diff --git a/src/plugins/setup.ts b/src/plugins/setup.ts
index 68c6f92..6557eec 100644
--- a/src/plugins/setup.ts
+++ b/src/plugins/setup.ts
@@ -1,5 +1,3 @@
-import os from "node:os";
-
 import { commands, ProgressLocation, window } from "vscode";
 
 import { createPlugin } from "../plugins.ts";
@@ -10,6 +8,11 @@ import {
 } from "../utils/authenticate.ts";
 import { configureAwsProfiles } from "../utils/configure-aws.ts";
 import { runInstallProcess } from "../utils/install.ts";
+import {
+	activateLicense,
+	checkIsLicenseValid,
+	activateLicenseUntilValid,
+} from "../utils/license.ts";
 import { minDelay } from "../utils/promises.ts";
 
 export default createPlugin(
@@ -121,8 +124,6 @@ export default createPlugin(
 								progress.report({
 									message:
 										"Waiting for authentication response from the browser...",
-									// message: "Waiting for browser response...",
-									// message: "Waiting for authentication response...",
 								});
 								const { authToken } = await minDelay(
 									requestAuthentication(context, cancellationToken),
@@ -145,7 +146,6 @@ export default createPlugin(
 
 								/////////////////////////////////////////////////////////////////////
 								progress.report({
-									// message: "Authenticating...",
 									message: "Authenticating to file...",
 								});
 								await minDelay(saveAuthToken(authToken, outputChannel));
@@ -167,6 +167,38 @@ export default createPlugin(
 								}
 							}
 
+							/////////////////////////////////////////////////////////////////////
+							progress.report({ message: "Checking LocalStack license..." });
+
+							// If an auth token has just been obtained or LocalStack has never been started,
+							// then there will be no license info to be reported by `localstack license info`.
+							// Also, an expired license could be cached.
+							// Activating the license pre-emptively to know its state during the setup process.
+							const licenseIsValid = await minDelay(
+								activateLicense(outputChannel).then(() =>
+									checkIsLicenseValid(outputChannel),
+								),
+							);
+							if (!licenseIsValid) {
+								progress.report({
+									message:
+										"License is not valid or not assigned. Open License settings page to activate it.",
+								});
+
+								commands.executeCommand("localstack.openLicensePage");
+
+								await activateLicenseUntilValid(
+									outputChannel,
+									cancellationToken,
+								);
+							}
+
+							if (cancellationToken.isCancellationRequested) {
+								return;
+							}
+
+							//TODO add telemetry
+
 							/////////////////////////////////////////////////////////////////////
 							progress.report({
 								message: "Configuring AWS profiles...",
diff --git a/src/utils/authenticate.ts b/src/utils/authenticate.ts
index a53abcc..41131c6 100644
--- a/src/utils/authenticate.ts
+++ b/src/utils/authenticate.ts
@@ -1,4 +1,3 @@
-import { createHash } from "node:crypto";
 import * as fs from "node:fs/promises";
 import * as os from "node:os";
 import * as path from "node:path";
@@ -11,7 +10,6 @@ import type {
 import { env, Uri, window } from "vscode";
 
 import { assertIsError } from "./assert.ts";
-import { execLocalStack } from "./cli.ts";
 
 /**
  * Registers a {@link UriHandler} that waits for an authentication token from the browser,
@@ -114,21 +112,6 @@ export async function saveAuthToken(
 	}
 }
 
-const LICENSE_VALIDITY_MARKER = "license validity: valid";
-
-export async function checkIsLicenseValid(outputChannel: LogOutputChannel) {
-	try {
-		const licenseInfoResponse = await execLocalStack(["license", "info"], {
-			outputChannel,
-		});
-		return licenseInfoResponse.stdout.includes(LICENSE_VALIDITY_MARKER);
-	} catch (error) {
-		outputChannel.error(error instanceof Error ? error : String(error));
-
-		return undefined;
-	}
-}
-
 /**
  * Checks if the user is authenticated by validating the stored auth token.
  *
diff --git a/src/utils/license.ts b/src/utils/license.ts
new file mode 100644
index 0000000..e41350f
--- /dev/null
+++ b/src/utils/license.ts
@@ -0,0 +1,46 @@
+import type { CancellationToken, LogOutputChannel } from "vscode";
+
+import { execLocalStack } from "./cli.ts";
+
+const LICENSE_VALIDITY_MARKER = "license validity: valid";
+
+export async function checkIsLicenseValid(outputChannel: LogOutputChannel) {
+	try {
+		const licenseInfoResponse = await execLocalStack(["license", "info"], {
+			outputChannel,
+		});
+		return licenseInfoResponse.stdout.includes(LICENSE_VALIDITY_MARKER);
+	} catch (error) {
+		outputChannel.error(error instanceof Error ? error : String(error));
+
+		return false;
+	}
+}
+
+export async function activateLicense(outputChannel: LogOutputChannel) {
+	try {
+		await execLocalStack(["license", "activate"], {
+			outputChannel,
+		});
+	} catch (error) {
+		outputChannel.error(error instanceof Error ? error : String(error));
+	}
+}
+
+export async function activateLicenseUntilValid(
+	outputChannel: LogOutputChannel,
+	cancellationToken: CancellationToken,
+): Promise<void> {
+	while (true) {
+		if (cancellationToken.isCancellationRequested) {
+			break;
+		}
+		const licenseIsValid = await checkIsLicenseValid(outputChannel);
+		if (licenseIsValid) {
+			break;
+		}
+		await activateLicense(outputChannel);
+		// Wait before trying again
+		await new Promise((resolve) => setTimeout(resolve, 1000));
+	}
+}
diff --git a/src/utils/manage.ts b/src/utils/manage.ts
index 42eae83..153159f 100644
--- a/src/utils/manage.ts
+++ b/src/utils/manage.ts
@@ -2,9 +2,9 @@ import { v7 as uuidv7 } from "uuid";
 import type { ExtensionContext, LogOutputChannel, MessageItem } from "vscode";
 import { commands, env, Uri, window } from "vscode";
 
-import { checkIsLicenseValid } from "./authenticate.ts";
 import { spawnLocalStack } from "./cli.ts";
 import { exec } from "./exec.ts";
+import { checkIsLicenseValid } from "./license.ts";
 import type { Telemetry } from "./telemetry.ts";
 
 export type LocalstackStatus = "running" | "starting" | "stopping" | "stopped";
@@ -183,7 +183,12 @@ export async function stopLocalStack(
 
 export async function openLicensePage() {
 	const url = new URL("https://app.localstack.cloud/settings/auth-tokens");
-	await env.openExternal(Uri.parse(url.toString()));
+	const openSuccessful = await env.openExternal(Uri.parse(url.toString()));
+	if (!openSuccessful) {
+		window.showErrorMessage(
+			`Open LocalStack License page in browser by entering the URL manually: ${url.toString()}`,
+		);
+	}
 }
 
 async function showInformationMessage(
diff --git a/src/utils/promises.ts b/src/utils/promises.ts
index cc1bf9a..157133a 100644
--- a/src/utils/promises.ts
+++ b/src/utils/promises.ts
@@ -1,9 +1,9 @@
 import pMinDelay from "p-min-delay";
 
 /**
- * Setting up a minimum wait time of 1s allows users
+ * Setting up a minimum wait time allows users
  * to visually grasp the text before it goes away, if
- * the task was fast (less than 0.5s).
+ * the task was faster than the minimum wait time.
  */
 const MIN_TIME_BETWEEN_STEPS_MS = 500;
 
diff --git a/src/utils/setup.ts b/src/utils/setup.ts
index 62238b0..2a46ab5 100644
--- a/src/utils/setup.ts
+++ b/src/utils/setup.ts
@@ -3,17 +3,20 @@ import type { LogOutputChannel } from "vscode";
 import { checkIsAuthenticated } from "./authenticate.ts";
 import { checkIsProfileConfigured } from "./configure-aws.ts";
 import { checkLocalstackInstalled } from "./install.ts";
+import { checkIsLicenseValid } from "./license.ts";
 
 export async function checkIsSetupRequired(
 	outputChannel: LogOutputChannel,
 ): Promise<boolean> {
-	const [isInstalled, isAuthenticated, isProfileConfigured] = await Promise.all(
-		[
+	const [isInstalled, isAuthenticated, isLicenseValid, isProfileConfigured] =
+		await Promise.all([
 			checkLocalstackInstalled(outputChannel),
 			checkIsAuthenticated(),
+			checkIsLicenseValid(outputChannel),
 			checkIsProfileConfigured(),
-		],
-	);
+		]);
 
-	return !isInstalled || !isAuthenticated || !isProfileConfigured;
+	return (
+		!isInstalled || !isAuthenticated || !isLicenseValid || !isProfileConfigured
+	);
 }