Claude Code in VS Code vs Terminal: Complete Setup Guide

Two Interfaces, Different Strengths

Claude Code gives you two ways to work: directly in the terminal, or integrated into VS Code. Both access the same underlying model and capabilities, but they serve different workflows. After months of using both, I have developed strong opinions about when to use each.

The short version: I use VS Code integration for focused file editing and the terminal for multi-file operations and complex tasks. But the full picture is more nuanced.

Terminal Setup: The Power User Path

Installation

Claude Code installs via npm:

npm install -g @anthropic-ai/claude-code

You need an Anthropic API key or a Claude subscription. Set it up:

claude config set apiKey your-key-here

Or use the interactive setup:

claude
# Follow the authentication prompts

Terminal Configuration

For the best terminal experience, I recommend a few configurations:

Shell integration. Claude Code works with any terminal, but it works best when it can detect your shell environment. On macOS with zsh:

# In your .zshrc
export ANTHROPIC_API_KEY="your-key"

Terminal size. Claude Code outputs can be long. I use a terminal with good scrollback (iTerm2 on Mac, Windows Terminal on Windows) and keep the window wide (at least 120 columns).

Directory context. Always start Claude Code from your project root. It uses the working directory as context:

cd /path/to/my-react-project
claude

Terminal Usage Patterns

In the terminal, Claude Code feels like a supercharged shell. You type natural language, and it operates on your project:

me: Show me all components that use the useAuth hook

me: Refactor the Dashboard page to use the new layout system.
    The layout components are in components/layout/

me: Run the tests for the auth module and fix any failures

The terminal excels at:

• Multi-file operations. Refactoring across many files, searching the codebase, making coordinated changes.
• Build and test workflows. Running commands, reading output, fixing issues iteratively.
• Exploration. Understanding unfamiliar codebases, finding patterns, answering questions about the code.
• Git operations. Creating commits, reviewing diffs, managing branches.

Terminal Tips

Use the up arrow. Claude Code remembers your conversation history within a session. You can reference previous tasks.

Be explicit about scope. "Fix the button" could mean anything. "Fix the disabled state styling on the Button component in components/ui/Button.tsx" is unambiguous.

Use /compact when context gets large. Long sessions accumulate context. When Claude Code starts to slow down or seem confused, use /compact to summarize and reset.

Chain tasks naturally. "Now add tests for what we just built" works because Claude Code remembers what "what we just built" means in context.

VS Code Integration: The Editor-Native Experience

Installation

Install the Claude Code extension from the VS Code marketplace. Search for "Claude Code" by Anthropic.

After installation, the extension adds:

• A Claude Code panel (usually in the sidebar)
• Commands accessible via the command palette (Cmd/Ctrl + Shift + P)
• Inline code actions (right-click context menu)

Configuration

Open VS Code settings and configure Claude Code:

{
  "claude-code.apiKey": "your-key",
  "claude-code.model": "claude-sonnet-4-20250514"
}

Or use environment variables, which is more secure:

{
  "claude-code.useEnvironmentKey": true
}

VS Code Usage Patterns

The VS Code integration shines when you are already in your editor and want AI assistance without switching context.

Inline editing. Select code in the editor, open the Claude Code panel, and describe what you want to change. The changes appear as a diff you can accept or reject.

File-focused work. When you are working on a single file and need help with a specific function, the VS Code integration keeps you in flow because the file is already open and visible.

Quick explanations. Select unfamiliar code, ask "What does this do?" and get an explanation in the sidebar without leaving your editor.

Context from open files. VS Code integration automatically considers your currently open files as context, which helps Claude Code understand what you are working on.

VS Code Tips

Keep relevant files open. The integration uses open files as additional context. If you are working on a component, keep its test file, types file, and parent component open too.

Use the diff view. When Claude Code suggests changes, review the diff carefully before accepting. This is where you catch issues.

Keyboard shortcuts. Set up shortcuts for common Claude Code actions to maintain flow:

{
  "key": "cmd+shift+c",
  "command": "claude-code.openPanel"
}

When to Use Which

After extensive use of both, here is my decision framework:

Use Terminal When:

• Starting a new feature. The terminal is better for the planning and scaffolding phase where you need Claude Code to create multiple files and understand the broader context.

• Refactoring across files. Multi-file changes are more natural in the terminal where Claude Code can search, plan, and execute without the visual overhead of the editor.

• Running builds and tests. The terminal is the natural place for command execution and reading output.

• Complex tasks with multiple steps. The terminal's conversation model handles multi-step workflows better than the editor panel.

• Codebase exploration. "How does the authentication flow work?" is a terminal question because it requires reading multiple files.

Use VS Code When:

• Editing a single file. When you know exactly which file needs changes and you are already looking at it, the editor integration is faster.

• Quick inline fixes. Small changes — fix a type error, add error handling to this function, rename this variable — are faster in the editor.

• Learning unfamiliar code. Selecting code and asking "explain this" with the visual context of the editor is powerful.

• Side-by-side review. Having the code in the editor and Claude Code suggestions in the panel lets you review changes visually.

• Design implementation. When translating a design into code, having the design reference open alongside the editor and Claude Code panel creates an efficient three-way workflow.

My Daily Pattern

Morning: Terminal. I start Claude Code in the terminal, review the project state, plan the day's work, and handle any multi-file scaffolding or refactoring.

Midday: VS Code. Once the structure is in place, I switch to VS Code for implementation details — writing component logic, styling, handling edge cases. Claude Code in the editor helps with the focused work.

End of day: Terminal. I switch back to terminal for the wrap-up — running the full test suite, creating commits, doing a self-review of the day's changes.

Advanced: Using Both Simultaneously

You can run Claude Code in the terminal and have the VS Code extension active at the same time. They share the same CLAUDE.md configuration but maintain separate conversation contexts.

I sometimes use this for parallel workflows:

• Terminal: Running a long refactoring task
• VS Code: Making quick fixes to unrelated files while the terminal task progresses

The key is that both instances see the same filesystem, so changes made by one are visible to the other. Just be careful about concurrent edits to the same file — let one finish before the other starts on the same file.

Performance Considerations

Context window management. Both interfaces consume context tokens. The terminal tends to accumulate more context because conversations are longer. Use /compact regularly.

Response speed. The terminal and VS Code integration have similar response times since they use the same backend. However, the VS Code integration can feel faster for small tasks because there is less overhead in the interaction.

Large projects. For very large codebases, the terminal interface handles file searching and reading more efficiently because it does not need to synchronize with the editor state.

Choose the interface that matches your current task. The best developers I know switch between them fluidly throughout the day, using each for what it does best.