diff --git a/homeassistant/helpers/template.py b/homeassistant/helpers/template.py
index 083d0e530aa..f04231ce78a 100644
--- a/homeassistant/helpers/template.py
+++ b/homeassistant/helpers/template.py
@@ -1657,7 +1657,7 @@ def min_max_from_filter(builtin_filter: Any, name: str) -> Any:
     return pass_environment(wrapper)
 
 
-def average(*args: Any) -> float:
+def average(*args: Any, default: Any = _SENTINEL) -> Any:
     """
     Filter and function to calculate the arithmetic mean of an iterable or of two or more arguments.
 
@@ -1666,13 +1666,23 @@ def average(*args: Any) -> float:
     if len(args) == 0:
         raise TypeError("average expected at least 1 argument, got 0")
 
-    if len(args) == 1:
-        if isinstance(args[0], Iterable):
-            return statistics.fmean(args[0])
-
+    # If first argument is iterable and more then 1 argument provided but not a named default,
+    # then use 2nd argument as default.
+    if isinstance(args[0], Iterable):
+        average_list = args[0]
+        if len(args) > 1 and default is _SENTINEL:
+            default = args[1]
+    elif len(args) == 1:
         raise TypeError(f"'{type(args[0]).__name__}' object is not iterable")
+    else:
+        average_list = args
 
-    return statistics.fmean(args)
+    try:
+        return statistics.fmean(average_list)
+    except (TypeError, statistics.StatisticsError):
+        if default is _SENTINEL:
+            raise_no_default("average", args)
+        return default
 
 
 def forgiving_float(value, default=_SENTINEL):
diff --git a/tests/helpers/test_template.py b/tests/helpers/test_template.py
index 9c9a1e42a98..265706c9713 100644
--- a/tests/helpers/test_template.py
+++ b/tests/helpers/test_template.py
@@ -973,12 +973,27 @@ def test_average(hass):
     assert template.Template("{{ average([1, 2, 3]) }}", hass).async_render() == 2
     assert template.Template("{{ average(1, 2, 3) }}", hass).async_render() == 2
 
+    # Testing of default values
+    assert template.Template("{{ average([1, 2, 3], -1) }}", hass).async_render() == 2
+    assert template.Template("{{ average([], -1) }}", hass).async_render() == -1
+    assert template.Template("{{ average([], default=-1) }}", hass).async_render() == -1
+    assert (
+        template.Template("{{ average([], 5, default=-1) }}", hass).async_render() == -1
+    )
+    assert (
+        template.Template("{{ average(1, 'a', 3, default=-1) }}", hass).async_render()
+        == -1
+    )
+
     with pytest.raises(TemplateError):
         template.Template("{{ 1 | average }}", hass).async_render()
 
     with pytest.raises(TemplateError):
         template.Template("{{ average() }}", hass).async_render()
 
+    with pytest.raises(TemplateError):
+        template.Template("{{ average([]) }}", hass).async_render()
+
 
 def test_min(hass):
     """Test the min filter."""