diff --git a/CHANGELOG.md b/CHANGELOG.md
index 75d2af3d..883c0306 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -3,6 +3,7 @@
 ### 2.4.0 | 2024-05-24
 
 - Allow installing unreleased builds using an `-unreleased` suffix, such as `insiders-unreleased`.
+- Allow passing different data directories in `runVSCodeCommand`, using it for extension development.
 
 ### 2.3.10 | 2024-05-13
 
diff --git a/lib/runTest.ts b/lib/runTest.ts
index bf1841eb..3e622852 100644
--- a/lib/runTest.ts
+++ b/lib/runTest.ts
@@ -4,9 +4,8 @@
  *--------------------------------------------------------------------------------------------*/
 
 import * as cp from 'child_process';
-import * as path from 'path';
-import { DownloadOptions, defaultCachePath, downloadAndUnzipVSCode } from './download';
-import { killTree } from './util';
+import { DownloadOptions, downloadAndUnzipVSCode } from './download';
+import { getProfileArguments, killTree } from './util';
 
 export interface TestOptions extends Partial<DownloadOptions> {
 	/**
@@ -108,25 +107,6 @@ export async function runTests(options: TestOptions): Promise<number> {
 
 	return innerRunTests(options.vscodeExecutablePath, args, options.extensionTestsEnv);
 }
-
-/** Adds the extensions and user data dir to the arguments for the VS Code CLI */
-export function getProfileArguments(args: readonly string[]) {
-	const out: string[] = [];
-	if (!hasArg('extensions-dir', args)) {
-		out.push(`--extensions-dir=${path.join(defaultCachePath, 'extensions')}`);
-	}
-
-	if (!hasArg('user-data-dir', args)) {
-		out.push(`--user-data-dir=${path.join(defaultCachePath, 'user-data')}`);
-	}
-
-	return out;
-}
-
-function hasArg(argName: string, argList: readonly string[]) {
-	return argList.some((a) => a === `--${argName}` || a.startsWith(`--${argName}=`));
-}
-
 const SIGINT = 'SIGINT';
 
 async function innerRunTests(
diff --git a/lib/util.ts b/lib/util.ts
index 0e3c2336..c0902be5 100644
--- a/lib/util.ts
+++ b/lib/util.ts
@@ -11,9 +11,9 @@ import * as https from 'https';
 import * as createHttpsProxyAgent from 'https-proxy-agent';
 import * as path from 'path';
 import { URL } from 'url';
-import { DownloadOptions, DownloadPlatform, downloadAndUnzipVSCode } from './download';
+import { DownloadOptions, DownloadPlatform, defaultCachePath, downloadAndUnzipVSCode } from './download';
 import * as request from './request';
-import { TestOptions, getProfileArguments } from './runTest';
+import { TestOptions } from './runTest';
 
 export let systemDefaultPlatform: DownloadPlatform;
 
@@ -219,7 +219,39 @@ export function resolveCliArgsFromVSCodeExecutablePath(
 	return args;
 }
 
-export type RunVSCodeCommandOptions = Partial<DownloadOptions> & { spawn?: SpawnOptions };
+export interface RunVSCodeCommandOptions extends Partial<DownloadOptions> {
+	/**
+	 * Additional options to pass to `child_process.spawn`
+	 */
+	spawn?: SpawnOptions;
+
+	/**
+	 * Whether VS Code should be launched using default settings and extensions
+	 * installed on this machine. If `false`, then separate directories will be
+	 * used inside the `.vscode-test` folder within the project.
+	 *
+	 * Defaults to `false`.
+	 */
+	reuseMachineInstall?: boolean;
+}
+
+/** Adds the extensions and user data dir to the arguments for the VS Code CLI */
+export function getProfileArguments(args: readonly string[]) {
+	const out: string[] = [];
+	if (!hasArg('extensions-dir', args)) {
+		out.push(`--extensions-dir=${path.join(defaultCachePath, 'extensions')}`);
+	}
+
+	if (!hasArg('user-data-dir', args)) {
+		out.push(`--user-data-dir=${path.join(defaultCachePath, 'user-data')}`);
+	}
+
+	return out;
+}
+
+export function hasArg(argName: string, argList: readonly string[]) {
+	return argList.some((a) => a === `--${argName}` || a.startsWith(`--${argName}=`));
+}
 
 export class VSCodeCommandError extends Error {
 	constructor(
@@ -233,20 +265,30 @@ export class VSCodeCommandError extends Error {
 }
 
 /**
- * Runs a VS Code command, and returns its output
+ * Runs a VS Code command, and returns its output.
+ *
  * @throws a {@link VSCodeCommandError} if the command fails
  */
-export async function runVSCodeCommand(args: string[], options: RunVSCodeCommandOptions = {}) {
-	const vscodeExecutablePath = await downloadAndUnzipVSCode(options);
-	const [cli, ...baseArgs] = resolveCliArgsFromVSCodeExecutablePath(vscodeExecutablePath);
+export async function runVSCodeCommand(_args: readonly string[], options: RunVSCodeCommandOptions = {}) {
+	const args = _args.slice();
 
-	const shell = process.platform === 'win32';
+	let executable = await downloadAndUnzipVSCode(options);
+	let shell = false;
+	if (!options.reuseMachineInstall) {
+		args.push(...getProfileArguments(args));
+	}
+
+	// Unless the user is manually running tests or extension development, then resolve to the CLI script
+	if (!hasArg('extensionTestsPath', args) && !hasArg('extensionDevelopmentPath', args)) {
+		executable = resolveCliPathFromVSCodeExecutablePath(executable, options?.platform ?? systemDefaultPlatform);
+		shell = process.platform === 'win32'; // CVE-2024-27980
+	}
 
 	return new Promise<{ stdout: string; stderr: string }>((resolve, reject) => {
 		let stdout = '';
 		let stderr = '';
 
-		const child = spawn(shell ? `"${cli}"` : cli, [...baseArgs, ...args], {
+		const child = spawn(shell ? `"${executable}"` : executable, args, {
 			stdio: 'pipe',
 			shell,
 			windowsHide: true,