Steps to Reproduce:
When I do this, the workspace resets, and pops up a dialog box that says "The 'docker' command was not found. Make sure Docker is installed". Also in the terminal, I see the following:
[0 ms] Start: Resolving remote
[3 ms] Start: Check Docker is running
[3 ms] Start: Run: docker info
[9 ms] Docker returned an error code ENOENT, message: spawn docker ENOENT
I'm running all the "latest and greatest", and Docker is working just fine from the command line. Also, the Docker extension in VSC is working fine too (I can start/stop docker-compose.yml, inspect containers and container logs, etc, from within VSC).
Any ideas what might wrong with my configuration?
Try starting VS Code from the terminal, maybe the updated PATH has not been picked up by the dock?
No, i tried that and the same problem occurred.
What do you get for which -a docker in the terminal?
When i do which -a docker I get back /usr/local/bin/docker
Try setting /usr/local/bin/docker as the value for the Docker CLI path setting. Does that help?

I've run into the same error and resolved with @chrmarti 's suggestion https://github.com/microsoft/vscode-remote-release/issues/3149#issuecomment-646588532
Hey @chrmarti, this issue might need further attention.
@vrmerlin, you can help us out by closing this issue if the problem no longer exists, or adding more information.
Closing this as we haven't heard back from OP.
Most helpful comment
Try setting

/usr/local/bin/dockeras the value for the Docker CLI path setting. Does that help?