How to Implement Microsoft 365 Loss Prevention (DLP) Solution?

By Anjali Aravind January 30, 2026
Netstager guide on how to implement Microsoft 365 Data Loss Prevention (DLP) solution for 2026 with a focus on data security and ROI.

In 2026, businesses store and share large volumes of data using email, cloud applications, endpoints, and collaboration tools. With Generative AI and hybrid work, the risk of sensitive data being shared unintentionally has increased.

Microsoft Data Loss Prevention (DLP) controls how sensitive information is created, shared, and stored. It detects sensitive data and applies policies to prevent unauthorized access or sharing.

What Data Does Microsoft DLP Protect?

Before implementing DLP, it is important to understand the types of data it covers. Microsoft DLP identifies and protects:

  • Customer Data – Credit card numbers, bank account details, and payment information (PCI-DSS).
  • Personal Identity Data – Social Security numbers, national ID numbers, and other personally identifiable information (PII) required for GDPR compliance.
  • Business Data – Source code, legal documents, contracts, and intellectual property.
  • Employee Data – Health records, payroll information, and other confidential employee details (HIPAA).

Microsoft DLP operates within Microsoft 365 services such as Exchange, SharePoint, OneDrive, Teams, and supported endpoints to reduce the risk of data exposure without disrupting everyday business activities.

This guide provides the exact technical steps to deploy, configure, and optimize Microsoft Data Loss Prevention (DLP) to protect sensitive information, apply policies, and meet regulatory requirements within your organization.

1. Make Data Visible to Microsoft Purview

Before creating any DLP policy, your data must be visible to the Microsoft Purview engine. This allows Microsoft DLP to detect and classify sensitive information correctly.

Step 1: Data Classification via SITs

 

Microsoft uses Sensitive Information Types (SITs) to identify data through Deep Content Analysis, checking:
    • Pattern matching (Regex)
    • Mathematical checksums (validating credit card numbers)
    • Proximity (related keywords appearing near the data)]

A. Built-in SITs

Go to Microsoft Purview portal → Data classification → Sensitive information types.
Review the available pre-defined SITs covering financial, identity, and health data.

 

B. Custom SITs

 

If your organization uses custom data formats (for example, EMP-12345), create a new Sensitive Information Type.

  • Click + Create sensitive information type
  • Set the Primary element (usually a regular expression) that matches the format. Example: ^EMP-\d{5}$
  • Add Supporting evidence, such as keywords like “Employee ID” or “Staff Code”
  • Set Proximity so the supporting evidence must appear within 300 characters of the primary element

Expert Tip: Using supporting evidence and proximity reduces false positives. A random 5-digit number will not be flagged as an Employee ID unless words like “Employee ID” or “Staff Code” appear nearby.

 

Step 2: Using Trainable Classifiers

 

Manual keywords may not detect all sensitive content. Trainable Classifiers use AI to identify documents based on their type or content (for example, Legal Agreements or Source Code).

Navigate to Data classification → Trainable classifiers.

Use Microsoft’s pre-trained models, or train your own by uploading 50–100 samples of the specific document type you want to detect.

Step 3: Adaptive Protection (Critical 2026 Feature)

 

Adaptive Protection connects DLP with Insider Risk Management to apply targeted rules automatically.

 

How it works

  • If a user shows risky behavior (for example, mass downloading of sensitive files), Microsoft Purview automatically applies stricter DLP rules to that individual.
  • Other users continue working normally, providing targeted protection without disrupting other users.

2. Create and Deploy a DLP Policy

Each DLP policy follows a simple structure:Location → Condition → Action. This structure decides where data is checked, what triggers the policy, and what happens when a match is found.

Step-by-Step DLP Policy Setup

  1. Open the DLP Portal: Sign in to Microsoft Purview → Data loss prevention → Policies.
  2. Start Policy Creation: Click + Create policy to open the policy wizard.
  3. Select a Policy Template: Choose a built-in template (for example, Financial Data) to align with common compliance requirements.
  4. Select Policy Locations: Choose where the policy will monitor data:
    • Cloud services – Exchange, SharePoint, OneDrive, and Microsoft Teams
    • Devices – Windows and macOS endpoints
    • AI interactions – Microsoft 365 Copilot prompts and responses
    • Web traffic – Inline monitoring for data shared with unmanaged AI tools such as DeepSeek or Gemini
  5. Set Rule Conditions: Choose what triggers the policy. Example: Content contains Credit Card Number.
  6. Set Actions: Choose what happens when the condition is met (for example, restricting access or blocking uploads to unmanaged AI).
  7. Configure User Notifications: Turn on Policy Tips. These appear as real-time pop-ups when users attempt a risky action.

3. Configure Endpoint DLP (Windows and macOS)

Many data leaks occur on user devices, such as when files are copied to USB drives, uploaded to browsers, or shared with local applications. Endpoint DLP controls these actions directly on Windows and macOS devices.

Step 1: Onboard Devices
  • Windows

    Windows 10 and Windows 11 devices are automatically visible if Microsoft Defender for Endpoint is enabled.

    Turn on Device Monitoring in Microsoft Purview → Settings → Endpoints.

  • macOS

    Install the Microsoft Purview supplementary agent on macOS devices.

  • Use an MDM solution such as Microsoft Intune to:
    • Deploy the onboarding package
    • Grant required accessibility permissions to monitor file activity

This step allows DLP policies to monitor and control file actions on user devices.

Step 2: Configure Endpoint Settings

Go to DLP → Settings → Endpoint settings.

  • Unallowed browsers Block browsers that do not support DLP. This forces sensitive data access through Microsoft Edge for Business, where DLP controls are applied.
  • Service domain restrictions Mark websites as “Allowed” or “Blocked” for sensitive files.

Example: block personal-dropbox.com while allowing approved corporate file-sharing services.

 

4. Protect AI Interactions (Copilot and Unmanaged AI Tools)

Microsoft DLP can monitor and control how sensitive data is used in AI prompts and responses. This prevents users from sharing protected information with AI tools.

A. Managed AI: Microsoft 365 Copilot

Create a DLP policy and select Microsoft 365 Copilot as the policy location. Set the action to Block when sensitive information is detected in a prompt.

  • Result: If a user asks Copilot to summarize or process a protected file, Copilot responds with a message such as: “I can’t help with that because the information is protected.”

B. Unmanaged AI Tools (DeepSeek, Gemini, ChatGPT)

Select Inline Web Traffic as the policy location and target Unmanaged AI applications. Microsoft Purview maintains a catalog of over 30,000 cloud applications, including AI tools.

If a user attempts to paste sensitive data into tools like DeepSeek or Gemini using Microsoft Edge, the action is blocked immediately.

5. Test and Tune DLP Policies

To avoid “DLP fatigue” (too many alerts and interruptions), test and adjust policies before full deployment.

Step 1: Use “Simulation Mode”

  • Select “Run the policy in simulation mode” for at least 30 days.
  • Review results in Activity Explorer to check whether rules are too strict or trigger too often.

Step 2: Reduce “False Positives”

  • Use “Proximity” to require related keywords near sensitive data.
  • Example: instead of triggering on any 9-digit number, require the keyword “SSN” to appear within 100 characters.
  • Add Exceptions for trusted roles or groups, such as HR.

6. Handle Alerts and Remediation

After policies are active, alerts provide visibility into data risks and user actions.

  • Alerts Dashboard: Go to Data loss prevention → Alerts to view who attempted to share sensitive data and the destination.
  • Content Viewer: Users with the “Content Viewer” role can view the specific data snippet that triggered the alert, helping with faster investigation.
  • Automation: Use Power Automate to automatically:
    • Create incidents in ServiceNow
    • Notify the SOC team through Microsoft Teams

7. Comparison: Microsoft DLP Licensing (2026)

Feature Microsoft 365 E3 Microsoft 365 E5 / E5 Compliance
DLP for Exchange, SharePoint, OneDrive Included Included
DLP for Microsoft Teams Not Included Included
Endpoint DLP (Windows & macOS) Not Included Included
Adaptive Protection Not Included Included
DLP for Copilot & Unmanaged AI Not Included Included

Upgrade Your Data Protection with Netstager Technologies

Setting up Microsoft Data Loss Prevention (DLP) policies can be done quickly, but applying them in a growing organization is more involved. True protection requires more than simply activating features; it requires ongoing tuning, continuous monitoring, and integration into daily operations.

Netstager Technologies, your authorized Microsoft 365 partner in Kerala, specializes in handling this complexity. Our team of experts executes your DLP deployment, including all critical configurations and policy requirements, not just to complete it, but to implement it with a clear plan.

Post-Deployment Considerations

Even after deployment, organizations often need to manage:

  • Policy Tuning: Continuously update rules to prevent false alerts as your data and document formats change.
  • New Tools & Workflows: Update policies whenever your team adopts new AI tools, applications, or hybrid work processes.
  • Alert Management: Monitor alerts to identify real risks and reduce unnecessary notifications.
  • Compliance Updates: Keep policies up to date with changing local and global regulations.

Our Expert-Managed Services Include:

  • Continuous Policy Updates: We review and refine rules so that only real risks trigger actions, keeping your team productive.
  • Secure AI & Application Oversight: We manage safe usage for Microsoft 365 Copilot and monitor unauthorized AI tools like DeepSeek or Gemini, protecting sensitive business data.
  • Managed Alert Review: Our team examines alerts, identifies genuine threats, and takes prompt action.
  • Step-by-Step Deployment: Policies are gradually shifted from test mode to active enforcement with minimal disruption.
  • Compliance Support: We maintain alignment with GDPR, HIPAA, and other regulations through regular audits and policy updates.

Protecting Sensitive Information with Microsoft DLP

Microsoft Data Loss Prevention (DLP) secures sensitive information and supports regulatory requirements. DLP requires ongoing attention, policies must be set up correctly, monitored regularly, and updated as needed to manage risks.

Steps for proper DLP use:

  • Locate sensitive data: Use Simulation Mode to identify critical files and understand how they are shared.
  • Provide staff guidance: Policy Tips give clear instructions on handling important information safely.
  • Review policies: Check alerts and update rules when systems, workflows, or regulations change.

When applied correctly, Microsoft Data Loss Prevention (DLP) keeps data protected and under control. Setting up and monitoring DLP policies can be complex. Netstager Technologies handles deployment, ongoing adjustments, and policy management so your team can manage day-to-day activities securely.

To start, migrate, or maintain your business’s Microsoft 365 services, contact us at +91 844 844 0112 or reach out via email at hello@netstager.com.

+91 844 844 0112