diff --git a/pkg/devcontainer/config.go b/pkg/devcontainer/config.go
index 40ea904b2..ada9ccba5 100644
--- a/pkg/devcontainer/config.go
+++ b/pkg/devcontainer/config.go
@@ -168,7 +168,7 @@ func (r *runner) substitute(
 	}
 
 	substitutionContext := &config.SubstitutionContext{
-		DevContainerID:           r.ID,
+		DevContainerID:           config.DeriveDevContainerID(r.LocalWorkspaceFolder),
 		LocalWorkspaceFolder:     r.LocalWorkspaceFolder,
 		ContainerWorkspaceFolder: containerWorkspaceFolder,
 		Env:                      env,
diff --git a/pkg/devcontainer/config/substitute.go b/pkg/devcontainer/config/substitute.go
index f6838279b..29d21e3db 100644
--- a/pkg/devcontainer/config/substitute.go
+++ b/pkg/devcontainer/config/substitute.go
@@ -1,6 +1,8 @@
 package config
 
 import (
+	"crypto/sha256"
+	"encoding/hex"
 	"encoding/json"
 	"math/big"
 	"path/filepath"
@@ -11,6 +13,8 @@ import (
 	"github.com/devsy-org/devsy/pkg/hash"
 )
 
+const devContainerIDLength = 20
+
 type ReplaceFunction func(match, variable string, args []string) string
 
 var VariableRegExp = regexp.MustCompile(`\${(.*?)}`)
@@ -226,10 +230,19 @@ func ListToObject(list []string) map[string]string {
 	return ret
 }
 
-func GetDevContainerID(labels map[string]string) string {
+func DeriveDevContainerID(localWorkspaceFolder string) string {
+	h := sha256.Sum256([]byte(localWorkspaceFolder))
+	return hex.EncodeToString(h[:])[:devContainerIDLength]
+}
+
+func GetLegacyDevContainerID(labels map[string]string) string {
 	labelsBytes, _ := json.Marshal(labels)
 	hashedLabels := hash.String(string(labelsBytes))
 	bigInt := big.Int{}
 	bigInt.SetString(hashedLabels, 16)
 	return bigInt.Text(32)
 }
+
+func ResolveDevContainerID(localWorkspaceFolder string, legacyLabels map[string]string) string {
+	return DeriveDevContainerID(localWorkspaceFolder)
+}
diff --git a/pkg/devcontainer/config/substitute_test.go b/pkg/devcontainer/config/substitute_test.go
index 5801516ab..7bc1ce4a5 100644
--- a/pkg/devcontainer/config/substitute_test.go
+++ b/pkg/devcontainer/config/substitute_test.go
@@ -1,6 +1,10 @@
 package config
 
-import "testing"
+import (
+	"crypto/sha256"
+	"encoding/hex"
+	"testing"
+)
 
 func TestLookupValue(t *testing.T) {
 	tests := []struct {
@@ -119,3 +123,53 @@ func TestResolveStringDefaultWithColons(t *testing.T) {
 		)
 	}
 }
+
+const testWorkspaceFolder = "/home/user/project"
+
+func TestDeriveDevContainerID(t *testing.T) {
+	h := sha256.Sum256([]byte(testWorkspaceFolder))
+	want := hex.EncodeToString(h[:])[:devContainerIDLength]
+
+	got := DeriveDevContainerID(testWorkspaceFolder)
+	if got != want {
+		t.Errorf("DeriveDevContainerID(%q) = %q, want %q", testWorkspaceFolder, got, want)
+	}
+	if len(got) != devContainerIDLength {
+		t.Errorf("expected length %d, got %d", devContainerIDLength, len(got))
+	}
+}
+
+func TestDeriveDevContainerIDDeterministic(t *testing.T) {
+	first := DeriveDevContainerID(testWorkspaceFolder)
+	second := DeriveDevContainerID(testWorkspaceFolder)
+	if first != second {
+		t.Errorf("DeriveDevContainerID is not deterministic: %q != %q", first, second)
+	}
+}
+
+func TestGetLegacyDevContainerID(t *testing.T) {
+	labels := map[string]string{
+		"dev.containers.id": "test-workspace",
+	}
+	got := GetLegacyDevContainerID(labels)
+	if got == "" {
+		t.Error("GetLegacyDevContainerID returned empty string")
+	}
+
+	again := GetLegacyDevContainerID(labels)
+	if got != again {
+		t.Errorf("GetLegacyDevContainerID is not deterministic: %q != %q", got, again)
+	}
+}
+
+func TestResolveDevContainerID(t *testing.T) {
+	labels := map[string]string{
+		"dev.containers.id": "test-workspace",
+	}
+
+	got := ResolveDevContainerID(testWorkspaceFolder, labels)
+	want := DeriveDevContainerID(testWorkspaceFolder)
+	if got != want {
+		t.Errorf("ResolveDevContainerID() = %q, want %q (spec-based ID)", got, want)
+	}
+}