diff --git a/src/client/datascience/kernel-launcher/kernelEnvVarsService.ts b/src/client/datascience/kernel-launcher/kernelEnvVarsService.ts
index 9dcf919b390..8baae3a5f53 100644
--- a/src/client/datascience/kernel-launcher/kernelEnvVarsService.ts
+++ b/src/client/datascience/kernel-launcher/kernelEnvVarsService.ts
@@ -9,7 +9,7 @@ import { noop } from '../../common/utils/misc';
 import { IEnvironmentVariablesProvider, IEnvironmentVariablesService } from '../../common/variables/types';
 import { IEnvironmentActivationService } from '../../interpreter/activation/types';
 import { IInterpreterService } from '../../interpreter/contracts';
-import { EnvironmentType, PythonEnvironment } from '../../pythonEnvironments/info';
+import { PythonEnvironment } from '../../pythonEnvironments/info';
 import { IJupyterKernelSpec } from '../types';
 
 @injectable()
@@ -51,7 +51,7 @@ export class KernelEnvironmentVariablesService {
 
         let [customEditVars, interpreterEnv] = await Promise.all([
             this.customEnvVars.getCustomEnvironmentVariables(resource).catch(noop),
-            interpreter && interpreter.envType == EnvironmentType.Conda
+            interpreter
                 ? this.envActivation
                       .getActivatedEnvironmentVariables(resource, interpreter, false)
                       .catch<undefined>((ex) => {
@@ -62,6 +62,14 @@ export class KernelEnvironmentVariablesService {
         ]);
         if (!interpreterEnv && Object.keys(customEditVars || {}).length === 0) {
             traceInfo('No custom variables nor do we have a conda environment');
+            // Ensure the python env folder is always at the top of the PATH, this way all executables from that env are used.
+            // This way shell commands such as `!pip`, `!python` end up pointing to the right executables.
+            // Also applies to `!java` where java could be an executable in the conda bin directory.
+            if (interpreter) {
+                const env = kernelEnv || process.env;
+                this.envVarsService.prependPath(env, path.dirname(interpreter.path));
+                return env;
+            }
             return kernelEnv;
         }
         // Merge the env variables with that of the kernel env.
diff --git a/src/test/datascience/notebook/executionService.vscode.test.ts b/src/test/datascience/notebook/executionService.vscode.test.ts
index fca8cde2de8..7b7c09f34ee 100644
--- a/src/test/datascience/notebook/executionService.vscode.test.ts
+++ b/src/test/datascience/notebook/executionService.vscode.test.ts
@@ -14,7 +14,7 @@ import { Common } from '../../../client/common/utils/localize';
 import { IVSCodeNotebook } from '../../../client/common/application/types';
 import { traceInfo, traceInfoIfCI } from '../../../client/common/logger';
 import { IDisposable, Product } from '../../../client/common/types';
-import { captureScreenShot, IExtensionTestApi, waitForCondition } from '../../common';
+import { captureScreenShot, getOSType, IExtensionTestApi, OSType, waitForCondition } from '../../common';
 import { EXTENSION_ROOT_DIR_FOR_TESTS, initialize } from '../../initialize';
 import {
     closeNotebooksAndCleanUpAfterTests,
@@ -406,6 +406,34 @@ suite('DataScience - VSCode Notebook - (Execution) (slow)', function () {
             `First entry in PATH (${pathValue[0]}) does not point to executable (${sysExecutable})`
         );
     });
+    test('!python should point to the Environment', async function () {
+        if (IS_REMOTE_NATIVE_TEST) {
+            return this.skip();
+        }
+        await insertCodeCell(getOSType() === OSType.Windows ? '!where python' : '!which python', { index: 0 });
+        await insertCodeCell('import sys', { index: 1 });
+        await insertCodeCell('print(sys.executable)', { index: 2 });
+        const [cell1, , cell3] = vscodeNotebook.activeNotebookEditor!.document.getCells()!;
+
+        // Basically anything such as `!which python` and the like should point to the right executable.
+        // For that to work, the first directory in the PATH must be the Python environment.
+
+        await Promise.all([
+            runAllCellsInActiveNotebook(),
+            waitForExecutionCompletedSuccessfully(cell3),
+            waitForCondition(async () => getCellOutputs(cell3).length > 0, defaultNotebookTestTimeout, 'No output')
+        ]);
+
+        // On windows `!where python`, prints multiple items in the output (all executables found).
+        const shellExecutable = getCellOutputs(cell1).trim().split('\n')[0].trim();
+        const sysExecutable = getCellOutputs(cell3).trim();
+
+        // First path in PATH must be the directory where executable is located.
+        assert.ok(
+            areInterpreterPathsSame(shellExecutable.toLowerCase(), sysExecutable.toLowerCase()),
+            `Python paths do not match ${shellExecutable}, ${sysExecutable}`
+        );
+    });
     test('Testing streamed output', async () => {
         // Assume you are executing a cell that prints numbers 1-100.
         // When printing number 50, you click clear.