The "Default Terminal" option is only available for Preview builds of the Terminal #11415
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Product-Terminal
The new Windows Terminal.
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Windows 11 is shipping a new OS feature we're calling "defterm" - the ability to set the default terminal application for console launches in Windows. This was originally tracked in #492, #5000. This feature initially shipped in Terminal Preview version https://github.com/microsoft/terminal/releases/tag/v1.9.1445.0.
As of writing, this feature is still only available with "Preview" versions of the Terminal. There are two different versions of the Terminal available:
Stable is usually one minor version behind the Preview version, +/- a couple features. If you're wondering why the Terminal doesn't appear in the dropdown, then this is why.
If you only have "Windows Terminal" (stable) installed, you will not see the Terminal in the Settings app for the Default Terminal setting.
There's a bit of work we want to get done in the 1.12 timeframe to move the defterm feature into the Stable branch:
Once that's fixed up, we'll be enabling the Default Terminal feature for Stable builds as well.
(Preview is also reasonably reliable if you're really enthusiastic about defterm, it is just a tad bit more "move fast and break things".)
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