 +36,8 @@ rules:
   import/order:
     [error, { alphabetize: { order: "asc" }, groups: [["builtin", "external", "internal"], "parent", "sibling"] }]
   no-async-promise-executor: off
-  # This isn't a real module, just types, which apparently doesn't resolve.
-  import/no-unresolved: [error, { ignore: ["express-serve-static-core"] }]
+  # These aren't real modules, just types, which apparently don't resolve.
+  import/no-unresolved: [error, { ignore: ["express-serve-static-core", "vscode"] }]
 
 settings:
   # Does not work with CommonJS unfortunately.
diff --git a/CHANGELOG.md b/CHANGELOG.md
index 2b7ba2851c6f..a9b81b91d5ea 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -39,7 +39,7 @@ VS Code v0.00.0
 
 ### New Features
 
-- item
+- Add `VSCODE_PROXY_URI` env var for use in the terminal and extensions (#1510)
 
 ### Bug Fixes
 
diff --git a/ci/dev/postinstall.sh b/ci/dev/postinstall.sh
index 026ef5f3a225..005ec22b6589 100755
--- a/ci/dev/postinstall.sh
+++ b/ci/dev/postinstall.sh
@@ -3,15 +3,20 @@ set -euo pipefail
 
 main() {
   cd "$(dirname "$0")/../.."
+  source ./ci/lib.sh
 
-  echo "Installing code-server test dependencies..."
+  pushd test
+  echo "Installing dependencies for $PWD"
+  yarn install
+  popd
 
-  cd test
+  pushd test/e2e/extensions/test-extension
+  echo "Installing dependencies for $PWD"
   yarn install
-  cd ..
+  popd
 
-  cd vendor
-  echo "Installing vendor dependencies..."
+  pushd vendor
+  echo "Installing dependencies for $PWD"
 
   # * We install in 'modules' instead of 'node_modules' because VS Code's extensions
   # use a webpack config which cannot differentiate between its own node_modules
@@ -32,6 +37,8 @@ main() {
 
   # Finally, run the vendor `postinstall`
   yarn run postinstall
+
+  popd
 }
 
 main "$@"
diff --git a/ci/dev/test-e2e.sh b/ci/dev/test-e2e.sh
index f42deb837552..af738af5151d 100755
--- a/ci/dev/test-e2e.sh
+++ b/ci/dev/test-e2e.sh
@@ -6,6 +6,11 @@ main() {
 
   source ./ci/lib.sh
 
+  pushd test/e2e/extensions/test-extension
+  echo "Building test extension"
+  yarn build
+  popd
+
   local dir="$PWD"
   if [[ ! ${CODE_SERVER_TEST_ENTRY-} ]]; then
     echo "Set CODE_SERVER_TEST_ENTRY to test another build of code-server"
diff --git a/ci/dev/test-unit.sh b/ci/dev/test-unit.sh
index 65fa94001e39..632db727022b 100755
--- a/ci/dev/test-unit.sh
+++ b/ci/dev/test-unit.sh
@@ -3,12 +3,16 @@ set -euo pipefail
 
 main() {
   cd "$(dirname "$0")/../.."
-  cd test/unit/node/test-plugin
+  source ./ci/lib.sh
+
+  echo "Building test plugin"
+  pushd test/unit/node/test-plugin
   make -s out/index.js
+  popd
+
   # We must keep jest in a sub-directory. See ../../test/package.json for more
   # information. We must also run it from the root otherwise coverage will not
   # include our source files.
-  cd "$OLDPWD"
   CS_DISABLE_PLUGINS=true ./test/node_modules/.bin/jest "$@"
 }
 
diff --git a/src/common/util.ts b/src/common/util.ts
index 4e4f23cfd818..7fe2c1ff0ac3 100644
--- a/src/common/util.ts
+++ b/src/common/util.ts
@@ -66,33 +66,42 @@ export const resolveBase = (base?: string): string => {
   return normalize(url.pathname)
 }
 
+let options: Options
+
 /**
  * Get options embedded in the HTML or query params.
  */
 export const getOptions = <T extends Options>(): T => {
-  let options: T
-  try {
-    options = JSON.parse(document.getElementById("coder-options")!.getAttribute("data-settings")!)
-  } catch (error) {
-    options = {} as T
-  }
+  if (!options) {
+    try {
+      options = JSON.parse(document.getElementById("coder-options")!.getAttribute("data-settings")!)
+    } catch (error) {
+      console.error(error)
+      options = {} as T
+    }
 
-  // You can also pass options in stringified form to the options query
-  // variable. Options provided here will override the ones in the options
-  // element.
-  const params = new URLSearchParams(location.search)
-  const queryOpts = params.get("options")
-  if (queryOpts) {
-    options = {
-      ...options,
-      ...JSON.parse(queryOpts),
+    // You can also pass options in stringified form to the options query
+    // variable. Options provided here will override the ones in the options
+    // element.
+    const params = new URLSearchParams(location.search)
+    const queryOpts = params.get("options")
+    if (queryOpts) {
+      try {
+        options = {
+          ...options,
+          ...JSON.parse(queryOpts),
+        }
+      } catch (error) {
+        // Don't fail if the query parameters are malformed.
+        console.error(error)
+      }
     }
-  }
 
-  options.base = resolveBase(options.base)
-  options.csStaticBase = resolveBase(options.csStaticBase)
+    options.base = resolveBase(options.base)
+    options.csStaticBase = resolveBase(options.csStaticBase)
+  }
 
-  return options
+  return options as T
 }
 
 /**
diff --git a/test/e2e/extensions.test.ts b/test/e2e/extensions.test.ts
new file mode 100644
index 000000000000..f83e8e031692
--- /dev/null
+++ b/test/e2e/extensions.test.ts
@@ -0,0 +1,12 @@
+import { describe, test } from "./baseFixture"
+
+describe("Extensions", true, () => {
+  // This will only work if the test extension is loaded into code-server.
+  test("should have access to VSCODE_PROXY_URI", async ({ codeServerPage }) => {
+    const address = await codeServerPage.address()
+
+    await codeServerPage.executeCommandViaMenus("code-server: Get proxy URI")
+
+    await codeServerPage.page.waitForSelector(`text=${address}/proxy/{port}`)
+  })
+})
diff --git a/test/e2e/extensions/test-extension/.gitignore b/test/e2e/extensions/test-extension/.gitignore
new file mode 100644
index 000000000000..e7b307d8c4f7
--- /dev/null
+++ b/test/e2e/extensions/test-extension/.gitignore
@@ -0,0 +1 @@
+/extension.js
diff --git a/test/e2e/extensions/test-extension/extension.ts b/test/e2e/extensions/test-extension/extension.ts
new file mode 100644
index 000000000000..dcbd6dde7bc0
--- /dev/null
+++ b/test/e2e/extensions/test-extension/extension.ts
@@ -0,0 +1,13 @@
+import * as vscode from "vscode"
+
+export function activate(context: vscode.ExtensionContext) {
+  context.subscriptions.push(
+    vscode.commands.registerCommand("codeServerTest.proxyUri", () => {
+      if (process.env.VSCODE_PROXY_URI) {
+        vscode.window.showInformationMessage(process.env.VSCODE_PROXY_URI)
+      } else {
+        vscode.window.showErrorMessage("No proxy URI was set")
+      }
+    }),
+  )
+}
diff --git a/test/e2e/extensions/test-extension/package.json b/test/e2e/extensions/test-extension/package.json
new file mode 100644
index 000000000000..82be6fe52ced
--- /dev/null
+++ b/test/e2e/extensions/test-extension/package.json
@@ -0,0 +1,29 @@
+{
+  "name": "code-server-extension",
+  "description": "code-server test extension",
+  "version": "0.0.1",
+  "publisher": "cdr",
+  "activationEvents": [
+    "onCommand:codeServerTest.proxyUri"
+  ],
+  "engines": {
+    "vscode": "^1.56.0"
+  },
+  "main": "./extension.js",
+  "contributes": {
+    "commands": [
+      {
+        "command": "codeServerTest.proxyUri",
+        "title": "Get proxy URI",
+        "category": "code-server"
+      }
+    ]
+  },
+  "devDependencies": {
+    "@types/vscode": "^1.56.0",
+    "typescript": "^4.0.5"
+  },
+  "scripts": {
+    "build": "tsc extension.ts"
+  }
+}
diff --git a/test/e2e/extensions/test-extension/tsconfig.json b/test/e2e/extensions/test-extension/tsconfig.json
new file mode 100644
index 000000000000..9840655c5d4b
--- /dev/null
+++ b/test/e2e/extensions/test-extension/tsconfig.json
@@ -0,0 +1,10 @@
+{
+  "compilerOptions": {
+    "target": "es2020",
+    "module": "commonjs",
+    "outDir": ".",
+    "strict": true,
+    "baseUrl": "./"
+  },
+  "include": ["./extension.ts"]
+}
diff --git a/test/e2e/extensions/test-extension/yarn.lock b/test/e2e/extensions/test-extension/yarn.lock
new file mode 100644
index 000000000000..363247117ecf
--- /dev/null
+++ b/test/e2e/extensions/test-extension/yarn.lock
@@ -0,0 +1,13 @@
+# THIS IS AN AUTOGENERATED FILE. DO NOT EDIT THIS FILE DIRECTLY.
+# yarn lockfile v1
+
+
+"@types/vscode@^1.56.0":
+  version "1.57.0"
+  resolved "https://registry.yarnpkg.com/@types/vscode/-/vscode-1.57.0.tgz#cc648e0573b92f725cd1baf2621f8da9f8bc689f"
+  integrity sha512-FeznBFtIDCWRluojTsi9c3LLcCHOXP5etQfBK42+ixo1CoEAchkw39tuui9zomjZuKfUVL33KZUDIwHZ/xvOkQ==
+
+typescript@^4.0.5:
+  version "4.3.2"
+  resolved "https://registry.yarnpkg.com/typescript/-/typescript-4.3.2.tgz#399ab18aac45802d6f2498de5054fcbbe716a805"
+  integrity sha512-zZ4hShnmnoVnAHpVHWpTcxdv7dWP60S2FsydQLV8V5PbS3FifjWFFRiHSWpDJahly88PRyV5teTSLoq4eG7mKw==
diff --git a/test/e2e/models/CodeServer.ts b/test/e2e/models/CodeServer.ts
index 3acb0cd7b192..22d2bc1d034d 100644
--- a/test/e2e/models/CodeServer.ts
+++ b/test/e2e/models/CodeServer.ts
@@ -87,6 +87,8 @@ export class CodeServer {
           path.join(dir, "config.yaml"),
           "--user-data-dir",
           dir,
+          "--extensions-dir",
+          path.join(__dirname, "../extensions"),
           // The last argument is the workspace to open.
           dir,
         ],
diff --git a/test/playwright.config.ts b/test/playwright.config.ts
index 679dd33f9399..f256c0a9239e 100644
--- a/test/playwright.config.ts
+++ b/test/playwright.config.ts
@@ -20,12 +20,10 @@ const config: PlaywrightTestConfig = {
       name: "Chromium",
       use: { browserName: "chromium" },
     },
-
     {
       name: "Firefox",
       use: { browserName: "firefox" },
     },
-
     {
       name: "WebKit",
       use: { browserName: "webkit" },
diff --git a/test/unit/common/util.test.ts b/test/unit/common/util.test.ts
index 85422aa84629..b691cce1f994 100644
--- a/test/unit/common/util.test.ts
+++ b/test/unit/common/util.test.ts
@@ -1,6 +1,6 @@
 import { JSDOM } from "jsdom"
 import * as util from "../../../src/common/util"
-import { createLoggerMock } from "../../utils/helpers"
+import * as helpers from "../../utils/helpers"
 
 const dom = new JSDOM()
 global.document = dom.window.document
@@ -111,6 +111,8 @@ describe("util", () => {
   })
 
   describe("getOptions", () => {
+    let getOptions: typeof import("../../../src/common/util").getOptions
+
     beforeEach(() => {
       const location: LocationLike = {
         pathname: "/healthz",
@@ -124,6 +126,12 @@ describe("util", () => {
       // and tell TS that our location should be looked at
       // as Location (even though it's missing some properties)
       global.location = location as Location
+
+      // Reset and re-import since the options are cached.
+      jest.resetModules()
+      getOptions = require("../../../src/common/util").getOptions
+
+      helpers.spyOnConsole()
     })
 
     afterEach(() => {
@@ -131,47 +139,67 @@ describe("util", () => {
     })
 
     it("should return options with base and cssStaticBase even if it doesn't exist", () => {
-      expect(util.getOptions()).toStrictEqual({
+      expect(getOptions()).toStrictEqual({
         base: "",
         csStaticBase: "",
       })
+      expect(console.error).toBeCalledTimes(1)
     })
 
     it("should return options when they do exist", () => {
+      const expected = {
+        base: ".",
+        csStaticBase: "./static/development/Users/jp/Dev/code-server",
+        logLevel: 2,
+        disableTelemetry: false,
+        disableUpdateCheck: false,
+      }
+
       // Mock getElementById
       const spy = jest.spyOn(document, "getElementById")
-      // Create a fake element and set the attribute
+      // Create a fake element and set the attribute. Options are expected to be
+      // stringified JSON.
       const mockElement = document.createElement("div")
-      mockElement.setAttribute(
-        "data-settings",
-        '{"base":".","csStaticBase":"./static/development/Users/jp/Dev/code-server","logLevel":2,"disableUpdateCheck":false}',
-      )
+      mockElement.setAttribute("data-settings", JSON.stringify(expected))
       // Return mockElement from the spy
       // this way, when we call "getElementById"
       // it returns the element
       spy.mockImplementation(() => mockElement)
 
-      expect(util.getOptions()).toStrictEqual({
+      expect(getOptions()).toStrictEqual({
+        ...expected,
+        // The two bases should get resolved. The rest should be unchanged.
         base: "",
         csStaticBase: "/static/development/Users/jp/Dev/code-server",
-        disableUpdateCheck: false,
+      })
+      expect(console.error).toBeCalledTimes(0)
+    })
+
+    it("should merge options in the query", () => {
+      // Options provided in the query will override any options provided in the
+      // HTML. Options are expected to be stringified JSON (same as the
+      // element).
+      const expected = {
         logLevel: 2,
+      }
+      location.search = `?options=${JSON.stringify(expected)}`
+      expect(getOptions()).toStrictEqual({
+        ...expected,
+        base: "",
+        csStaticBase: "",
       })
+      // Once for the element.
+      expect(console.error).toBeCalledTimes(1)
     })
 
-    it("should include queryOpts", () => {
-      // Trying to understand how the implementation works
-      // 1. It grabs the search params from location.search (i.e. ?)
-      // 2. it then grabs the "options" param if it exists
-      // 3. then it creates a new options object
-      // spreads the original options
-      // then parses the queryOpts
-      location.search = '?options={"logLevel":2}'
-      expect(util.getOptions()).toStrictEqual({
+    it("should skip bad query options", () => {
+      location.search = "?options=invalidJson"
+      expect(getOptions()).toStrictEqual({
         base: "",
         csStaticBase: "",
-        logLevel: 2,
       })
+      // Once for the element, once for the query.
+      expect(console.error).toBeCalledTimes(2)
     })
   })
 
@@ -217,7 +245,7 @@ describe("util", () => {
       jest.restoreAllMocks()
     })
 
-    const loggerModule = createLoggerMock()
+    const loggerModule = helpers.createLoggerMock()
 
     it("should log an error with the message and stack trace", () => {
       const message = "You don't have access to that folder."
diff --git a/test/utils/helpers.ts b/test/utils/helpers.ts
index 2e55c322c080..36b5f620474f 100644
--- a/test/utils/helpers.ts
+++ b/test/utils/helpers.ts
@@ -29,8 +29,23 @@ export async function clean(testName: string): Promise<void> {
   await fs.rmdir(dir, { recursive: true })
 }
 
+/**
+ * Spy on the console and surpress its output.
+ * TODO: Replace `createLoggerMock` usage with `spyOnConsole`.
+ */
+export function spyOnConsole() {
+  const noop = () => undefined
+  jest.spyOn(global.console, "debug").mockImplementation(noop)
+  jest.spyOn(global.console, "error").mockImplementation(noop)
+  jest.spyOn(global.console, "info").mockImplementation(noop)
+  jest.spyOn(global.console, "trace").mockImplementation(noop)
+  jest.spyOn(global.console, "warn").mockImplementation(noop)
+}
+
 /**
  * Create a uniquely named temporary directory for a test.
+ *
+ * These directories are placed under a single temporary code-server directory.
  */
 export async function tmpdir(testName: string): Promise<string> {
   const dir = path.join(os.tmpdir(), `code-server/tests/${testName}`)
diff --git a/vendor/package.json b/vendor/package.json
index 22fe1709b706..f814e0d2fb94 100644
--- a/vendor/package.json
+++ b/vendor/package.json
@@ -7,6 +7,6 @@
     "postinstall": "./postinstall.sh"
   },
   "devDependencies": {
-    "code-oss-dev": "cdr/vscode#9cb5fb3759f46b10bc66e676fa7f44c51e84824b"
+    "code-oss-dev": "code-asher/vscode#7185f35737bd0b943119a0eee4c981677d13e23e"
   }
 }
diff --git a/vendor/yarn.lock b/vendor/yarn.lock
index d505c31d46d2..71b855bd9188 100644
--- a/vendor/yarn.lock
+++ b/vendor/yarn.lock
@@ -122,9 +122,9 @@
   integrity sha512-RbzJvlNzmRq5c3O09UipeuXno4tA1FE6ikOjxZK0tuxVv3412l64l5t1W5pj4+rJq9vpkm/kwiR07aZXnsKPxw==
 
 "@types/node@^14.6.2":
-  version "14.17.17"
-  resolved "https://registry.yarnpkg.com/@types/node/-/node-14.17.17.tgz#4ec7b71bbcb01a4e55455b60b18b1b6a783fe31d"
-  integrity sha512-niAjcewgEYvSPCZm3OaM9y6YQrL2SEPH9PymtE6fuZAvFiP6ereCcvApGl2jKTq7copTIguX3PBvfP08LN4LvQ==
+  version "14.17.19"
+  resolved "https://registry.yarnpkg.com/@types/node/-/node-14.17.19.tgz#7341e9ac1b5d748d7a3ddc04336ed536a6f91c31"
+  integrity sha512-jjYI6NkyfXykucU6ELEoT64QyKOdvaA6enOqKtP4xUsGY0X0ZUZz29fUmrTRo+7v7c6TgDu82q3GHHaCEkqZwA==
 
 "@vscode/sqlite3@4.0.12":
   version "4.0.12"
@@ -313,9 +313,9 @@ clone-response@^1.0.2:
   dependencies:
     mimic-response "^1.0.0"
 
-code-oss-dev@cdr/vscode#9cb5fb3759f46b10bc66e676fa7f44c51e84824b:
+code-oss-dev@code-asher/vscode#7185f35737bd0b943119a0eee4c981677d13e23e:
   version "1.60.0"
-  resolved "https://codeload.github.com/cdr/vscode/tar.gz/9cb5fb3759f46b10bc66e676fa7f44c51e84824b"
+  resolved "https://codeload.github.com/code-asher/vscode/tar.gz/7185f35737bd0b943119a0eee4c981677d13e23e"
   dependencies:
     "@coder/logger" "^1.1.16"
     "@microsoft/applicationinsights-web" "^2.6.4"
@@ -396,9 +396,9 @@ console-control-strings@^1.0.0, console-control-strings@~1.1.0:
   integrity sha1-PXz0Rk22RG6mRL9LOVB/mFEAjo4=
 
 core-js@^3.6.5:
-  version "3.17.3"
-  resolved "https://registry.yarnpkg.com/core-js/-/core-js-3.17.3.tgz#8e8bd20e91df9951e903cabe91f9af4a0895bc1e"
-  integrity sha512-lyvajs+wd8N1hXfzob1LdOCCHFU4bGMbqqmLn1Q4QlCpDqWPpGf+p0nj+LNrvDDG33j0hZXw2nsvvVpHysxyNw==
+  version "3.18.1"
+  resolved "https://registry.yarnpkg.com/core-js/-/core-js-3.18.1.tgz#289d4be2ce0085d40fc1244c0b1a54c00454622f"
+  integrity sha512-vJlUi/7YdlCZeL6fXvWNaLUPh/id12WXj3MbkMw5uOyF0PfWPBNOCNbs53YqgrvtujLNlt9JQpruyIKkUZ+PKA==
 
 core-util-is@~1.0.0:
   version "1.0.3"