You’ve been told Microsoft 365 Copilot is the future of work—AI that helps your users write faster, find information instantly, and get more done. But here’s the catch: you can’t just switch it on and let the magic happen.
If you’re managing your organisation’s Microsoft 365 environment, you’ve probably asked yourself some version of this: “Do we even have the right licences? Are our users technically ready? And what else do we need before we go anywhere near Copilot?”
It’s confusing, especially when documentation is scattered and the requirements keep shifting. You’re not alone in feeling overwhelmed.
That’s where this guide comes in. You’ll get a no-nonsense breakdown of what’s actually needed to get started with Microsoft 365 Copilot—from licensing to technical setup. Whether you’re running E3, E5, or something in between, you’ll walk away knowing exactly what boxes to tick before you can put Copilot to work.
Why You’re Probably Not Ready Yet
Let’s clear something up early.
You might be thinking:
“We’re already on Microsoft 365 E3. Surely that’s enough, right?”
Unfortunately, no. Microsoft 365 Copilot isn’t bundled with your standard M365 plans. It’s a separate, paid add-on.
And licensing is only one piece of the puzzle.
If some of your users are still working on Office 2016 or 2019, Copilot won’t work for them—even if the apps look almost identical to the newer ones. If your organisation still relies on on-prem Exchange servers or stores files locally instead of in the cloud, that’s another barrier.
This “readiness gap” is what catches most organisations off guard.
They’re halfway there, but not Copilot-ready.
What Licenses You Actually Need
To get started with Microsoft 365 Copilot, you need two things:
- A Microsoft 365 base license (like E3 or E5)
- The Microsoft 365 Copilot add-on license for each user
That’s right—Copilot isn’t included with your existing Microsoft 365 plan. It’s an add-on that must be purchased separately, and it’s licensed per user.
So, even if you’re running E3 or E5, you still need to assign the Copilot add-on license to each person you want to use it. No license, no Copilot.
The good news? Most major Microsoft 365 plans are eligible, including:
- Microsoft 365 E3/E5
- Microsoft 365 F1/F3/F5
- Microsoft 365 A1/A3/A5
- Microsoft 365 Business Standard and Premium
- See the full, always up-to-date list here: https://learn.microsoft.com/en-us/copilot/microsoft-365/microsoft-365-copilot-licensing#microsoft-365-copilot-license
Once a user has the Copilot license, the AI features will light up inside familiar apps like Word, Excel, PowerPoint, Outlook, and Teams.
Important: If your organisation uses a mix of licenses, only users with both the right base license and the Copilot add-on will be able to use it. Everyone else? They’ll be left out—so plan your rollout accordingly.
Both E3 and E5 users can buy and use Copilot—but E5 gives you more control, automation, and protection. Here’s how they differ:
| Feature | E3 + Copilot | E5 + Copilot |
|---|---|---|
| Manual sensitivity labelling | ✅ | ✅ |
| Auto-labeling and default labels | ❌ | ✅ |
| DLP for email, SharePoint, OneDrive | ✅ | ✅ |
| DLP for Teams chats and endpoints | ❌ | ✅ |
| Advanced audit, eDiscovery | ❌ | ✅ |
| Adaptive Protection & Insider Risk | ❌ | ✅ |
So, if you’re running E3, you can absolutely use Copilot—but you may need to do more manual configuration and monitoring to stay secure and compliant.
E5 gives you extra automation and insight, especially helpful at scale or in regulated environments. If you’re on E3, consider trialling E5 compliance features through a Microsoft Purview trial to test what’s worth upgrading.
You can check your current licensing setup in the Microsoft 365 Admin Center.
Application Requirements
Licenses are only part of the story. Here’s what your environment needs technically before Copilot can work:
✅ Microsoft 365 Apps must be installed
Users need the current version of Microsoft 365 apps (like Word, Excel, etc.). Older Office versions (e.g. Office 2019) won’t work.
✅ Mailboxes must be in Exchange Online
Copilot only works with cloud-hosted content. On-premises mailboxes? They’re not supported.
✅ OneDrive for Business must be enabled
Copilot pulls content from users’ OneDrive, so it must be turned on and properly configured.
✅ Teams must be in use (for Teams-based Copilot features)
To get the full value of Copilot in Teams, chat and meeting data must already be in the cloud.
✅ Users must have a Microsoft Entra ID (formerly Azure AD) account
Every Copilot user must be in your tenant’s cloud identity system. No support for on-prem-only users.
In short, Copilot only works in the cloud. If you’re still using hybrid or on-prem setups, now’s the time to migrate.
Common Gotchas & FAQs
Let’s tackle some common misconceptions before they trip you up.
“Can I just buy one Copilot license to test it?”
Yes, technically you can. But only that licensed user will see Copilot features—it doesn’t “light up” for the whole org.
“We’re using Office 2019. Is that enough?”
No. You need the Microsoft 365 Apps subscription—this ensures you’re always on a supported version.
“We use on-prem Exchange and SharePoint. Can Copilot still work?”
Nope. Copilot won’t index or use data from on-prem environments. Your content must live in Exchange Online, SharePoint Online, and OneDrive.
“We’ve got E3—do we need to upgrade to E5?”
Not at all. You can use Copilot with E3. Just know that you’ll miss out on automated labelling, endpoint DLP, and other compliance perks.
Quick-Start Checklist
Here’s your no-fluff Copilot readiness checklist:
✅ Copilot add-on licenses assigned to users
✅ Microsoft 365 Apps installed and up to date
✅ Users have cloud mailboxes in Exchange Online
✅ OneDrive enabled for users
✅ Teams enabled and in use (for Teams Copilot features)
✅ Users are in Microsoft Entra ID (no on-prem-only accounts)
✅ (Optional) E5 features enabled for automation and deeper control.
You can also check your readiness in the Microsoft 365 Admin Center under Copilot, or under Health – Reports.
Getting Copilot up and running isn’t hard—but it’s also not automatic.
You need to:
- Check your current Microsoft 365 licences
- Assign Copilot add-ons
- Review your users’ technical setup
- Consider if E5 features are worth adopting
If you’re not quite ready to buy licenses yet, you can still start prepping. Clean up your data, check app versions, and make sure your users are cloud-ready.
That way, when you’re ready to turn Copilot on, it’ll actually work—and work well.
Coming Up Next: In Blog 2, you’ll learn how outdated files can mess with Copilot’s accuracy—and what you can do about it using Microsoft Purview and retention policies.
