diff --git a/src/docker-in-docker/README.md b/src/docker-in-docker/README.md
index c58283317..f94c9be51 100644
--- a/src/docker-in-docker/README.md
+++ b/src/docker-in-docker/README.md
@@ -18,7 +18,7 @@ Create child containers *inside* a container, independent from the host's docker
 | version | Select or enter a Docker/Moby Engine version. (Availability can vary by OS version.) | string | latest |
 | moby | Install OSS Moby build instead of Docker CE | boolean | true |
 | mobyBuildxVersion | Install a specific version of moby-buildx when using Moby | string | latest |
-| dockerDashComposeVersion | Default version of Docker Compose (v1, v2 or none) | string | v2 |
+| dockerDashComposeVersion | Default version of Docker Compose (v1, v2, latest or none) | string | latest |
 | azureDnsAutoDetection | Allow automatically setting the dockerd DNS server when the installation script detects it is running in Azure | boolean | true |
 | dockerDefaultAddressPool | Define default address pools for Docker networks. e.g. base=192.168.0.0/16,size=24 | string | - |
 | installDockerBuildx | Install Docker Buildx | boolean | true |
diff --git a/src/docker-in-docker/devcontainer-feature.json b/src/docker-in-docker/devcontainer-feature.json
index 0af78923e..6d7c0431a 100644
--- a/src/docker-in-docker/devcontainer-feature.json
+++ b/src/docker-in-docker/devcontainer-feature.json
@@ -1,6 +1,6 @@
 {
   "id": "docker-in-docker",
-  "version": "3.0.1",
+  "version": "3.1.0",
   "name": "Docker (Docker-in-Docker)",
   "documentationURL": "https://github.com/devcontainers/features/tree/main/src/docker-in-docker",
   "description": "Create child containers *inside* a container, independent from the host's docker instance. Installs Docker extension in the container along with needed CLIs.",
@@ -29,11 +29,12 @@
       "type": "string",
       "enum": [
         "none",
+        "latest",
         "v1",
         "v2"
       ],
-      "default": "v2",
-      "description": "Default version of Docker Compose (v1, v2 or none)"
+      "default": "latest",
+      "description": "Default version of Docker Compose (v1, v2, latest or none)"
     },
     "azureDnsAutoDetection": {
       "type": "boolean",
diff --git a/src/docker-in-docker/install.sh b/src/docker-in-docker/install.sh
index e9740efc5..70a187e28 100755
--- a/src/docker-in-docker/install.sh
+++ b/src/docker-in-docker/install.sh
@@ -11,7 +11,7 @@
 DOCKER_VERSION="${VERSION:-"latest"}" # The Docker/Moby Engine + CLI should match in version
 USE_MOBY="${MOBY:-"true"}"
 MOBY_BUILDX_VERSION="${MOBYBUILDXVERSION:-"latest"}"
-DOCKER_DASH_COMPOSE_VERSION="${DOCKERDASHCOMPOSEVERSION:-"v2"}" #v1, v2 or none
+DOCKER_DASH_COMPOSE_VERSION="${DOCKERDASHCOMPOSEVERSION:-"latest"}" #v1, v2, latest or none
 AZURE_DNS_AUTO_DETECTION="${AZUREDNSAUTODETECTION:-"true"}"
 DOCKER_DEFAULT_ADDRESS_POOL="${DOCKERDEFAULTADDRESSPOOL:-""}"
 USERNAME="${USERNAME:-"${_REMOTE_USER:-"automatic"}"}"
diff --git a/test/docker-in-docker/docker_compose_latest_moby.sh b/test/docker-in-docker/docker_compose_latest_moby.sh
new file mode 100755
index 000000000..bd5a9d23f
--- /dev/null
+++ b/test/docker-in-docker/docker_compose_latest_moby.sh
@@ -0,0 +1,16 @@
+#!/bin/bash
+
+set -e
+
+# Optional: Import test library
+source dev-container-features-test-lib
+
+# Definition specific tests
+check "docker compose" bash -c "docker compose version | grep -E '[0-9]+\.[0-9]+\.[0-9]+'"
+check "docker-compose" bash -c "docker-compose --version | grep -E '[0-9]+\.[0-9]+\.[0-9]+'"
+check "installs compose as docker-compose" bash -c "[[ -f /usr/local/bin/docker-compose ]]"
+check "moby-engine" bash -c "dpkg-query -W moby-engine"
+check "moby-cli" bash -c "dpkg-query -W moby-cli"
+
+# Report result
+reportResults
diff --git a/test/docker-in-docker/docker_compose_latest_no_moby.sh b/test/docker-in-docker/docker_compose_latest_no_moby.sh
new file mode 100644
index 000000000..5eeb34b45
--- /dev/null
+++ b/test/docker-in-docker/docker_compose_latest_no_moby.sh
@@ -0,0 +1,14 @@
+#!/bin/bash
+
+set -e
+
+# Optional: Import test library
+source dev-container-features-test-lib
+
+# Definition specific tests
+check "docker compose" bash -c "docker compose version | grep -E '[0-9]+\.[0-9]+\.[0-9]+'"
+check "docker-compose" bash -c "docker-compose --version | grep -E '[0-9]+\.[0-9]+\.[0-9]+'"
+check "installs compose as docker-compose" bash -c "[[ -f /usr/local/bin/docker-compose ]]"
+
+# Report result
+reportResults
diff --git a/test/docker-in-docker/scenarios.json b/test/docker-in-docker/scenarios.json
index 2f9df3958..a93495b51 100644
--- a/test/docker-in-docker/scenarios.json
+++ b/test/docker-in-docker/scenarios.json
@@ -146,6 +146,26 @@
             }
         }
     },
+    "docker_compose_latest_moby": {
+        "image": "mcr.microsoft.com/devcontainers/base:noble",
+        "features": {
+            "docker-in-docker": {
+                "moby": true,
+                "installDockerBuildx": true,
+                "dockerDashComposeVersion": "latest"
+            }
+        }
+    },
+    "docker_compose_latest_no_moby": {
+        "image": "mcr.microsoft.com/devcontainers/base:noble",
+        "features": {
+            "docker-in-docker": {
+                "moby": false,
+                "installDockerBuildx": true,
+                "dockerDashComposeVersion": "latest"
+            }
+        }
+    },
     "docker_build_fallback_buildx": {
         "image": "ubuntu:noble",
         "features": {