diff --git a/packages/block-editor/src/components/block-draggable/draggable-chip.js b/packages/block-editor/src/components/block-draggable/draggable-chip.js
index d7d053be179fa6..cca21e7e0b7858 100644
--- a/packages/block-editor/src/components/block-draggable/draggable-chip.js
+++ b/packages/block-editor/src/components/block-draggable/draggable-chip.js
@@ -10,7 +10,12 @@ import { dragHandle } from '@wordpress/icons';
  */
 import BlockIcon from '../block-icon';
 
-export default function BlockDraggableChip( { count, icon, isPattern } ) {
+export default function BlockDraggableChip( {
+	count,
+	icon,
+	isPattern,
+	fadeWhenDisabled,
+} ) {
 	const patternLabel = isPattern && __( 'Pattern' );
 	return (
 		<div className="block-editor-block-draggable-chip-wrapper">
@@ -37,6 +42,11 @@ export default function BlockDraggableChip( { count, icon, isPattern } ) {
 					<FlexItem>
 						<BlockIcon icon={ dragHandle } />
 					</FlexItem>
+					{ fadeWhenDisabled && (
+						<FlexItem className="block-editor-block-draggable-chip__disabled">
+							<span className="block-editor-block-draggable-chip__disabled-icon"></span>
+						</FlexItem>
+					) }
 				</Flex>
 			</div>
 		</div>
diff --git a/packages/block-editor/src/components/block-draggable/index.js b/packages/block-editor/src/components/block-draggable/index.js
index 0b8f3c2d87f520..7191a0f1428a92 100644
--- a/packages/block-editor/src/components/block-draggable/index.js
+++ b/packages/block-editor/src/components/block-draggable/index.js
@@ -5,6 +5,7 @@ import { store as blocksStore } from '@wordpress/blocks';
 import { Draggable } from '@wordpress/components';
 import { useSelect, useDispatch } from '@wordpress/data';
 import { useEffect, useRef } from '@wordpress/element';
+import { throttle } from '@wordpress/compose';
 
 /**
  * Internal dependencies
@@ -12,6 +13,8 @@ import { useEffect, useRef } from '@wordpress/element';
 import BlockDraggableChip from './draggable-chip';
 import useScrollWhenDragging from './use-scroll-when-dragging';
 import { store as blockEditorStore } from '../../store';
+import { __unstableUseBlockRef as useBlockRef } from '../block-list/use-block-props/use-block-refs';
+import { isDropTargetValid } from '../use-block-drop-zone';
 
 const BlockDraggable = ( {
 	children,
@@ -19,16 +22,24 @@ const BlockDraggable = ( {
 	cloneClassname,
 	onDragStart,
 	onDragEnd,
+	fadeWhenDisabled = false,
 } ) => {
-	const { srcRootClientId, isDraggable, icon } = useSelect(
+	const {
+		srcRootClientId,
+		isDraggable,
+		icon,
+		visibleInserter,
+		getBlockType,
+	} = useSelect(
 		( select ) => {
 			const {
 				canMoveBlocks,
 				getBlockRootClientId,
 				getBlockName,
 				getBlockAttributes,
+				isBlockInsertionPointVisible,
 			} = select( blockEditorStore );
-			const { getBlockType, getActiveBlockVariation } =
+			const { getBlockType: _getBlockType, getActiveBlockVariation } =
 				select( blocksStore );
 			const rootClientId = getBlockRootClientId( clientIds[ 0 ] );
 			const blockName = getBlockName( clientIds[ 0 ] );
@@ -40,15 +51,21 @@ const BlockDraggable = ( {
 			return {
 				srcRootClientId: rootClientId,
 				isDraggable: canMoveBlocks( clientIds, rootClientId ),
-				icon: variation?.icon || getBlockType( blockName )?.icon,
+				icon: variation?.icon || _getBlockType( blockName )?.icon,
+				visibleInserter: isBlockInsertionPointVisible(),
+				getBlockType: _getBlockType,
 			};
 		},
 		[ clientIds ]
 	);
+
 	const isDragging = useRef( false );
 	const [ startScrolling, scrollOnDragOver, stopScrolling ] =
 		useScrollWhenDragging();
 
+	const { getAllowedBlocks, getBlockNamesByClientId, getBlockRootClientId } =
+		useSelect( blockEditorStore );
+
 	const { startDraggingBlocks, stopDraggingBlocks } =
 		useDispatch( blockEditorStore );
 
@@ -61,6 +78,97 @@ const BlockDraggable = ( {
 		};
 	}, [] );
 
+	// Find the root of the editor iframe.
+	const blockRef = useBlockRef( clientIds[ 0 ] );
+	const editorRoot = blockRef.current?.closest( 'body' );
+
+	/*
+	 * Add a dragover event listener to the editor root to track the blocks being dragged over.
+	 * The listener has to be inside the editor iframe otherwise the target isn't accessible.
+	 */
+	useEffect( () => {
+		if ( ! editorRoot || ! fadeWhenDisabled ) {
+			return;
+		}
+
+		const onDragOver = ( event ) => {
+			if ( ! event.target.closest( '[data-block]' ) ) {
+				return;
+			}
+			const draggedBlockNames = getBlockNamesByClientId( clientIds );
+			const targetClientId = event.target
+				.closest( '[data-block]' )
+				.getAttribute( 'data-block' );
+
+			const allowedBlocks = getAllowedBlocks( targetClientId );
+			const targetBlockName = getBlockNamesByClientId( [
+				targetClientId,
+			] )[ 0 ];
+
+			/*
+			 * Check if the target is valid to drop in.
+			 * If the target's allowedBlocks is an empty array,
+			 * it isn't a container block, in which case we check
+			 * its parent's validity instead.
+			 */
+			let dropTargetValid;
+			if ( allowedBlocks?.length === 0 ) {
+				const targetRootClientId =
+					getBlockRootClientId( targetClientId );
+				const targetRootBlockName = getBlockNamesByClientId( [
+					targetRootClientId,
+				] )[ 0 ];
+				const rootAllowedBlocks =
+					getAllowedBlocks( targetRootClientId );
+				dropTargetValid = isDropTargetValid(
+					getBlockType,
+					rootAllowedBlocks,
+					draggedBlockNames,
+					targetRootBlockName
+				);
+			} else {
+				dropTargetValid = isDropTargetValid(
+					getBlockType,
+					allowedBlocks,
+					draggedBlockNames,
+					targetBlockName
+				);
+			}
+
+			/*
+			 * Update the body class to reflect if drop target is valid.
+			 * This has to be done on the document body because the draggable
+			 * chip is rendered outside of the editor iframe.
+			 */
+			if ( ! dropTargetValid && ! visibleInserter ) {
+				window?.document?.body?.classList?.add(
+					'block-draggable-invalid-drag-token'
+				);
+			} else {
+				window?.document?.body?.classList?.remove(
+					'block-draggable-invalid-drag-token'
+				);
+			}
+		};
+
+		const throttledOnDragOver = throttle( onDragOver, 200 );
+
+		editorRoot.addEventListener( 'dragover', throttledOnDragOver );
+
+		return () => {
+			editorRoot.removeEventListener( 'dragover', throttledOnDragOver );
+		};
+	}, [
+		clientIds,
+		editorRoot,
+		fadeWhenDisabled,
+		getAllowedBlocks,
+		getBlockNamesByClientId,
+		getBlockRootClientId,
+		getBlockType,
+		visibleInserter,
+	] );
+
 	if ( ! isDraggable ) {
 		return children( { draggable: false } );
 	}
@@ -102,7 +210,11 @@ const BlockDraggable = ( {
 				}
 			} }
 			__experimentalDragComponent={
-				<BlockDraggableChip count={ clientIds.length } icon={ icon } />
+				<BlockDraggableChip
+					count={ clientIds.length }
+					icon={ icon }
+					fadeWhenDisabled
+				/>
 			}
 		>
 			{ ( { onDraggableStart, onDraggableEnd } ) => {
diff --git a/packages/block-editor/src/components/block-draggable/style.scss b/packages/block-editor/src/components/block-draggable/style.scss
index a27d4c4caf2f29..afbf77319f7200 100644
--- a/packages/block-editor/src/components/block-draggable/style.scss
+++ b/packages/block-editor/src/components/block-draggable/style.scss
@@ -14,6 +14,7 @@
 	display: inline-flex;
 	height: $block-toolbar-height;
 	padding: 0 ( $grid-unit-15 + $border-width );
+	position: relative;
 	user-select: none;
 	width: max-content;
 
@@ -45,3 +46,37 @@
 		font-size: $default-font-size;
 	}
 }
+
+// Specificity bump to override native component style.
+.block-editor-block-draggable-chip__disabled.block-editor-block-draggable-chip__disabled {
+	opacity: 0;
+	position: absolute;
+	top: 0;
+	right: 0;
+	left: 0;
+	bottom: 0;
+	display: flex;
+	justify-content: center;
+	align-items: center;
+	background-color: transparent;
+	transition: all 0.1s linear 0.1s;
+
+	.block-editor-block-draggable-chip__disabled-icon {
+		width: $grid-unit-50 * 0.5;
+		height: $grid-unit-50 * 0.5;
+		box-shadow: inset 0 0 0 1.5px $white;
+		border-radius: 50%;
+		display: inline-block;
+		padding: 0;
+		background: transparent linear-gradient(-45deg, transparent 47.5%, $white 47.5%, $white 52.5%, transparent 52.5%);
+
+	}
+}
+
+.block-draggable-invalid-drag-token {
+	.block-editor-block-draggable-chip__disabled.block-editor-block-draggable-chip__disabled {
+		background-color: $gray-700;
+		opacity: 1;
+		box-shadow: 0 4px 8px rgba($black, 0.2);
+	}
+}
diff --git a/packages/block-editor/src/components/block-mover/index.js b/packages/block-editor/src/components/block-mover/index.js
index 9b9f32457561e6..328160e944e954 100644
--- a/packages/block-editor/src/components/block-mover/index.js
+++ b/packages/block-editor/src/components/block-mover/index.js
@@ -64,7 +64,7 @@ function BlockMover( { clientIds, hideDragHandle } ) {
 			} ) }
 		>
 			{ ! hideDragHandle && (
-				<BlockDraggable clientIds={ clientIds }>
+				<BlockDraggable clientIds={ clientIds } fadeWhenDisabled>
 					{ ( draggableProps ) => (
 						<Button
 							icon={ dragHandle }
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 4f8a08db0c610f..20bec8af76dff8 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
@@ -8,7 +8,10 @@ import {
 	__experimentalUseDropZone as useDropZone,
 } from '@wordpress/compose';
 import { isRTL } from '@wordpress/i18n';
-import { isUnmodifiedDefaultBlock as getIsUnmodifiedDefaultBlock } from '@wordpress/blocks';
+import {
+	isUnmodifiedDefaultBlock as getIsUnmodifiedDefaultBlock,
+	store as blocksStore,
+} from '@wordpress/blocks';
 
 /**
  * Internal dependencies
@@ -191,6 +194,50 @@ export function getDropTargetPosition(
 	];
 }
 
+/**
+ * Check if the dragged blocks can be dropped on the target.
+ * @param {Function} getBlockType
+ * @param {Object[]} allowedBlocks
+ * @param {string[]} draggedBlockNames
+ * @param {string}   targetBlockName
+ * @return {boolean} Whether the dragged blocks can be dropped on the target.
+ */
+export function isDropTargetValid(
+	getBlockType,
+	allowedBlocks,
+	draggedBlockNames,
+	targetBlockName
+) {
+	// At root level allowedBlocks is undefined and all blocks are allowed.
+	// Otherwise, check if all dragged blocks are allowed.
+	let areBlocksAllowed = true;
+	if ( allowedBlocks ) {
+		const allowedBlockNames = allowedBlocks?.map( ( { name } ) => name );
+
+		areBlocksAllowed = draggedBlockNames.every( ( name ) =>
+			allowedBlockNames?.includes( name )
+		);
+	}
+
+	// Work out if dragged blocks have an allowed parent and if so
+	// check target block matches the allowed parent.
+	const draggedBlockTypes = draggedBlockNames.map( ( name ) =>
+		getBlockType( name )
+	);
+	const targetMatchesDraggedBlockParents = draggedBlockTypes.every(
+		( block ) => {
+			const [ allowedParentName ] = block?.parent || [];
+			if ( ! allowedParentName ) {
+				return true;
+			}
+
+			return allowedParentName === targetBlockName;
+		}
+	);
+
+	return areBlocksAllowed && targetMatchesDraggedBlockParents;
+}
+
 /**
  * @typedef  {Object} WPBlockDropZoneConfig
  * @property {?HTMLElement} dropZoneElement Optional element to be used as the drop zone.
@@ -218,8 +265,15 @@ export default function useBlockDropZone( {
 		operation: 'insert',
 	} );
 
-	const { getBlockListSettings, getBlocks, getBlockIndex } =
-		useSelect( blockEditorStore );
+	const { getBlockType } = useSelect( blocksStore );
+	const {
+		getBlockListSettings,
+		getBlocks,
+		getBlockIndex,
+		getDraggedBlockClientIds,
+		getBlockNamesByClientId,
+		getAllowedBlocks,
+	} = useSelect( blockEditorStore );
 	const { showInsertionPoint, hideInsertionPoint } =
 		useDispatch( blockEditorStore );
 
@@ -235,6 +289,23 @@ export default function useBlockDropZone( {
 	const throttled = useThrottle(
 		useCallback(
 			( event, ownerDocument ) => {
+				const allowedBlocks = getAllowedBlocks( targetRootClientId );
+				const targetBlockName = getBlockNamesByClientId( [
+					targetRootClientId,
+				] )[ 0 ];
+				const draggedBlockNames = getBlockNamesByClientId(
+					getDraggedBlockClientIds()
+				);
+				const isBlockDroppingAllowed = isDropTargetValid(
+					getBlockType,
+					allowedBlocks,
+					draggedBlockNames,
+					targetBlockName
+				);
+				if ( ! isBlockDroppingAllowed ) {
+					return;
+				}
+
 				const blocks = getBlocks( targetRootClientId );
 
 				// The block list is empty, don't show the insertion point but still allow dropping.
@@ -299,14 +370,18 @@ export default function useBlockDropZone( {
 				} );
 			},
 			[
-				dropZoneElement,
-				getBlocks,
+				getAllowedBlocks,
 				targetRootClientId,
+				getBlockNamesByClientId,
+				getDraggedBlockClientIds,
+				getBlockType,
+				getBlocks,
 				getBlockListSettings,
+				dropZoneElement,
+				parentBlockClientId,
+				getBlockIndex,
 				registry,
 				showInsertionPoint,
-				getBlockIndex,
-				parentBlockClientId,
 			]
 		),
 		200