diff --git a/blocks/inner-blocks/index.js b/blocks/inner-blocks/index.js
index 37ae97e13c71a..6b1d56c44932d 100644
--- a/blocks/inner-blocks/index.js
+++ b/blocks/inner-blocks/index.js
@@ -3,8 +3,8 @@
  */
 import { withContext } from '@wordpress/components';
 
-function InnerBlocks( { BlockList, layouts } ) {
-	return <BlockList layouts={ layouts } />;
+function InnerBlocks( { BlockList, layouts, allowedBlocks, template } ) {
+	return <BlockList { ...{ layouts, allowedBlocks, template } } />;
 }
 
 InnerBlocks = withContext( 'BlockList' )()( InnerBlocks );
diff --git a/core-blocks/cover-image/editor.scss b/core-blocks/cover-image/editor.scss
index 29db22108e5d9..9774e8fc62bc6 100644
--- a/core-blocks/cover-image/editor.scss
+++ b/core-blocks/cover-image/editor.scss
@@ -22,10 +22,52 @@
 	}
 
 	&.has-left-content .block-rich-text__inline-toolbar {
-		justify-content: flex-start;
+		display: inline-block;
 	}
 
 	&.has-right-content .block-rich-text__inline-toolbar{
-		justify-content: flex-end;
+		display: inline-block;
+	}
+
+	.editor-block-list__layout {
+		width: 100%;
+	}
+
+	.wp-block-cover-image__inner-container {
+		width: calc( 100% - 70px );
+		margin-left: auto;
+		margin-right: auto;
+		// avoid text align inherit from cover image align.
+		text-align: left;
+
+		.editor-inserter-with-shortcuts .components-icon-button,
+		.editor-block-list__empty-block-inserter .components-icon-button {
+			color: $white;
+		}
+		.editor-default-block-appender {
+			&:hover {
+				.components-icon-button {
+					color: $white;
+				}
+			}
+
+			.components-icon-button {
+				color: $light-gray-900;
+			}
+		}
+
+
+		.editor-block-list__insertion-point-inserter:before {
+			background: $white;
+		}
+
+		p.wp-block-subhead {
+			color: $light-gray-100;
+		}
+
+		.components-draggable__clone > .editor-block-list__block > .editor-block-list__block-draggable,
+		.editor-block-list__block-draggable > .editor-block-list__block-draggable-inner {
+				background-color: rgba( $white, 0.3 );
+		}
 	}
 }
diff --git a/core-blocks/cover-image/index.js b/core-blocks/cover-image/index.js
index eb06175ee138f..aed0715b3fff8 100644
--- a/core-blocks/cover-image/index.js
+++ b/core-blocks/cover-image/index.js
@@ -1,7 +1,7 @@
 /**
  * External dependencies
  */
-import { isEmpty } from 'lodash';
+import { omit } from 'lodash';
 
 /**
  * WordPress dependencies
@@ -17,8 +17,8 @@ import {
 	BlockAlignmentToolbar,
 	ImagePlaceholder,
 	MediaUpload,
-	AlignmentToolbar,
 	RichText,
+	InnerBlocks,
 } from '@wordpress/blocks';
 
 /**
@@ -30,21 +30,12 @@ import './style.scss';
 const validAlignments = [ 'left', 'center', 'right', 'wide', 'full' ];
 
 const blockAttributes = {
-	title: {
-		type: 'array',
-		source: 'children',
-		selector: 'p',
-	},
 	url: {
 		type: 'string',
 	},
 	align: {
 		type: 'string',
 	},
-	contentAlign: {
-		type: 'string',
-		default: 'center',
-	},
 	id: {
 		type: 'number',
 	},
@@ -99,8 +90,8 @@ export const settings = {
 		}
 	},
 
-	edit( { attributes, setAttributes, isSelected, className } ) {
-		const { url, title, align, contentAlign, id, hasParallax, dimRatio } = attributes;
+	edit( { attributes, setAttributes, className } ) {
+		const { align, url, id, hasParallax, dimRatio } = attributes;
 		const updateAlignment = ( nextAlign ) => setAttributes( { align: nextAlign } );
 		const onSelectImage = ( media ) => setAttributes( { url: media.url, id: media.id } );
 		const toggleParallax = () => setAttributes( { hasParallax: ! hasParallax } );
@@ -109,7 +100,6 @@ export const settings = {
 		const style = backgroundImageStyles( url );
 		const classes = classnames(
 			className,
-			contentAlign !== 'center' && `has-${ contentAlign }-content`,
 			dimRatioToClass( dimRatio ),
 			{
 				'has-background-dim': dimRatio !== 0,
@@ -124,12 +114,6 @@ export const settings = {
 						value={ align }
 						onChange={ updateAlignment }
 					/>
-					<AlignmentToolbar
-						value={ contentAlign }
-						onChange={ ( nextAlign ) => {
-							setAttributes( { contentAlign: nextAlign } );
-						} }
-					/>
 					<Toolbar>
 						<MediaUpload
 							onSelect={ onSelectImage }
@@ -169,16 +153,8 @@ export const settings = {
 		);
 
 		if ( ! url ) {
-			const hasTitle = ! isEmpty( title );
-			const icon = hasTitle ? undefined : 'format-image';
-			const label = hasTitle ? (
-				<RichText
-					tagName="h2"
-					value={ title }
-					onChange={ ( value ) => setAttributes( { title: value } ) }
-					inlineToolbar
-				/>
-			) : __( 'Cover Image' );
+			const icon = 'format-image';
+			const label = __( 'Cover Image' );
 
 			return (
 				<Fragment>
@@ -198,23 +174,26 @@ export const settings = {
 					style={ style }
 					className={ classes }
 				>
-					{ title || isSelected ? (
-						<RichText
-							tagName="p"
-							className="wp-block-cover-image-text"
-							placeholder={ __( 'Write title…' ) }
-							value={ title }
-							onChange={ ( value ) => setAttributes( { title: value } ) }
-							inlineToolbar
+					<div className="wp-block-cover-image__inner-container">
+						<InnerBlocks
+							template={ [
+								[ 'core/paragraph', {
+									align: 'center',
+									fontSize: 'large',
+									placeholder: __( 'Write title…' ),
+									textColor: '#fff',
+								} ],
+							] }
+							allowedBlocks={ [ 'core/button', 'core/heading', 'core/paragraph', 'core/subhead' ] }
 						/>
-					) : null }
+					</div>
 				</div>
 			</Fragment>
 		);
 	},
 
 	save( { attributes, className } ) {
-		const { url, title, hasParallax, dimRatio, align, contentAlign } = attributes;
+		const { url, hasParallax, dimRatio, align } = attributes;
 		const style = backgroundImageStyles( url );
 		const classes = classnames(
 			className,
@@ -222,21 +201,68 @@ export const settings = {
 			{
 				'has-background-dim': dimRatio !== 0,
 				'has-parallax': hasParallax,
-				[ `has-${ contentAlign }-content` ]: contentAlign !== 'center',
 			},
 			align ? `align${ align }` : null,
 		);
 
 		return (
 			<div className={ classes } style={ style }>
-				{ title && title.length > 0 && (
-					<RichText.Content tagName="p" className="wp-block-cover-image-text" value={ title } />
-				) }
+				<div className="wp-block-cover-image__inner-container">
+					<InnerBlocks.Content />
+				</div>
 			</div>
 		);
 	},
 
 	deprecated: [ {
+		attributes: {
+			...blockAttributes,
+			title: {
+				type: 'array',
+				source: 'children',
+				selector: 'p',
+			},
+			contentAlign: {
+				type: 'string',
+				default: 'center',
+			},
+		},
+
+		save( { attributes, className } ) {
+			const { url, title, hasParallax, dimRatio, align, contentAlign } = attributes;
+			const style = backgroundImageStyles( url );
+			const classes = classnames(
+				className,
+				dimRatioToClass( dimRatio ),
+				{
+					'has-background-dim': dimRatio !== 0,
+					'has-parallax': hasParallax,
+					[ `has-${ contentAlign }-content` ]: contentAlign !== 'center',
+				},
+				align ? `align${ align }` : null,
+			);
+
+			return (
+				<div className={ classes } style={ style }>
+					{ title && title.length > 0 && (
+						<RichText.Content tagName="p" className="wp-block-cover-image-text" value={ title } />
+					) }
+				</div>
+			);
+		},
+
+		migrate( attributes ) {
+			return [
+				omit( attributes, [ 'title', 'contentAlign' ] ),
+				[ createBlock( 'core/paragraph', {
+					content: attributes.title,
+					align: attributes.contentAlign,
+					fontSize: 'large',
+					placeholder: __( 'Write title…' ),
+				} ) ],
+			];
+		},
+	}, {
 		attributes: {
 			...blockAttributes,
 			title: {
diff --git a/core-blocks/cover-image/style.scss b/core-blocks/cover-image/style.scss
index 244f8dba2bcbe..7edd9f83a8225 100644
--- a/core-blocks/cover-image/style.scss
+++ b/core-blocks/cover-image/style.scss
@@ -79,4 +79,18 @@
 		max-width: $content-width / 2;
 		width: 100%;
 	}
+
+	.wp-block-cover-image__inner-container {
+		width: calc( 100% - 70px );
+		color: $light-gray-100;
+		z-index: z-index( '.wp-block-cover-image__inner-container' );
+		p {
+			margin-top: 0;
+			margin-bottom: 0;
+		}
+	}
+
+	h1, h2, h3, h4, h5, h6, .wp-block-subhead {
+		color: inherit;
+	}
 }
diff --git a/core-blocks/test/fixtures/core__cover-image.html b/core-blocks/test/fixtures/core__cover-image.html
index 86b5915701b0b..d197c55b6ef46 100644
--- a/core-blocks/test/fixtures/core__cover-image.html
+++ b/core-blocks/test/fixtures/core__cover-image.html
@@ -1,5 +1,9 @@
-<!-- wp:core/cover-image {"url":"https://cldup.com/uuUqE_dXzy.jpg","dimRatio":40} -->
-<div class="wp-block-cover-image has-background-dim-40 has-background-dim" style="background-image:url(https://cldup.com/uuUqE_dXzy.jpg)">
-    <p class="wp-block-cover-image-text">Guten Berg!</p>
+<!-- wp:cover-image {"url":"https://cldup.com/uuUqE_dXzy.jpg","id":8398,"dimRatio": 40} -->
+<div class="wp-block-cover-image has-background-dim has-background-dim-40" style="background-image:url(https://cldup.com/uuUqE_dXzy.jpg)">
+    <div class="wp-block-cover-image__inner-container">
+		<!-- wp:paragraph {"align":"center","placeholder":"Write title…","fontSize":"large"} -->
+		<p style="text-align:center" class="is-large-text">Paragraph 1</p>
+		<!-- /wp:paragraph -->
+    </div>
 </div>
-<!-- /wp:core/cover-image -->
+<!-- /wp:cover-image -->
diff --git a/core-blocks/test/fixtures/core__cover-image.json b/core-blocks/test/fixtures/core__cover-image.json
index 7f12304be6f8a..e6f1ce08e7e91 100644
--- a/core-blocks/test/fixtures/core__cover-image.json
+++ b/core-blocks/test/fixtures/core__cover-image.json
@@ -4,15 +4,29 @@
         "name": "core/cover-image",
         "isValid": true,
         "attributes": {
-            "title": [
-                "Guten Berg!"
-            ],
             "url": "https://cldup.com/uuUqE_dXzy.jpg",
-            "contentAlign": "center",
+            "id": 8398,
             "hasParallax": false,
             "dimRatio": 40
         },
-        "innerBlocks": [],
-        "originalContent": "<div class=\"wp-block-cover-image has-background-dim-40 has-background-dim\" style=\"background-image:url(https://cldup.com/uuUqE_dXzy.jpg)\">\n    <p class=\"wp-block-cover-image-text\">Guten Berg!</p>\n</div>"
+        "innerBlocks": [
+            {
+                "uid": "_uid_0",
+                "name": "core/paragraph",
+                "isValid": true,
+                "attributes": {
+                    "content": [
+                        "Paragraph 1"
+                    ],
+                    "align": "center",
+                    "dropCap": false,
+                    "placeholder": "Write title…",
+                    "fontSize": "large"
+                },
+                "innerBlocks": [],
+                "originalContent": "<p style=\"text-align:center\" class=\"is-large-text\">Paragraph 1</p>"
+            }
+        ],
+        "originalContent": "<div class=\"wp-block-cover-image has-background-dim has-background-dim-40\" style=\"background-image:url(https://cldup.com/uuUqE_dXzy.jpg)\">\n    <div class=\"wp-block-cover-image__inner-container\">\n\t\t\n    </div>\n</div>"
     }
 ]
diff --git a/core-blocks/test/fixtures/core__cover-image.parsed.json b/core-blocks/test/fixtures/core__cover-image.parsed.json
index 25808e4279256..75fd0ba187af1 100644
--- a/core-blocks/test/fixtures/core__cover-image.parsed.json
+++ b/core-blocks/test/fixtures/core__cover-image.parsed.json
@@ -3,10 +3,22 @@
         "blockName": "core/cover-image",
         "attrs": {
             "url": "https://cldup.com/uuUqE_dXzy.jpg",
+            "id": 8398,
             "dimRatio": 40
         },
-        "innerBlocks": [],
-        "innerHTML": "\n<div class=\"wp-block-cover-image has-background-dim-40 has-background-dim\" style=\"background-image:url(https://cldup.com/uuUqE_dXzy.jpg)\">\n    <p class=\"wp-block-cover-image-text\">Guten Berg!</p>\n</div>\n"
+        "innerBlocks": [
+            {
+                "blockName": "core/paragraph",
+                "attrs": {
+                    "align": "center",
+                    "placeholder": "Write title…",
+                    "fontSize": "large"
+                },
+                "innerBlocks": [],
+                "innerHTML": "\n\t\t<p style=\"text-align:center\" class=\"is-large-text\">Paragraph 1</p>\n\t\t"
+            }
+        ],
+        "innerHTML": "\n<div class=\"wp-block-cover-image has-background-dim has-background-dim-40\" style=\"background-image:url(https://cldup.com/uuUqE_dXzy.jpg)\">\n    <div class=\"wp-block-cover-image__inner-container\">\n\t\t\n    </div>\n</div>\n"
     },
     {
         "attrs": {},
diff --git a/core-blocks/test/fixtures/core__cover-image.serialized.html b/core-blocks/test/fixtures/core__cover-image.serialized.html
index 87e8dc9795084..631a6169b2409 100644
--- a/core-blocks/test/fixtures/core__cover-image.serialized.html
+++ b/core-blocks/test/fixtures/core__cover-image.serialized.html
@@ -1,5 +1,9 @@
-<!-- wp:cover-image {"url":"https://cldup.com/uuUqE_dXzy.jpg","dimRatio":40} -->
+<!-- wp:cover-image {"url":"https://cldup.com/uuUqE_dXzy.jpg","id":8398,"dimRatio":40} -->
 <div class="wp-block-cover-image has-background-dim-40 has-background-dim" style="background-image:url(https://cldup.com/uuUqE_dXzy.jpg)">
-	<p class="wp-block-cover-image-text">Guten Berg!</p>
+	<div class="wp-block-cover-image__inner-container">
+		<!-- wp:paragraph {"align":"center","placeholder":"Write title…","fontSize":"large"} -->
+		<p style="text-align:center" class="is-large-text">Paragraph 1</p>
+		<!-- /wp:paragraph -->
+	</div>
 </div>
 <!-- /wp:cover-image -->
diff --git a/edit-post/assets/stylesheets/_z-index.scss b/edit-post/assets/stylesheets/_z-index.scss
index dd99e2b0b8fc3..eda062b0b9fc0 100644
--- a/edit-post/assets/stylesheets/_z-index.scss
+++ b/edit-post/assets/stylesheets/_z-index.scss
@@ -72,6 +72,8 @@ $z-layers: (
 	'.components-autocomplete__results': 1000000,
 
 	'.skip-to-selected-block': 100000,
+
+	'.wp-block-cover-image__inner-container': 0,
 );
 
 @function z-index( $key ) {
diff --git a/editor/components/block-list/block.js b/editor/components/block-list/block.js
index 43d145c4948ad..39fdd04413906 100644
--- a/editor/components/block-list/block.js
+++ b/editor/components/block-list/block.js
@@ -591,7 +591,7 @@ export class BlockListBlock extends Component {
 				{ showSideInserter && (
 					<Fragment>
 						<div className="editor-block-list__side-inserter">
-							<InserterWithShortcuts uid={ uid } layout={ layout } onToggle={ this.selectOnOpen } />
+							<InserterWithShortcuts uid={ uid } rootUID={ rootUID } layout={ layout } onToggle={ this.selectOnOpen } />
 						</div>
 						<div className="editor-block-list__empty-block-inserter">
 							<Inserter
diff --git a/editor/components/default-block-appender/test/__snapshots__/index.js.snap b/editor/components/default-block-appender/test/__snapshots__/index.js.snap
index 8b998c42a4dd4..6794a3a5b83dc 100644
--- a/editor/components/default-block-appender/test/__snapshots__/index.js.snap
+++ b/editor/components/default-block-appender/test/__snapshots__/index.js.snap
@@ -36,7 +36,7 @@ exports[`DefaultBlockAppender should append a default block when input focused 1
     value="Write your story"
   />
   <WithEditorSettings(WithSelect(WithDispatch(InserterWithShortcuts))) />
-  <WithSelect(WithDispatch(WithEditorSettings(Inserter)))
+  <WithEditorSettings(WithSelect(WithDispatch(Inserter)))
     position="top right"
   />
 </div>
@@ -60,7 +60,7 @@ exports[`DefaultBlockAppender should match snapshot 1`] = `
     value="Write your story"
   />
   <WithEditorSettings(WithSelect(WithDispatch(InserterWithShortcuts))) />
-  <WithSelect(WithDispatch(WithEditorSettings(Inserter)))
+  <WithEditorSettings(WithSelect(WithDispatch(Inserter)))
     position="top right"
   />
 </div>
@@ -84,7 +84,7 @@ exports[`DefaultBlockAppender should optionally show without prompt 1`] = `
     value=""
   />
   <WithEditorSettings(WithSelect(WithDispatch(InserterWithShortcuts))) />
-  <WithSelect(WithDispatch(WithEditorSettings(Inserter)))
+  <WithEditorSettings(WithSelect(WithDispatch(Inserter)))
     position="top right"
   />
 </div>
diff --git a/editor/components/inserter-with-shortcuts/index.js b/editor/components/inserter-with-shortcuts/index.js
index 009c50056759b..2bbea70352c90 100644
--- a/editor/components/inserter-with-shortcuts/index.js
+++ b/editor/components/inserter-with-shortcuts/index.js
@@ -52,9 +52,13 @@ export default compose(
 			allowedBlockTypes,
 		};
 	} ),
-	withSelect( ( select, { allowedBlockTypes } ) => ( {
-		items: select( 'core/editor' ).getFrecentInserterItems( allowedBlockTypes, 4 ),
-	} ) ),
+	withSelect( ( select, { allowedBlockTypes, rootUID } ) => {
+		const { getFrecentInserterItems, getSupportedBlocks } = select( 'core/editor' );
+		const supportedBlocks = getSupportedBlocks( rootUID, allowedBlockTypes );
+		return {
+			items: getFrecentInserterItems( supportedBlocks, 4 ),
+		};
+	} ),
 	withDispatch( ( dispatch, ownProps ) => {
 		const { uid, rootUID, layout } = ownProps;
 
diff --git a/editor/components/inserter/index.js b/editor/components/inserter/index.js
index 6814c79aa598b..b1ddc21ce0025 100644
--- a/editor/components/inserter/index.js
+++ b/editor/components/inserter/index.js
@@ -87,11 +87,32 @@ class Inserter extends Component {
 }
 
 export default compose( [
-	withSelect( ( select ) => ( {
-		title: select( 'core/editor' ).getEditedPostAttribute( 'title' ),
-		insertionPoint: select( 'core/editor' ).getBlockInsertionPoint(),
-		selectedBlock: select( 'core/editor' ).getSelectedBlock(),
-	} ) ),
+	withEditorSettings( ( settings ) => {
+		const { allowedBlockTypes, templateLock } = settings;
+
+		return {
+			allowedBlockTypes,
+			isLocked: !! templateLock,
+		};
+	} ),
+	withSelect( ( select, { allowedBlockTypes } ) => {
+		const {
+			getEditedPostAttribute,
+			getBlockInsertionPoint,
+			getSelectedBlock,
+			getSupportedBlocks,
+		} = select( 'core/editor' );
+
+		const insertionPoint = getBlockInsertionPoint();
+		const { rootUID } = insertionPoint;
+		const supportedBlocks = getSupportedBlocks( rootUID, allowedBlockTypes );
+		return {
+			title: getEditedPostAttribute( 'title' ),
+			insertionPoint,
+			selectedBlock: getSelectedBlock(),
+			hasSupportedBlocks: true === supportedBlocks || ! isEmpty( supportedBlocks ),
+		};
+	} ),
 	withDispatch( ( dispatch, ownProps ) => ( {
 		showInsertionPoint: dispatch( 'core/editor' ).showInsertionPoint,
 		hideInsertionPoint: dispatch( 'core/editor' ).hideInsertionPoint,
@@ -106,12 +127,4 @@ export default compose( [
 			return dispatch( 'core/editor' ).insertBlock( insertedBlock, index, rootUID );
 		},
 	} ) ),
-	withEditorSettings( ( settings ) => {
-		const { allowedBlockTypes, templateLock } = settings;
-
-		return {
-			hasSupportedBlocks: true === allowedBlockTypes || ! isEmpty( allowedBlockTypes ),
-			isLocked: !! templateLock,
-		};
-	} ),
 ] )( Inserter );
diff --git a/editor/components/inserter/menu.js b/editor/components/inserter/menu.js
index f863ad697f337..1d7c058a1fae2 100644
--- a/editor/components/inserter/menu.js
+++ b/editor/components/inserter/menu.js
@@ -344,10 +344,17 @@ export default compose(
 		};
 	} ),
 	withSelect( ( select, { allowedBlockTypes } ) => {
-		const { getInserterItems, getFrecentInserterItems } = select( 'core/editor' );
+		const {
+			getBlockInsertionPoint,
+			getInserterItems,
+			getFrecentInserterItems,
+			getSupportedBlocks,
+		} = select( 'core/editor' );
+		const { rootUID } = getBlockInsertionPoint();
+		const supportedBlocks = getSupportedBlocks( rootUID, allowedBlockTypes );
 		return {
-			items: getInserterItems( allowedBlockTypes ),
-			frecentItems: getFrecentInserterItems( allowedBlockTypes ),
+			items: getInserterItems( supportedBlocks ),
+			frecentItems: getFrecentInserterItems( supportedBlocks ),
 		};
 	} ),
 	withDispatch( ( dispatch ) => ( {
diff --git a/editor/store/actions.js b/editor/store/actions.js
index 07a22bc3ec3a5..c78cdc25ec9ac 100644
--- a/editor/store/actions.js
+++ b/editor/store/actions.js
@@ -666,3 +666,19 @@ export function insertDefaultBlock( attributes, rootUID, index ) {
 		isProvisional: true,
 	};
 }
+
+/**
+ * Returns an action object that changes the nested settings of a given block.
+ *
+ * @param {string} id       UID of the block whose nested setting.
+ * @param {Object} settings Object with the new settings for the nested block.
+ *
+ * @return {Object} Action object
+ */
+export function updateBlockListSettings( id, settings ) {
+	return {
+		type: 'UPDATE_BLOCK_LIST_SETTINGS',
+		id,
+		settings,
+	};
+}
diff --git a/editor/store/reducer.js b/editor/store/reducer.js
index ca558159fa15e..ee6dfab934abe 100644
--- a/editor/store/reducer.js
+++ b/editor/store/reducer.js
@@ -1006,6 +1006,42 @@ export const sharedBlocks = combineReducers( {
 	},
 } );
 
+/**
+ * Reducer that for each block uid stores an object that represents its nested settings.
+ * E.g: what blocks can be nested inside a block.
+ *
+ * @param {Object} state  Current state.
+ * @param {Object} action Dispatched action.
+ *
+ * @return {Object} Updated state.
+ */
+export const blockListSettings = ( state = {}, action ) => {
+	switch ( action.type ) {
+		// even if the replaced blocks have the same uid our logic should correct the state.
+		case 'REPLACE_BLOCKS' :
+		case 'REMOVE_BLOCKS': {
+			return omit( state, action.uids );
+		}
+		case 'UPDATE_BLOCK_LIST_SETTINGS': {
+			const { id, settings } = action;
+			if ( id && ! settings ) {
+				return omit( state, id );
+			}
+			const blockSettings = state[ id ];
+			const updateIsRequired = ! isEqual( blockSettings, settings );
+			if ( updateIsRequired ) {
+				return {
+					...state,
+					[ id ]: {
+						...settings,
+					},
+				};
+			}
+		}
+	}
+	return state;
+};
+
 export default optimist( combineReducers( {
 	editor,
 	currentPost,
@@ -1013,6 +1049,7 @@ export default optimist( combineReducers( {
 	blockSelection,
 	provisionalBlockUID,
 	blocksMode,
+	blockListSettings,
 	isInsertionPointVisible,
 	preferences,
 	saving,
diff --git a/editor/store/selectors.js b/editor/store/selectors.js
index 8d58898ce3759..5c7978d745997 100644
--- a/editor/store/selectors.js
+++ b/editor/store/selectors.js
@@ -6,6 +6,7 @@ import {
 	first,
 	get,
 	has,
+	intersection,
 	last,
 	reduce,
 	size,
@@ -1590,3 +1591,44 @@ export function inSomeHistory( state, predicate ) {
 		beforeState && predicate( beforeState )
 	) );
 }
+
+/**
+ * Returns the Block List settings of a block if any.
+ *
+ * @param {Object}  state Editor state.
+ * @param {?string} uid   Block UID.
+ *
+ * @return {?Object} Block settings of the block if set.
+ */
+export function getBlockListSettings( state, uid ) {
+	return state.blockListSettings[ uid ];
+}
+
+/**
+ * Determines the blocks that can be nested inside a given block. Or globally if a block is not specified.
+ *
+ * @param {Object}           state                     Global application state.
+ * @param {?string}          uid                       Block UID.
+ * @param {string[]|boolean} globallyEnabledBlockTypes Globally enabled block types, or true/false to enable/disable all types.
+ *
+ * @return {string[]|boolean} Blocks that can be nested inside the block with the specified uid, or true/false to enable/disable all types.
+ */
+export function getSupportedBlocks( state, uid, globallyEnabledBlockTypes ) {
+	if ( ! globallyEnabledBlockTypes ) {
+		return false;
+	}
+
+	const supportedNestedBlocks = get( getBlockListSettings( state, uid ), [ 'supportedBlocks' ] );
+	if ( supportedNestedBlocks === true || supportedNestedBlocks === undefined ) {
+		return globallyEnabledBlockTypes;
+	}
+
+	if ( ! supportedNestedBlocks ) {
+		return false;
+	}
+
+	if ( globallyEnabledBlockTypes === true ) {
+		return supportedNestedBlocks;
+	}
+	return intersection( globallyEnabledBlockTypes, supportedNestedBlocks );
+}
diff --git a/editor/store/test/actions.js b/editor/store/test/actions.js
index 97a0291b9f23d..12462f8d91f7e 100644
--- a/editor/store/test/actions.js
+++ b/editor/store/test/actions.js
@@ -42,6 +42,7 @@ import {
 	createErrorNotice,
 	createWarningNotice,
 	removeNotice,
+	updateBlockListSettings,
 } from '../actions';
 
 describe( 'actions', () => {
@@ -530,4 +531,22 @@ describe( 'actions', () => {
 			} );
 		} );
 	} );
+
+	describe( 'updateBlockListSettings', () => {
+		it( 'should return the UPDATE_BLOCK_LIST_SETTINGS with undefined settings', () => {
+			expect( updateBlockListSettings( 'chicken' ) ).toEqual( {
+				type: 'UPDATE_BLOCK_LIST_SETTINGS',
+				id: 'chicken',
+				settings: undefined,
+			} );
+		} );
+
+		it( 'should return the UPDATE_BLOCK_LIST_SETTINGS action with the passed settings', () => {
+			expect( updateBlockListSettings( 'chicken', { chicken: 'ribs' } ) ).toEqual( {
+				type: 'UPDATE_BLOCK_LIST_SETTINGS',
+				id: 'chicken',
+				settings: { chicken: 'ribs' },
+			} );
+		} );
+	} );
 } );
diff --git a/editor/store/test/reducer.js b/editor/store/test/reducer.js
index 005173b127b79..26b0354cd0203 100644
--- a/editor/store/test/reducer.js
+++ b/editor/store/test/reducer.js
@@ -35,6 +35,7 @@ import {
 	isInsertionPointVisible,
 	sharedBlocks,
 	template,
+	blockListSettings,
 } from '../reducer';
 
 describe( 'state', () => {
@@ -2189,4 +2190,81 @@ describe( 'state', () => {
 			expect( state ).toEqual( { isValid: true, template: [] } );
 		} );
 	} );
+
+	describe( 'blockListSettings', () => {
+		it( 'should add new settings', () => {
+			const original = deepFreeze( {} );
+			const state = blockListSettings( original, {
+				type: 'UPDATE_BLOCK_LIST_SETTINGS',
+				id: 'chicken',
+				settings: {
+					chicken: 'ribs',
+				},
+			} );
+			expect( state ).toEqual( {
+				chicken: {
+					chicken: 'ribs',
+				},
+			} );
+		} );
+
+		it( 'should update the settings of a block', () => {
+			const original = deepFreeze( {
+				chicken: {
+					chicken: 'ribs',
+				},
+				otherBlock: {
+					setting1: true,
+				},
+			} );
+			const state = blockListSettings( original, {
+				type: 'UPDATE_BLOCK_LIST_SETTINGS',
+				id: 'chicken',
+				settings: {
+					ribs: 'not-chicken',
+				},
+			} );
+			expect( state ).toEqual( {
+				chicken: {
+					ribs: 'not-chicken',
+				},
+				otherBlock: {
+					setting1: true,
+				},
+			} );
+		} );
+
+		it( 'should remove the settings of a block when it is replaced', () => {
+			const original = deepFreeze( {
+				chicken: {
+					chicken: 'ribs',
+				},
+				otherBlock: {
+					setting1: true,
+				},
+			} );
+			const state = blockListSettings( original, {
+				type: 'REPLACE_BLOCKS',
+				uids: [ 'otherBlock' ],
+			} );
+			expect( state ).toEqual( {
+				chicken: {
+					chicken: 'ribs',
+				},
+			} );
+		} );
+
+		it( 'should remove the settings of a block when it is removed', () => {
+			const original = deepFreeze( {
+				otherBlock: {
+					setting1: true,
+				},
+			} );
+			const state = blockListSettings( original, {
+				type: 'REPLACE_BLOCKS',
+				uids: [ 'otherBlock' ],
+			} );
+			expect( state ).toEqual( {} );
+		} );
+	} );
 } );
diff --git a/editor/store/test/selectors.js b/editor/store/test/selectors.js
index df5d72efadb78..5060f28a8111a 100644
--- a/editor/store/test/selectors.js
+++ b/editor/store/test/selectors.js
@@ -84,6 +84,8 @@ const {
 	isValidTemplate,
 	getTemplate,
 	getTemplateLock,
+	getBlockListSettings,
+	getSupportedBlocks,
 	POST_UPDATE_TRANSACTION_ID,
 	isPermalinkEditable,
 	getPermalink,
@@ -3253,4 +3255,119 @@ describe( 'selectors', () => {
 			expect( getPermalinkParts( state ) ).toEqual( parts );
 		} );
 	} );
+
+	describe( 'getBlockListSettings', () => {
+		it( 'should return the settings of a block', () => {
+			const state = {
+				blockListSettings: {
+					chicken: {
+						setting1: false,
+					},
+					ribs: {
+						setting2: true,
+					},
+				},
+			};
+
+			expect( getBlockListSettings( state, 'chicken' ) ).toEqual( {
+				setting1: false,
+			} );
+		} );
+
+		it( 'should return undefined if settings for the block don\'t exist', () => {
+			const state = {
+				blockListSettings: {},
+			};
+
+			expect( getBlockListSettings( state, 'chicken' ) ).toBe( undefined );
+		} );
+	} );
+
+	describe( 'getSupportedBlocks', () => {
+		it( 'should return false if all blocks are disabled globally', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: [ 'core/block1' ],
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', false ) ).toBe( false );
+		} );
+
+		it( 'should return the supportedBlocks of root block if all blocks are supported globally', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: [ 'core/block1' ],
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', true ) ).toEqual( [ 'core/block1' ] );
+		} );
+
+		it( 'should return the globally supported blocks if all blocks are enable inside the root block', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: true,
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', [ 'core/block1' ] ) ).toEqual( [ 'core/block1' ] );
+		} );
+
+		it( 'should return the globally supported blocks if the root block does not sets the supported blocks', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						chicken: 'ribs',
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', [ 'core/block1' ] ) ).toEqual( [ 'core/block1' ] );
+		} );
+
+		it( 'should return the globally supported blocks if there are no settings for the root block', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: true,
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block2', [ 'core/block1' ] ) ).toEqual( [ 'core/block1' ] );
+		} );
+
+		it( 'should return false if all blocks are disabled inside the root block ', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: false,
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', [ 'core/block1' ] ) ).toBe( false );
+		} );
+
+		it( 'should return the intersection of globally supported blocks with the supported blocks of the root block if both sets are defined', () => {
+			const state = {
+				blockListSettings: {
+					block1: {
+						supportedBlocks: [ 'core/block1', 'core/block2', 'core/block3' ],
+					},
+				},
+			};
+
+			expect( getSupportedBlocks( state, 'block1', [ 'core/block2', 'core/block4', 'core/block5' ] ) ).toEqual(
+				[ 'core/block2' ]
+			);
+		} );
+	} );
 } );
diff --git a/editor/utils/block-list.js b/editor/utils/block-list.js
index 0f68869c783d8..2bbfe34cdc326 100644
--- a/editor/utils/block-list.js
+++ b/editor/utils/block-list.js
@@ -1,12 +1,16 @@
 /**
  * External dependencies
  */
-import { noop } from 'lodash';
+import { isEqual, noop, omit } from 'lodash';
 
 /**
  * WordPress dependencies
  */
-import { Component } from '@wordpress/element';
+import { Component, compose } from '@wordpress/element';
+import {
+	synchronizeBlocksWithTemplate,
+} from '@wordpress/blocks';
+import { withSelect, withDispatch } from '@wordpress/data';
 
 /**
  * Internal dependencies
@@ -35,33 +39,87 @@ const INNER_BLOCK_LIST_CACHE = {};
  */
 export function createInnerBlockList( uid, renderBlockMenu = noop ) {
 	if ( ! INNER_BLOCK_LIST_CACHE[ uid ] ) {
-		INNER_BLOCK_LIST_CACHE[ uid ] = [
-			// The component class:
-			class extends Component {
-				componentWillMount() {
-					INNER_BLOCK_LIST_CACHE[ uid ][ 1 ]++;
+		const InnerBlockListComponent = class extends Component {
+			componentWillReceiveProps( nextProps ) {
+				this.updateNestedSettings( {
+					supportedBlocks: nextProps.allowedBlocks,
+				} );
+			}
+
+			componentWillUnmount() {
+				// If, after decrementing the tracking count, there are no
+				// remaining instances of the component, remove from cache.
+				if ( ! INNER_BLOCK_LIST_CACHE[ uid ][ 1 ]-- ) {
+					delete INNER_BLOCK_LIST_CACHE[ uid ];
 				}
+			}
+
+			componentDidMount() {
+				INNER_BLOCK_LIST_CACHE[ uid ][ 1 ]++;
+				this.updateNestedSettings( {
+					supportedBlocks: this.props.allowedBlocks,
+				} );
+				this.insertTemplateBlocks( this.props.template );
+			}
 
-				componentWillUnmount() {
-					// If, after decrementing the tracking count, there are no
-					// remaining instances of the component, remove from cache.
-					if ( ! INNER_BLOCK_LIST_CACHE[ uid ][ 1 ]-- ) {
-						delete INNER_BLOCK_LIST_CACHE[ uid ];
-					}
+			insertTemplateBlocks( template ) {
+				const { block, insertBlocks } = this.props;
+				if ( template && ! block.innerBlocks.length ) {
+					// synchronizeBlocksWithTemplate( [], template ) parses the template structure,
+					// and returns/creates the necessary blocks to represent it.
+					insertBlocks( synchronizeBlocksWithTemplate( [], template ) );
 				}
+			}
 
-				render() {
-					return (
-						<BlockList
-							rootUID={ uid }
-							renderBlockMenu={ renderBlockMenu }
-							{ ...this.props } />
-					);
+			updateNestedSettings( newSettings ) {
+				if ( ! isEqual( this.props.blockListSettings, newSettings ) ) {
+					this.props.updateNestedSettings( newSettings );
 				}
-			},
+			}
 
-			// A counter tracking active mounted instances:
-			0,
+			render() {
+				return (
+					<BlockList
+						rootUID={ uid }
+						renderBlockMenu={ renderBlockMenu }
+						{ ...omit(
+							this.props, [
+								'allowedBlocks',
+								'block',
+								'blockListSettings',
+								'insertBlocks',
+								'template',
+								'updateNestedSettings',
+							]
+						) } />
+				);
+			}
+		};
+
+		const InnerBlockListComponentContainer = compose(
+			withSelect( ( select ) => {
+				const { getBlock, getBlockListSettings } = select( 'core/editor' );
+				return {
+					block: getBlock( uid ),
+					blockListSettings: getBlockListSettings( uid ),
+				};
+			} ),
+			withDispatch( ( dispatch ) => {
+				const { insertBlocks, updateBlockListSettings } = dispatch( 'core/editor' );
+				return {
+					insertBlocks( blocks ) {
+						dispatch( insertBlocks( blocks, undefined, uid ) );
+					},
+					updateNestedSettings( settings ) {
+						dispatch( updateBlockListSettings( uid, settings ) );
+					},
+				};
+			} ),
+		)( InnerBlockListComponent );
+
+		INNER_BLOCK_LIST_CACHE[ uid ] = [
+			InnerBlockListComponentContainer,
+			0, // A counter tracking active mounted instances:
 		];
 	}