Configuring Microsoft 365 security and compliance settings properly isn’t optional anymore — not for a small business, and definitely not for a growing organization. Cyberattacks have gotten more sophisticated, regulators have gotten stricter, and remote and hybrid work are now just how people work. If identities, emails, files, and collaboration tools aren’t secured deliberately, it’s only a matter of time before something slips through.
This guide walks through how to actually configure Microsoft 365 security and compliance the right way — step by step — using the Microsoft 365 Admin Center, Microsoft Entra ID, Microsoft Defender, and the Microsoft Purview Compliance portal (the modern home for what used to be called the Security & Compliance Center).
Table of Contents
What Is Microsoft 365 Security & Compliance, Really?
People tend to lump these together, but they’re solving two different problems.
Security is about protecting identities, devices, apps, and data from threats — the stuff trying to get in.
Compliance is about governing and managing your data according to legal, regulatory, and internal policy requirements — making sure the data you already have is handled correctly.
Security is what stands between you and:
- Account compromise
- Phishing and malware
- Unauthorized access
- Ransomware
Compliance is what makes sure you have:
- Proper data retention
- Legal holds when needed
- A real audit trail
- Protection against sensitive data leaking out
You need both. One without the other leaves a gap.
Why Bother Configuring This Properly?
A lot of businesses assume Microsoft 365 is secure the moment they sign up. And to be fair, there is baseline protection out of the box. But “baseline” is the key word — it’s not the same as “configured for your organization.”
Skip the deeper setup, and here’s what tends to happen:
- Accounts stay exposed to password-guessing and credential-stuffing attacks
- Sensitive files get shared outside the company without anyone noticing
- Phishing emails slide past default filters
- Legal or regulatory retention requirements quietly go unmet until an audit finds them
None of this is dramatic on its own. It’s usually small gaps that add up — and then one day they don’t.
A structured approach to security and compliance closes those gaps and makes your setup resilient instead of just “default.”
Step 1: Turn On Multi-Factor Authentication (MFA)
If you do nothing else on this list, do this one. MFA adds a second verification step beyond just a password, and it remains one of the most effective ways to stop account takeovers cold.
Here’s the best-practice way to roll it out:
- Open the Microsoft Entra Admin Center.
- Go to Protection → Conditional Access.
- Create a policy that requires MFA for all users.
- Exclude your emergency “break-glass” accounts from that policy (you don’t want to lock yourself out during an actual emergency).
- Turn the policy on.
One thing worth flagging: don’t rely only on per-user MFA settings. Conditional Access gives you much stronger, more flexible control, and it’s the direction Microsoft is steering everyone toward anyway. If you want a full walkthrough with screenshots, we’ve got a dedicated guide on how to enable or disable MFA in Office 365.
Step 2: Set Up Conditional Access Policies
Conditional Access lets you make access decisions based on context — who’s signing in, from what device, from where, and how sensitive the app is — instead of a blanket “everyone gets the same access” rule.
Policies worth putting in place:
- Require MFA for all users
- Block legacy authentication protocols (they’re a common way attackers bypass MFA entirely)
- Restrict admin access to compliant, managed devices only
- Apply location-based access restrictions where it makes sense for your business
Put together, these policies cut down unauthorized sign-ins and credential misuse significantly.
Step 3: Lock Down Email Protection (Defender for Office 365)
Email is still the number one way attackers get into an organization. It’s not close. So this step matters more than most.
At a minimum, configure:
- Anti-spam policies
- Anti-phishing policies
- Safe Links
- Safe Attachments
- Impersonation protection
Microsoft offers preset security policies — Standard or Strict — and turning one of these on is usually faster and more reliable than trying to hand-build your own rule set from scratch. Pick the level that matches your organization’s risk tolerance.
Step 4: Secure OneDrive and SharePoint Sharing
External sharing settings are one of the most overlooked sources of accidental data exposure. Someone shares a file “just with a client,” forgets to set an expiration, and six months later that link is still live and forwardable to anyone.
Worth reviewing:
- Disable anonymous sharing links
- Limit external sharing to specific, approved domains
- Enable link expiration by default
- Require sign-in to access shared content
- Keep an eye on file-sharing activity over time, not just at setup
This one step alone prevents a huge share of accidental data leaks.
Step 5: Configure Retention Policies (Compliance)
Retention policies decide how long your data sticks around — and they protect you two ways: against deleting something you needed, and against holding onto things you shouldn’t.
Here’s the process:
- Open the Microsoft Purview Compliance Portal.
- Go to Data Lifecycle Management.
- Create a new retention policy.
- Choose which workloads it applies to — Exchange, SharePoint, OneDrive, Teams.
- Set the retention duration.
- Decide whether content gets deleted or retained once that period ends.
Getting this right keeps you aligned with regulatory obligations instead of dealing with data sprawl or gaps that show up during an audit.
Step 6: Set Up Data Loss Prevention (DLP)
DLP policies stop sensitive information from leaving your organization the wrong way — whether that’s intentional or just someone not thinking it through.
Set up DLP to catch things like:
- Credit card numbers
- Personal identification numbers
- Financial records
- Health information
- Confidential internal documents
Depending on how serious the violation is, DLP can block the share outright, automatically encrypt the content, or just notify an admin so someone can follow up.
Step 7: Turn On Audit Logging
Audit logs are your visibility into what’s actually happening across the tenant — not what you assume is happening.
Enable auditing to track:
- Login activity
- File downloads
- Permission changes
- Mailbox access
- Admin actions
Reviewing these logs regularly is what lets you catch something suspicious early, before it turns into a real incident. Logs you never look at aren’t doing you much good.
Best Practices to Keep Things Secure Long-Term
A few habits worth building into how you run Microsoft 365 day to day:
- Enforce MFA organization-wide, no exceptions beyond break-glass accounts
- Use Conditional Access instead of legacy per-user authentication settings
- Keep the number of Global Admin accounts as small as possible
- Review external sharing settings every quarter
- Test DLP policies before turning on full enforcement
- Maintain a separate, independent backup solution — Microsoft 365 alone isn’t a backup
- Run periodic security reviews, not just a one-time setup
Security and compliance aren’t a “set it once and walk away” project. They need ongoing attention.
Wrapping Up
Microsoft 365 gives you genuinely powerful built-in security and compliance tools — but they only work as well as you configure them. Identity protection, email security, data governance, retention, and monitoring all need to work together, not sit half-configured.
One last thing worth repeating: none of the steps above are a substitute for backup. Retention policies and compliance holds are not the same as a real backup solution. For actual protection against accidental deletion, ransomware, or a retention policy that’s misconfigured, an independent Microsoft 365 Backup solution is the piece that ties everything together and keeps the business running no matter what happens inside the tenant.
Frequently Asked Questions
Is Microsoft 365 secure by default? Yes, to a point. Baseline protections exist out of the box, but advanced configuration — Conditional Access, DLP, retention policies, audit logging — is what actually closes the gaps attackers and auditors look for.
Where are Microsoft 365 compliance settings managed? In the Microsoft Purview Compliance portal, which has taken over most of what used to live in the legacy Security & Compliance Center.
Do small businesses really need advanced security configuration? Yes. If anything, smaller businesses get targeted more, precisely because attackers assume advanced configuration got skipped.
How often should security policies be reviewed? At least once a quarter, and always after any major change — a merger, restructuring, or a significant jump in headcount.
Related Blogs
More Microsoft 365 admin, security, and data-protection guides from SkyMigrate:
- How to Enable or Disable MFA in Office 365 (Complete Step-by-Step Guide)
- How to Add Users and Assign Licenses in Microsoft 365 (Complete Guide for 2026)
- Shared Mailbox vs User Mailbox in Microsoft 365
- Microsoft 365 Mailbox Size Limitations: A Practical Guide for Real Users
- How to Recover Deleted SharePoint Data (Complete Guide 2026)
