diff --git a/homeassistant/components/update/__init__.py b/homeassistant/components/update/__init__.py
index a19ecc535a2..7fb92d8164c 100644
--- a/homeassistant/components/update/__init__.py
+++ b/homeassistant/components/update/__init__.py
@@ -186,7 +186,9 @@ class UpdateEntity(RestoreEntity):
             return self._attr_entity_category
         if hasattr(self, "entity_description"):
             return self.entity_description.entity_category
-        return EntityCategory.CONFIG
+        if self.supported_features & UpdateEntityFeature.INSTALL:
+            return EntityCategory.CONFIG
+        return EntityCategory.DIAGNOSTIC
 
     @property
     def in_progress(self) -> bool | int | None:
diff --git a/tests/components/update/test_init.py b/tests/components/update/test_init.py
index cc8315c5aec..35366217a3d 100644
--- a/tests/components/update/test_init.py
+++ b/tests/components/update/test_init.py
@@ -21,6 +21,7 @@ from homeassistant.components.update.const import (
     ATTR_RELEASE_URL,
     ATTR_SKIPPED_VERSION,
     ATTR_TITLE,
+    UpdateEntityFeature,
 )
 from homeassistant.const import (
     ATTR_ENTITY_ID,
@@ -53,7 +54,7 @@ async def test_update(hass: HomeAssistant) -> None:
     update._attr_release_url = "https://example.com"
     update._attr_title = "Title"
 
-    assert update.entity_category is EntityCategory.CONFIG
+    assert update.entity_category is EntityCategory.DIAGNOSTIC
     assert update.current_version == "1.0.0"
     assert update.latest_version == "1.0.1"
     assert update.release_summary == "Summary"
@@ -86,7 +87,12 @@ async def test_update(hass: HomeAssistant) -> None:
     update._attr_latest_version = None
     assert update.state is None
 
+    # Test entity category becomes config when its possible to install
+    update._attr_supported_features = UpdateEntityFeature.INSTALL
+    assert update.entity_category is EntityCategory.CONFIG
+
     # UpdateEntityDescription was set
+    update._attr_supported_features = 0
     update.entity_description = UpdateEntityDescription(key="F5 - Its very refreshing")
     assert update.device_class is None
     assert update.entity_category is EntityCategory.CONFIG