Microsoft Office 365 Data Loss Prevention (DLP): An Ultimate Guide

In 2021, Microsoft crossed the $2 trillion mark in market capitalization, an arguable feat that most companies dream of. However, in the same year, a report from Business wire surfaced, claiming:

“An alarming 85% of organizations using Microsoft 365 have suffered email data breaches, a research by Egress Reveals.”

This impacted the business heavily and tanked stock prices dramatically. The moral? 

Cyber security is a tough nut to crack. However, whatever may be the case, cybersecurity is the shield that your business needs. 

From another perspective, the newscast throws light on the reliability and security features of Microsoft 365 - a product that ranks second in market share and is used by millions of companies across the globe. 

This article discusses everything you must know about Microsoft 365 DLP features. Let’s dive into detail.

What is Microsoft 365 Data Loss Prevention?

Microsoft 365 data loss prevention protects data and prevents unauthorized sharing of sensitive information. 

Early in 2017, Microsoft was tasked with creating the Security and Compliance Center for Office 365. This allowed users to manage and protect sensitive information through Microsoft Office 365’s data loss prevention features. 

Office 365 DLP features worked similarly to other DLP tools in that segment, allowing users to secure their data through specific rules. For instance, a policy defined within Office 365 to govern data sends notifications when someone violates the rule.

Further, Microsoft Office 365 administrators can define and apply DLP policies across the network to automatically identify, monitor, and manage data flow at rest or in transit.

The software achieves these capabilities through deep content analysis and advanced machine learning algorithms. It allows DLP to uncover content that matches your policies and blocks data sent through email, cloud storage, or any other third-party app. 

✨Do We Really Need DLP for Office 365?

Businesses deal with critical information such as intellectual property (IP), customer information, financial data and business plans, and much of this data requires robust DLP policies. 

Now, the question is, ‘Do we need Microsoft 365 DLP?’

The answer is yes and no. We’ll tell you why.

Microsoft 365 DLP policies can help you automatically identify, track, and protect sensitive data elements across its services like OneDrive, Exchange, Teams, and others. This makes it necessary to keep your data secure.

However, you do not need Office 365 DLP if you implement a robust DLP tool like Strac. 

Strac provides modern no-code scanners and Data Loss Prevention (DLP) solution for every major SaaS product in the market. The software seamlessly integrates with Office 365, Zendesk, Slack, Gmail, ChatGPT, Salesforce, Box and many others 

✨How to Setup Microsoft Office 365 Data Loss Prevention?

To set up Data Loss Prevention (DLP) in Microsoft Office 365, follow these structured steps to ensure your organization effectively protects sensitive data from unauthorized access and sharing.

Step 1: Identify and Classify Sensitive Data

Begin by identifying the types of sensitive data your organization handles. This includes:

• Personal Identifiable Information (PII): Names, Social Security Numbers, etc.
• Financial Data: Credit card numbers, bank account information.
• Confidential Business Information: Trade secrets, proprietary data.

Microsoft provides predefined sensitive information types that can help streamline this process. You can also create custom types tailored to your organization's specific needs. Utilize tools like Microsoft Information Protection to assist in classifying and labeling data based on sensitivity levels.

Step 2: Collaborate with Business Owners

Engage with business process owners to map out workflows involving sensitive data. This collaboration will help you understand:

• How sensitive data is used in daily operations.
• The context of data handling and sharing practices.
• Acceptable behaviors and potential risks related to sensitive data.

This understanding is essential for creating effective DLP policies that align with both operational and compliance requirements.

Step 3: Create DLP Policies

Once you have classified your sensitive data, the next step is to create DLP policies. These policies dictate how to handle detected sensitive information.

To create a policy:

1. Sign in to the Microsoft 365 Compliance Center.
2. Navigate to Data loss prevention > Policies > + Create a policy.
3. Choose a template or select Custom Policy based on your organization’s requirements.
4. Define the locations where the policy will apply (e.g., Exchange, SharePoint, OneDrive).
5. Specify conditions and actions (e.g., block sharing, notify users).

You can select from over 40 templates tailored for various compliance needs, such as HIPAA or GDPR.

Step 4: Configure Policy Settings

Define specific settings for your DLP policy, including:

• Conditions: Determine what triggers the policy (e.g., detection of credit card numbers).
• Actions: Specify what happens when a condition is met (e.g., block access, notify users).
• User Notifications: Decide how users will be informed about policy violations. You can customize notification messages to guide users on corrective actions.

Additionally, configure rules for overriding actions in case of false positives to reduce unnecessary disruptions.

🎥Step 5: Test Your Policies

Before fully implementing your DLP policies, conduct thorough testing:

• Run policies in test mode to assess their impact without affecting user productivity.
• Simulate different scenarios that might trigger a policy violation (e.g., sending an email containing sensitive data externally).
• Collect feedback from users who receive alerts and adjust policies accordingly to minimize false positives.

Utilize reports like Policy Hits Over Time and Top Sensitive Information Types to analyze the effectiveness of your policies.

For a practical demonstration of a robust agentless DLP solution that works seamlessly with Office 365 and Gmail, watch this video:

Step 6: Monitor and Review Policy Violations

After activating your DLP policies, continuously monitor their effectiveness using Office 365’s reporting tools:

• Track policy violations and analyze trends to understand how sensitive data is being handled within your organization.
• Set up alerts for significant violations that require immediate attention.
• Frequently review reports to identify areas for improvement or additional training needs for users regarding data handling practices.

Step 7: Update Policies as Needed

Data protection needs evolve over time due to changes in business processes, regulatory requirements, and data usage patterns. Regularly revisit and revise your DLP policies to ensure they remain effective and relevant:

• Implement role-based access controls (RBAC) to limit exposure of sensitive data only to those who need it for their job functions.

By following these detailed steps, you can effectively set up Data Loss Prevention in Microsoft Office 365, safeguarding your organization’s sensitive information against unauthorized access and sharing while ensuring compliance with relevant regulations.

✨Benefits of Microsoft 365 DLP

Reports suggest,

• More than 34% of American businesses experienced a data breach in the previous year, and 
• 74% of those businesses were unaware of the breach when it happened. 

The report also suggests that human errors, technology glitches, and criminal acts mostly account for data breaches.

No doubt, having Microsoft Office 365 DLP makes sense in 2024. Here are a few notable benefits of DLP in Microsoft 365.

• Microsoft DLP solution can detect suspicious activity and allow its user to block information from leaving the system. This is achieved through customized complex DLP policies. 
• Office 365 DLP enables businesses to prevent the unauthorized sharing of company data to avoid leaking information to other parties. 
• With Microsoft 365 DLP, you can protect sensitive data and prevent it from falling into the wrong hands. In case of theft, use device encryption to keep your data safe. 
• Office 365 DLP helps perform compliance audits. With Microsoft 365 DLP, you can perform regulatory compliance for data protection. Organizations dealing with data and digital assets must follow regulatory compliance, including training programs for employees’ growth and development.
• The Intune feature in Microsoft 365 DLP enables you to protect your corporate data on mobile devices via a container policy. It protects data from risky or malicious activities. Also, on sudden employee termination or misplacement of devices, you can remove all your corporate data from mobile devices in one click.

Limitations of Microsoft 365 DLP

Microsoft 365 data loss prevention helps prevent the loss of sensitive information and data, but it has its fair share of limitations. For instance, Microsoft DLP is ineffective against ransomware and phishing threats. 

• Major shortcoming of Office 365 DLP is false negatives and positives when detecting sensitive data across unstructured text and documents of different formats. It is not accurate leading to frustration and decreased productivity.
• Another major drawback is that Microsoft Office 365 DLP can’t redact sensitive email data.
• Office 365 DLP also cannot redact sensitive data within documents like images, pdfs, screenshots, word docs, excel sheets, and more. 
• Operating and using Microsoft DLP is time-consuming and requires configuration and customization.
• Data loss prevention protection is limited against various data security threats that exist in PDFs and images, making business data vulnerable.
• The complexity of setting up Microsoft 365 DLP also hinders the workflow and systems of a company. Furthermore, configuring policies is complex and hard to refine for better results.

How Microsoft 365 Data Loss Prevention Works?

Office 365 has a Microsoft Purview compliance portal that provides users with several features to boost their data security. This portal includes all features dedicated to data loss prevention.

Setting up policies and rules

Office 365 DLP allows users to set up rules and policies that determine,

-        which data needs protection,

-        how it must be managed, and

-        who should be notified if the data is shared in a way that violates the set policies and rules.

Make sure that your DLP policy details the conditions the content must match before enforcing the rule and taking actions automatically that you want the rule to take when a content match is identified.

Applying DLP policies

Office 365 DLP policies can be applied across Microsoft products like OneDrive accounts, SharePoint sites, Teams, Exchange Online, and more. 

Microsoft 365 DLP Best Practices

Here are a few Microsoft 365 DLP best practices that can help you make the most of the software features.

• Identify and classify data
• Restrict sensitive data access 
• Determine the nature of your uploaded data
• Eliminate redundant data
• Check your collaborations

Identify and classify data

Office 365 DLP automatically identifies and classifies sensitive data. However, several other DLP tools classify data automatically and provide additional features.

For instance, Strac is one such DLP software that instantly detects and redacts PII, PHI, and sensitive data, like credit card numbers, health information, social security number, and more.

Restrict sensitive data access 

Another practice for effective data loss prevention is to restrict access to sensitive information. According to the Principle of least privilege, only those employees who need it to accomplish tasks and fulfil their roles should have access to specific data. The more restricted the access to data, the lesser the chances of data theft.

In cases of misplaced or stolen devices, utilize data encryption to prevent access to sensitive information. Data encryption adds a layer of protection to prevent unauthorized access.

Determine the nature of your uploaded data

Your approach to using Office 365 DLP isn’t right if you aren’t aware of the nature of your sensitive data in the cloud. Scan your data at rest, in motion and in transit to know the type of sensitive data (employee salaries, social security numbers, sheet containing IP addresses, password-protect files, etc.) are available in your Office 365 cloud. Once you know the sensitive data elements, you can better define your DLP strategy.

Eliminate redundant data

This is a general best practice to follow to streamline your DLP strategy. Once you identify the type of data stored in your Office 365 cloud and its location, remove any data that’s redundant and that you don’t need.

Check your collaborations

With Office 365, collaboration is easy. You can easily share data among teams or to external sources via emails. To ensure 100% data security, look into your collaborations. Determine what you share and with whom. Especially, track the sensitive data being shared constantly among teams.

Knowing your collaborations will help you enhance your data security, control access/ permissions, and also help you educate your teams on secure collaboration. Further, reviewing collaborations will also help you find anonymous links accessing sensitive data.

What Are Microsoft 365 DLP Policies?

Microsoft 365 DLP policies are automated rules that identify, monitor, and protect sensitive information across Office 365 apps like Outlook, SharePoint, OneDrive, and Teams. These policies are designed to prevent unintentional sharing or exposure of sensitive data such as credit card numbers, health records, or personal identifiers. By applying these predefined or custom rules, organizations can control how sensitive data is accessed and shared—ensuring compliance with internal and external regulations like GDPR, HIPAA, or PCI DSS.

According to Spin.AI’s Microsoft 365 DLP guide, these policies use built-in data classification and content inspection to detect sensitive information based on specific patterns or keywords. Admins can then configure actions like blocking, warning, or auditing when a rule is triggered. This automation helps reduce data leakage risks without placing additional burden on employees.

Common DLP policy examples include:

• Financial data policies that prevent sharing of credit card or bank account details via email or chat.
• Personal data policies that detect and restrict the transfer of Social Security Numbers or passport details.
• Health information policies that safeguard PHI in line with HIPAA requirements.
• Intellectual property policies that stop confidential business documents from leaving the organization’s environment.

With Microsoft 365 DLP policies in place, businesses gain visibility and control over their sensitive data flow. However, while these policies help enforce baseline compliance, they often lack real-time remediation, deep SaaS integration, and context-aware detection—gaps that modern platforms like Strac address with unified DSPM and DLP capabilities across SaaS, Cloud, and GenAI surfaces.

Where Can Microsoft Purview Policies Be Applied?

Microsoft Purview DLP policies can be applied across multiple Microsoft 365 workloads to monitor and protect sensitive data wherever it moves. These policies extend beyond email and document storage, reaching into collaboration and communication tools used daily by modern teams. The goal is to provide consistent data protection across the entire Microsoft 365 ecosystem—ensuring that sensitive data stays secure, even as it flows between users, apps, and cloud environments.

Purview DLP policies can be enforced across:

• Exchange Online (Outlook): Scans emails and attachments for sensitive data before they’re sent externally, applying warnings, blocking actions, or encryption automatically.
• SharePoint Online & OneDrive for Business: Detects sensitive information stored or shared in documents and prevents public or unauthorized sharing.
• Microsoft Teams: Monitors messages and file transfers in chats and channels to stop sensitive data from being exposed during collaboration.
• Microsoft Endpoint Devices: Extends DLP capabilities to Windows and macOS devices, preventing users from copying sensitive content to USB drives, clipboards, or network shares.
• On-premises repositories (via Unified DLP): Enables centralized policies that protect hybrid environments—bridging the gap between cloud and on-prem data.

It is important to highlight that most native policies still rely on detection rather than remediation, leaving blind spots across third-party SaaS tools and generative AI platforms.

That’s where Strac stands apart; extending DLP and DSPM coverage beyond Microsoft’s native stack. Strac unifies protection across SaaS, Cloud, GenAI, and Endpoint environments, automatically redacting and remediating sensitive data in real time. This holistic approach ensures consistent compliance and visibility, even in multi-cloud or multi-app ecosystems.

🎥Strac Office 365 Data Loss Prevention

The Strac Microsoft Office 365 app is a Data Loss Prevention (DLP) solution designed to safeguard against the unauthorized disclosure of sensitive information through emails. It efficiently identifies and redacts sensitive content in emails, providing organizations with detailed reports on the handling of such emails. This functionality not only enhances data protection but also supports compliance efforts by offering insights into data flow within the organization.

The app facilitates a secure environment where sensitive emails are masked, yet accessible to authorized personnel through the Strac UI Vault. This balance between security and accessibility ensures that data protection measures do not impede operational efficiency. Additionally, the Strac Office 365 App includes mechanisms to prevent the unauthorized external sharing of emails, incorporating a process that requires owner approval before sensitive emails or attachments are sent to external recipients. This feature significantly mitigates the risk of data leakage.

Organizations have the flexibility to define a comprehensive list of sensitive data elements—ranging from personal identifiers to financial information—that the Strac Office 365 App will automatically detect and protect. This capability is critical for maintaining the integrity and confidentiality of sensitive information.

Furthermore, the app provides valuable reports to Compliance, Risk, and Security teams, detailing access to sensitive messages. This level of transparency and control is invaluable for organizations looking to strengthen their security posture and ensure regulatory compliance.

For a deeper understanding of how the Strac Office 365 App can protect your organization's sensitive data and to explore its full range of features, including the automatic identification and masking of sensitive information, additional information is available through the provided link.

✨Strac Office 365 Incoming DLP

When a sensitive email (body or attachments) is received by the employee, Strac Office 365 DLP will automatically scan, discovery, classify and redact out the sensitive parts in the email.

Strac Office 365 Email Outbound DLP

Strac integrates seamlessly with Microsoft Office 365, utilizing APIs to monitor and manage email traffic. This integration allows Strac to scan emails in real-time as they are composed and sent from all Office 365 applications, including Outlook and Exchange Online. The system works unobtrusively, ensuring minimal disruption to user experience while maintaining high security standards.

Detection and Analysis

The core of Strac's effectiveness lies in its advanced content analysis and detection engines. Using a combination of predefined rules, regular expressions, and machine learning algorithms, the system scans for sensitive data such as Personally Identifiable Information (PII), Protected Health Information (PHI), and proprietary business information. This detection is bolstered by contextual analysis, which looks at the entirety of the communication to assess the risk of data exposure.

Strac Outbund DLP Remediation

Once sensitive data is detected, Strac applies organization-specific policies to manage it. These policies can be configured to meet various compliance requirements such as GDPR, HIPAA, and others. Actions enforced by these policies include:

• Blocking: Preventing the email from being sent until the sensitive data is removed or adequately protected.
• Alerting: Notifying administrators and users of policy violations, enabling quick corrective action.
• Encryption: Automatically encrypting emails that contain sensitive data, ensuring that only intended recipients can access the information.
• Redaction: Automatically removing sensitive information from emails before they are sent.

User Education and Incident Response

Strac's DLP solution also focuses on user education and incident response mechanisms. It provides real-time feedback to users when a potential data breach is detected, explaining why certain data cannot be sent and suggesting corrective actions. This not only prevents data loss incidents but also educates users about compliance and best practices in data handling.

Reporting and Compliance Auditing

Strac offers comprehensive reporting tools that provide visibility into all email communications. These reports include details on detected incidents, policy violations, and user actions, making it easy for compliance officers to audit and review email practices. Advanced analytics help identify trends and potential vulnerabilities, aiding in the continual refinement of security policies.

By leveraging Strac's advanced technology and integration capabilities, businesses can ensure that their Office 365 email communications are secure, compliant, and aligned with industry best practices. This not only protects sensitive information but also reinforces the organization's reputation by demonstrating a commitment to data security and regulatory compliance.

‍

Here’s what Strac can do for you ⬇️

☑️Automatically detect and redact sensitive data accurately across channels like Slack, Gmail, Office 365, Zendesk, Intercom, etc., with its machine learning models.

☑️Ensure compliance with PCI, SOC 2, HIPAA, GDPR, NIST CSF, and NIST 800-53.

☑️Allow users to define custom policies on the data to redact, user access, audit reports, and more.

☑️Help users detect and redact textual comments and unstructured documents like png, images, screenshots, .pdf, and more.

☑️Integrate seamlessly with Salesforce, Box, Zendesk, ChatGPT, and more. Check all our integrations .

Read our other resources:

• Sales force data loss prevention
• Cloud Data Loss Prevention
• HIPAA Compliance checklist

Sensitive Data Types for Office 365 DLP

Strac supports an extensive catalog of sensitive data elements across various global formats, including identity information (like driver’s licenses and passports), healthcare identifiers, financial details, intellectual property like source code, confidential files and more. With robust detection and remediation capabilities, Strac ensures comprehensive data security and compliance across SaaS applications, Cloud databases, AI Applications and endpoints. This wide range of supported data types enables organizations to safeguard critical information seamlessly.

For the full list of supported data elements, you can refer to Strac's blog on sensitive data elements.

‍

Bottom Line

Office 365 Data Loss Prevention (DLP) has become an essential layer in every organization’s security strategy. As data flows constantly across Outlook, Teams, SharePoint, and OneDrive, the ability to detect and control sensitive information is critical to avoiding compliance breaches and data leaks. When enhanced with Strac’s agentless, real-time, and content-aware protection, Office 365 Data Loss Prevention evolves from a reactive tool into a proactive security framework.

Here’s what that means for your business:

• Instant visibility: Discover and classify sensitive data across Microsoft 365 apps in minutes.
• Real-time remediation: Automatically redact or block sensitive data before it leaves your environment.
• Unified coverage: Extend Microsoft DLP policies across SaaS, Cloud, GenAI, and endpoint surfaces with one platform.

By uniting Office 365 Data Loss Prevention with Strac’s intelligent DSPM + DLP platform, you strengthen data protection, accelerate compliance readiness, and gain full control over how sensitive data moves across your digital ecosystem. The result: fewer risks, faster response, and end-to-end security your teams can trust.

🌶️Spicy FAQs on Office 365 Data Loss Prevention

What is Office 365 Data Loss Prevention (DLP), and why is it important?

Office 365 Data Loss Prevention (DLP) helps organizations identify, monitor, and protect sensitive information across Microsoft applications like Outlook, Teams, OneDrive, and SharePoint. DLP policies automatically detect sensitive data such as PII, PHI, and PCI and prevent accidental or malicious sharing. By implementing a strong Office 365 data loss prevention strategy, companies reduce compliance risks, prevent breaches, and ensure data integrity across the Microsoft ecosystem.

How does Strac’s DLP solution enhance Office 365 Data Loss Prevention?

While Microsoft’s native DLP detects and alerts, Strac goes further by acting in real time — redacting, masking, and remediating sensitive data inline across Outlook, Teams, SharePoint, and OneDrive. Strac’s agentless, no-code architecture makes deployment seamless, extending Office 365 data loss prevention coverage to SaaS, cloud, and GenAI tools. This unification allows security teams to manage policies and responses from a single dashboard, minimizing complexity and false positives.

Can Office 365 DLP detect and prevent data leaks in Microsoft Teams and SharePoint?

Yes, but only to a certain degree. Office 365 DLP can flag potential data exposures, but Strac enhances this by automatically remediating sensitive information shared in Teams messages, SharePoint documents, or attachments. For example:

• Detecting and redacting PII in Teams chats or OneDrive files
• Blocking files with exposed credit card or patient data before sharing
• Automatically notifying admins of risky sharing activity
• With Strac, Office 365 data loss prevention becomes proactive rather than reactive.

How does Strac improve compliance compared to Microsoft Purview DLP?

Strac complements and extends Microsoft Purview DLP with pre-built compliance templates for PCI DSS, HIPAA, and GDPR, along with real-time remediation. It leverages machine learning and OCR for higher accuracy than regex-based rules, reducing false positives and meeting audit requirements faster. Organizations in regulated industries like healthcare, fintech, and legal use Strac to achieve and sustain compliance across their full Microsoft stack and connected SaaS apps.

What’s the best way to implement Office 365 DLP for hybrid or multi-cloud environments?

For hybrid enterprises using Microsoft 365 alongside tools like Slack, Google Drive, or Salesforce, native DLP alone won’t cover every data flow. A layered approach works best:

1. Use Office 365 DLP for Microsoft-native assets.
2. Add Strac for cross-SaaS visibility, classification, and real-time redaction across all endpoints, browsers, and GenAI tools.
3. Centralize management under one unified DLP policy engine for faster deployment and stronger compliance alignment.
4. This hybrid strategy ensures consistent Office 365 data loss prevention across modern work environments.