diff --git a/README.md b/README.md
index 905eba3..964c939 100644
--- a/README.md
+++ b/README.md
@@ -75,11 +75,13 @@ The runner allows three minutes per test and removes containers belonging to its
 Use **Dev Containers: Reopen in Container** or **Dev Containers: Start Current
 Workspace** to build/start the current workspace's
 configuration and open its configured `workspaceFolder` at
-`devcontainers:///<containerId>`. Explorer and file editing use Docker inside the
-container as `remoteUser`; the local bind mount is not used as a substitute for
-the container filesystem. A failed build or connection leaves the local workspace
-open. The existing execution, stop, and remove commands also work from the
-container workspace.
+`devcontainers:///<local-workspace-path>!`. The local path keeps recent entries
+recognizable; container-relative file paths follow the `!` separator. Older
+`devcontainers:///<containerId>` workspace URLs remain supported. Explorer and
+file editing use Docker inside the container as `remoteUser`; the local bind
+mount is not used as a substitute for the container filesystem. A failed build
+or connection leaves the local workspace open. The existing execution, stop,
+and remove commands also work from the container workspace.
 
 New terminals run an interactive shell through `devcontainer exec`, using the
 configured remote user and environment. Opening a terminal from an Explorer
diff --git a/packages/devcontainer-worker/src/parts/ContainerUri/ContainerUri.ts b/packages/devcontainer-worker/src/parts/ContainerUri/ContainerUri.ts
index 78406e2..cd6e0ad 100644
--- a/packages/devcontainer-worker/src/parts/ContainerUri/ContainerUri.ts
+++ b/packages/devcontainer-worker/src/parts/ContainerUri/ContainerUri.ts
@@ -1,12 +1,4 @@
-export const parse = (uri: string): { id: string; path: string } => {
-  const url = new URL(uri)
-  if (url.protocol !== 'devcontainers:' || url.host || url.search || url.hash) {
-    throw new Error('Invalid devcontainer URI')
-  }
-  const [, id, ...segments] = url.pathname.split('/')
-  if (!id || !/^[a-zA-Z0-9-]+$/.test(id)) {
-    throw new Error('Invalid devcontainer id')
-  }
+const decodeSegments = (segments: string[]): string[] => {
   const decoded = segments.map(decodeURIComponent)
   if (
     decoded.some(
@@ -19,5 +11,54 @@ export const parse = (uri: string): { id: string; path: string } => {
   ) {
     throw new Error('Invalid devcontainer path')
   }
+  return decoded
+}
+
+const encodeSegment = (segment: string): string =>
+  encodeURIComponent(segment).replaceAll('!', '%21')
+
+export const create = (workspaceFolder: string): string => {
+  const windowsPath = /^([a-zA-Z]:)[\\/](.*)$/.exec(workspaceFolder)
+  if (!workspaceFolder.startsWith('/') && !windowsPath) {
+    throw new Error('Invalid devcontainer workspace folder')
+  }
+  const sourceSegments = windowsPath
+    ? [windowsPath[1], ...windowsPath[2].split(/[\\/]/).filter(Boolean)]
+    : workspaceFolder.split('/').filter(Boolean)
+  const sourcePath = `/${sourceSegments
+    .map((segment, index) =>
+      windowsPath && index === 0 ? segment : encodeSegment(segment),
+    )
+    .join('/')}`
+  return `devcontainers://${sourcePath}!`
+}
+
+export const parse = (
+  uri: string,
+): { id: string; path: string; workspaceFolder?: string } => {
+  const url = new URL(uri)
+  if (url.protocol !== 'devcontainers:' || url.host || url.search || url.hash) {
+    throw new Error('Invalid devcontainer URI')
+  }
+  const separator = url.pathname.indexOf('!')
+  if (separator !== -1) {
+    const sourcePath = url.pathname.slice(0, separator)
+    const source = decodeSegments(sourcePath.split('/').filter(Boolean))
+    if (source.length === 0) {
+      throw new Error('Invalid devcontainer workspace folder')
+    }
+    const drive = /^([a-zA-Z]):$/.exec(source[0])
+    const workspaceFolder = drive
+      ? `${drive[1]}:\\${source.slice(1).join('\\')}`
+      : `/${source.join('/')}`
+    const rawPath = url.pathname.slice(separator + 1).replace(/^\//, '')
+    const path = decodeSegments(rawPath ? rawPath.split('/') : []).join('/')
+    return { id: `workspace:${workspaceFolder}`, path, workspaceFolder }
+  }
+  const [, id, ...segments] = url.pathname.split('/')
+  if (!id || !/^[a-zA-Z0-9-]+$/.test(id)) {
+    throw new Error('Invalid devcontainer id')
+  }
+  const decoded = decodeSegments(segments)
   return { id, path: decoded.join('/') }
 }
diff --git a/packages/devcontainer-worker/src/parts/CreateDevContainer/CreateDevContainer.ts b/packages/devcontainer-worker/src/parts/CreateDevContainer/CreateDevContainer.ts
index 6a16fff..468d374 100644
--- a/packages/devcontainer-worker/src/parts/CreateDevContainer/CreateDevContainer.ts
+++ b/packages/devcontainer-worker/src/parts/CreateDevContainer/CreateDevContainer.ts
@@ -2,6 +2,7 @@ import type * as Config from '../DevContainerConfig/DevContainerConfig.ts'
 import type * as Client from '../DevContainerNodeClient/DevContainerNodeClient.ts'
 import type * as State from '../DevContainerState/DevContainerState.ts'
 import type * as Workspace from '../WorkspaceFolder/WorkspaceFolder.ts'
+import * as ContainerUri from '../ContainerUri/ContainerUri.ts'
 
 export interface Host {
   cancelStart?: (workspaceFolder: string) => Promise<unknown>
@@ -286,7 +287,7 @@ export const createDevContainer = ({
       remoteWorkspaceFolder: state.remoteWorkspaceFolder,
     })
     await DevContainerState.persist(workspaceFolder)
-    return { ok: true, workspaceUri: `devcontainers:///${state.containerId}` }
+    return { ok: true, workspaceUri: ContainerUri.create(workspaceFolder) }
   }
 
   const openWorkspace = async ({
diff --git a/packages/devcontainer-worker/src/parts/DevContainerState/DevContainerState.ts b/packages/devcontainer-worker/src/parts/DevContainerState/DevContainerState.ts
index 8a3def8..a389845 100644
--- a/packages/devcontainer-worker/src/parts/DevContainerState/DevContainerState.ts
+++ b/packages/devcontainer-worker/src/parts/DevContainerState/DevContainerState.ts
@@ -35,14 +35,23 @@ export const reset = () => {
 }
 
 export const getWorkspaceFolder = async (uri: string): Promise<string> => {
-  const { id } = ContainerUri.parse(uri)
+  const { id, workspaceFolder: sourceWorkspaceFolder } = ContainerUri.parse(uri)
   for (const [workspaceFolder, value] of state) {
-    if (value.containerId === id) {
+    if (
+      (sourceWorkspaceFolder &&
+        workspaceFolder === sourceWorkspaceFolder &&
+        id === `workspace:${workspaceFolder}`) ||
+      (!sourceWorkspaceFolder && value.containerId === id)
+    ) {
       return workspaceFolder
     }
   }
-  const restored = await restore(id)
-  if (restored && state.get(restored)?.containerId === id) {
+  const key = sourceWorkspaceFolder || id
+  const restored = await restore(key)
+  if (
+    restored &&
+    (state.get(restored)?.containerId === id || id === `workspace:${restored}`)
+  ) {
     return restored
   }
   throw new Error(
diff --git a/packages/devcontainer-worker/test/ContainerUri.test.ts b/packages/devcontainer-worker/test/ContainerUri.test.ts
new file mode 100644
index 0000000..f11c041
--- /dev/null
+++ b/packages/devcontainer-worker/test/ContainerUri.test.ts
@@ -0,0 +1,41 @@
+import { expect, test } from '@jest/globals'
+import { tmpdir } from 'node:os'
+import { join } from 'node:path'
+import * as ContainerUri from '../src/parts/ContainerUri/ContainerUri.ts'
+
+test('creates readable workspace URIs and preserves paths inside the container', () => {
+  const workspaceFolder = join(tmpdir(), 'my project!')
+  const uri = ContainerUri.create(workspaceFolder)
+
+  expect(uri).toContain('my%20project%21!')
+  expect(uri).toMatch(/^devcontainers:\/\//)
+  expect(ContainerUri.parse(uri)).toEqual({
+    id: `workspace:${workspaceFolder}`,
+    path: '',
+    workspaceFolder,
+  })
+  expect(ContainerUri.parse(`${uri}/src/a%20b.ts`)).toEqual({
+    id: `workspace:${workspaceFolder}`,
+    path: 'src/a b.ts',
+    workspaceFolder,
+  })
+})
+
+test('round-trips Windows workspace paths', () => {
+  const workspaceFolder = 'C:\\Users\\simon\\my project!'
+  const uri = ContainerUri.create(workspaceFolder)
+
+  expect(uri).toBe('devcontainers:///C:/Users/simon/my%20project%21!')
+  expect(ContainerUri.parse(uri)).toEqual({
+    id: `workspace:${workspaceFolder}`,
+    path: '',
+    workspaceFolder,
+  })
+})
+
+test('continues to parse saved container-id URIs', () => {
+  expect(ContainerUri.parse('devcontainers:///abc123/src/a%20b.ts')).toEqual({
+    id: 'abc123',
+    path: 'src/a b.ts',
+  })
+})
diff --git a/packages/devcontainer-worker/test/DevContainer.test.ts b/packages/devcontainer-worker/test/DevContainer.test.ts
index 40f4e59..dcd7b7f 100644
--- a/packages/devcontainer-worker/test/DevContainer.test.ts
+++ b/packages/devcontainer-worker/test/DevContainer.test.ts
@@ -3,6 +3,7 @@ import { mkdir, mkdtemp, rm, writeFile } from 'node:fs/promises'
 import { tmpdir } from 'node:os'
 import { join } from 'node:path'
 import { pathToFileURL } from 'node:url'
+import * as ContainerUri from '../src/parts/ContainerUri/ContainerUri.ts'
 import * as DevContainer from '../src/parts/DevContainer/DevContainer.js'
 import * as DevContainerNodeClient from '../src/parts/DevContainerNodeClient/DevContainerNodeClient.js'
 import * as DevContainerState from '../src/parts/DevContainerState/DevContainerState.js'
@@ -248,7 +249,10 @@ test('openWorkspace builds, checks the remote folder, and resolves lifecycle com
     DevContainer.openWorkspace({ workspaceFolder }),
     DevContainer.openWorkspace({ workspaceFolder }),
   ])
-  expect(first).toEqual({ ok: true, workspaceUri: 'devcontainers:///abc123' })
+  expect(first).toEqual({
+    ok: true,
+    workspaceUri: ContainerUri.create(workspaceFolder),
+  })
   expect(second).toEqual(first)
   expect(operations).toEqual(['build', 'connect'])
   expect(
diff --git a/packages/devcontainer-worker/test/DevContainerState.test.ts b/packages/devcontainer-worker/test/DevContainerState.test.ts
index 4c96723..cd802a5 100644
--- a/packages/devcontainer-worker/test/DevContainerState.test.ts
+++ b/packages/devcontainer-worker/test/DevContainerState.test.ts
@@ -2,6 +2,7 @@ import { afterEach, beforeEach, expect, test } from '@jest/globals'
 import { mkdtemp, rm } from 'node:fs/promises'
 import { tmpdir } from 'node:os'
 import { join } from 'node:path'
+import * as ContainerUri from '../src/parts/ContainerUri/ContainerUri.ts'
 import * as DevContainerNodeClient from '../src/parts/DevContainerNodeClient/DevContainerNodeClient.ts'
 import * as DevContainerState from '../src/parts/DevContainerState/DevContainerState.ts'
 import * as WorkspaceFolder from '../src/parts/WorkspaceFolder/WorkspaceFolder.ts'
@@ -54,7 +55,9 @@ test.each([undefined, 'podman'])(
     DevContainerState.reset()
 
     expect(
-      await WorkspaceFolder.toPath('devcontainers:///abc123/file.txt'),
+      await WorkspaceFolder.toPath(
+        `${ContainerUri.create(workspaceFolder)}/file.txt`,
+      ),
     ).toBe(workspaceFolder)
     expect(DevContainerState.get(workspaceFolder)).toEqual(state)
     expect(inspectedEngines).toEqual([containerCli])
diff --git a/packages/e2e/helpers/waitForContainerWorkspace.ts b/packages/e2e/helpers/waitForContainerWorkspace.ts
index 296f46f..5d3422e 100644
--- a/packages/e2e/helpers/waitForContainerWorkspace.ts
+++ b/packages/e2e/helpers/waitForContainerWorkspace.ts
@@ -9,7 +9,8 @@ export const waitForContainerWorkspace = async ({
     workspaceUri = await Command.execute('Workspace.getUri')
     if (
       typeof workspaceUri === 'string' &&
-      /^devcontainers:\/\/\/[a-f0-9]+$/.test(workspaceUri)
+      (workspaceUri.endsWith('!') ||
+        /^devcontainers:\/\/\/[a-f0-9]+$/.test(workspaceUri))
     ) {
       const state = await Command.executeExtensionCommand(
         'devcontainer.getState',