Agent Identity: Microsoft Entra Agent ID (Deep Dive)

AI agents can do powerful things—read emails, access files, send messages, and automate workflows.
But before any of that happens safely, one basic question must be answered:

Who is the agent?

This article focuses on agent identity, which is the most critical foundation of Microsoft Agent 365. If identity is misunderstood or implemented incorrectly, AI agents can easily become over-privileged, risky, and non-compliant.

In This Article

In this article, we explain:

What a Microsoft Entra Agent ID is
How agent identity is different from user and application identity
How AI agents authenticate and act in Microsoft 365
Why identity mistakes are the biggest risk in enterprise AI

Previously in This Series

In the earlier article, we explained the architecture of Microsoft Agent 365 and how it acts as a control plane for AI agents. We saw how it integrates with identity, security, compliance, and admin tools to manage agents centrally.

Now, we zoom into the most important building block of that architecture: identity.

Why Identity Is the Foundation of Security

In enterprise systems, everything starts with identity.

Identity helps answer questions like:

Who is making this request?
What are they allowed to access?
Should this access be allowed right now?
Can we audit this action later?

If identity is weak:

Permissions grow uncontrollably
Actions become hard to trace
Security incidents go unnoticed
Compliance becomes difficult to prove

With AI agents, these risks increase because agents:

Work continuously
Act faster than humans
Touch multiple systems
Do not pause to “think” before acting

That’s why Microsoft treats agent identity as a first-class concept.

What Is Microsoft Entra Agent ID?

Microsoft Entra Agent ID is a dedicated identity type created specifically for AI agents.

In simple words:

A Microsoft Entra Agent ID is how the system knows
who the agent is, what it can do, and how it should be controlled.

Each AI agent onboarded into Agent 365 receives:

A unique identity
Its own permission set
Its own audit trail
Its own lifecycle

This removes the need for shared service accounts or hidden credentials.

Why AI Agents Cannot Use User Identities

User identities are designed for humans.

Users:

Log in interactively
Work limited hours
Make conscious decisions
Use apps manually

AI agents:

Work 24/7
Act automatically
Make decisions at scale
Operate without interaction

Using a user account for an agent:

Violates security best practices
Breaks audit clarity
Makes access hard to justify

Simply put, agents are not people, and they should not pretend to be.

Why AI Agents Cannot Use App Identities Either

Application identities were designed for predictable software.

Apps:

Perform fixed tasks
Have stable access patterns
Execute predefined logic

AI agents:

Change behavior based on context
Use different tools dynamically
Access different data at different times
Interact with humans

Treating agents like apps often leads to:

Over-permissioned service principals
Poor visibility into behavior
No accountability for decisions

AI agents sit between users and apps, so they need their own identity model.

Why Agent Identity Needed a New Model

AI agents:

Act independently like applications
Behave contextually like humans

This combination broke traditional identity assumptions.

Microsoft introduced Entra Agent ID to:

Clearly identify agents
Control their permissions
Monitor their behavior
Audit their actions

Without this model, safe AI adoption at scale is not possible.

How Entra Agent ID Works (Conceptually)

When an AI agent is created:

The agent is registered through Agent 365
Microsoft Entra assigns an Agent ID
Permissions are explicitly defined
Security policies are applied
Monitoring and auditing begin

From this point onward:

Every action is tied to the agent’s identity
Every access request is evaluated
Every activity is traceable

Identity becomes the anchor for trust.

How AI Agents Authenticate in Microsoft 365

AI agents can authenticate in two main ways, depending on the scenario.

Agentic Authentication (Agent Acts as Itself)

In this model:

The agent uses its own Entra Agent ID
Permissions are assigned directly to the agent
Actions are clearly attributed to the agent

Common use cases:

Scheduled reports
Monitoring workflows
Automated notifications

This is the cleanest and most secure model.

On-Behalf-Of (OBO) Authentication

In this model:

The agent acts on behalf of a user
Uses delegated permissions
Respects the user’s access boundaries

Common use cases:

Summarizing a user’s emails
Helping with documents the user already has access to

This ensures:

No permission escalation
Clear accountability
User-controlled access

Why Choosing the Right Authentication Model Matters

Choosing the wrong model can:

Give agents too much access
Break audit trails
Create compliance issues

Understanding authentication models is essential for secure agent design.

Managing the Agent Identity Lifecycle

Agent identities are not permanent.

With Entra Agent ID, organizations can:

Create agent identities
Disable them temporarily
Rotate credentials
Fully retire agents

This prevents:

Orphaned identities
Forgotten agents
Silent security risks

Lifecycle control is a key advantage of Agent 365.

Visibility and Auditing Through Identity

Because every agent has its own identity:

All actions are logged
All access is traceable
All behavior is reviewable

This integrates seamlessly with:

Microsoft Purview for audits
Microsoft Defender for threat detection

Identity becomes the single source of truth.

What Happens When Identity Is Misunderstood

If agent identity is implemented poorly:

Agents become over-privileged
Shadow agents appear
Data exposure risks increase
Security teams lose visibility
Compliance becomes hard to prove

Most enterprise AI failures today are identity problems, not AI problems.

Why Microsoft Entra Agent ID Changes Everything

Microsoft Entra Agent ID:

Makes AI agents first-class enterprise citizens
Enables Zero Trust for AI
Brings accountability to autonomous systems
Allows AI to scale safely

Without agent identity, Agent 365 simply cannot work.

What’s Coming Next

Now that we understand who an agent is, the next step is understanding how agents are managed over time.

Next article: Agent Lifecycle Management in Microsoft Agent 365

We will cover:

Agent creation and approval
Updates and versioning
Suspension and retirement
Handling unused and shadow agents

Final Thoughts

AI agents are powerful—but power without identity is dangerous.

Microsoft Entra Agent ID ensures that:

Every agent is known
Every action is controlled
Every decision is traceable

Identity is not a technical detail.
It is the foundation of trust in enterprise AI.

Getting this right is the difference between scaling AI safely and losing control completely.

Microsoft Entra Agent ID Explained: Agent Identity in Microsoft Agent 365