How to Use Copilot Policy Location (Purview DLP) to Block Sensitive Content

Why the Copilot Policy Location Matters

Copilot improves productivity by surfacing and synthesizing organizational content. But for security/risk teams, the natural question is:

"Can I stop Copilot from reading confidential documents?"

The Copilot policy location in Microsoft Purview Data Loss Prevention (DLP) answers that: it lets admins selectively prevent Copilot from processing content that matches DLP rules (most commonly via sensitivity labels). This capability is essential for organizations that must protect Intellectual Property (IP), regulated data, or other high-risk content from being ingested into AI workflows.

How the Data Loss Prevention (DLP) → Copilot Protection Flow Works

Think of the flow as three clear steps:

1. Labeling & discovery: Sensitive content is identified and labeled (manually or with auto-label rules). Purview’s sensitivity labels are the main input used by Copilot DLP rules.
2. Policy match: You create a Custom DLP policy in Microsoft Purview and choose the Microsoft 365 Copilot policy location. Rules in that policy check for specific sensitivity labels (or combinations). When a match occurs, the action available is “prevent Copilot from processing content.”
3. Action enforcement: If a rule matches, Copilot is prevented from using that content in a Copilot query/answer. Early preview behavior had fewer audit/notification options, but enforcement (blocking) is the primary effect.

Key takeaway: The model is label-first: accurate labeling and label coverage is what makes this protection effective.

Steps to Create a Copilot DLP Policy

Before you apply the policy:

Copilot can process all content you already have permission to access. In practice, that means your prompts may reference or cite sensitive files, even those with sensitivity labels, because no Copilot‑specific restriction exists yet.

Below is a condensed walkthrough of setting up a Copilot DLP Policy.

1. Audit & plan: Inventory sensitive information and map to sensitivity labels (e.g., Confidential, Highly Confidential). Record % of high-risk docs already labeled.

2. Create or refine sensitivity labels: Ensure labels are published and, where possible, configure auto-labeling rules for Office files/PDFs to increase coverage. Note: auto-label currently applies only to Office files/PDFs (some content types remain gaps).

3. Open Microsoft Purview → Data loss prevention → Create custom policy: Select the Microsoft 365 Copilot (preview) policy location (note: it’s available from the Custom template). When you select the Copilot location, other locations for that policy are disabled, be mindful of scope.

4. Define rules: Create one or more rules that match specific sensitivity labels and set the action to Prevent Copilot from processing content. Using a separate rule per label can make auditing and testing easier.

5. Deploy to pilot scope: Target a controlled group (pilot users or a small site collection) before broad rollout. Policy changes can take some time (Microsoft notes updates may take up to a few hours in some scenarios).

After you publish the policy:

Any item that matches your DLP rule (for example, content labeled Confidential or Highly Confidential) is excluded from Copilot’s grounding. Those files won’t be used in answers or appear in citations, so your results reflect only content that’s permitted by the policy.

Known Limitations and Gotchas

• Label coverage matters: DLP for Copilot typically matches sensitivity labels. Content that isn’t labeled (or types that auto-labeling doesn’t cover) can still be surfaced by Copilot. Plan for auto-labeling and user training.
• Preview differences: Earlier/preview stages did not support DLP alerts, notifications, or simulation; check your tenant’s current behavior because Microsoft rapidly changes these capabilities toward GA.
• Policy scope: When you select the Microsoft 365 Copilot location for a policy, other locations on that same policy are disabled. If you need multi-location coverage, create separate policies or plan accordingly.
• Content types: Auto-labeling and DLP detectors have stronger support for Office files and PDFs; other media (video transcripts, MP4s, some Teams content) may require alternate protections or manual labeling.

Best Practices and Rollout Checklist

Use this as a short operational checklist when preparing a Copilot DLP rollout:

• Run a label adoption audit (measure labeled vs unlabeled high-risk docs).
• Enable auto-label policies for Office files/PDFs where possible but validate false positives.
• Start with pilot groups and iterate policies before org-wide deployment.
• Combine Copilot DLP with Data Security Posture Management (DSPM) for AI recommendations and one-click policies to find gaps and accelerate coverage.
• Document test cases (like the mini case study above) and capture screenshots/telemetry to build governance evidence.

Governance First, then AI Everywhere

Blocking Copilot from processing sensitive content is possible and practical today. But it’s only as strong as your labeling and governance program. Treat the Microsoft 365 Copilot policy location as one control in a layered data protection strategy: label accurately, pilot broadly, and combine DLP with DSPM and monitoring to measure effectiveness.