diff --git a/packages/e2e-tests/specs/experiments/multi-entity-editing.test.js b/packages/e2e-tests/specs/experiments/multi-entity-editing.test.js
index 2d61fa19729e1..7e1b127b0be67 100644
--- a/packages/e2e-tests/specs/experiments/multi-entity-editing.test.js
+++ b/packages/e2e-tests/specs/experiments/multi-entity-editing.test.js
@@ -204,8 +204,11 @@ describe( 'Multi-entity editor states', () => {
 				'.wp-block-template-part .block-editor-block-list__layout'
 			);
 
-			// Our custom template shows up in the " templates > all" menu; let's use it.
-			await clickTemplateItem( [ 'Templates', 'All' ], templateName );
+			// Our custom template shows up in the "Templates > General" menu; let's use it.
+			await clickTemplateItem(
+				[ 'Templates', 'General templates' ],
+				templateName
+			);
 			await page.waitForXPath(
 				`//h1[contains(@class, "edit-site-document-actions__title") and contains(text(), '${ templateName }')]`
 			);
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/constants.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/constants.js
index bf88a77aa4a33..ea6c799bed779 100644
--- a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/constants.js
+++ b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/constants.js
@@ -3,16 +3,43 @@
  */
 import { __ } from '@wordpress/i18n';
 
-export const TEMPLATES_GENERAL = [
-	'front-page',
-	'archive',
-	'singular',
+export const TEMPLATES_PRIMARY = [
 	'index',
-	'search',
+	'singular',
+	'archive',
+	'single',
+	'page',
+	'home',
 	'404',
+	'search',
+];
+
+export const TEMPLATES_SECONDARY = [
+	'author',
+	'category',
+	'taxonomy',
+	'date',
+	'tag',
+	'attachment',
+	'single-post',
+	'front-page',
+];
+
+export const TEMPLATES_TOP_LEVEL = [
+	...TEMPLATES_PRIMARY,
+	...TEMPLATES_SECONDARY,
+];
+
+export const TEMPLATES_GENERAL = [ 'page-home' ];
+
+export const TEMPLATES_POSTS_PREFIXES = [
+	'post-',
+	'author-',
+	'single-post-',
+	'tag-',
 ];
 
-export const TEMPLATES_POSTS = [ 'home', 'single', 'single-post' ];
+export const TEMPLATES_PAGES_PREFIXES = [ 'page-' ];
 
 export const TEMPLATES_NEW_OPTIONS = [
 	'front-page',
@@ -30,9 +57,10 @@ export const MENU_CONTENT_PAGES = 'content-pages';
 export const MENU_CONTENT_POSTS = 'content-posts';
 export const MENU_TEMPLATE_PARTS = 'template-parts';
 export const MENU_TEMPLATES = 'templates';
-export const MENU_TEMPLATES_ALL = 'templates-all';
+export const MENU_TEMPLATES_GENERAL = 'templates-general';
 export const MENU_TEMPLATES_PAGES = 'templates-pages';
 export const MENU_TEMPLATES_POSTS = 'templates-posts';
+export const MENU_TEMPLATES_UNUSED = 'templates-unused';
 
 export const SEARCH_DEBOUNCE_IN_MS = 75;
 
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-pages.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-pages.js
deleted file mode 100644
index d4816219a0239..0000000000000
--- a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-pages.js
+++ /dev/null
@@ -1,49 +0,0 @@
-/**
- * External dependencies
- */
-import { map } from 'lodash';
-
-/**
- * WordPress dependencies
- */
-import {
-	__experimentalNavigationGroup as NavigationGroup,
-	__experimentalNavigationMenu as NavigationMenu,
-} from '@wordpress/components';
-import { __, _x } from '@wordpress/i18n';
-
-/**
- * Internal dependencies
- */
-import TemplateNavigationItem from '../template-navigation-item';
-import { MENU_TEMPLATES, MENU_TEMPLATES_PAGES } from '../constants';
-
-export default function TemplatesPagesMenu( { templates } ) {
-	const defaultTemplate = templates?.find( ( { slug } ) => slug === 'page' );
-	const specificTemplates =
-		templates?.filter( ( { slug } ) => slug.startsWith( 'page-' ) ) ?? [];
-
-	return (
-		<NavigationMenu
-			menu={ MENU_TEMPLATES_PAGES }
-			title={ __( 'Pages' ) }
-			parentMenu={ MENU_TEMPLATES }
-			isEmpty={ ! defaultTemplate && specificTemplates.length === 0 }
-		>
-			<NavigationGroup title={ _x( 'Specific', 'specific templates' ) }>
-				{ map( specificTemplates, ( template ) => (
-					<TemplateNavigationItem
-						item={ template }
-						key={ `wp_template-${ template.id }` }
-					/>
-				) ) }
-			</NavigationGroup>
-
-			{ defaultTemplate && (
-				<NavigationGroup title={ _x( 'General', 'general templates' ) }>
-					<TemplateNavigationItem item={ defaultTemplate } />
-				</NavigationGroup>
-			) }
-		</NavigationMenu>
-	);
-}
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-posts.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-posts.js
deleted file mode 100644
index 02225ee5bfb24..0000000000000
--- a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-posts.js
+++ /dev/null
@@ -1,60 +0,0 @@
-/**
- * External dependencies
- */
-import { map } from 'lodash';
-
-/**
- * WordPress dependencies
- */
-import {
-	__experimentalNavigationGroup as NavigationGroup,
-	__experimentalNavigationMenu as NavigationMenu,
-} from '@wordpress/components';
-import { __, _x } from '@wordpress/i18n';
-
-/**
- * Internal dependencies
- */
-import TemplateNavigationItem from '../template-navigation-item';
-import {
-	MENU_TEMPLATES,
-	MENU_TEMPLATES_POSTS,
-	TEMPLATES_POSTS,
-} from '../constants';
-
-export default function TemplatesPostsMenu( { templates } ) {
-	const generalTemplates =
-		templates?.filter( ( { slug } ) => TEMPLATES_POSTS.includes( slug ) ) ??
-		[];
-	const specificTemplates =
-		templates?.filter( ( { slug } ) => slug.startsWith( 'post-' ) ) ?? [];
-
-	return (
-		<NavigationMenu
-			menu={ MENU_TEMPLATES_POSTS }
-			title={ __( 'Posts' ) }
-			parentMenu={ MENU_TEMPLATES }
-			isEmpty={
-				generalTemplates.length === 0 && specificTemplates.length === 0
-			}
-		>
-			<NavigationGroup title={ _x( 'Specific', 'specific templates' ) }>
-				{ map( specificTemplates, ( template ) => (
-					<TemplateNavigationItem
-						item={ template }
-						key={ `wp_template-${ template.id }` }
-					/>
-				) ) }
-			</NavigationGroup>
-
-			<NavigationGroup title={ _x( 'General', 'general templates' ) }>
-				{ map( generalTemplates, ( template ) => (
-					<TemplateNavigationItem
-						item={ template }
-						key={ `wp_template-${ template.id }` }
-					/>
-				) ) }
-			</NavigationGroup>
-		</NavigationMenu>
-	);
-}
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-all.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-sub.js
similarity index 50%
rename from packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-all.js
rename to packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-sub.js
index 934a35bd0e0f5..9d6322c25a4f8 100644
--- a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-all.js
+++ b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates-sub.js
@@ -7,22 +7,31 @@ import { map } from 'lodash';
  * WordPress dependencies
  */
 import { __experimentalNavigationMenu as NavigationMenu } from '@wordpress/components';
-import { __ } from '@wordpress/i18n';
+import { useMemo } from '@wordpress/element';
 
 /**
  * Internal dependencies
  */
 import TemplateNavigationItem from '../template-navigation-item';
-import { MENU_TEMPLATES, MENU_TEMPLATES_ALL } from '../constants';
+import { MENU_TEMPLATES } from '../constants';
+
+export default function TemplatesSubMenu( { menu, title, templates } ) {
+	const templatesFiltered = useMemo(
+		() =>
+			templates
+				?.filter( ( { location } ) => location === menu )
+				?.map( ( { template } ) => template ) ?? [],
+		[ menu, templates ]
+	);
 
-export default function TemplatesAllMenu( { templates } ) {
 	return (
 		<NavigationMenu
-			menu={ MENU_TEMPLATES_ALL }
-			title={ __( 'All Templates' ) }
+			menu={ menu }
+			title={ title }
 			parentMenu={ MENU_TEMPLATES }
+			isEmpty={ templatesFiltered.length === 0 }
 		>
-			{ map( templates, ( template ) => (
+			{ map( templatesFiltered, ( template ) => (
 				<TemplateNavigationItem
 					item={ template }
 					key={ `wp_template-${ template.id }` }
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates.js
index eace6791bfc15..8cd861e8c6e03 100644
--- a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates.js
+++ b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/menus/templates.js
@@ -1,7 +1,7 @@
 /**
  * External dependencies
  */
-import { map } from 'lodash';
+import { map, find } from 'lodash';
 
 /**
  * WordPress dependencies
@@ -11,26 +11,78 @@ import {
 	__experimentalNavigationMenu as NavigationMenu,
 } from '@wordpress/components';
 import { useSelect } from '@wordpress/data';
-import { __, _x } from '@wordpress/i18n';
-import { useState, useCallback } from '@wordpress/element';
+import { __ } from '@wordpress/i18n';
+import { useState, useCallback, useMemo } from '@wordpress/element';
+import { store as coreStore } from '@wordpress/core-data';
 
 /**
  * Internal dependencies
  */
-import TemplatesPagesMenu from './templates-pages';
-import TemplatesPostsMenu from './templates-posts';
 import {
 	MENU_ROOT,
 	MENU_TEMPLATES,
-	MENU_TEMPLATES_ALL,
+	MENU_TEMPLATES_GENERAL,
 	MENU_TEMPLATES_PAGES,
 	MENU_TEMPLATES_POSTS,
+	MENU_TEMPLATES_UNUSED,
 	TEMPLATES_GENERAL,
+	TEMPLATES_PAGES_PREFIXES,
+	TEMPLATES_POSTS_PREFIXES,
+	TEMPLATES_TOP_LEVEL,
 } from '../constants';
-import TemplatesAllMenu from './templates-all';
 import NewTemplateDropdown from '../new-template-dropdown';
 import TemplateNavigationItem from '../template-navigation-item';
 import SearchResults from '../search-results';
+import TemplatesSubMenu from './templates-sub';
+import { isTemplateSuperseded } from '../template-hierarchy';
+
+function getTemplateLocation( template ) {
+	const { slug } = template;
+
+	const isTopLevelTemplate = TEMPLATES_TOP_LEVEL.includes( slug );
+	if ( isTopLevelTemplate ) {
+		return MENU_TEMPLATES;
+	}
+
+	const isGeneralTemplate = TEMPLATES_GENERAL.includes( slug );
+	if ( isGeneralTemplate ) {
+		return MENU_TEMPLATES_GENERAL;
+	}
+
+	const isPostsTemplate = TEMPLATES_POSTS_PREFIXES.some( ( prefix ) =>
+		slug.startsWith( prefix )
+	);
+	if ( isPostsTemplate ) {
+		return MENU_TEMPLATES_POSTS;
+	}
+
+	const isPagesTemplate = TEMPLATES_PAGES_PREFIXES.some( ( prefix ) =>
+		slug.startsWith( prefix )
+	);
+	if ( isPagesTemplate ) {
+		return MENU_TEMPLATES_PAGES;
+	}
+
+	return MENU_TEMPLATES_GENERAL;
+}
+
+function getUnusedTemplates( templates, showOnFront ) {
+	const unusedTemplates = [];
+
+	const templateSlugs = map( templates, 'slug' );
+	const supersededTemplates = templates.filter( ( { slug } ) =>
+		isTemplateSuperseded( slug, templateSlugs, showOnFront )
+	);
+
+	return [ ...supersededTemplates, ...unusedTemplates ];
+}
+
+function getTemplatesLocationMap( templates ) {
+	return templates.reduce( ( obj, template ) => {
+		obj[ template.slug ] = getTemplateLocation( template );
+		return obj;
+	}, {} );
+}
 
 export default function TemplatesMenu() {
 	const [ search, setSearch ] = useState( '' );
@@ -38,14 +90,38 @@ export default function TemplatesMenu() {
 		setSearch( value );
 	} );
 
-	const templates = useSelect(
-		( select ) =>
-			select( 'core' ).getEntityRecords( 'postType', 'wp_template' ),
-		[]
-	);
+	const { templates, showOnFront } = useSelect( ( select ) => {
+		const { getEntityRecords, getEditedEntityRecord } = select( coreStore );
+		return {
+			templates: getEntityRecords( 'postType', 'wp_template', {
+				per_page: -1,
+			} ),
+			showOnFront: getEditedEntityRecord( 'root', 'site' ).show_on_front,
+		};
+	}, [] );
+
+	const templatesWithLocation = useMemo( () => {
+		if ( ! templates ) {
+			return null;
+		}
 
-	const generalTemplates = templates?.filter( ( { slug } ) =>
-		TEMPLATES_GENERAL.includes( slug )
+		const unusedTemplates = getUnusedTemplates( templates, showOnFront );
+		const templateLocations = getTemplatesLocationMap( templates );
+
+		return templates.map( ( template ) => ( {
+			template,
+			location: find( unusedTemplates, { slug: template.slug } )
+				? MENU_TEMPLATES_UNUSED
+				: templateLocations[ template.slug ],
+		} ) );
+	}, [ templates ] );
+
+	const topLevelTemplates = useMemo(
+		() =>
+			templatesWithLocation
+				?.filter( ( { location } ) => location === MENU_TEMPLATES )
+				?.map( ( { template } ) => template ) ?? [],
+		[ templatesWithLocation ]
 	);
 
 	return (
@@ -64,26 +140,32 @@ export default function TemplatesMenu() {
 
 			{ ! search && (
 				<>
+					{ map( topLevelTemplates, ( template ) => (
+						<TemplateNavigationItem
+							item={ template }
+							key={ `wp_template-${ template.id }` }
+						/>
+					) ) }
 					<NavigationItem
-						navigateToMenu={ MENU_TEMPLATES_ALL }
-						title={ _x( 'All', 'all templates' ) }
+						navigateToMenu={ MENU_TEMPLATES_POSTS }
+						title={ __( 'Post templates' ) }
+						hideIfTargetMenuEmpty
 					/>
 					<NavigationItem
 						navigateToMenu={ MENU_TEMPLATES_PAGES }
-						title={ __( 'Pages' ) }
+						title={ __( 'Page templates' ) }
 						hideIfTargetMenuEmpty
 					/>
 					<NavigationItem
-						navigateToMenu={ MENU_TEMPLATES_POSTS }
-						title={ __( 'Posts' ) }
+						navigateToMenu={ MENU_TEMPLATES_GENERAL }
+						title={ __( 'General templates' ) }
+						hideIfTargetMenuEmpty
+					/>
+					<NavigationItem
+						navigateToMenu={ MENU_TEMPLATES_UNUSED }
+						title={ __( 'Unused templates' ) }
 						hideIfTargetMenuEmpty
 					/>
-					{ map( generalTemplates, ( template ) => (
-						<TemplateNavigationItem
-							item={ template }
-							key={ `wp_template-${ template.id }` }
-						/>
-					) ) }
 				</>
 			) }
 
@@ -91,9 +173,26 @@ export default function TemplatesMenu() {
 				<NavigationItem title={ __( 'Loading…' ) } isText />
 			) }
 
-			<TemplatesPostsMenu templates={ templates } />
-			<TemplatesPagesMenu templates={ templates } />
-			<TemplatesAllMenu templates={ templates } />
+			<TemplatesSubMenu
+				menu={ MENU_TEMPLATES_POSTS }
+				title={ __( 'Post templates' ) }
+				templates={ templatesWithLocation }
+			/>
+			<TemplatesSubMenu
+				menu={ MENU_TEMPLATES_PAGES }
+				title={ __( 'Page templates' ) }
+				templates={ templatesWithLocation }
+			/>
+			<TemplatesSubMenu
+				menu={ MENU_TEMPLATES_GENERAL }
+				title={ __( 'General templates' ) }
+				templates={ templatesWithLocation }
+			/>
+			<TemplatesSubMenu
+				menu={ MENU_TEMPLATES_UNUSED }
+				title={ __( 'Unused templates' ) }
+				templates={ templatesWithLocation }
+			/>
 		</NavigationMenu>
 	);
 }
diff --git a/packages/edit-site/src/components/navigation-sidebar/navigation-panel/template-hierarchy.js b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/template-hierarchy.js
new file mode 100644
index 0000000000000..29dba28b9b5aa
--- /dev/null
+++ b/packages/edit-site/src/components/navigation-sidebar/navigation-panel/template-hierarchy.js
@@ -0,0 +1,23 @@
+const TEMPLATE_OVERRIDES = {
+	singular: [ 'single', 'page' ],
+	index: [ 'archive', '404', 'search', 'singular', 'home' ],
+	home: [ 'front-page' ],
+};
+
+export function isTemplateSuperseded( slug, existingSlugs, showOnFront ) {
+	if ( ! TEMPLATE_OVERRIDES[ slug ] ) {
+		return false;
+	}
+
+	// `home` template is unused if it is superseded by `front-page`
+	// or "show on front" is set to show a page rather than blog posts.
+	if ( slug === 'home' && showOnFront !== 'posts' ) {
+		return true;
+	}
+
+	return TEMPLATE_OVERRIDES[ slug ].every(
+		( overrideSlug ) =>
+			existingSlugs.includes( overrideSlug ) ||
+			isTemplateSuperseded( overrideSlug, existingSlugs, showOnFront )
+	);
+}