diff --git a/src/client/testing/testController/common/testItemUtilities.ts b/src/client/testing/testController/common/testItemUtilities.ts
index 43624bba2527..7840794f9ad0 100644
--- a/src/client/testing/testController/common/testItemUtilities.ts
+++ b/src/client/testing/testController/common/testItemUtilities.ts
@@ -498,14 +498,69 @@ export async function updateTestItemFromRawData(
     item.busy = false;
 }
 
-export function getTestCaseNodes(testNode: TestItem, collection: TestItem[] = []): TestItem[] {
+/**
+ * Checks if a test item or any of its ancestors is in the exclude set.
+ */
+export function isTestItemExcluded(item: TestItem, excludeSet: Set<TestItem> | undefined): boolean {
+    if (!excludeSet || excludeSet.size === 0) {
+        return false;
+    }
+    let current: TestItem | undefined = item;
+    while (current) {
+        if (excludeSet.has(current)) {
+            return true;
+        }
+        current = current.parent;
+    }
+    return false;
+}
+
+/**
+ * Expands an exclude set to include all descendants of excluded items.
+ * After expansion, checking if a node is excluded is O(1) - just check set membership.
+ */
+export function expandExcludeSet(excludeSet: Set<TestItem> | undefined): Set<TestItem> | undefined {
+    if (!excludeSet || excludeSet.size === 0) {
+        return excludeSet;
+    }
+    const expanded = new Set<TestItem>();
+    excludeSet.forEach((item) => {
+        addWithDescendants(item, expanded);
+    });
+    return expanded;
+}
+
+function addWithDescendants(item: TestItem, set: Set<TestItem>): void {
+    if (set.has(item)) {
+        return;
+    }
+    set.add(item);
+    item.children.forEach((child) => addWithDescendants(child, set));
+}
+
+export function getTestCaseNodes(
+    testNode: TestItem,
+    collection: TestItem[] = [],
+    visited?: Set<TestItem>,
+    excludeSet?: Set<TestItem>,
+): TestItem[] {
+    if (visited?.has(testNode)) {
+        return collection;
+    }
+    visited?.add(testNode);
+
+    // Skip excluded nodes (excludeSet should be pre-expanded to include descendants)
+    if (excludeSet?.has(testNode)) {
+        return collection;
+    }
+
     if (!testNode.canResolveChildren && testNode.tags.length > 0) {
         collection.push(testNode);
     }
 
     testNode.children.forEach((c) => {
         if (testNode.canResolveChildren) {
-            getTestCaseNodes(c, collection);
+            getTestCaseNodes(c, collection, visited, excludeSet);
         } else {
             collection.push(testNode);
         }
diff --git a/src/client/testing/testController/controller.ts b/src/client/testing/testController/controller.ts
index 8c8ce422e3c1..d8bb2eb7bd5c 100644
--- a/src/client/testing/testController/controller.ts
+++ b/src/client/testing/testController/controller.ts
@@ -34,7 +34,7 @@ import { IEventNamePropertyMapping, sendTelemetryEvent } from '../../telemetry';
 import { EventName } from '../../telemetry/constants';
 import { PYTEST_PROVIDER, UNITTEST_PROVIDER } from '../common/constants';
 import { TestProvider } from '../types';
-import { createErrorTestItem, DebugTestTag, getNodeByUri, RunTestTag } from './common/testItemUtilities';
+import { createErrorTestItem, DebugTestTag, getNodeByUri, isTestItemExcluded, RunTestTag } from './common/testItemUtilities';
 import { buildErrorNodeOptions } from './common/utils';
 import {
     ITestController,
@@ -507,12 +507,14 @@ export class PythonTestController implements ITestController, IExtensionSingleAc
      */
     private getTestItemsForWorkspace(workspace: WorkspaceFolder, request: TestRunRequest): TestItem[] {
         const testItems: TestItem[] = [];
+        const excludeSet = request.exclude?.length ? new Set(request.exclude) : undefined;
         // If the run request includes test items then collect only items that belong to
         // `workspace`. If there are no items in the run request then just run the `workspace`
         // root test node. Include will be `undefined` in the "run all" scenario.
+        // Exclusions are applied after inclusions per VS Code API contract.
         (request.include ?? this.testController.items).forEach((i: TestItem) => {
             const w = this.workspaceService.getWorkspaceFolder(i.uri);
-            if (w?.uri.fsPath === workspace.uri.fsPath) {
+            if (w?.uri.fsPath === workspace.uri.fsPath && !isTestItemExcluded(i, excludeSet)) {
                 testItems.push(i);
             }
         });
@@ -566,6 +568,7 @@ export class PythonTestController implements ITestController, IExtensionSingleAc
             request.profile?.kind,
             this.debugLauncher,
             await this.interpreterService.getActiveInterpreter(workspace.uri),
+            request.exclude,
         );
     }
 
diff --git a/src/client/testing/testController/workspaceTestAdapter.ts b/src/client/testing/testController/workspaceTestAdapter.ts
index 75b9489f708e..071edf8aa0a7 100644
--- a/src/client/testing/testController/workspaceTestAdapter.ts
+++ b/src/client/testing/testController/workspaceTestAdapter.ts
@@ -9,7 +9,7 @@ import { traceError } from '../../logging';
 import { sendTelemetryEvent } from '../../telemetry';
 import { EventName } from '../../telemetry/constants';
 import { TestProvider } from '../types';
-import { createErrorTestItem, getTestCaseNodes } from './common/testItemUtilities';
+import { createErrorTestItem, expandExcludeSet, getTestCaseNodes } from './common/testItemUtilities';
 import { ITestDiscoveryAdapter, ITestExecutionAdapter, ITestResultResolver } from './common/types';
 import { IPythonExecutionFactory } from '../../common/process/types';
 import { ITestDebugLauncher } from '../common/types';
@@ -47,6 +47,7 @@ export class WorkspaceTestAdapter {
         profileKind?: boolean | TestRunProfileKind,
         debugLauncher?: ITestDebugLauncher,
         interpreter?: PythonEnvironment,
+        excludes?: readonly TestItem[],
     ): Promise<void> {
         if (this.executing) {
             traceError('Test execution already in progress, not starting a new one.');
@@ -57,22 +58,24 @@ export class WorkspaceTestAdapter {
         this.executing = deferred;
 
         const testCaseNodes: TestItem[] = [];
-        const testCaseIdsSet = new Set<string>();
+        const visitedNodes = new Set<TestItem>();
+        const rawExcludeSet = excludes?.length ? new Set(excludes) : undefined;
+        const excludeSet = expandExcludeSet(rawExcludeSet);
+        const testCaseIds: string[] = [];
         try {
-            // first fetch all the individual test Items that we necessarily want
+            // Expand included items to leaf test nodes.
+            // getTestCaseNodes handles visited tracking and exclusion filtering.
             includes.forEach((t) => {
-                const nodes = getTestCaseNodes(t);
-                testCaseNodes.push(...nodes);
+                getTestCaseNodes(t, testCaseNodes, visitedNodes, excludeSet);
             });
-            // iterate through testItems nodes and fetch their unittest runID to pass in as argument
+            // Collect runIDs for the test nodes to execute.
             testCaseNodes.forEach((node) => {
-                runInstance.started(node); // do the vscode ui test item start here before runtest
+                runInstance.started(node);
                 const runId = this.resultResolver.vsIdToRunId.get(node.id);
                 if (runId) {
-                    testCaseIdsSet.add(runId);
+                    testCaseIds.push(runId);
                 }
             });
-            const testCaseIds = Array.from(testCaseIdsSet);
             if (executionFactory === undefined) {
                 throw new Error('Execution factory is required for test execution');
             }