diff --git a/src/azure-cli-core/azure/cli/core/extension/operations.py b/src/azure-cli-core/azure/cli/core/extension/operations.py
index e20aed58b03..0aef89776ea 100644
--- a/src/azure-cli-core/azure/cli/core/extension/operations.py
+++ b/src/azure-cli-core/azure/cli/core/extension/operations.py
@@ -42,6 +42,7 @@
 IS_WINDOWS = sys.platform.lower() in ['windows', 'win32']
 LIST_FILE_PATH = os.path.join(os.sep, 'etc', 'apt', 'sources.list.d', 'azure-cli.list')
 LSB_RELEASE_FILE = os.path.join(os.sep, 'etc', 'lsb-release')
+PSYCOPG2_EXTENSIONS = {'rdbms-connect', 'serviceconnector-passwordless'}
 
 
 def _run_pip(pip_exec_args, extension_path=None):
@@ -111,7 +112,7 @@ def _add_whl_ext(cli_ctx, source, ext_sha256=None, pip_extra_index_urls=None, pi
         raise CLIError('Unable to determine extension name from {}. Is the file name correct?'.format(source))
     if extension_exists(extension_name, ext_type=WheelExtension):
         raise CLIError('The extension {} already exists.'.format(extension_name))
-    if extension_name == 'rdbms-connect' or extension_name == 'serviceconnector-passwordless':
+    if extension_name in PSYCOPG2_EXTENSIONS:
         _install_deps_for_psycopg2()
     ext_file = None
     if is_url:
@@ -157,6 +158,8 @@ def _add_whl_ext(cli_ctx, source, ext_sha256=None, pip_extra_index_urls=None, pi
     # Install with pip
     extension_path = build_extension_path(extension_name, system)
     pip_args = ['install', '--target', extension_path, ext_file]
+    if IS_WINDOWS and extension_name in PSYCOPG2_EXTENSIONS:
+        pip_args.append('--no-build-isolation')
 
     if pip_proxy:
         pip_args = pip_args + ['--proxy', pip_proxy]
diff --git a/src/azure-cli-core/azure/cli/core/extension/tests/latest/test_extension_commands.py b/src/azure-cli-core/azure/cli/core/extension/tests/latest/test_extension_commands.py
index 2f81268935d..ace477bd2f4 100644
--- a/src/azure-cli-core/azure/cli/core/extension/tests/latest/test_extension_commands.py
+++ b/src/azure-cli-core/azure/cli/core/extension/tests/latest/test_extension_commands.py
@@ -12,7 +12,7 @@
 
 from azure.cli.core.util import CLIError
 from azure.cli.core.extension import get_extension, build_extension_path
-from azure.cli.core.extension.operations import (add_extension_to_path, list_extensions, add_extension,
+from azure.cli.core.extension.operations import (_add_whl_ext, add_extension_to_path, list_extensions, add_extension,
                                                  show_extension, remove_extension, update_extension,
                                                  list_available_extensions, OUT_KEY_NAME, OUT_KEY_VERSION,
                                                  OUT_KEY_METADATA, OUT_KEY_PATH)
@@ -174,6 +174,36 @@ def test_add_extension_verify_no_pip_proxy(self):
             if '--proxy' in pip_cmd:
                 raise AssertionError("proxy parameter in check_output args although no proxy specified")
 
+    def test_add_psycopg2_extension_on_windows_disables_build_isolation(self):
+        source = os.path.join(self.ext_dir, 'rdbms_connect-1.0.0-py2.py3-none-any.whl')
+        with mock.patch('azure.cli.core.extension.operations.IS_WINDOWS', True), \
+                mock.patch('azure.cli.core.extension.operations.extension_exists', return_value=False), \
+                mock.patch('azure.cli.core.extension.operations._install_deps_for_psycopg2') as install_deps, \
+                mock.patch('azure.cli.core.extension.operations.os.path.isfile', return_value=True), \
+                mock.patch('azure.cli.core.extension.operations._validate_whl_extension'), \
+                mock.patch('azure.cli.core.extension.operations.check_distro_consistency'), \
+                mock.patch('azure.cli.core.extension.operations.build_extension_path', return_value=self.ext_dir), \
+                mock.patch('azure.cli.core.extension.operations._run_pip', return_value=0) as run_pip, \
+                mock.patch('azure.cli.core.extension.operations.shutil.copyfile'):
+            _add_whl_ext(self.cmd.cli_ctx, source)
+
+        install_deps.assert_called_once_with()
+        pip_args = run_pip.call_args.args[0]
+        self.assertIn('--no-build-isolation', pip_args)
+
+    def test_add_non_psycopg2_extension_on_windows_keeps_build_isolation(self):
+        with mock.patch('azure.cli.core.extension.operations.IS_WINDOWS', True), \
+                mock.patch('azure.cli.core.extension.operations.extension_exists', return_value=False), \
+                mock.patch('azure.cli.core.extension.operations._validate_whl_extension'), \
+                mock.patch('azure.cli.core.extension.operations.check_distro_consistency'), \
+                mock.patch('azure.cli.core.extension.operations.build_extension_path', return_value=self.ext_dir), \
+                mock.patch('azure.cli.core.extension.operations._run_pip', return_value=0) as run_pip, \
+                mock.patch('azure.cli.core.extension.operations.shutil.copyfile'):
+            _add_whl_ext(self.cmd.cli_ctx, MY_EXT_SOURCE)
+
+        pip_args = run_pip.call_args.args[0]
+        self.assertNotIn('--no-build-isolation', pip_args)
+
     def test_add_extension_with_specific_version(self):
         extension_name = MY_EXT_NAME
         extension1 = 'myfirstcliextension-0.0.3+dev-py2.py3-none-any.whl'