When connecting to a Microsoft Windows 365 Cloud PC using Microsoft Remote Desktop on a dual monitor system, the remote desktop session will start up as maximized across both screens.

When you go out of maximized view, the remote desktop session will then be scaled to fit the window but the resolution inside the session will not be changed accordingly.

To fix this issue do the following:

• In Remote Desktop subscription, right click on CloudPC connection.
• Click Settings
• Uncheck “Use default settings”
• Under Display Settings, set Display Configuration to “Single Display”.
• Uncheck “Start in Full Screen”
• Check Fit session to window
• Check Update the resolution on resize

This seemed to fix it for me.