Azure AI Foundry Agent Service: A Complete Guide to Building Enterprise AI Agents

What Is Azure AI Foundry Agent Service?

Azure AI Foundry Agent Service is a managed service in Azure designed to provide a framework for creating, managing, and deploying AI agents. Built on the OpenAI Assistants API foundation, it distinguishes itself through expanded model choices, deep Azure data integration, and enterprise-grade security features.

The service represents Microsoft's unified approach to AI agent development — combining the flexibility of custom code with the reliability and governance requirements of enterprise deployment.

Core Architecture

Every AI agent built on Azure AI Foundry requires three core components:

1. Deployed Generative AI Models

The agent's reasoning engine. Azure AI Foundry supports multiple model providers — not just OpenAI — giving teams the flexibility to choose the right model for each use case. Models handle natural language understanding, reasoning, planning, and response generation.

2. Knowledge Sources

Data connections that ground the agent's responses in factual, domain-specific information. This includes Azure Blob Storage, Azure AI Search indexes, SharePoint libraries, and custom data connectors. Knowledge grounding reduces hallucinations and ensures responses reflect the organization's actual data.

3. Tools for Automating Actions

Capabilities that let the agent take actions beyond generating text — calling APIs, querying databases, executing workflows, sending notifications. Tools transform the agent from a conversational interface into an autonomous system that can accomplish real business tasks.

Conversation Threads

Conversations occur on threads, which retain a history of messages exchanged between the user and the agent along with associated data assets. Threads provide persistent context across multi-turn interactions, enabling agents to maintain coherent, long-running conversations.

Comparing Microsoft's AI Agent Frameworks

Microsoft offers multiple frameworks for building AI agents, each targeting different use cases and developer profiles:

Azure AI Foundry Agent Service

Best for organizations needing sophisticated AI agents with deep Azure integration, enterprise security, and multi-model support. Ideal for production deployments that require governance, compliance, and scalable infrastructure.

Semantic Kernel

A lightweight, open-source SDK for building AI agents and orchestrating multi-agent solutions. Best for developers who want fine-grained control over agent behavior and need to integrate AI into existing applications. Supports C#, Python, and Java.

AutoGen

An open-source framework from Microsoft Research designed for multi-agent collaboration and experimentation. Best for research teams, prototyping, and scenarios requiring multiple agents that collaborate to solve complex problems.

Copilot Studio

A low-code environment for building AI agents without deep development expertise. Best for business users, citizen developers, and teams that need to deploy conversational agents quickly using visual builders and pre-built templates.

Microsoft 365 Agents SDK

For developers creating agents that integrate across Microsoft 365 channels — Teams, Outlook, SharePoint. Best for extending productivity workflows with AI capabilities that work within existing Microsoft ecosystem tools.

When to Use Azure AI Foundry Agent Service

Azure AI Foundry Agent Service is the right choice when your requirements include:

• Multi-model flexibility: You need to choose between different LLM providers based on task requirements
• Enterprise data integration: Your agent must access Azure data services, SharePoint, or enterprise databases
• Production governance: You need audit logging, access controls, and compliance features
• Scalable infrastructure: Your agent must handle production traffic with reliability guarantees
• Security requirements: You need managed identity, VNet integration, and data encryption

For simpler use cases, Copilot Studio or Semantic Kernel may be more appropriate starting points.

Frequently Asked Questions

What is Azure AI Foundry Agent Service?

Azure AI Foundry Agent Service is Microsoft's managed platform for building, deploying, and managing AI agents on Azure. It extends the OpenAI Assistants API with multi-model support, Azure data integration, enterprise security, and managed infrastructure. Agents can reason over documents, call external tools, and maintain persistent conversation threads.

How does Azure AI Foundry differ from the OpenAI Assistants API?

Azure AI Foundry builds on the Assistants API but adds multi-model support (not limited to OpenAI models), native Azure data source integration, enterprise security features (managed identity, VNet, compliance controls), and managed infrastructure for production deployment. The Assistants API is more focused on OpenAI models with simpler deployment.

Can I use open-source models with Azure AI Foundry Agent Service?

Yes. Azure AI Foundry supports multiple model providers, including open-source models deployed through Azure AI. This gives teams the flexibility to use proprietary models for complex reasoning and cost-effective open-source models for simpler tasks within the same agent framework.

What is the difference between Semantic Kernel and Azure AI Foundry?

Semantic Kernel is a lightweight SDK for embedding AI capabilities into applications — it runs in your code and you manage the infrastructure. Azure AI Foundry Agent Service is a managed platform — Microsoft handles infrastructure, scaling, and security. Semantic Kernel offers more control; Foundry offers more convenience and enterprise features.

How does conversation threading work in Azure AI Foundry?

Conversation threads maintain persistent history of all messages exchanged between the user and agent, along with associated data (uploaded files, tool call results, retrieval context). Threads enable multi-turn conversations where the agent retains full context across interactions, without developers needing to manage conversation state manually.