How can I restore files from File History (Windows 11) if I restore from a system image?

Good question. In theory, yes, because a FH file is just a backup of an existing file, so it ought to work.

The worry I have is file encryption. Does Microsoft encrypt FH backups? And more to the point, do they do it with some hardware-based seed (like a MAC address) for security? I don’t know.

Why not try it? The worst that can happen is that it fails.

Even though the actual file history data is on an external drive I believe there is some index files in the user folder that keep track of everything.
Is your user folder included in the system image?

The file history files are just normal files with date codes added to the name. Depending on how often file history was set for there can be a lot of files so finding the exact one you need can be a chore. You can load them up as normal but I don’t think there is any easy way of recreating the file history index.