diff --git a/blocks/inner-blocks/index.js b/blocks/inner-blocks/index.js
index 37ae97e13c71a7..6b1d56c44932db 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/blocks/library/cover-image/editor.scss b/blocks/library/cover-image/editor.scss
index 29db22108e5d96..088bb903e762db 100644
--- a/blocks/library/cover-image/editor.scss
+++ b/blocks/library/cover-image/editor.scss
@@ -22,10 +22,16 @@
 	}
 
 	&.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%;
+	}
+
+
 }
diff --git a/blocks/library/cover-image/index.js b/blocks/library/cover-image/index.js
index 502f72655d3efd..c5f9b5998af52a 100644
--- a/blocks/library/cover-image/index.js
+++ b/blocks/library/cover-image/index.js
@@ -1,12 +1,7 @@
-/**
- * External dependencies
- */
-import { isEmpty } from 'lodash';
-
 /**
  * WordPress dependencies
  */
-import { IconButton, PanelBody, RangeControl, ToggleControl, Toolbar } from '@wordpress/components';
+import { IconButton, RangeControl, ToggleControl, Toolbar } from '@wordpress/components';
 import { __ } from '@wordpress/i18n';
 import classnames from 'classnames';
 
@@ -16,32 +11,22 @@ import classnames from 'classnames';
 import './editor.scss';
 import './style.scss';
 import { createBlock } from '../../api';
-import RichText from '../../rich-text';
-import AlignmentToolbar from '../../alignment-toolbar';
 import MediaUpload from '../../media-upload';
 import ImagePlaceholder from '../../image-placeholder';
 import BlockControls from '../../block-controls';
 import BlockAlignmentToolbar from '../../block-alignment-toolbar';
 import InspectorControls from '../../inspector-controls';
+import InnerBlocks from '../../inner-blocks';
 
 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',
 	},
@@ -97,7 +82,7 @@ export const settings = {
 	},
 
 	edit( { attributes, setAttributes, isSelected, className } ) {
-		const { url, title, align, contentAlign, id, hasParallax, dimRatio } = attributes;
+		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 } );
@@ -106,7 +91,6 @@ export const settings = {
 		const style = backgroundImageStyles( url );
 		const classes = classnames(
 			className,
-			contentAlign !== 'center' && `has-${ contentAlign }-content`,
 			dimRatioToClass( dimRatio ),
 			{
 				'has-background-dim': dimRatio !== 0,
@@ -114,22 +98,12 @@ export const settings = {
 			}
 		);
 
-		const alignmentToolbar	= (
-			<AlignmentToolbar
-				value={ contentAlign }
-				onChange={ ( nextAlign ) => {
-					setAttributes( { contentAlign: nextAlign } );
-				} }
-			/>
-		);
 		const controls = isSelected && [
 			<BlockControls key="controls">
 				<BlockAlignmentToolbar
 					value={ align }
 					onChange={ updateAlignment }
 				/>
-
-				{ alignmentToolbar }
 				<Toolbar>
 					<MediaUpload
 						onSelect={ onSelectImage }
@@ -161,24 +135,12 @@ export const settings = {
 					max={ 100 }
 					step={ 10 }
 				/>
-				<PanelBody title={ __( 'Text Alignment' ) }>
-					{ alignmentToolbar }
-				</PanelBody>
 			</InspectorControls>,
 		];
 
 		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 } ) }
-					isSelected={ isSelected }
-					inlineToolbar
-				/>
-			) : __( 'Cover Image' );
+			const icon = 'format-image';
+			const label = __( 'Cover Image' );
 
 			return [
 				controls,
@@ -196,23 +158,25 @@ 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 } ) }
-						isSelected={ isSelected }
-						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>,
 		];
 	},
 
 	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,
@@ -220,16 +184,15 @@ 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 && (
-					<p className="wp-block-cover-image-text">{ title }</p>
-				) }
+				<div className="wp-block-cover-image__inner-container">
+					<InnerBlocks.Content />
+				</div>
 			</div>
 		);
 	},
diff --git a/blocks/library/cover-image/style.scss b/blocks/library/cover-image/style.scss
index f9becd0e18eaad..060d147b0a16b9 100644
--- a/blocks/library/cover-image/style.scss
+++ b/blocks/library/cover-image/style.scss
@@ -6,46 +6,7 @@
 	margin: 0 0 1.5em 0;
 	display: flex;
 	justify-content: center;
-	align-items: center;
-
-	&.has-left-content {
-		justify-content: flex-start;
-
-		h2,
-		.wp-block-cover-image-text {
-			margin-left: 0;
-			text-align: left;
-		}
-	}
-
-	&.has-right-content {
-		justify-content: flex-end;
-
-		h2,
-		.wp-block-cover-image-text {
-			margin-right: 0;
-			text-align: right;
-		}
-	}
-
-	h2,
-	.wp-block-cover-image-text {
-		color: white;
-		font-size: 2em;
-		line-height: 1.25;
-		z-index: 1;
-		margin-bottom: 0;
-		max-width: $content-width;
-		padding: $block-padding;
-		text-align: center;
-
-		a,
-		a:hover,
-		a:focus,
-		a:active {
-			color: white;
-		}
-	}
+	flex-direction: column;
 
 	&.has-parallax {
 		background-attachment: fixed;
@@ -71,4 +32,14 @@
 		height: inherit;
 	}
 
+	.wp-block-cover-image__inner-container {
+		width: 100%;
+		p {
+			margin-top: 0;
+			margin-bottom: 0;
+		}
+	}
+
+
+
 }
diff --git a/blocks/library/paragraph/editor.scss b/blocks/library/paragraph/editor.scss
index e5fe10296b7f15..cc49ca86b80702 100644
--- a/blocks/library/paragraph/editor.scss
+++ b/blocks/library/paragraph/editor.scss
@@ -1,7 +1,3 @@
-.editor-block-list__block:not( .is-multi-selected ) .wp-block-paragraph {
-	background: white;
-}
-
 .blocks-font-size__main {
 	display: flex;
 	justify-content: space-between;
diff --git a/blocks/test/fixtures/core__cover-image.html b/blocks/test/fixtures/core__cover-image.html
index 86b5915701b0b0..1b871458a15b70 100644
--- a/blocks/test/fixtures/core__cover-image.html
+++ b/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…","textColor":"#fff","fontSize":"large"} -->
+		<p style="color:#fff;text-align:center" class="is-large-text">Paragraph 1</p>
+		<!-- /wp:paragraph -->
+    </div>
 </div>
-<!-- /wp:core/cover-image -->
+<!-- /wp:cover-image -->
diff --git a/blocks/test/fixtures/core__cover-image.json b/blocks/test/fixtures/core__cover-image.json
index 7f12304be6f8ab..8451793404e77c 100644
--- a/blocks/test/fixtures/core__cover-image.json
+++ b/blocks/test/fixtures/core__cover-image.json
@@ -4,15 +4,30 @@
         "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…",
+                    "textColor": "#fff",
+                    "fontSize": "large"
+                },
+                "innerBlocks": [],
+                "originalContent": "<p style=\"color:#fff;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/blocks/test/fixtures/core__cover-image.parsed.json b/blocks/test/fixtures/core__cover-image.parsed.json
index 25808e4279256f..5b285f3d447254 100644
--- a/blocks/test/fixtures/core__cover-image.parsed.json
+++ b/blocks/test/fixtures/core__cover-image.parsed.json
@@ -3,10 +3,23 @@
         "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…",
+                    "textColor": "#fff",
+                    "fontSize": "large"
+                },
+                "innerBlocks": [],
+                "innerHTML": "\n\t\t<p style=\"color:#fff;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/blocks/test/fixtures/core__cover-image.serialized.html b/blocks/test/fixtures/core__cover-image.serialized.html
index 160d3aa203dbf1..bf4a6fb9d86e74 100644
--- a/blocks/test/fixtures/core__cover-image.serialized.html
+++ b/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…","textColor":"#fff","fontSize":"large"} -->
+        <p style="color:#fff;text-align:center" class="is-large-text">Paragraph 1</p>
+        <!-- /wp:paragraph -->
+    </div>
 </div>
 <!-- /wp:cover-image -->
diff --git a/editor/components/block-list/block.js b/editor/components/block-list/block.js
index ec4059d9e1924d..f71047aaa6abff 100644
--- a/editor/components/block-list/block.js
+++ b/editor/components/block-list/block.js
@@ -571,7 +571,7 @@ export class BlockListBlock extends Component {
 				{ showSideInserter && (
 					<Fragment>
 						<div className="editor-block-list__side-inserter">
-							<InserterWithShortcuts uid={ block.uid } layout={ layout } onToggle={ this.selectOnOpen } />
+							<InserterWithShortcuts uid={ block.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 ee1a646214cf18..4d7712ef72ff5b 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"
   />
   <WrappedComponent />
-  <Select(Dispatch(WrappedComponent))
+  <WrappedComponent
     position="top right"
   />
 </div>
@@ -60,7 +60,7 @@ exports[`DefaultBlockAppender should match snapshot 1`] = `
     value="Write your story"
   />
   <WrappedComponent />
-  <Select(Dispatch(WrappedComponent))
+  <WrappedComponent
     position="top right"
   />
 </div>
@@ -84,7 +84,7 @@ exports[`DefaultBlockAppender should optionally show without prompt 1`] = `
     value=""
   />
   <WrappedComponent />
-  <Select(Dispatch(WrappedComponent))
+  <WrappedComponent
     position="top right"
   />
 </div>
diff --git a/editor/components/inserter-with-shortcuts/index.js b/editor/components/inserter-with-shortcuts/index.js
index dbb662f7d84277..0f8804e05067dc 100644
--- a/editor/components/inserter-with-shortcuts/index.js
+++ b/editor/components/inserter-with-shortcuts/index.js
@@ -1,7 +1,6 @@
 /**
  * External dependencies
  */
-import { connect } from 'react-redux';
 import { filter, isEmpty } from 'lodash';
 
 /**
@@ -11,13 +10,12 @@ import { BlockIcon, createBlock, getDefaultBlockName } from '@wordpress/blocks';
 import { compose } from '@wordpress/element';
 import { IconButton, withContext } from '@wordpress/components';
 import { __, sprintf } from '@wordpress/i18n';
-import { withDispatch } from '@wordpress/data';
+import { withDispatch, withSelect } from '@wordpress/data';
 
 /**
  * Internal dependencies
  */
 import './style.scss';
-import { getFrecentInserterItems } from '../../store/selectors';
 
 function InserterWithShortcuts( { items, isLocked, onInsert } ) {
 	if ( isLocked ) {
@@ -54,11 +52,13 @@ export default compose(
 			enabledBlockTypes: blockTypes,
 		};
 	} ),
-	connect(
-		( state, { enabledBlockTypes } ) => ( {
-			items: getFrecentInserterItems( state, enabledBlockTypes, 4 ),
-		} )
-	),
+	withSelect( ( select, { enabledBlockTypes, rootUID } ) => {
+		const { getFrecentInserterItems, getSupportedBlocks } = select( 'core/editor' );
+		const supportedBlocks = getSupportedBlocks( rootUID, enabledBlockTypes );
+		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 d8fb08ec6d18e8..43b092b396d780 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(),
-	} ) ),
+	withContext( 'editor' )( ( settings ) => {
+		const { blockTypes, templateLock } = settings;
+
+		return {
+			enabledBlockTypes: blockTypes,
+			isLocked: !! templateLock,
+		};
+	} ),
+	withSelect( ( select, { enabledBlockTypes } ) => {
+		const {
+			getEditedPostAttribute,
+			getBlockInsertionPoint,
+			getSelectedBlock,
+			getSupportedBlocks,
+		} = select( 'core/editor' );
+
+		const insertionPoint = getBlockInsertionPoint();
+		const { rootUID } = insertionPoint;
+		const supportedBlocks = getSupportedBlocks( rootUID, enabledBlockTypes );
+		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 );
 		},
 	} ) ),
-	withContext( 'editor' )( ( settings ) => {
-		const { blockTypes, templateLock } = settings;
-
-		return {
-			hasSupportedBlocks: true === blockTypes || ! isEmpty( blockTypes ),
-			isLocked: !! templateLock,
-		};
-	} ),
 ] )( Inserter );
diff --git a/editor/components/inserter/menu.js b/editor/components/inserter/menu.js
index 669cad3c2eefc3..3cba8ecd5671e1 100644
--- a/editor/components/inserter/menu.js
+++ b/editor/components/inserter/menu.js
@@ -35,7 +35,7 @@ import { keycodes } from '@wordpress/utils';
 import './style.scss';
 import NoBlocks from './no-blocks';
 
-import { getInserterItems, getFrecentInserterItems } from '../../store/selectors';
+import { getBlockInsertionPoint, getInserterItems, getFrecentInserterItems, getSupportedBlocks } from '../../store/selectors';
 import { fetchReusableBlocks } from '../../store/actions';
 import { default as InserterGroup } from './group';
 import BlockPreview from '../block-preview';
@@ -349,9 +349,11 @@ export default compose(
 	} ),
 	connect(
 		( state, ownProps ) => {
+			const { rootUID } = getBlockInsertionPoint( state );
+			const supportedBlocks = getSupportedBlocks( state, rootUID, ownProps.enabledBlockTypes );
 			return {
-				items: getInserterItems( state, ownProps.enabledBlockTypes ),
-				frecentItems: getFrecentInserterItems( state, ownProps.enabledBlockTypes ),
+				items: getInserterItems( state, supportedBlocks ),
+				frecentItems: getFrecentInserterItems( state, supportedBlocks ),
 			};
 		},
 		{ fetchReusableBlocks }
diff --git a/editor/store/actions.js b/editor/store/actions.js
index dd711abbb9ce61..63246047f35ce1 100644
--- a/editor/store/actions.js
+++ b/editor/store/actions.js
@@ -616,3 +616,11 @@ export function insertDefaultBlock( attributes, rootUID, index ) {
 		isProvisional: true,
 	};
 }
+
+export function updateBlockListSettings( id, settings ) {
+	return {
+		type: 'UPDATED_BLOCK_LIST_SETTINGS',
+		id,
+		settings,
+	};
+}
diff --git a/editor/store/reducer.js b/editor/store/reducer.js
index e6d0a9f7aa40d4..7d069861190005 100644
--- a/editor/store/reducer.js
+++ b/editor/store/reducer.js
@@ -976,6 +976,42 @@ export const reusableBlocks = combineReducers( {
 	},
 } );
 
+/**
+ * Reducer that for each block uid stores an object that represents its nested nestings.
+ * 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 'UPDATED_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,
@@ -983,6 +1019,7 @@ export default optimist( combineReducers( {
 	blockSelection,
 	provisionalBlockUID,
 	blocksMode,
+	blockListSettings,
 	isInsertionPointVisible,
 	preferences,
 	saving,
diff --git a/editor/store/selectors.js b/editor/store/selectors.js
index 6e2ccbf6a34738..96f3652f16ba45 100644
--- a/editor/store/selectors.js
+++ b/editor/store/selectors.js
@@ -6,6 +6,7 @@ import {
 	first,
 	get,
 	has,
+	intersection,
 	last,
 	reduce,
 	compact,
@@ -1457,3 +1458,39 @@ export function isPublishingPost( state ) {
 export function getProvisionalBlockUID( state ) {
 	return state.provisionalBlockUID;
 }
+
+/**
+ * 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 ) {
+		return globallyEnabledBlockTypes;
+	}
+	if ( globallyEnabledBlockTypes === true ) {
+		return supportedNestedBlocks;
+	}
+	return intersection( globallyEnabledBlockTypes, supportedNestedBlocks );
+}
diff --git a/editor/utils/block-list.js b/editor/utils/block-list.js
index 74ea7a3c69ad58..eaf6b9ce2cca3d 100644
--- a/editor/utils/block-list.js
+++ b/editor/utils/block-list.js
@@ -1,7 +1,16 @@
+/**
+ * External dependencies
+ */
+import { isEqual, 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
@@ -32,34 +41,94 @@ const INNER_BLOCK_LIST_CACHE = {};
  */
 export function createInnerBlockList( uid, renderBlockMenu, showContextualToolbar ) {
 	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 {
+			constructor() {
+				super( ...arguments );
+				this.updateNestedSettings = this.updateNestedSettings.bind( this );
+				this.insertTemplateBlocks = this.insertTemplateBlocks.bind( this );
+			}
+
+			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 ) );
 				}
+			}
 
-				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 ];
-					}
+			updateNestedSettings( newSettings ) {
+				if ( ! isEqual( this.props.blockListSettings, newSettings ) ) {
+					this.props.updateNestedSettings( newSettings );
 				}
+			}
 
-				render() {
-					return (
-						<BlockList
-							rootUID={ uid }
-							renderBlockMenu={ renderBlockMenu }
-							showContextualToolbar={ showContextualToolbar }
-							{ ...this.props } />
-					);
+			componentWillMount() {
+				INNER_BLOCK_LIST_CACHE[ uid ][ 1 ]++;
+				this.updateNestedSettings( {
+					supportedBlocks: this.props.allowedBlocks,
+				} );
+				this.insertTemplateBlocks( this.props.template );
+			}
+
+			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 ];
 				}
-			},
+			}
+
+			render() {
+				return (
+					<BlockList
+						rootUID={ uid }
+						renderBlockMenu={ renderBlockMenu }
+						showContextualToolbar={ showContextualToolbar }
+						{ ...omit(
+							this.props, [
+								'allowedBlocks',
+								'block',
+								'blockListSettings',
+								'insertBlocks',
+								'template',
+								'updateNestedSettings',
+							]
+						) } />
+				);
+			}
+		};
 
-			// A counter tracking active mounted instances:
-			0,
+		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:
 		];
 	}