diff --git a/packages/block-editor/README.md b/packages/block-editor/README.md
index 36f3dc0ba73fa1..7fc44c2ead9439 100644
--- a/packages/block-editor/README.md
+++ b/packages/block-editor/README.md
@@ -1077,11 +1077,11 @@ _Parameters_
 
 ### useZoomOut
 
-A hook used to set the zoomed out view, invoking the hook sets the mode.
+A hook used to set the editor mode to zoomed out mode, invoking the hook sets the mode.
 
 _Parameters_
 
--   _zoomOut_ `boolean`: If we should zoom out or not.
+-   _zoomOut_ `boolean`: If we should enter into zoomOut mode or not
 
 ### Warning
 
diff --git a/packages/block-editor/src/hooks/use-zoom-out.js b/packages/block-editor/src/hooks/use-zoom-out.js
index 2a1b43060c00a9..23511487a54bf7 100644
--- a/packages/block-editor/src/hooks/use-zoom-out.js
+++ b/packages/block-editor/src/hooks/use-zoom-out.js
@@ -9,39 +9,55 @@ import { useEffect, useRef } from '@wordpress/element';
  */
 import { store as blockEditorStore } from '../store';
 import { unlock } from '../lock-unlock';
-
 /**
- * A hook used to set the zoomed out view, invoking the hook sets the mode.
+ * A hook used to set the editor mode to zoomed out mode, invoking the hook sets the mode.
  *
- * @param {boolean} zoomOut If we should zoom out or not.
+ * @param {boolean} zoomOut If we should enter into zoomOut mode or not
  */
 export function useZoomOut( zoomOut = true ) {
-	const { setZoomLevel } = unlock( useDispatch( blockEditorStore ) );
-	const { isZoomOut } = unlock( useSelect( blockEditorStore ) );
+	const { __unstableSetEditorMode, setZoomLevel } = unlock(
+		useDispatch( blockEditorStore )
+	);
+	const { __unstableGetEditorMode } = unlock( useSelect( blockEditorStore ) );
 
-	const originalIsZoomOutRef = useRef( null );
+	const originalEditingModeRef = useRef( null );
+	const mode = __unstableGetEditorMode();
 
 	useEffect( () => {
 		// Only set this on mount so we know what to return to when we unmount.
-		if ( ! originalIsZoomOutRef.current ) {
-			originalIsZoomOutRef.current = isZoomOut();
+		if ( ! originalEditingModeRef.current ) {
+			originalEditingModeRef.current = mode;
 		}
 
-		// The effect opens the zoom-out view if we want it open and the canvas is not currently zoomed-out.
-		if ( zoomOut && isZoomOut() === false ) {
+		return () => {
+			// We need to use  __unstableGetEditorMode() here and not `mode`, as mode may not update on unmount
+			if (
+				__unstableGetEditorMode() === 'zoom-out' &&
+				__unstableGetEditorMode() !== originalEditingModeRef.current
+			) {
+				__unstableSetEditorMode( originalEditingModeRef.current );
+				setZoomLevel( 100 );
+			}
+		};
+	}, [] );
+
+	// The effect opens the zoom-out view if we want it open and it's not currently in zoom-out mode.
+	useEffect( () => {
+		if ( zoomOut && mode !== 'zoom-out' ) {
+			__unstableSetEditorMode( 'zoom-out' );
 			setZoomLevel( 50 );
 		} else if (
 			! zoomOut &&
-			isZoomOut() &&
-			originalIsZoomOutRef.current !== isZoomOut()
+			__unstableGetEditorMode() === 'zoom-out' &&
+			originalEditingModeRef.current !== mode
 		) {
-			setZoomLevel( originalIsZoomOutRef.current ? 50 : 100 );
+			__unstableSetEditorMode( originalEditingModeRef.current );
+			setZoomLevel( 100 );
 		}
-
-		return () => {
-			if ( isZoomOut() && isZoomOut() !== originalIsZoomOutRef.current ) {
-				setZoomLevel( originalIsZoomOutRef.current ? 50 : 100 );
-			}
-		};
-	}, [ isZoomOut, setZoomLevel, zoomOut ] );
+	}, [
+		__unstableGetEditorMode,
+		__unstableSetEditorMode,
+		zoomOut,
+		setZoomLevel,
+	] ); // Mode is deliberately excluded from the dependencies so that the effect does not run when mode changes.
 }
diff --git a/test/e2e/specs/editor/various/parsing-patterns.spec.js b/test/e2e/specs/editor/various/parsing-patterns.spec.js
index 62c8ba2de24104..fd9305d0db786f 100644
--- a/test/e2e/specs/editor/various/parsing-patterns.spec.js
+++ b/test/e2e/specs/editor/various/parsing-patterns.spec.js
@@ -36,6 +36,14 @@ test.describe( 'Parsing patterns', () => {
 				],
 			} );
 		} );
+
+		// Exit zoom out mode and select the inner buttons block to ensure
+		// the correct insertion point is selected.
+		await page.getByRole( 'button', { name: 'Zoom Out' } ).click();
+		await editor.selectBlocks(
+			editor.canvas.locator( 'role=document[name="Block: Button"i]' )
+		);
+
 		await page.fill(
 			'role=region[name="Block Library"i] >> role=searchbox[name="Search"i]',
 			'whitespace'
@@ -43,7 +51,7 @@ test.describe( 'Parsing patterns', () => {
 		await page
 			.locator( 'role=option[name="Pattern with top-level whitespace"i]' )
 			.click();
-		expect( await editor.getBlocks() ).toMatchObject( [
+		await expect.poll( editor.getBlocks ).toMatchObject( [
 			{
 				name: 'core/buttons',
 				innerBlocks: [