That's a great and very thoughtful question and you're absolutely right: this is something many IT admins and architects wonder about, but it rarely gets the nuanced answers it deserves. Let’s dig into it.

Short Answer: Yes, You Can Mix Business Premium with M365 E3/E5 on the Same Tenant

Microsoft does allow you to assign a mix of Microsoft 365 Business Premium and Microsoft 365 E3/E5 licenses within the same tenant. This is fully supported and quite common, especially in organizations that want to balance cost with capabilities — giving higher-tier features to users who need them and more streamlined protection to those who don’t.

But you're asking the right follow-up question:

What About Compliance, Security, and Policy Conflicts?

This is where it gets more complex, and where some real-world awareness matters especially around Defender, Purview, and tenant-wide policy behavior.

1. Defender for Business vs Defender for Endpoint (E3/E5)

Microsoft Defender for Business (part of Business Premium) includes Defender for Endpoint P1, which is very capable, but not equal to P2 (which you get in E5).

If you’re running Microsoft Defender for Endpoint tenant-wide, you need to be cautious: the central Defender portal (security.microsoft.com) doesn’t separate settings by license tier it's tenant-scoped.

That means settings you apply for E5 users (P2) could spill over or appear to apply to Business Premium users, even though their license doesn't support certain features like automated investigation/remediation (AIR), threat analytics, or advanced hunting.

So what can you do?

Be very intentional about device groups and role-based access control (RBAC) in Defender.

Use Intune targeting to scope security configurations to specific groups based on their license.

Avoid enabling tenant-wide features in Defender that require P2 unless you’re absolutely sure Business Premium users are excluded.

2. Microsoft Purview (Compliance, DLP, Audit, Info Protection)

This is another tricky one.

Purview capabilities differ across license tiers. E3 includes core DLP, sensitivity labels, and audit logging, while E5 expands into Insider Risk, Advanced eDiscovery, and Communication Compliance.

Business Premium, however, lacks most advanced Purview features.

What happens?

If you configure tenant-wide DLP or retention policies, they may still apply in a limited way to Business Premium users, but users without proper licensing won’t be protected at the same level — and in some cases, enforcement will silently fail or fallback to defaults.

Audit Premium is a good example: only E5 users get access to longer and more detailed audit logs.

So, best practice is:

Use licensing-aware policy scoping (e.g., dynamic groups, sensitivity label scopes).

Don’t assume that because a policy is “enabled tenant-wide,” it’s enforced uniformly across license tiers.

3. Microsoft’s Official Position

Microsoft does officially allow mixing these licenses — there’s no compliance or terms-of-service issue. However, they emphasize that some services may behave differently or inconsistently when mixing license tiers. You’ll find subtle disclaimers in documentation like:

“Features are available depending on your licensing level. Not all users in your tenant will benefit from features enabled at a tenant-wide level unless properly licensed.”

That’s their way of saying: we won't block you, but you're responsible for scoping and understanding limitations.

Things to Watch Out For

Azure AD Premium P1/P2 features (like Conditional Access, Identity Protection, MFA policies) need to be scoped to users with the right licensing.

Auto-labeling (sensitivity labels) via Microsoft Purview requires careful targeting — otherwise, it may fail silently for Business Premium users.

Defender for Endpoint unified dashboards show all devices, but certain remediation actions will only be available for licensed users.

@Garry Thanks for posting in our Q&A. For this issue, it is not related to windows 365. It is related to Microsoft 365.

For this issue, I have done a lot of research. I find that this article compare something between Microsoft 365 Business Premium and Microsoft 365 E3/E5 in the official article.
https://learn.microsoft.com/en-us/office365/servicedescriptions/office-365-platform-service-description/office-365-plan-options#service-availability-within-each-microsoft-365-and-office-365-plan

With the limitation resource, if you want to get more accurate help, it is suggested to refer to the following link to get support:
https://learn.microsoft.com/en-us/microsoft-365/business-video/get-help-support?view=o365-worldwide

Hope it will help.

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