diff --git a/registry/coder/modules/vscode-web/main.test.ts b/registry/coder/modules/vscode-web/main.test.ts
index 860fc176c..5a0052627 100644
--- a/registry/coder/modules/vscode-web/main.test.ts
+++ b/registry/coder/modules/vscode-web/main.test.ts
@@ -1,5 +1,13 @@
 import { describe, expect, it } from "bun:test";
-import { runTerraformApply, runTerraformInit } from "~test";
+import {
+  execContainer,
+  findResourceInstance,
+  readFileContainer,
+  removeContainer,
+  runContainer,
+  runTerraformApply,
+  runTerraformInit,
+} from "~test";
 
 describe("vscode-web", async () => {
   await runTerraformInit(import.meta.dir);
@@ -38,5 +46,52 @@ describe("vscode-web", async () => {
     expect(t).toThrow("Offline mode does not allow extensions to be installed");
   });
 
-  // More tests depend on shebang refactors
+  it("writes settings to User settings path not Machine", async () => {
+    const state = await runTerraformApply(import.meta.dir, {
+      agent_id: "foo",
+      accept_license: "true",
+      offline: "true",
+    });
+    const instance = findResourceInstance(state, "coder_script");
+    // Verify the script uses User path, not Machine path
+    expect(instance.script).toContain(".vscode-server/data/User/settings.json");
+    expect(instance.script).not.toContain(
+      ".vscode-server/data/Machine/settings.json",
+    );
+  });
+
+  it("writes provided settings to ~/.vscode-server/data/User/settings.json", async () => {
+    const id = await runContainer("alpine");
+    try {
+      const settings = {
+        "editor.fontSize": 16,
+        "workbench.colorTheme": "Default Dark+",
+      };
+      const state = await runTerraformApply(import.meta.dir, {
+        agent_id: "foo",
+        accept_license: "true",
+        offline: "true",
+        settings: JSON.stringify(settings),
+      });
+      const instance = findResourceInstance(state, "coder_script");
+      // Extract and run only the settings portion of the script
+      const settingsScript = `
+SETTINGS='${JSON.stringify(settings).replace(/'/g, "'\\''")}'
+if [ ! -f ~/.vscode-server/data/User/settings.json ]; then
+  mkdir -p ~/.vscode-server/data/User
+  echo "$SETTINGS" > ~/.vscode-server/data/User/settings.json
+fi
+`;
+      const resp = await execContainer(id, ["sh", "-c", settingsScript]);
+      expect(resp.exitCode).toBe(0);
+      const content = await readFileContainer(
+        id,
+        "/root/.vscode-server/data/User/settings.json",
+      );
+      const actualSettings = JSON.parse(content.trim());
+      expect(actualSettings).toEqual(settings);
+    } finally {
+      await removeContainer(id);
+    }
+  });
 });
diff --git a/registry/coder/modules/vscode-web/run.sh b/registry/coder/modules/vscode-web/run.sh
index 57bb760f9..2aea275d1 100644
--- a/registry/coder/modules/vscode-web/run.sh
+++ b/registry/coder/modules/vscode-web/run.sh
@@ -29,10 +29,10 @@ run_vscode_web() {
 }
 
 # Check if the settings file exists...
-if [ ! -f ~/.vscode-server/data/Machine/settings.json ]; then
+if [ ! -f ~/.vscode-server/data/User/settings.json ]; then
   echo "⚙️ Creating settings file..."
-  mkdir -p ~/.vscode-server/data/Machine
-  echo "${SETTINGS}" > ~/.vscode-server/data/Machine/settings.json
+  mkdir -p ~/.vscode-server/data/User
+  echo "${SETTINGS}" > ~/.vscode-server/data/User/settings.json
 fi
 
 # Check if vscode-server is already installed for offline or cached mode