diff --git a/src/specify_cli/__init__.py b/src/specify_cli/__init__.py
index 56a7bf6e0..37cba2868 100644
--- a/src/specify_cli/__init__.py
+++ b/src/specify_cli/__init__.py
@@ -485,6 +485,73 @@ def init_git_repo(project_path: Path, quiet: bool = False) -> Tuple[bool, Option
     finally:
         os.chdir(original_cwd)
 
+def handle_vscode_settings(sub_item, dest_file, rel_path, verbose=False, tracker=None) -> None:
+    """Handle merging or copying of .vscode/settings.json files."""
+    def log(message, color="green"):
+        if verbose and not tracker:
+            console.print(f"[{color}]{message}[/] {rel_path}")
+
+    try:
+        with open(sub_item, 'r', encoding='utf-8') as f:
+            new_settings = json.load(f)
+
+        if dest_file.exists():
+            merged = merge_json_files(dest_file, new_settings, verbose=verbose and not tracker)
+            with open(dest_file, 'w', encoding='utf-8') as f:
+                json.dump(merged, f, indent=4)
+                f.write('\n')
+            log("Merged:", "green")
+        else:
+            shutil.copy2(sub_item, dest_file)
+            log("Copied (no existing settings.json):", "blue")
+
+    except Exception as e:
+        log(f"Warning: Could not merge, copying instead: {e}", "yellow")
+        shutil.copy2(sub_item, dest_file)
+
+def merge_json_files(existing_path: Path, new_content: dict, verbose: bool = False) -> dict:
+    """Merge new JSON content into existing JSON file.
+
+    Performs a deep merge where:
+    - New keys are added
+    - Existing keys are preserved unless overwritten by new content
+    - Nested dictionaries are merged recursively
+    - Lists and other values are replaced (not merged)
+
+    Args:
+        existing_path: Path to existing JSON file
+        new_content: New JSON content to merge in
+        verbose: Whether to print merge details
+
+    Returns:
+        Merged JSON content as dict
+    """
+    try:
+        with open(existing_path, 'r', encoding='utf-8') as f:
+            existing_content = json.load(f)
+    except (FileNotFoundError, json.JSONDecodeError):
+        # If file doesn't exist or is invalid, just use new content
+        return new_content
+
+    def deep_merge(base: dict, update: dict) -> dict:
+        """Recursively merge update dict into base dict."""
+        result = base.copy()
+        for key, value in update.items():
+            if key in result and isinstance(result[key], dict) and isinstance(value, dict):
+                # Recursively merge nested dictionaries
+                result[key] = deep_merge(result[key], value)
+            else:
+                # Add new key or replace existing value
+                result[key] = value
+        return result
+
+    merged = deep_merge(existing_content, new_content)
+
+    if verbose:
+        console.print(f"[cyan]Merged JSON file:[/cyan] {existing_path.name}")
+
+    return merged
+
 def download_template_from_github(ai_assistant: str, download_dir: Path, *, script_type: str = "sh", verbose: bool = True, show_progress: bool = True, client: httpx.Client = None, debug: bool = False, github_token: str = None) -> Tuple[Path, dict]:
     repo_owner = "github"
     repo_name = "spec-kit"
@@ -676,7 +743,11 @@ def download_and_extract_template(project_path: Path, ai_assistant: str, script_
                                         rel_path = sub_item.relative_to(item)
                                         dest_file = dest_path / rel_path
                                         dest_file.parent.mkdir(parents=True, exist_ok=True)
-                                        shutil.copy2(sub_item, dest_file)
+                                        # Special handling for .vscode/settings.json - merge instead of overwrite
+                                        if dest_file.name == "settings.json" and dest_file.parent.name == ".vscode":
+                                            handle_vscode_settings(sub_item, dest_file, rel_path, verbose, tracker)
+                                        else:
+                                            shutil.copy2(sub_item, dest_file)
                             else:
                                 shutil.copytree(item, dest_path)
                         else: