Office 365 E1 vs E3 is a decision about four things: whether people need the installed Office apps, how big their mailboxes get, whether mail must be held for legal reasons, and whether data loss prevention has to cover Exchange. Most comparison pages answer it with a feature grid copied from a pricing page, which hides the fact that the mailbox and compliance gap comes from two different Exchange Online plans underneath. This post sets out what Microsoft’s service descriptions say about each plan today, where the difference really sits, and when mixing the two is the cheaper answer.
The choice is one branch of how Microsoft 365 licensing fits together across plan families, and it sits below the bigger Microsoft 365 E3 vs E5 question most enterprises reach later. I have not run either plan in production; my tenant is a lab with no enrolled devices and no licensed users at scale, so what follows is Microsoft’s documentation, checked on 3 November 2026, plus where I would expect it to bite.
Office 365 E1 vs E3 in one table
The Microsoft 365 and Office 365 plan options page on Microsoft Learn lists both plans in the Enterprise family, which has no cap on user numbers. The rows below come from that page and from the Exchange Online service description and limits pages, read on the day of writing. Prices are left out on purpose: Microsoft’s pricing page could not be fetched from my verification tooling today, and a price I cannot check is a price I will not print.
| Area | Office 365 E1 | Office 365 E3 |
|---|---|---|
| Microsoft 365 Apps for the web | Included | Included |
| Microsoft 365 desktop client apps | Not included | Included |
| Exchange Online plan underneath | Exchange Online Plan 1 | Exchange Online Plan 2 |
| User mailbox size | 50 GB | 100 GB |
| Archive mailbox | 50 GB | 100 GB to start, up to 1.5 TB with auto-expanding archiving |
| In-Place Hold and Litigation Hold | Not included | Included |
| Microsoft Purview Data Loss Prevention for Exchange | Not included | Included |
| Azure Information Protection | Not included, available as an add-on | Included |
| SharePoint Online, OneDrive, Microsoft Teams, Viva Engage | Listed as included | Listed as included |
| Power BI | Not included | Not included |
Two rows deserve a caution. The plan options page marks Microsoft Teams as included in both plans, and Viva Engage core functionality for both. Before you plan on that, check the product name on your own subscription in the Microsoft 365 admin centre, because the service table and the SKU you were actually sold are not guaranteed to match. The plan options page was last updated in December 2025.
Where the real gap sits: Exchange Online Plan 1 and Plan 2
Most of the difference between Office 365 E1 vs E3 is not in Office at all. The plan options page footnotes say E1 includes Exchange Online Plan 1 and E3 includes Exchange Online Plan 2, and the mailbox, archive and hold rows follow from that single fact. If you have read what separates Exchange Online Plan 1 from Plan 2, you already know most of this comparison.
The Exchange Online limits page sets the storage. An E1 user mailbox is 50 GB and an E3 user mailbox is 100 GB. The archive is where the plans diverge hardest: E1 gets a 50 GB archive, while E3 starts each user on 100 GB of archive storage and, once auto-expanding archiving is turned on, adds space in increments up to 1.5 TB, a figure that includes the Recoverable Items folder.
The same page attaches a usage rule to that archive. Using journaling, transport rules or auto-forwarding to copy other people’s mail into an archive is not permitted, and Microsoft reserves the right to refuse extra archive space where an archive holds data for other users. The 1.5 TB ceiling is for one person’s own mail, not a cheap bucket for the whole organisation.
The Exchange Online service description carries the compliance rows. In-Place Hold and Litigation Hold are marked available for E3 and not for E1. Microsoft Purview Data Loss Prevention follows the same pattern. Messaging records management, S/MIME, journaling, eDiscovery content search and transport rules are listed as available on both.
Desktop apps versus web apps
E1 users work in Microsoft 365 Apps for the web. E3 adds the Microsoft 365 desktop client apps. Microsoft’s Office for the web service description is explicit that editing a document in the browser needs a suite licence, and it names Office 365 Enterprise E1 as an example, while editing in the desktop app needs an Office desktop suite licence such as Microsoft 365 Apps for enterprise.
So E1 is not a read-only plan. A user on E1 can create and edit Word, Excel and PowerPoint files in the browser. What they cannot do is install the desktop apps under that licence. The question to ask about each user is whether a browser is enough for the files they open every day. Large spreadsheets with macros, add-ins that only exist on the desktop, and Outlook profiles with heavy shared mailbox use are the usual reasons it is not.
A related limit appears in the plan options page footnotes: some Azure Information Protection features require a subscription to Microsoft 365 Apps for enterprise, which E1 does not include. If a sensitivity labelling design depends on the desktop clients, E1 users fall outside part of it even if you buy the protection add-on.
When Office 365 E1 is enough
E1 fits users whose work lives in email, Teams and the browser, whose mailboxes stay well under 50 GB, and who will never need to be placed on Litigation Hold. Front-of-house staff who need a full mailbox rather than the 2 GB F3 mailbox, contractors who only touch SharePoint and OneDrive, and seasonal staff are typical candidates.
E1 also fits as the cheap seat in a mixed estate. Both plans sit in the same Enterprise family on the plan options page, and nothing on that page prevents holding both in one tenant. The trap is the hold requirement: if legal or HR could ever ask for a specific person’s mail to be preserved, that person needs Litigation Hold, and E1 does not include it.
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When Office 365 E3 is the right call
E3 is the default for anyone who needs installed Office apps, anyone whose mailbox will outgrow 50 GB, and anyone subject to legal or regulatory holds. It is also the plan to choose when your data loss prevention design has to cover Exchange, because the service description lists DLP for E3 and not E1.
The archive matters more than it looks. When a mailbox nears its quota, the relief on E1 is a 50 GB archive that will itself fill. On E3 the archive grows with auto-expanding archiving. For long-serving staff and shared role accounts with years of mail, that difference decides the licence on its own.
If the organisation is under 300 users, check the Business plans before settling on either. The plan options page caps the Business family at 300 users in total, and my notes on what the Business Premium 300-user limit really counts explain how that cap is applied across the family.
Office 365 E1 vs E3 failure modes
These are the places I would expect a mixed E1 and E3 tenant to go wrong. I have not run this in production; each one follows from what the documentation states.
- A user is moved from E3 to E1 with a full mailbox. The E1 user mailbox limit is 50 GB. A mailbox already holding more than that will be over quota on the new plan. Check mailbox size before any downgrade, not after.
- Litigation Hold is lost on a downgrade. The service description lists Litigation Hold for E3 and not E1. Downgrading a held user removes the licence the hold depends on. Treat any user on hold as pinned to a plan that includes it.
- A shared mailbox is put on Litigation Hold without the right licence. The limits page says a shared mailbox needs an Exchange Online Plan 2 licence, or Plan 1 with the Exchange Online Archiving add-on, before it can go on hold. The E1 user who works in it does not license the mailbox.
- A shared mailbox stops at 50 GB. Unlicensed shared mailboxes are limited to 50 GB. Raising one to 100 GB needs an Exchange Online Plan 2 licence assigned to the mailbox itself.
- E1 users cannot open a desktop-only workflow. The licence covers the web apps. A department that depends on a desktop add-in will find out on the first day, unless the pilot includes someone from that department.
- The archive is used as a team store. The limits page prohibits using archives to store mail for multiple users. Copying a team’s mail into one E3 archive to use the 1.5 TB ceiling breaks the terms, and Microsoft can refuse the extra space.
What I would do differently
I would start from the mailbox report, not the feature list. Pull mailbox and archive sizes for every user, mark everyone currently on any hold, and the E1 candidates mostly select themselves. The desktop app question comes second, and a short pilot answers it better than any survey.
I would write the hold rule into the joiner, mover and leaver process. The licence that keeps a hold working is assigned by whoever processes the mover request, and that person rarely knows a hold exists. A flag on the user in the HR system, checked before any licence change, is cheaper than a lost hold.
I would not use E1 plus add-ons to rebuild E3. Exchange Online Archiving and Azure Information Protection can each be bought separately, but once a user needs both, plus desktop apps, E3 is the simpler licence to audit. Compare the add-on total against E3 on your own quote before committing.
And I would re-read the three Microsoft Learn pages at renewal. The plan options page is nearly a year old as I write this, and the plan you are quoted is the one on your agreement, not the one in this table.
Last verified: 3 November 2026.
