diff --git a/packages/databricks-vscode/package.json b/packages/databricks-vscode/package.json
index 379a2950d..755cd6f96 100644
--- a/packages/databricks-vscode/package.json
+++ b/packages/databricks-vscode/package.json
@@ -698,7 +698,8 @@
         "ansi-to-html": "^0.7.2",
         "bcryptjs": "^2.4.3",
         "triple-beam": "^1.4.1",
-        "winston": "^3.10.0"
+        "winston": "^3.10.0",
+        "yaml": "^2.3.2"
     },
     "devDependencies": {
         "@istanbuljs/nyc-config-typescript": "^1.0.2",
diff --git a/packages/databricks-vscode/resources/whats-new/1.2.md b/packages/databricks-vscode/resources/whats-new/1.2.md
new file mode 100644
index 000000000..a880ef09f
--- /dev/null
+++ b/packages/databricks-vscode/resources/whats-new/1.2.md
@@ -0,0 +1,46 @@
+<img src="../../images/databricks-logo.png" alt="databricks-logo" width="100"/>
+
+# Databricks Extension v1.2.0
+
+## What's new?
+
+-   [📗 Advanced notebook support with Databricks Connect](#dbconnect-notebook)
+
+## <a id="dbconnect-notebook"></a> Advanced notebook support with Databricks Connect
+
+Before this update, you could already run notebooks locally with Databricks Connect. This update introduces advanced notebook support. This advanced support enables you to run notebooks locally with a similar experience as you have by running them on a Databricks cluster. The goal of this update is to bring much of the convenience of running notebooks on a Databricks cluster to your local development environment.
+
+This update includes:
+
+-   [Magic commands such as `%run` and `%sql`](#magic-commands)
+-   [Preconfigured globals such as `spark` and `dbutils`](#preconf-globals)
+-   [Interactive widgets through `dbutils.widgets`](#widgets)
+-   [Support for Databricks notebooks](#dbnb)
+
+### <a id="magic-command"></a>Magic commands
+
+You can now use Databricks magic commands locally from your notebooks.
+
+<img src="./1.2/magic_sql.gif" alt="magic_sql" width="600"/>
+
+### <a id="preconf-globals"></a>Preconfigured globals
+
+Just like on a Databricks cluster, this update configures and provides you with some globals such as `spark` and `dbutils` when you run notebooks locally.
+
+<img src="./1.2/preconf_globals.gif" alt="preconf_globals" width="600"/>
+
+### <a id="widgets"></a>Interactive `dbutils.widgets`
+
+You can now use `dbutils.widgets` to create interactive widgets in your local notebooks.
+
+<img src="./1.2/widgets.gif" alt="widgets" width="600"/>
+
+### <a id="dbnb"></a>Support for Databricks notebooks
+
+You can use Databricks notebooks locally with [VS Code Interactive Windows](https://code.visualstudio.com/docs/python/jupyter-support-py).
+
+<img src="./1.2/dbnb.gif" alt="dbnb" width="600"/>
+
+### Further details
+
+For a detailed documentation of this feature, see [Use notebooks with Databricks Connect](https://docs.databricks.com/en/dev-tools/vscode-ext/dev-tasks/notebooks.html).
diff --git a/packages/databricks-vscode/resources/whats-new/1.2/dbnb.gif b/packages/databricks-vscode/resources/whats-new/1.2/dbnb.gif
new file mode 100644
index 000000000..36db6d13e
Binary files /dev/null and b/packages/databricks-vscode/resources/whats-new/1.2/dbnb.gif differ
diff --git a/packages/databricks-vscode/resources/whats-new/1.2/magic_sql.gif b/packages/databricks-vscode/resources/whats-new/1.2/magic_sql.gif
new file mode 100644
index 000000000..f585b824e
Binary files /dev/null and b/packages/databricks-vscode/resources/whats-new/1.2/magic_sql.gif differ
diff --git a/packages/databricks-vscode/resources/whats-new/1.2/preconf_globals.gif b/packages/databricks-vscode/resources/whats-new/1.2/preconf_globals.gif
new file mode 100644
index 000000000..a46a48a47
Binary files /dev/null and b/packages/databricks-vscode/resources/whats-new/1.2/preconf_globals.gif differ
diff --git a/packages/databricks-vscode/resources/whats-new/1.2/widgets.gif b/packages/databricks-vscode/resources/whats-new/1.2/widgets.gif
new file mode 100644
index 000000000..63b53e0e9
Binary files /dev/null and b/packages/databricks-vscode/resources/whats-new/1.2/widgets.gif differ
diff --git a/packages/databricks-vscode/src/extension.ts b/packages/databricks-vscode/src/extension.ts
index 6ebb63f71..dd6c631ec 100644
--- a/packages/databricks-vscode/src/extension.ts
+++ b/packages/databricks-vscode/src/extension.ts
@@ -50,6 +50,7 @@ import {DbConnectStatusBarButton} from "./language/DbConnectStatusBarButton";
 import {NotebookAccessVerifier} from "./language/notebooks/NotebookAccessVerifier";
 import {NotebookInitScriptManager} from "./language/notebooks/NotebookInitScriptManager";
 import {showRestartNotebookDialogue} from "./language/notebooks/restartNotebookDialogue";
+import {showWhatsNewPopup} from "./whatsNewPopup";
 
 export async function activate(
     context: ExtensionContext
@@ -559,6 +560,14 @@ export async function activate(
         );
     });
 
+    showWhatsNewPopup(context, stateStorage).catch((e) => {
+        logging.NamedLogger.getOrCreate(Loggers.Extension).error(
+            "Error while showing popup for what's new",
+            e
+        );
+    });
+
+    stateStorage.lastInstalledExtensionVersion = packageMetadata.version;
     CustomWhenContext.setActivated(true);
     telemetry.recordEvent(Events.EXTENSION_ACTIVATED);
 
diff --git a/packages/databricks-vscode/src/language/DbConnectInstallPrompt.ts b/packages/databricks-vscode/src/language/DbConnectInstallPrompt.ts
index 16097e41a..5f4528186 100644
--- a/packages/databricks-vscode/src/language/DbConnectInstallPrompt.ts
+++ b/packages/databricks-vscode/src/language/DbConnectInstallPrompt.ts
@@ -47,11 +47,7 @@ export class DbConnectInstallPrompt implements Disposable {
         const pkgUpdateMessagePart = hasPyspark
             ? "(pyspark will be uninstalled)"
             : hasDbConnect
-            ? `(databricks-connect will be updated to the latest version: ${
-                  dbConnectDetails.version
-              } -> ${await this.pythonExtension.getLatestPackageVersion(
-                  "databricks-connect"
-              )} )`
+            ? `(databricks-connect will be updated to the latest version: ${dbConnectDetails.version} -> ${DATABRICKS_CONNECT_VERSION} )`
             : "";
         const message = `${mainMessagePart} ${envMessagePart}. ${pkgUpdateMessagePart}`;
 
diff --git a/packages/databricks-vscode/src/vscode-objs/StateStorage.ts b/packages/databricks-vscode/src/vscode-objs/StateStorage.ts
index 6941ebbe3..e77684648 100644
--- a/packages/databricks-vscode/src/vscode-objs/StateStorage.ts
+++ b/packages/databricks-vscode/src/vscode-objs/StateStorage.ts
@@ -86,6 +86,20 @@ export class StateStorage {
         );
     }
 
+    get lastInstalledExtensionVersion() {
+        return this.context.workspaceState.get<string>(
+            "databricks.lastInstalledExtensionVersion",
+            "0.0.0"
+        );
+    }
+
+    set lastInstalledExtensionVersion(value: string) {
+        this.context.workspaceState.update(
+            "databricks.lastInstalledExtensionVersion",
+            value
+        );
+    }
+
     get fixedUUID() {
         let uuid = this.context.workspaceState.get<string>(
             "databricks.fixedUUID"
diff --git a/packages/databricks-vscode/src/whatsNewPopup.test.ts b/packages/databricks-vscode/src/whatsNewPopup.test.ts
new file mode 100644
index 000000000..dda141165
--- /dev/null
+++ b/packages/databricks-vscode/src/whatsNewPopup.test.ts
@@ -0,0 +1,63 @@
+import {expect} from "chai";
+import {findFileFowWhatsNew} from "./whatsNewPopup";
+import {SemVer} from "semver";
+import * as tmp from "tmp";
+import path from "path";
+import {mkdir, writeFile} from "fs/promises";
+
+describe(__filename, () => {
+    let context: any;
+    let removeCallback: () => void;
+    let dirname: string;
+
+    before(async () => {
+        ({name: dirname, removeCallback} = tmp.dirSync({unsafeCleanup: true}));
+        context = {
+            asAbsolutePath: (ip: string) => path.join(dirname, ip),
+        } as any;
+
+        await mkdir(path.join(dirname, "resources", "whats-new"), {
+            recursive: true,
+        });
+        await writeFile(
+            path.join(dirname, "resources", "whats-new", "1.2.md"),
+            ""
+        );
+    });
+
+    after(() => {
+        removeCallback();
+    });
+
+    it("should use CHANGELOG.md for patch version upgrade", async () => {
+        const previousVersion = new SemVer("1.2.1");
+        const currentVersion = new SemVer("1.2.2");
+        expect(
+            await findFileFowWhatsNew(context, previousVersion, currentVersion)
+        ).to.equal(path.join(dirname, "CHANGELOG.md"));
+    });
+
+    it("should use custom markdown file for minor version upgrade", async () => {
+        const previousVersion = new SemVer("1.1.2");
+        const currentVersion = new SemVer("1.2.3");
+        expect(
+            await findFileFowWhatsNew(context, previousVersion, currentVersion)
+        ).to.equal(path.join(dirname, "resources", "whats-new", "1.2.md"));
+    });
+
+    it("should use custom markdown file for major version upgrade", async () => {
+        const previousVersion = new SemVer("0.1.2");
+        const currentVersion = new SemVer("1.2.3");
+        expect(
+            await findFileFowWhatsNew(context, previousVersion, currentVersion)
+        ).to.equal(path.join(dirname, "resources", "whats-new", "1.2.md"));
+    });
+
+    it("should use CHANGELOG.md if custom markdown file does not exist", async () => {
+        const previousVersion = new SemVer("1.1.2");
+        const currentVersion = new SemVer("1.3.3");
+        expect(
+            await findFileFowWhatsNew(context, previousVersion, currentVersion)
+        ).to.equal(path.join(dirname, "CHANGELOG.md"));
+    });
+});
diff --git a/packages/databricks-vscode/src/whatsNewPopup.ts b/packages/databricks-vscode/src/whatsNewPopup.ts
new file mode 100644
index 000000000..643bfd29e
--- /dev/null
+++ b/packages/databricks-vscode/src/whatsNewPopup.ts
@@ -0,0 +1,76 @@
+import {ExtensionContext, Uri, commands, window} from "vscode";
+import {PackageJsonUtils} from "./utils";
+import {StateStorage} from "./vscode-objs/StateStorage";
+import path from "path";
+import {exists} from "fs-extra";
+import * as semver from "semver";
+
+export async function findFileFowWhatsNew(
+    context: ExtensionContext,
+    previousVersion: semver.SemVer,
+    currentVersion: semver.SemVer
+) {
+    const markdownFile = context.asAbsolutePath(
+        path.join(
+            "resources",
+            "whats-new",
+            `${currentVersion.major}.${currentVersion.minor}.md`
+        )
+    );
+
+    // To maintain release discipline (prevent too big changes from being released in a patch version)
+    // we explicitly do not show the custom message popup for patch versions upgrades.
+    currentVersion.patch = 0;
+    previousVersion.patch = 0;
+
+    if (
+        semver.compare(currentVersion, previousVersion) > 0 &&
+        (await exists(markdownFile))
+    ) {
+        return markdownFile;
+    }
+
+    return context.asAbsolutePath("CHANGELOG.md");
+}
+
+export async function showWhatsNewPopup(
+    context: ExtensionContext,
+    storage: StateStorage
+) {
+    const packageJsonMetadata = await PackageJsonUtils.getMetadata(context);
+    const currentVersion = semver.parse(packageJsonMetadata.version);
+    if (currentVersion === null) {
+        return;
+    }
+
+    const previousVersion =
+        semver.parse(storage.lastInstalledExtensionVersion) ??
+        new semver.SemVer("0.0.0");
+
+    // if the extension is downgraded, we do not want to show the popup
+    if (semver.compare(currentVersion, previousVersion) <= 0) {
+        return;
+    }
+
+    // We try to find a custom markdown file for the current version,
+    // if not found, we use the changelog.md in its entirety.
+    const markdownFile = await findFileFowWhatsNew(
+        context,
+        previousVersion,
+        currentVersion
+    );
+
+    if (window.state.focused) {
+        commands.executeCommand("markdown.showPreview", Uri.file(markdownFile));
+        return;
+    }
+
+    const listener = window.onDidChangeWindowState((e) => {
+        if (!e.focused) {
+            return;
+        }
+        commands.executeCommand("markdown.showPreview", Uri.file(markdownFile));
+        listener.dispose();
+    });
+    context.subscriptions.push(listener);
+}
diff --git a/yarn.lock b/yarn.lock
index 227f851c1..24c7ab1aa 100644
--- a/yarn.lock
+++ b/yarn.lock
@@ -376,7 +376,7 @@ __metadata:
     inversify: ^6.0.1
     reflect-metadata: ^0.1.13
     semver: ^7.5.4
-  checksum: 2e28fb154da0743e5b26cd3bdb1dba6f286e1f34f41d64291fca872ae25678f44a7780bd965f8166632f5a2303a00ecc6def5a9570d09e8d37bcd6546d489cd3
+  checksum: b33948b1c9bb7ff37fe5d34eefedf78ac1df594b311aa2f3cbc7b5cf888c64512d06acb646635653c63fa7dc7634c09cfe7d0ff3cf0bda616c3f0b3494f50dde
   languageName: node
   linkType: hard
 
@@ -391,7 +391,7 @@ __metadata:
     inversify: ^6.0.1
     reflect-metadata: ^0.1.13
     semver: ^7.5.4
-  checksum: 2e28fb154da0743e5b26cd3bdb1dba6f286e1f34f41d64291fca872ae25678f44a7780bd965f8166632f5a2303a00ecc6def5a9570d09e8d37bcd6546d489cd3
+  checksum: b33948b1c9bb7ff37fe5d34eefedf78ac1df594b311aa2f3cbc7b5cf888c64512d06acb646635653c63fa7dc7634c09cfe7d0ff3cf0bda616c3f0b3494f50dde
   languageName: node
   linkType: hard
 
@@ -3717,6 +3717,7 @@ __metadata:
     wdio-video-reporter: ^4.0.3
     wdio-vscode-service: ^5.2.0
     winston: ^3.10.0
+    yaml: ^2.3.2
     yargs: ^17.7.2
   languageName: unknown
   linkType: soft
@@ -11184,6 +11185,13 @@ __metadata:
   languageName: node
   linkType: hard
 
+"yaml@npm:^2.3.2":
+  version: 2.3.2
+  resolution: "yaml@npm:2.3.2"
+  checksum: acd80cc24df12c808c6dec8a0176d404ef9e6f08ad8786f746ecc9d8974968c53c6e8a67fdfabcc5f99f3dc59b6bb0994b95646ff03d18e9b1dcd59eccc02146
+  languageName: node
+  linkType: hard
+
 "yargs-parser@npm:20.2.4":
   version: 20.2.4
   resolution: "yargs-parser@npm:20.2.4"