diff --git a/extensions/sql-database-projects/src/common/azureFunctionsUtils.ts b/extensions/sql-database-projects/src/common/azureFunctionsUtils.ts
index e18591bd26..9659b8747f 100644
--- a/extensions/sql-database-projects/src/common/azureFunctionsUtils.ts
+++ b/extensions/sql-database-projects/src/common/azureFunctionsUtils.ts
@@ -41,12 +41,42 @@ export async function getLocalSettingsJson(localSettingsPath: string): Promise<I
 	};
 }
 
+/**
+ * Adds a new setting to a project's local.settings.json file
+ * modified from setLocalAppSetting code from vscode-azurefunctions extension
+ * @param projectFolder full path to project folder
+ * @param key Key of the new setting
+ * @param value Value of the new setting
+ * @returns true if successful adding the new setting, false if unsuccessful
+ */
+export async function setLocalAppSetting(projectFolder: string, key: string, value: string): Promise<boolean> {
+	const localSettingsPath: string = path.join(projectFolder, constants.azureFunctionLocalSettingsFileName);
+	const settings: ILocalSettingsJson = await getLocalSettingsJson(localSettingsPath);
+
+	settings.Values = settings.Values || {};
+	if (settings.Values[key] === value) {
+		// don't do anything if it's the same as the existing value
+		return true;
+	} else if (settings.Values[key]) {
+		const result = await vscode.window.showWarningMessage(constants.settingAlreadyExists(key), { modal: true }, constants.yesString);
+		if (result !== constants.yesString) {
+			// key already exists and user doesn't want to overwrite it
+			return false;
+		}
+	}
+
+	settings.Values[key] = value;
+	await fse.writeJson(localSettingsPath, settings, { spaces: 2 });
+
+	return true;
+}
+
 /**
  * Gets the Azure Functions project that contains the given file if the project is open in one of the workspace folders
  * @param filePath file that the containing project needs to be found for
- * @returns filepath of project or undefined if project couldn't be found
+ * @returns uri of project or undefined if project couldn't be found
  */
-export async function getAFProjectContainingFile(filePath: string): Promise<string | undefined> {
+export async function getAFProjectContainingFile(fileUri: vscode.Uri): Promise<vscode.Uri | undefined> {
 	// get functions csprojs in the workspace
 	const projectPromises = vscode.workspace.workspaceFolders?.map(f => utils.getAllProjectsInFolder(f.uri, '.csproj')) ?? [];
 	const functionsProjects = (await Promise.all(projectPromises)).reduce((prev, curr) => prev.concat(curr), []).filter(p => isFunctionProject(path.dirname(p.fsPath)));
@@ -56,12 +86,12 @@ export async function getAFProjectContainingFile(filePath: string): Promise<stri
 		// TODO: figure out which project contains the file
 		// the new style csproj doesn't list all the files in the project anymore, unless the file isn't in the same folder
 		// so we can't rely on using that to check
-		console.error('need to find which project contains the file ' + filePath);
+		console.error('need to find which project contains the file ' + fileUri.fsPath);
 		return undefined;
 	} else if (functionsProjects.length === 0) {
 		throw new Error(constants.noAzureFunctionsProjectsInWorkspace);
 	} else {
-		return functionsProjects[0].fsPath;
+		return functionsProjects[0];
 	}
 }
 
diff --git a/extensions/sql-database-projects/src/common/constants.ts b/extensions/sql-database-projects/src/common/constants.ts
index 99cd4a4424..cfe60abc56 100644
--- a/extensions/sql-database-projects/src/common/constants.ts
+++ b/extensions/sql-database-projects/src/common/constants.ts
@@ -479,5 +479,11 @@ export const connectionStringSettingPlaceholder = localize('connectionStringSett
 export const noAzureFunctionsInFile = localize('noAzureFunctionsInFile', "No Azure functions in the current active file");
 export const noAzureFunctionsProjectsInWorkspace = localize('noAzureFunctionsProjectsInWorkspace', "No Azure functions projects found in the workspace");
 export const addPackage = localize('addPackage', "Add Package");
+export const createNewLocalAppSetting = localize('createNewLocalAppSetting', 'Create new local app setting');
+export const createNewLocalAppSettingWithIcon = `$(add) ${createNewLocalAppSetting}`;
+export const valueMustNotBeEmpty = localize('valueMustNotBeEmpty', "Value must not be empty");
+export const enterConnectionStringSettingName = localize('enterConnectionStringSettingName', "Enter connection string setting name");
+export const enterConnectionString = localize('enterConnectionString', "Enter connection string");
+export function settingAlreadyExists(settingName: string) { return localize('SettingAlreadyExists', 'Local app setting \'{0}\' already exists. Overwrite?', settingName); }
 export function failedToParse(errorMessage: string) { return localize('failedToParse', 'Failed to parse "{0}": {1}.', azureFunctionLocalSettingsFileName, errorMessage); }
 export function jsonParseError(error: string, line: number, column: number) { return localize('jsonParseError', '{0} near line "{1}", column "{2}"', error, line, column); }
diff --git a/extensions/sql-database-projects/src/dialogs/addSqlBindingQuickpick.ts b/extensions/sql-database-projects/src/dialogs/addSqlBindingQuickpick.ts
index 09e9cbacf6..f76b4bc168 100644
--- a/extensions/sql-database-projects/src/dialogs/addSqlBindingQuickpick.ts
+++ b/extensions/sql-database-projects/src/dialogs/addSqlBindingQuickpick.ts
@@ -78,9 +78,9 @@ export async function launchAddSqlBindingQuickpick(uri: vscode.Uri | undefined,
 	}
 
 	// 4. ask for connection string setting name
-	let project: string | undefined;
+	let projectUri: vscode.Uri | undefined;
 	try {
-		project = await azureFunctionsUtils.getAFProjectContainingFile(uri.fsPath);
+		projectUri = await azureFunctionsUtils.getAFProjectContainingFile(uri);
 	} catch (e) {
 		// continue even if there's no AF project found. The binding should still be able to be added as long as there was an azure function found in the file earlier
 	}
@@ -88,16 +88,80 @@ export async function launchAddSqlBindingQuickpick(uri: vscode.Uri | undefined,
 	let connectionStringSettingName;
 
 	// show the settings from project's local.settings.json if there's an AF functions project
-	// TODO: allow new setting name to get added here and added to local.settings.json
-	if (project) {
-		const settings = await azureFunctionsUtils.getLocalSettingsJson(path.join(path.dirname(project!), constants.azureFunctionLocalSettingsFileName));
-		const existingSettings: string[] = settings.Values ? Object.keys(settings.Values) : [];
+	if (projectUri) {
+		let settings;
+		try {
+			settings = await azureFunctionsUtils.getLocalSettingsJson(path.join(path.dirname(projectUri.fsPath!), constants.azureFunctionLocalSettingsFileName));
+		} catch (e) {
+			void vscode.window.showErrorMessage(e);
+			return;
+		}
+
+		let existingSettings: (vscode.QuickPickItem & { isCreateNew?: boolean })[] = [];
+		if (settings?.Values) {
+			existingSettings = Object.keys(settings.Values).map(setting => {
+				return {
+					label: setting
+				} as vscode.QuickPickItem & { isCreateNew?: boolean };
+			});
+		}
+
+		existingSettings.unshift({ label: constants.createNewLocalAppSettingWithIcon, isCreateNew: true });
+
+		while (!connectionStringSettingName) {
+			const selectedSetting = await vscode.window.showQuickPick(existingSettings, {
+				canPickMany: false,
+				title: constants.selectSetting,
+				ignoreFocusOut: true
+			});
+			if (!selectedSetting) {
+				// User cancelled
+				return;
+			}
+
+			if (selectedSetting.isCreateNew) {
+				const newConnectionStringSettingName = await vscode.window.showInputBox(
+					{
+						title: constants.enterConnectionStringSettingName,
+						ignoreFocusOut: true,
+						validateInput: input => input ? undefined : constants.nameMustNotBeEmpty
+					}
+				) ?? '';
+
+				if (!newConnectionStringSettingName) {
+					// go back to select setting quickpick if user escapes from inputting the setting name in case they changed their mind
+					continue;
+				}
+
+				const newConnectionStringValue = await vscode.window.showInputBox(
+					{
+						title: constants.enterConnectionString,
+						ignoreFocusOut: true,
+						validateInput: input => input ? undefined : constants.valueMustNotBeEmpty
+					}
+				) ?? '';
+
+				if (!newConnectionStringValue) {
+					// go back to select setting quickpick if user escapes from inputting the value in case they changed their mind
+					continue;
+				}
+
+				try {
+					const success = await azureFunctionsUtils.setLocalAppSetting(path.dirname(projectUri.fsPath), newConnectionStringSettingName, newConnectionStringValue);
+					if (success) {
+						connectionStringSettingName = newConnectionStringSettingName;
+					}
+				} catch (e) {
+					// display error message and show select setting quickpick again
+					void vscode.window.showErrorMessage(e);
+				}
+				// If user cancels out of this or doesn't want to overwrite an existing setting
+				// just return them to the select setting quickpick in case they changed their mind
+			} else {
+				connectionStringSettingName = selectedSetting.label;
+			}
+		}
 
-		connectionStringSettingName = await vscode.window.showQuickPick(existingSettings, {
-			canPickMany: false,
-			title: constants.selectSetting,
-			ignoreFocusOut: true
-		});
 	} else {
 		// if no AF project was found or there's more than one AF functions project in the workspace,
 		// ask for the user to input the setting name
@@ -132,6 +196,6 @@ export async function launchAddSqlBindingQuickpick(uri: vscode.Uri | undefined,
 	}
 
 	// 6. Add sql extension package reference to project. If the reference is already there, it doesn't get added again
-	await packageHelper.addPackageToAFProjectContainingFile(uri.fsPath, constants.sqlExtensionPackageName);
+	await packageHelper.addPackageToAFProjectContainingFile(uri, constants.sqlExtensionPackageName);
 }
 
diff --git a/extensions/sql-database-projects/src/test/packageHelper.test.ts b/extensions/sql-database-projects/src/test/packageHelper.test.ts
index 840e27c742..5ef978d2a0 100644
--- a/extensions/sql-database-projects/src/test/packageHelper.test.ts
+++ b/extensions/sql-database-projects/src/test/packageHelper.test.ts
@@ -27,27 +27,27 @@ describe('PackageHelper tests', function (): void {
 
 	it('Should construct correct add Package Arguments', function (): void {
 		const packageHelper = new PackageHelper( vscode.window.createOutputChannel('db project test'));
-		const projectPath = 'dummy\\project\\path.csproj';
-		const result = packageHelper.constructAddPackageArguments(projectPath, constants.sqlExtensionPackageName);
+		const projectUri = vscode.Uri.file('dummy\\project\\path.csproj');
+		const result = packageHelper.constructAddPackageArguments(projectUri, constants.sqlExtensionPackageName);
 
 		if (os.platform() === 'win32') {
-			should(result).equal(` add "dummy\\\\project\\\\path.csproj" package ${constants.sqlExtensionPackageName} --prerelease`);
+			should(result).equal(` add "\\\\dummy\\\\project\\\\path.csproj" package ${constants.sqlExtensionPackageName} --prerelease`);
 		}
 		else {
-			should(result).equal(` add "dummy/project/path.csproj" package ${constants.sqlExtensionPackageName} --prerelease`);
+			should(result).equal(` add "/dummy/project/path.csproj" package ${constants.sqlExtensionPackageName} --prerelease`);
 		}
 	});
 
 	it('Should construct correct add Package Arguments with version', function (): void {
 		const packageHelper = new PackageHelper( vscode.window.createOutputChannel('db project test'));
-		const projectPath = 'dummy\\project\\path.csproj';
-		const result = packageHelper.constructAddPackageArguments(projectPath, constants.sqlExtensionPackageName, constants.VersionNumber);
+		const projectUri = vscode.Uri.file('dummy\\project\\path.csproj');
+		const result = packageHelper.constructAddPackageArguments(projectUri, constants.sqlExtensionPackageName, constants.VersionNumber);
 
 		if (os.platform() === 'win32') {
-			should(result).equal(` add "dummy\\\\project\\\\path.csproj" package ${constants.sqlExtensionPackageName} -v ${constants.VersionNumber}`);
+			should(result).equal(` add "\\\\dummy\\\\project\\\\path.csproj" package ${constants.sqlExtensionPackageName} -v ${constants.VersionNumber}`);
 		}
 		else {
-			should(result).equal(` add "dummy/project/path.csproj" package ${constants.sqlExtensionPackageName} -v ${constants.VersionNumber}`);
+			should(result).equal(` add "/dummy/project/path.csproj" package ${constants.sqlExtensionPackageName} -v ${constants.VersionNumber}`);
 		}
 	});
 
@@ -55,7 +55,7 @@ describe('PackageHelper tests', function (): void {
 		sinon.stub(azureFunctionUtils, 'getAFProjectContainingFile').resolves(undefined);
 		const spy = sinon.spy(vscode.window, 'showInformationMessage');
 
-		await packageHelper.addPackageToAFProjectContainingFile('', constants.sqlExtensionPackageName);
+		await packageHelper.addPackageToAFProjectContainingFile(vscode.Uri.file(''), constants.sqlExtensionPackageName);
 		should(spy.calledOnce).be.true('showInformationMessage should have been called exactly once');
 	});
 });
diff --git a/extensions/sql-database-projects/src/tools/packageHelper.ts b/extensions/sql-database-projects/src/tools/packageHelper.ts
index b983b63fbe..02af2b68e2 100644
--- a/extensions/sql-database-projects/src/tools/packageHelper.ts
+++ b/extensions/sql-database-projects/src/tools/packageHelper.ts
@@ -18,13 +18,13 @@ export class PackageHelper {
 
 	/**
 	 * Constructs the parameters for a dotnet add package
-	 * @param projectPath full path to project to add package to
+	 * @param projectUri uri of project to add package to
 	 * @param packageName name of package
 	 * @param packageVersion optional version of package. If none, latest will be pulled in
 	 * @returns string constructed with the arguments for dotnet add package
 	 */
-	public constructAddPackageArguments(projectPath: string, packageName: string, packageVersion?: string): string {
-		projectPath = utils.getQuotedPath(projectPath);
+	public constructAddPackageArguments(projectUri: vscode.Uri, packageName: string, packageVersion?: string): string {
+		const projectPath = utils.getQuotedPath(projectUri.fsPath);
 		if (packageVersion) {
 			return ` add ${projectPath} package ${packageName} -v ${packageVersion}`;
 		} else {
@@ -36,14 +36,14 @@ export class PackageHelper {
 	/**
 	 * Runs dotnet add package to add a package reference to the specified project. If the project already has a package reference
 	 * for this package version, the project file won't get updated
-	 * @param projectPath full path to project to add package to
+	 * @param projectPath uri of project to add package to
 	 * @param packageName name of package
 	 * @param packageVersion optional version of package. If none, latest will be pulled in
 	 */
-	public async addPackage(project: string, packageName: string, packageVersion?: string): Promise<void> {
+	public async addPackage(projectUri: vscode.Uri, packageName: string, packageVersion?: string): Promise<void> {
 		const addOptions: ShellCommandOptions = {
 			commandTitle: constants.addPackage,
-			argument: this.constructAddPackageArguments(project, packageName, packageVersion)
+			argument: this.constructAddPackageArguments(projectUri, packageName, packageVersion)
 		};
 
 		await this.netCoreTool.runDotnetCommand(addOptions);
@@ -51,13 +51,13 @@ export class PackageHelper {
 
 	/**
 	 * Adds specified package to Azure Functions project the specified file is a part of
-	 * @param filePath full path to file to find the containing AF project of to add package reference to
+	 * @param filePath uri of file to find the containing AF project of to add package reference to
 	 * @param packageName package to add reference to
 	 * @param packageVersion optional version of package. If none, latest will be pulled in
 	 */
-	public async addPackageToAFProjectContainingFile(filePath: string, packageName: string, packageVersion?: string): Promise<void> {
+	public async addPackageToAFProjectContainingFile(fileUri: vscode.Uri, packageName: string, packageVersion?: string): Promise<void> {
 		try {
-			const project = await azureFunctionsUtils.getAFProjectContainingFile(filePath);
+			const project = await azureFunctionsUtils.getAFProjectContainingFile(fileUri);
 
 			// if no AF projects were found, an error gets thrown from getAFProjectContainingFile(). This check is temporary until
 			// multiple AF projects in the workspace is handled. That scenario returns undefined and shows an info message telling the