diff --git a/lib/template-loader.php b/lib/template-loader.php
index 1c6923091ce323..30ea5fae54f8ea 100644
--- a/lib/template-loader.php
+++ b/lib/template-loader.php
@@ -80,7 +80,7 @@ function gutenberg_override_query_template( $template, $type, array $templates =
  * @return string Path to the canvas file to include.
  */
 function gutenberg_find_template( $template_file ) {
-	global $_wp_current_template_post, $_wp_current_template_hierarchy;
+	global $_wp_current_template_content, $_wp_current_template_hierarchy;
 
 	// Bail if no relevant template hierarchy was determined, or if the template file
 	// was overridden another way.
@@ -105,8 +105,56 @@ function gutenberg_find_template( $template_file ) {
 	);
 
 	if ( $template_query->have_posts() ) {
-		$template_posts            = $template_query->get_posts();
-		$_wp_current_template_post = array_shift( $template_posts );
+		$template_posts        = $template_query->get_posts();
+		$current_template_post = array_shift( $template_posts );
+
+		// Build map of template slugs to their priority in the current hierarchy.
+		$slug_priorities = array_flip( $slugs );
+
+		// See if there is a theme block template with higher priority than the resolved template post.
+		$higher_priority_block_template_path     = null;
+		$higher_priority_block_template_priority = PHP_INT_MAX;
+		$block_template_files                    = glob( get_stylesheet_directory() . '/block-templates/*.html', 1 );
+		if ( is_child_theme() ) {
+				$block_template_files = array_merge( $block_template_files, glob( get_template_directory() . '/block-templates/*.html', 1 ) );
+		}
+		foreach ( $block_template_files as $path ) {
+			$theme_block_template_priority = $slug_priorities[ basename( $path, '.html' ) ];
+			if (
+				isset( $theme_block_template_priority ) &&
+				$theme_block_template_priority < $higher_priority_block_template_priority &&
+				$theme_block_template_priority < $slug_priorities[ $current_template_post->post_name ]
+			) {
+				$higher_priority_block_template_path     = $path;
+				$higher_priority_block_template_priority = $theme_block_template_priority;
+			}
+		}
+
+		// If there is, use it instead.
+		if ( isset( $higher_priority_block_template_path ) ) {
+			$post_name             = basename( $path, '.html' );
+			$current_template_post = array(
+				'post_content' => file_get_contents( $higher_priority_block_template_path ),
+				'post_title'   => ucfirst( $post_name ),
+				'post_status'  => 'auto-draft',
+				'post_type'    => 'wp_template',
+				'post_name'    => $post_name,
+			);
+			if ( is_admin() ) {
+				// Only create auto-draft of block template for editing
+				// in admin screens, similarly to how we do it for new
+				// posts in the editor.
+				$current_template_post = get_post(
+					wp_insert_post( $current_template_post )
+				);
+			} else {
+				$current_template_post = new WP_Post(
+					(object) $current_template_post
+				);
+			}
+		}
+
+		$_wp_current_template_content = $current_template_post->post_content;
 	}
 
 	// Add extra hooks for template canvas.
@@ -131,17 +179,15 @@ function gutenberg_render_title_tag() {
  * Renders the markup for the current template.
  */
 function gutenberg_render_the_template() {
-	global $_wp_current_template_post;
+	global $_wp_current_template_content;
 	global $wp_embed;
 
-	if ( ! $_wp_current_template_post || 'wp_template' !== $_wp_current_template_post->post_type ) {
+	if ( ! $_wp_current_template_content ) {
 		echo '<h1>' . esc_html__( 'No matching template found', 'gutenberg' ) . '</h1>';
 		return;
 	}
 
-	$content = $_wp_current_template_post->post_content;
-
-	$content = $wp_embed->run_shortcode( $content );
+	$content = $wp_embed->run_shortcode( $_wp_current_template_content );
 	$content = $wp_embed->autoembed( $content );
 	$content = do_blocks( $content );
 	$content = wptexturize( $content );