diff --git a/packages/block-editor/src/components/block-list/content.scss b/packages/block-editor/src/components/block-list/content.scss
index 95bb610da9967c..3f4b4c508aeb02 100644
--- a/packages/block-editor/src/components/block-list/content.scss
+++ b/packages/block-editor/src/components/block-list/content.scss
@@ -453,3 +453,24 @@ _::-webkit-full-page-media, _:future, :root .has-multi-selection .block-editor-b
 		margin-bottom: auto;
 	}
 }
+
+.block-editor-block-list__zoom-out-separator {
+	/* same color as the iframe's background */
+	background: $gray-300;
+	// Additional -1px is required to avoid sub pixel rounding errors allowing background to show.
+	margin-left: -1px;
+	margin-right: -1px;
+	transition: background-color 0.3s ease;
+
+	&.is-dragged-over {
+		background: $gray-400;
+	}
+}
+
+// In Post Editor allow the separator to occupy the full width by ignoring (cancelling out) the global padding.
+.has-global-padding > .block-editor-block-list__zoom-out-separator,
+.block-editor-block-list__layout.is-root-container.has-global-padding > .block-editor-block-list__zoom-out-separator {
+	max-width: none;
+	// Additional -1px is required to avoid sub pixel rounding errors allowing background to show.
+	margin: 0 calc(-1 * var(--wp--style--root--padding-right) - 1px) 0 calc(-1 * var(--wp--style--root--padding-left) - 1px) !important;
+}
diff --git a/packages/block-editor/src/components/block-list/index.js b/packages/block-editor/src/components/block-list/index.js
index 37dba80511d920..ea6128f1534642 100644
--- a/packages/block-editor/src/components/block-list/index.js
+++ b/packages/block-editor/src/components/block-list/index.js
@@ -39,6 +39,7 @@ import {
 	DEFAULT_BLOCK_EDIT_CONTEXT,
 } from '../block-edit/context';
 import { useTypingObserver } from '../observe-typing';
+import { ZoomOutSeparator } from './zoom-out-separator';
 import { unlock } from '../../lock-unlock';
 
 export const IntersectionObserver = createContext();
@@ -174,49 +175,55 @@ function Items( {
 	// function on every render.
 	const hasAppender = CustomAppender !== false;
 	const hasCustomAppender = !! CustomAppender;
-	const { order, selectedBlocks, visibleBlocks, shouldRenderAppender } =
-		useSelect(
-			( select ) => {
-				const {
-					getSettings,
-					getBlockOrder,
-					getSelectedBlockClientId,
-					getSelectedBlockClientIds,
-					__unstableGetVisibleBlocks,
-					getTemplateLock,
-					getBlockEditingMode,
-					__unstableGetEditorMode,
-				} = select( blockEditorStore );
-
-				const _order = getBlockOrder( rootClientId );
+	const {
+		order,
+		isZoomOut,
+		selectedBlocks,
+		visibleBlocks,
+		shouldRenderAppender,
+	} = useSelect(
+		( select ) => {
+			const {
+				getSettings,
+				getBlockOrder,
+				getSelectedBlockClientId,
+				getSelectedBlockClientIds,
+				__unstableGetVisibleBlocks,
+				getTemplateLock,
+				getBlockEditingMode,
+				__unstableGetEditorMode,
+			} = select( blockEditorStore );
 
-				if ( getSettings().__unstableIsPreviewMode ) {
-					return {
-						order: _order,
-						selectedBlocks: EMPTY_ARRAY,
-						visibleBlocks: EMPTY_SET,
-					};
-				}
+			const _order = getBlockOrder( rootClientId );
 
-				const selectedBlockClientId = getSelectedBlockClientId();
+			if ( getSettings().__unstableIsPreviewMode ) {
 				return {
 					order: _order,
-					selectedBlocks: getSelectedBlockClientIds(),
-					visibleBlocks: __unstableGetVisibleBlocks(),
-					shouldRenderAppender:
-						hasAppender &&
-						__unstableGetEditorMode() !== 'zoom-out' &&
-						( hasCustomAppender
-							? ! getTemplateLock( rootClientId ) &&
-							  getBlockEditingMode( rootClientId ) !== 'disabled'
-							: rootClientId === selectedBlockClientId ||
-							  ( ! rootClientId &&
-									! selectedBlockClientId &&
-									! _order.length ) ),
+					selectedBlocks: EMPTY_ARRAY,
+					visibleBlocks: EMPTY_SET,
 				};
-			},
-			[ rootClientId, hasAppender, hasCustomAppender ]
-		);
+			}
+
+			const selectedBlockClientId = getSelectedBlockClientId();
+			return {
+				order: _order,
+				selectedBlocks: getSelectedBlockClientIds(),
+				visibleBlocks: __unstableGetVisibleBlocks(),
+				isZoomOut: __unstableGetEditorMode() === 'zoom-out',
+				shouldRenderAppender:
+					hasAppender &&
+					__unstableGetEditorMode() !== 'zoom-out' &&
+					( hasCustomAppender
+						? ! getTemplateLock( rootClientId ) &&
+						  getBlockEditingMode( rootClientId ) !== 'disabled'
+						: rootClientId === selectedBlockClientId ||
+						  ( ! rootClientId &&
+								! selectedBlockClientId &&
+								! _order.length ) ),
+			};
+		},
+		[ rootClientId, hasAppender, hasCustomAppender ]
+	);
 
 	return (
 		<LayoutProvider value={ layout }>
@@ -230,10 +237,24 @@ function Items( {
 						! selectedBlocks.includes( clientId )
 					}
 				>
+					{ isZoomOut && (
+						<ZoomOutSeparator
+							clientId={ clientId }
+							rootClientId={ rootClientId }
+							position="top"
+						/>
+					) }
 					<BlockListBlock
 						rootClientId={ rootClientId }
 						clientId={ clientId }
 					/>
+					{ isZoomOut && (
+						<ZoomOutSeparator
+							clientId={ clientId }
+							rootClientId={ rootClientId }
+							position="bottom"
+						/>
+					) }
 				</AsyncModeProvider>
 			) ) }
 			{ order.length < 1 && placeholder }
diff --git a/packages/block-editor/src/components/block-list/zoom-out-separator.js b/packages/block-editor/src/components/block-list/zoom-out-separator.js
new file mode 100644
index 00000000000000..be5af549630607
--- /dev/null
+++ b/packages/block-editor/src/components/block-list/zoom-out-separator.js
@@ -0,0 +1,110 @@
+/**
+ * External dependencies
+ */
+import clsx from 'clsx';
+
+/**
+ * WordPress dependencies
+ */
+import {
+	__unstableMotion as motion,
+	__unstableAnimatePresence as AnimatePresence,
+} from '@wordpress/components';
+import { useReducedMotion } from '@wordpress/compose';
+import { useSelect } from '@wordpress/data';
+import { useState } from '@wordpress/element';
+
+/**
+ * Internal dependencies
+ */
+import { store as blockEditorStore } from '../../store';
+import { unlock } from '../../lock-unlock';
+
+export function ZoomOutSeparator( {
+	clientId,
+	rootClientId = '',
+	position = 'top',
+} ) {
+	const [ isDraggedOver, setIsDraggedOver ] = useState( false );
+	const {
+		sectionRootClientId,
+		sectionClientIds,
+		blockInsertionPoint,
+		blockInsertionPointVisible,
+	} = useSelect( ( select ) => {
+		const {
+			getBlockInsertionPoint,
+			getBlockOrder,
+			isBlockInsertionPointVisible,
+			getSectionRootClientId,
+		} = unlock( select( blockEditorStore ) );
+
+		const root = getSectionRootClientId();
+		const sectionRootClientIds = getBlockOrder( root );
+		return {
+			sectionRootClientId: root,
+			sectionClientIds: sectionRootClientIds,
+			blockOrder: getBlockOrder( root ),
+			blockInsertionPoint: getBlockInsertionPoint(),
+			blockInsertionPointVisible: isBlockInsertionPointVisible(),
+		};
+	}, [] );
+
+	const isReducedMotion = useReducedMotion();
+
+	if ( ! clientId ) {
+		return;
+	}
+
+	let isVisible = false;
+
+	const isSectionBlock =
+		rootClientId === sectionRootClientId &&
+		sectionClientIds &&
+		sectionClientIds.includes( clientId );
+
+	if ( ! isSectionBlock ) {
+		return null;
+	}
+
+	if ( position === 'top' ) {
+		isVisible =
+			blockInsertionPointVisible &&
+			blockInsertionPoint.index === 0 &&
+			clientId === sectionClientIds[ blockInsertionPoint.index ];
+	}
+
+	if ( position === 'bottom' ) {
+		isVisible =
+			blockInsertionPointVisible &&
+			clientId === sectionClientIds[ blockInsertionPoint.index - 1 ];
+	}
+
+	return (
+		<AnimatePresence>
+			{ isVisible && (
+				<motion.div
+					as="button"
+					layout={ ! isReducedMotion }
+					initial={ { height: 0 } }
+					animate={ { height: '120px' } }
+					exit={ { height: 0 } }
+					transition={ {
+						type: 'tween',
+						duration: 0.2,
+						ease: [ 0.6, 0, 0.4, 1 ],
+					} }
+					className={ clsx(
+						'block-editor-block-list__zoom-out-separator',
+						{
+							'is-dragged-over': isDraggedOver,
+						}
+					) }
+					data-is-insertion-point="true"
+					onDragOver={ () => setIsDraggedOver( true ) }
+					onDragLeave={ () => setIsDraggedOver( false ) }
+				></motion.div>
+			) }
+		</AnimatePresence>
+	);
+}
diff --git a/packages/block-editor/src/components/block-tools/index.js b/packages/block-editor/src/components/block-tools/index.js
index 163c35b54e4381..24f60dbbf970aa 100644
--- a/packages/block-editor/src/components/block-tools/index.js
+++ b/packages/block-editor/src/components/block-tools/index.js
@@ -202,7 +202,7 @@ export default function BlockTools( {
 		// eslint-disable-next-line jsx-a11y/no-static-element-interactions
 		<div { ...props } onKeyDown={ onKeyDown }>
 			<InsertionPointOpenRef.Provider value={ useRef( false ) }>
-				{ ! isTyping && (
+				{ ! isTyping && ! isZoomOutMode && (
 					<InsertionPoint
 						__unstableContentRef={ __unstableContentRef }
 					/>
diff --git a/packages/block-editor/src/components/block-tools/zoom-out-mode-inserters.js b/packages/block-editor/src/components/block-tools/zoom-out-mode-inserters.js
index 30d51654b77cf4..79f8be3f9cfe97 100644
--- a/packages/block-editor/src/components/block-tools/zoom-out-mode-inserters.js
+++ b/packages/block-editor/src/components/block-tools/zoom-out-mode-inserters.js
@@ -88,18 +88,6 @@ function ZoomOutModeInserters() {
 				previousClientId={ previousClientId }
 				nextClientId={ nextClientId }
 			>
-				{ shouldRenderInsertionPoint && (
-					<div
-						style={ {
-							borderRadius: '0',
-							height: '12px',
-							opacity: 1,
-							transform: 'translateY(-50%)',
-							width: '100%',
-						} }
-						className="block-editor-block-list__insertion-point-indicator"
-					/>
-				) }
 				{ ! shouldRenderInsertionPoint && (
 					<ZoomOutModeInserterButton
 						isVisible={ isSelected || isHovered }
diff --git a/packages/block-editor/src/components/use-block-drop-zone/index.js b/packages/block-editor/src/components/use-block-drop-zone/index.js
index 5af82915233703..ff4d52aaa493bc 100644
--- a/packages/block-editor/src/components/use-block-drop-zone/index.js
+++ b/packages/block-editor/src/components/use-block-drop-zone/index.js
@@ -274,6 +274,23 @@ export function isDropTargetValid(
 	return areBlocksAllowed && targetMatchesDraggedBlockParents;
 }
 
+/**
+ * Checks if the given element is an insertion point.
+ *
+ * @param {EventTarget|null} targetToCheck - The element to check.
+ * @param {Document}         ownerDocument - The owner document of the element.
+ * @return {boolean} True if the element is a insertion point, false otherwise.
+ */
+function isInsertionPoint( targetToCheck, ownerDocument ) {
+	const { defaultView } = ownerDocument;
+
+	return !! (
+		defaultView &&
+		targetToCheck instanceof defaultView.HTMLElement &&
+		targetToCheck.dataset.isInsertionPoint
+	);
+}
+
 /**
  * @typedef  {Object} WPBlockDropZoneConfig
  * @property {?HTMLElement} dropZoneElement Optional element to be used as the drop zone.
@@ -422,6 +439,10 @@ export default function useBlockDropZone( {
 				const [ targetIndex, operation, nearestSide ] =
 					dropTargetPosition;
 
+				if ( isZoomOutMode() && operation !== 'insert' ) {
+					return;
+				}
+
 				if ( operation === 'group' ) {
 					const targetBlock = blocks[ targetIndex ];
 					const areAllImages = [
@@ -521,7 +542,18 @@ export default function useBlockDropZone( {
 			// https://developer.mozilla.org/en-US/docs/Web/API/Event/currentTarget
 			throttled( event, event.currentTarget.ownerDocument );
 		},
-		onDragLeave() {
+		onDragLeave( event ) {
+			const { ownerDocument } = event.currentTarget;
+
+			// If the drag event is leaving the drop zone and entering an insertion point,
+			// do not hide the insertion point as it is conceptually within the dropzone.
+			if (
+				isInsertionPoint( event.relatedTarget, ownerDocument ) ||
+				isInsertionPoint( event.target, ownerDocument )
+			) {
+				return;
+			}
+
 			throttled.cancel();
 			hideInsertionPoint();
 		},
diff --git a/packages/compose/src/hooks/use-drop-zone/index.js b/packages/compose/src/hooks/use-drop-zone/index.js
index b537f0a5ab6227..c570c034415923 100644
--- a/packages/compose/src/hooks/use-drop-zone/index.js
+++ b/packages/compose/src/hooks/use-drop-zone/index.js
@@ -86,6 +86,7 @@ export default function useDropZone( {
 			 */
 			function isElementInZone( targetToCheck ) {
 				const { defaultView } = ownerDocument;
+
 				if (
 					! targetToCheck ||
 					! defaultView ||
@@ -165,6 +166,7 @@ export default function useDropZone( {
 				// zone.
 				// Note: This is not entirely reliable in Safari due to this bug
 				// https://bugs.webkit.org/show_bug.cgi?id=66547
+
 				if ( isElementInZone( event.relatedTarget ) ) {
 					return;
 				}