diff --git a/packages/block-library/src/term-template/block.json b/packages/block-library/src/term-template/block.json
index 676a9f50af2a13..dd82c312198836 100644
--- a/packages/block-library/src/term-template/block.json
+++ b/packages/block-library/src/term-template/block.json
@@ -8,7 +8,7 @@
 	"ancestor": [ "core/terms-query" ],
 	"description": "Contains the block elements used to render a taxonomy term, like the name, description, and more.",
 	"textdomain": "default",
-	"usesContext": [ "termQuery" ],
+	"usesContext": [ "termQuery", "termId" ],
 	"supports": {
 		"reusable": false,
 		"html": false,
diff --git a/packages/block-library/src/term-template/edit.js b/packages/block-library/src/term-template/edit.js
index ea595dac89e505..74f8db8e8645b6 100644
--- a/packages/block-library/src/term-template/edit.js
+++ b/packages/block-library/src/term-template/edit.js
@@ -96,10 +96,11 @@ export default function TermTemplateEdit( {
 			order,
 			orderBy,
 			hideEmpty,
-			hierarchical = false,
-			parent = 0,
+			showNested = false,
+			parent = false,
 			perPage = 10,
 		} = {},
+		termId,
 	},
 	__unstableLayoutClassNames,
 } ) {
@@ -116,9 +117,16 @@ export default function TermTemplateEdit( {
 		per_page: 100,
 	};
 
-	// Nested terms are returned by default from REST API as long as parent is not set.
-	// If we want to show nested terms, we must not set parent at all.
-	if ( parent || ! hierarchical ) {
+	if ( parent === 'inherit' ) {
+		if ( termId ) {
+			queryArgs.parent = termId;
+		} else {
+			// If there is no termId in context, we can't inherit, so we fall back to 0.
+			queryArgs.parent = 0;
+		}
+	} else if ( parent !== false || ! showNested ) {
+		// Nested terms are returned by default from REST API as long as parent is not set.
+		// If we want to show nested terms, we must not set parent at all.
 		queryArgs.parent = parent || 0;
 	}
 
diff --git a/packages/block-library/src/term-template/index.php b/packages/block-library/src/term-template/index.php
index 8e9db6f972ff55..9c9ff90ad0146b 100644
--- a/packages/block-library/src/term-template/index.php
+++ b/packages/block-library/src/term-template/index.php
@@ -39,21 +39,25 @@ function render_block_core_term_template( $attributes, $content, $block ) {
 
 	// We set parent only when inheriting from the taxonomy archive context or not
 	// showing nested terms, otherwise nested terms are not displayed.
+	$parent = $query['parent'] ?? false;
 	if (
-		isset( $query['inherit'] )
-		&& $query['inherit']
-		&& (
+		'inherit' === $parent
+	) {
+		if ( isset( $query_block_context['termId'] ) ) {
+			// Get the current term ID from context.
+			$query_args['parent'] = $query_block_context['termId'];
+		} elseif (
 			is_tax( $query_args['taxonomy'] )
 			// is_tax() does not detect built-in category or tag archives, only custom taxonomies.
 			|| ( 'category' === $query_args['taxonomy'] && is_category() )
 			|| ( 'post_tag' === $query_args['taxonomy'] && is_tag() )
-		)
-	) {
-		// Get the current term ID from the queried object.
-		$current_term_id      = get_queried_object_id();
-		$query_args['parent'] = $current_term_id;
-	} elseif ( empty( $query['hierarchical'] ) ) {
-		$query_args['parent'] = 0;
+		) {
+			// Get the current term ID from the queried object.
+			$current_term_id      = get_queried_object_id();
+			$query_args['parent'] = $current_term_id;
+		}
+	} elseif ( false !== $parent || empty( $query['showNested'] ) ) {
+		$query_args['parent'] = $parent ? $parent : 0;
 	}
 
 	$terms_query = new WP_Term_Query( $query_args );
diff --git a/packages/block-library/src/terms-query/block.json b/packages/block-library/src/terms-query/block.json
index 1e2c3098fe94de..837ead66ee5086 100644
--- a/packages/block-library/src/terms-query/block.json
+++ b/packages/block-library/src/terms-query/block.json
@@ -17,9 +17,8 @@
 				"order": "asc",
 				"orderBy": "name",
 				"hideEmpty": true,
-				"parent": false,
-				"hierarchical": false,
-				"inherit": false
+				"showNested": false,
+				"parent": false
 			}
 		},
 		"tagName": {
@@ -30,6 +29,7 @@
 	"providesContext": {
 		"termQuery": "termQuery"
 	},
+	"usesContext": [ "termId" ],
 	"supports": {
 		"align": [ "wide", "full" ],
 		"html": false,
diff --git a/packages/block-library/src/terms-query/edit/inspector-controls/index.js b/packages/block-library/src/terms-query/edit/inspector-controls/index.js
index de348fe5edf7c0..e09513f3c71752 100644
--- a/packages/block-library/src/terms-query/edit/inspector-controls/index.js
+++ b/packages/block-library/src/terms-query/edit/inspector-controls/index.js
@@ -1,7 +1,7 @@
 /**
  * WordPress dependencies
  */
-import { __ } from '@wordpress/i18n';
+import { __, sprintf } from '@wordpress/i18n';
 import {
 	__experimentalToolsPanel as ToolsPanel,
 	__experimentalToolsPanelItem as ToolsPanelItem,
@@ -24,9 +24,10 @@ import AdvancedControls from './advanced-controls';
 
 export default function TermsQueryInspectorControls( {
 	attributes,
-	setQuery,
 	setAttributes,
 	clientId,
+	context,
+	setQuery,
 } ) {
 	const { termQuery, tagName: TagName } = attributes;
 	const {
@@ -34,10 +35,11 @@ export default function TermsQueryInspectorControls( {
 		orderBy,
 		order,
 		hideEmpty,
-		inherit,
-		hierarchical,
+		parent = false,
+		showNested,
 		perPage,
 	} = termQuery;
+	const { termId } = context;
 	const dropdownMenuProps = useToolsPanelDropdownMenuProps();
 
 	const { templateSlug } = useSelect( ( select ) => {
@@ -64,17 +66,21 @@ export default function TermsQueryInspectorControls( {
 
 	// Only display the inherit control if the taxonomy is hierarchical and matches the current template.
 	const displayInheritControl =
-		isTaxonomyHierarchical && isTaxonomyMatchingTemplate;
+		isTaxonomyHierarchical && ( isTaxonomyMatchingTemplate || termId );
 
-	// Only display the hierarchical control if the taxonomy is hierarchical and not inheriting.
-	const displayHierarchicalControl =
-		isTaxonomyHierarchical && ! termQuery.inherit;
+	// Only display the show nested control if the taxonomy is hierarchical and not inheriting.
+	const displayShowNestedControl =
+		isTaxonomyHierarchical && termQuery.parent === false;
 
 	// Labels shared between ToolsPanelItem and its child control.
 	const taxonomyControlLabel = __( 'Taxonomy' );
 	const orderByControlLabel = __( 'Order by' );
 	const emptyTermsControlLabel = __( 'Show empty terms' );
-	const inheritControlLabel = __( 'Inherit parent term from archive' );
+	const inheritControlLabel = sprintf(
+		/* translators: %s: either "parent block" or "archive" */
+		__( 'Inherit parent term from %s' ),
+		termId ? __( 'parent block' ) : __( 'archive' )
+	);
 	const nestedTermsControlLabel = __( 'Show nested terms' );
 	const maxTermsControlLabel = __( 'Max terms' );
 
@@ -90,7 +96,7 @@ export default function TermsQueryInspectorControls( {
 								order: 'asc',
 								orderBy: 'name',
 								hideEmpty: true,
-								hierarchical: false,
+								showNested: false,
 								parent: false,
 								perPage: 10,
 							},
@@ -149,32 +155,32 @@ export default function TermsQueryInspectorControls( {
 					</ToolsPanelItem>
 					{ displayInheritControl && (
 						<ToolsPanelItem
-							hasValue={ () => inherit !== false }
+							hasValue={ () => parent !== false }
 							label={ inheritControlLabel }
-							onDeselect={ () => setQuery( { inherit: false } ) }
+							onDeselect={ () => setQuery( { parent: false } ) }
 							isShownByDefault
 						>
 							<InheritControl
 								label={ inheritControlLabel }
-								value={ inherit }
+								value={ parent === 'inherit' }
 								onChange={ setQuery }
 							/>
 						</ToolsPanelItem>
 					) }
-					{ displayHierarchicalControl && (
+					{ displayShowNestedControl && (
 						<ToolsPanelItem
-							hasValue={ () => hierarchical !== false }
+							hasValue={ () => showNested !== false }
 							label={ nestedTermsControlLabel }
 							onDeselect={ () =>
-								setQuery( { hierarchical: false } )
+								setQuery( { showNested: false } )
 							}
 							isShownByDefault
 						>
 							<NestedTermsControl
 								label={ nestedTermsControlLabel }
-								value={ hierarchical }
+								value={ showNested }
 								onChange={ ( value ) =>
-									setQuery( { hierarchical: value } )
+									setQuery( { showNested: value } )
 								}
 							/>
 						</ToolsPanelItem>
diff --git a/packages/block-library/src/terms-query/edit/inspector-controls/inherit-control.js b/packages/block-library/src/terms-query/edit/inspector-controls/inherit-control.js
index 4cc8a7a51576c5..335abe0854a178 100644
--- a/packages/block-library/src/terms-query/edit/inspector-controls/inherit-control.js
+++ b/packages/block-library/src/terms-query/edit/inspector-controls/inherit-control.js
@@ -10,9 +10,9 @@ export default function InheritControl( { value, onChange, ...props } ) {
 			checked={ value }
 			onChange={ ( inherit ) =>
 				onChange( {
-					inherit,
-					// When enabling inherit, hierarchical is not supported.
-					...( inherit ? { hierarchical: false } : {} ),
+					parent: inherit ? 'inherit' : false,
+					// When enabling inherit, showNested is not supported.
+					...( inherit ? { showNested: false } : {} ),
 				} )
 			}
 			{ ...props }
diff --git a/packages/block-library/src/terms-query/edit/terms-query-content.js b/packages/block-library/src/terms-query/edit/terms-query-content.js
index 1fd052a601e7df..26fadf4615f5a1 100644
--- a/packages/block-library/src/terms-query/edit/terms-query-content.js
+++ b/packages/block-library/src/terms-query/edit/terms-query-content.js
@@ -11,12 +11,8 @@ import TermsQueryInspectorControls from './inspector-controls';
 
 const TEMPLATE = [ [ 'core/term-template' ] ];
 
-export default function TermsQueryContent( {
-	attributes,
-	setAttributes,
-	clientId,
-	name,
-} ) {
+export default function TermsQueryContent( props ) {
+	const { attributes, setAttributes } = props;
 	const { tagName: TagName } = attributes;
 	const blockProps = useBlockProps();
 	const innerBlocksProps = useInnerBlocksProps( blockProps, {
@@ -31,13 +27,7 @@ export default function TermsQueryContent( {
 	);
 	return (
 		<>
-			<TermsQueryInspectorControls
-				name={ name }
-				attributes={ attributes }
-				setQuery={ setQuery }
-				setAttributes={ setAttributes }
-				clientId={ clientId }
-			/>
+			<TermsQueryInspectorControls { ...props } setQuery={ setQuery } />
 			<TagName { ...innerBlocksProps } />
 		</>
 	);