diff --git a/src/client/terminals/pythonStartup.ts b/src/client/terminals/pythonStartup.ts
index 542a2e6a6355..28878713a8db 100644
--- a/src/client/terminals/pythonStartup.ts
+++ b/src/client/terminals/pythonStartup.ts
@@ -3,10 +3,10 @@
 
 import { ExtensionContext, Uri } from 'vscode';
 import * as path from 'path';
-import { copy, createDirectory, getConfiguration } from '../common/vscodeApis/workspaceApis';
+import { copy, createDirectory, getConfiguration, onDidChangeConfiguration } from '../common/vscodeApis/workspaceApis';
 import { EXTENSION_ROOT_DIR } from '../constants';
 
-export async function registerPythonStartup(context: ExtensionContext): Promise<void> {
+async function applyPythonStartupSetting(context: ExtensionContext): Promise<void> {
     const config = getConfiguration('python');
     const pythonrcSetting = config.get<boolean>('terminal.shellIntegration.enabled');
 
@@ -25,3 +25,14 @@ export async function registerPythonStartup(context: ExtensionContext): Promise<
         context.environmentVariableCollection.delete('PYTHONSTARTUP');
     }
 }
+
+export async function registerPythonStartup(context: ExtensionContext): Promise<void> {
+    await applyPythonStartupSetting(context);
+    context.subscriptions.push(
+        onDidChangeConfiguration(async (e) => {
+            if (e.affectsConfiguration('python.terminal.shellIntegration.enabled')) {
+                await applyPythonStartupSetting(context);
+            }
+        }),
+    );
+}
diff --git a/src/test/terminals/shellIntegration/pythonStartup.test.ts b/src/test/terminals/shellIntegration/pythonStartup.test.ts
index 06364c9445aa..45535d0ceecc 100644
--- a/src/test/terminals/shellIntegration/pythonStartup.test.ts
+++ b/src/test/terminals/shellIntegration/pythonStartup.test.ts
@@ -12,6 +12,7 @@ import {
     TerminalLinkContext,
     Terminal,
     EventEmitter,
+    workspace,
 } from 'vscode';
 import { assert } from 'chai';
 import * as workspaceApis from '../../../client/common/vscodeApis/workspaceApis';
@@ -35,6 +36,7 @@ suite('Terminal - Shell Integration with PYTHONSTARTUP', () => {
         globalEnvironmentVariableCollection = TypeMoq.Mock.ofType<GlobalEnvironmentVariableCollection>();
         context.setup((c) => c.environmentVariableCollection).returns(() => globalEnvironmentVariableCollection.object);
         context.setup((c) => c.storageUri).returns(() => Uri.parse('a'));
+        context.setup((c) => c.subscriptions).returns(() => []);
 
         globalEnvironmentVariableCollection
             .setup((c) => c.replace(TypeMoq.It.isAny(), TypeMoq.It.isAny(), TypeMoq.It.isAny()))
@@ -146,6 +148,17 @@ suite('Terminal - Shell Integration with PYTHONSTARTUP', () => {
 
         registerTerminalLinkProviderStub.restore();
     });
+
+    test('Verify onDidChangeConfiguration is called when configuration changes', async () => {
+        const onDidChangeConfigurationSpy = sinon.spy(workspace, 'onDidChangeConfiguration');
+        pythonConfig.setup((p) => p.get('terminal.shellIntegration.enabled')).returns(() => true);
+
+        await registerPythonStartup(context.object);
+
+        assert.isTrue(onDidChangeConfigurationSpy.calledOnce);
+        onDidChangeConfigurationSpy.restore();
+    });
+
     if (process.platform === 'darwin') {
         test('Mac - Verify provideTerminalLinks returns links when context.line contains expectedNativeLink', () => {
             const provider = new CustomTerminalLinkProvider();