diff --git a/packages/patterns/src/components/category-selector.js b/packages/patterns/src/components/category-selector.js
index 397d851d3886b..7f00350e278ec 100644
--- a/packages/patterns/src/components/category-selector.js
+++ b/packages/patterns/src/components/category-selector.js
@@ -4,8 +4,6 @@
 import { __ } from '@wordpress/i18n';
 import { useMemo, useState } from '@wordpress/element';
 import { FormTokenField } from '@wordpress/components';
-import { useSelect } from '@wordpress/data';
-import { store as coreStore } from '@wordpress/core-data';
 import { useDebounce } from '@wordpress/compose';
 import { decodeEntities } from '@wordpress/html-entities';
 
@@ -13,40 +11,29 @@ const unescapeString = ( arg ) => {
 	return decodeEntities( arg );
 };
 
-const EMPTY_ARRAY = [];
-const MAX_TERMS_SUGGESTIONS = 20;
-const DEFAULT_QUERY = {
-	per_page: MAX_TERMS_SUGGESTIONS,
-	_fields: 'id,name',
-	context: 'view',
-};
 export const CATEGORY_SLUG = 'wp_pattern_category';
 
-export default function CategorySelector( { values, onChange } ) {
+export default function CategorySelector( {
+	categoryTerms,
+	onChange,
+	categoryMap,
+} ) {
 	const [ search, setSearch ] = useState( '' );
 	const debouncedSearch = useDebounce( setSearch, 500 );
 
-	const { searchResults } = useSelect(
-		( select ) => {
-			const { getEntityRecords } = select( coreStore );
-
-			return {
-				searchResults: !! search
-					? getEntityRecords( 'taxonomy', CATEGORY_SLUG, {
-							...DEFAULT_QUERY,
-							search,
-					  } )
-					: EMPTY_ARRAY,
-			};
-		},
-		[ search ]
-	);
-
 	const suggestions = useMemo( () => {
-		return ( searchResults ?? [] ).map( ( term ) =>
-			unescapeString( term.name )
-		);
-	}, [ searchResults ] );
+		return Array.from( categoryMap.values() )
+			.map( ( category ) => unescapeString( category.label ) )
+			.filter( ( category ) => {
+				if ( search !== '' ) {
+					return category
+						.toLowerCase()
+						.includes( search.toLowerCase() );
+				}
+				return true;
+			} )
+			.sort( ( a, b ) => a.localeCompare( b ) );
+	}, [ search, categoryMap ] );
 
 	function handleChange( termNames ) {
 		const uniqueTerms = termNames.reduce( ( terms, newTerm ) => {
@@ -64,17 +51,16 @@ export default function CategorySelector( { values, onChange } ) {
 	}
 
 	return (
-		<>
-			<FormTokenField
-				className="patterns-menu-items__convert-modal-categories"
-				value={ values }
-				suggestions={ suggestions }
-				onChange={ handleChange }
-				onInputChange={ debouncedSearch }
-				maxSuggestions={ MAX_TERMS_SUGGESTIONS }
-				label={ __( 'Categories' ) }
-				tokenizeOnBlur={ true }
-			/>
-		</>
+		<FormTokenField
+			className="patterns-menu-items__convert-modal-categories"
+			value={ categoryTerms }
+			suggestions={ suggestions }
+			onChange={ handleChange }
+			onInputChange={ debouncedSearch }
+			label={ __( 'Categories' ) }
+			tokenizeOnBlur
+			__experimentalExpandOnFocus
+			__next40pxDefaultSize
+		/>
 	);
 }
diff --git a/packages/patterns/src/components/create-pattern-modal.js b/packages/patterns/src/components/create-pattern-modal.js
index 531936da5e5c2..37dd725ef9226 100644
--- a/packages/patterns/src/components/create-pattern-modal.js
+++ b/packages/patterns/src/components/create-pattern-modal.js
@@ -10,8 +10,8 @@ import {
 	ToggleControl,
 } from '@wordpress/components';
 import { __ } from '@wordpress/i18n';
-import { useState } from '@wordpress/element';
-import { useDispatch } from '@wordpress/data';
+import { useState, useMemo } from '@wordpress/element';
+import { useDispatch, useSelect } from '@wordpress/data';
 import { store as noticesStore } from '@wordpress/notices';
 import { store as coreStore } from '@wordpress/core-data';
 
@@ -42,6 +42,42 @@ export default function CreatePatternModal( {
 	const { saveEntityRecord, invalidateResolution } = useDispatch( coreStore );
 	const { createErrorNotice } = useDispatch( noticesStore );
 
+	const { corePatternCategories, userPatternCategories } = useSelect(
+		( select ) => {
+			const { getUserPatternCategories, getBlockPatternCategories } =
+				select( coreStore );
+
+			return {
+				corePatternCategories: getBlockPatternCategories(),
+				userPatternCategories: getUserPatternCategories(),
+			};
+		}
+	);
+
+	const categoryMap = useMemo( () => {
+		// Merge the user and core pattern categories and remove any duplicates.
+		const uniqueCategories = new Map();
+		[ ...userPatternCategories, ...corePatternCategories ].forEach(
+			( category ) => {
+				if (
+					! uniqueCategories.has( category.label ) &&
+					// There are two core categories with `Post` label so explicitly remove the one with
+					// the `query` slug to avoid any confusion.
+					category.name !== 'query'
+				) {
+					// We need to store the name separately as this is used as the slug in the
+					// taxonomy and may vary from the label.
+					uniqueCategories.set( category.label, {
+						label: category.label,
+						value: category.label,
+						name: category.name,
+					} );
+				}
+			}
+		);
+		return uniqueCategories;
+	}, [ userPatternCategories, corePatternCategories ] );
+
 	async function onCreate( patternTitle, sync ) {
 		if ( ! title || isSaving ) {
 			return;
@@ -84,10 +120,16 @@ export default function CreatePatternModal( {
 	 */
 	async function findOrCreateTerm( term ) {
 		try {
+			// We need to match any existing term to the correct slug to prevent duplicates, eg.
+			// the core `Headers` category uses the singular `header` as the slug.
+			const existingTerm = categoryMap.get( term );
+			const termData = existingTerm
+				? { name: existingTerm.label, slug: existingTerm.name }
+				: { name: term };
 			const newTerm = await saveEntityRecord(
 				'taxonomy',
 				CATEGORY_SLUG,
-				{ name: term },
+				termData,
 				{ throwOnError: true }
 			);
 			invalidateResolution( 'getUserPatternCategories' );
@@ -126,8 +168,9 @@ export default function CreatePatternModal( {
 						className="patterns-create-modal__name-input"
 					/>
 					<CategorySelector
-						values={ categoryTerms }
+						categoryTerms={ categoryTerms }
 						onChange={ setCategoryTerms }
+						categoryMap={ categoryMap }
 					/>
 					<ToggleControl
 						label={ __( 'Synced' ) }
diff --git a/packages/patterns/src/components/style.scss b/packages/patterns/src/components/style.scss
index 4c4547063c710..e786952004495 100644
--- a/packages/patterns/src/components/style.scss
+++ b/packages/patterns/src/components/style.scss
@@ -1,10 +1,36 @@
 .patterns-menu-items__convert-modal {
 	z-index: z-index(".patterns-menu-items__convert-modal");
+
+	// Fix the modal width to prevent added categories from stretching the modal.
+	[role="dialog"] > [role="document"] {
+		width: 350px;
+	}
+
 	.patterns-menu-items__convert-modal-categories {
-		max-width: 300px;
+		width: 100%;
+		position: relative;
+		min-height: 40px;
+	}
+	.components-form-token-field__suggestions-list {
+		position: absolute;
+		box-sizing: border-box;
+		z-index: 1;
+		background-color: $white;
+		// Account for the border width of the token field.
+		width: calc(100% + 2px);
+		left: -1px;
+		min-width: initial;
+		border: 1px solid var(--wp-admin-theme-color);
+		border-top: none;
+		box-shadow: 0 0 0 0.5px var(--wp-admin-theme-color);
+		border-bottom-left-radius: 2px;
+		border-bottom-right-radius: 2px;
 	}
 }
 
 .patterns-create-modal__name-input input[type="text"] {
-	min-height: 34px;
+	// Match the minimal height of the category selector.
+	min-height: 40px;
+	// Override the default 1px margin-x.
+	margin: 0;
 }