diff --git a/homeassistant/components/overseerr/config_flow.py b/homeassistant/components/overseerr/config_flow.py
index 2ad0c8d6d61..e2994212bfe 100644
--- a/homeassistant/components/overseerr/config_flow.py
+++ b/homeassistant/components/overseerr/config_flow.py
@@ -2,8 +2,11 @@
 
 from typing import Any
 
-from python_overseerr import OverseerrClient
-from python_overseerr.exceptions import OverseerrError
+from python_overseerr import (
+    OverseerrAuthenticationError,
+    OverseerrClient,
+    OverseerrError,
+)
 import voluptuous as vol
 from yarl import URL
 
@@ -47,6 +50,8 @@ class OverseerrConfigFlow(ConfigFlow, domain=DOMAIN):
                 )
                 try:
                     await client.get_request_count()
+                except OverseerrAuthenticationError:
+                    errors["base"] = "invalid_auth"
                 except OverseerrError:
                     errors["base"] = "cannot_connect"
                 else:
diff --git a/homeassistant/components/overseerr/coordinator.py b/homeassistant/components/overseerr/coordinator.py
index c8512d764f4..75a7d8d73d7 100644
--- a/homeassistant/components/overseerr/coordinator.py
+++ b/homeassistant/components/overseerr/coordinator.py
@@ -2,13 +2,18 @@
 
 from datetime import timedelta
 
-from python_overseerr import OverseerrClient, RequestCount
-from python_overseerr.exceptions import OverseerrConnectionError
+from python_overseerr import (
+    OverseerrAuthenticationError,
+    OverseerrClient,
+    OverseerrConnectionError,
+    RequestCount,
+)
 from yarl import URL
 
 from homeassistant.config_entries import ConfigEntry
 from homeassistant.const import CONF_API_KEY, CONF_HOST, CONF_PORT, CONF_SSL
 from homeassistant.core import HomeAssistant
+from homeassistant.exceptions import ConfigEntryError
 from homeassistant.helpers.aiohttp_client import async_get_clientsession
 from homeassistant.helpers.update_coordinator import DataUpdateCoordinator, UpdateFailed
 
@@ -47,6 +52,11 @@ class OverseerrCoordinator(DataUpdateCoordinator[RequestCount]):
         """Fetch data from API endpoint."""
         try:
             return await self.client.get_request_count()
+        except OverseerrAuthenticationError as err:
+            raise ConfigEntryError(
+                translation_domain=DOMAIN,
+                translation_key="auth_error",
+            ) from err
         except OverseerrConnectionError as err:
             raise UpdateFailed(
                 translation_domain=DOMAIN,
diff --git a/homeassistant/components/overseerr/strings.json b/homeassistant/components/overseerr/strings.json
index 968b8c5b533..25b53303611 100644
--- a/homeassistant/components/overseerr/strings.json
+++ b/homeassistant/components/overseerr/strings.json
@@ -17,6 +17,7 @@
     },
     "error": {
       "cannot_connect": "[%key:common::config_flow::error::cannot_connect%]",
+      "invalid_auth": "[%key:common::config_flow::error::invalid_auth%]",
       "invalid_host": "The provided URL is not a valid host."
     }
   },
@@ -66,6 +67,9 @@
     "connection_error": {
       "message": "Error connecting to the Overseerr instance: {error}"
     },
+    "auth_error": {
+      "message": "Invalid API key."
+    },
     "not_loaded": {
       "message": "{target} is not loaded."
     },
diff --git a/tests/components/overseerr/test_config_flow.py b/tests/components/overseerr/test_config_flow.py
index 487c843ff1c..937d697b8cb 100644
--- a/tests/components/overseerr/test_config_flow.py
+++ b/tests/components/overseerr/test_config_flow.py
@@ -3,7 +3,10 @@
 from unittest.mock import AsyncMock, patch
 
 import pytest
-from python_overseerr.exceptions import OverseerrConnectionError
+from python_overseerr.exceptions import (
+    OverseerrAuthenticationError,
+    OverseerrConnectionError,
+)
 
 from homeassistant.components.overseerr.const import DOMAIN
 from homeassistant.config_entries import SOURCE_USER
@@ -61,13 +64,22 @@ async def test_full_flow(
     }
 
 
+@pytest.mark.parametrize(
+    ("exception", "error"),
+    [
+        (OverseerrAuthenticationError, "invalid_auth"),
+        (OverseerrConnectionError, "cannot_connect"),
+    ],
+)
 async def test_flow_errors(
     hass: HomeAssistant,
     mock_overseerr_client: AsyncMock,
     mock_setup_entry: AsyncMock,
+    exception: Exception,
+    error: str,
 ) -> None:
     """Test flow errors."""
-    mock_overseerr_client.get_request_count.side_effect = OverseerrConnectionError()
+    mock_overseerr_client.get_request_count.side_effect = exception
 
     result = await hass.config_entries.flow.async_init(
         DOMAIN,
@@ -82,7 +94,7 @@ async def test_flow_errors(
     )
 
     assert result["type"] is FlowResultType.FORM
-    assert result["errors"] == {"base": "cannot_connect"}
+    assert result["errors"] == {"base": error}
 
     mock_overseerr_client.get_request_count.side_effect = None
 
diff --git a/tests/components/overseerr/test_init.py b/tests/components/overseerr/test_init.py
index 4c6897ed316..27c9f3fb3e9 100644
--- a/tests/components/overseerr/test_init.py
+++ b/tests/components/overseerr/test_init.py
@@ -4,6 +4,7 @@ from typing import Any
 from unittest.mock import AsyncMock, patch
 
 import pytest
+from python_overseerr import OverseerrAuthenticationError, OverseerrConnectionError
 from python_overseerr.models import WebhookNotificationOptions
 from syrupy import SnapshotAssertion
 
@@ -14,6 +15,7 @@ from homeassistant.components.overseerr import (
     REGISTERED_NOTIFICATIONS,
 )
 from homeassistant.components.overseerr.const import DOMAIN
+from homeassistant.config_entries import ConfigEntryState
 from homeassistant.core import HomeAssistant
 from homeassistant.helpers import device_registry as dr
 
@@ -23,6 +25,28 @@ from tests.common import MockConfigEntry
 from tests.components.cloud import mock_cloud
 
 
+@pytest.mark.parametrize(
+    ("exception", "config_entry_state"),
+    [
+        (OverseerrAuthenticationError, ConfigEntryState.SETUP_ERROR),
+        (OverseerrConnectionError, ConfigEntryState.SETUP_RETRY),
+    ],
+)
+async def test_initialization_errors(
+    hass: HomeAssistant,
+    mock_overseerr_client: AsyncMock,
+    mock_config_entry: MockConfigEntry,
+    exception: Exception,
+    config_entry_state: ConfigEntryState,
+) -> None:
+    """Test the Overseerr integration initialization errors."""
+    mock_overseerr_client.get_request_count.side_effect = exception
+
+    await setup_integration(hass, mock_config_entry)
+
+    assert mock_config_entry.state == config_entry_state
+
+
 async def test_device_info(
     hass: HomeAssistant,
     snapshot: SnapshotAssertion,