diff --git a/homeassistant/components/esphome/dashboard.py b/homeassistant/components/esphome/dashboard.py
index 052d6161cf9..7439f8946f6 100644
--- a/homeassistant/components/esphome/dashboard.py
+++ b/homeassistant/components/esphome/dashboard.py
@@ -6,6 +6,7 @@ from datetime import timedelta
 import logging
 
 import aiohttp
+from awesomeversion import AwesomeVersion
 from esphome_dashboard_api import ConfiguredDevice, ESPHomeDashboardAPI
 
 from homeassistant.config_entries import SOURCE_REAUTH, ConfigEntryState
@@ -83,6 +84,20 @@ class ESPHomeDashboard(DataUpdateCoordinator[dict[str, ConfiguredDevice]]):
         self.url = url
         self.api = ESPHomeDashboardAPI(url, session)
 
+    @property
+    def supports_update(self) -> bool:
+        """Return whether the dashboard supports updates."""
+        if self.data is None:
+            raise RuntimeError("Data needs to be loaded first")
+
+        if len(self.data) == 0:
+            return False
+
+        esphome_version: str = next(iter(self.data.values()))["current_version"]
+
+        # There is no January release
+        return AwesomeVersion(esphome_version) > AwesomeVersion("2023.1.0")
+
     async def _async_update_data(self) -> dict:
         """Fetch device data."""
         devices = await self.api.get_devices()
diff --git a/homeassistant/components/esphome/update.py b/homeassistant/components/esphome/update.py
index be525a6f3b8..7139c9e937f 100644
--- a/homeassistant/components/esphome/update.py
+++ b/homeassistant/components/esphome/update.py
@@ -68,7 +68,6 @@ class ESPHomeUpdateEntity(CoordinatorEntity[ESPHomeDashboard], UpdateEntity):
 
     _attr_has_entity_name = True
     _attr_device_class = UpdateDeviceClass.FIRMWARE
-    _attr_supported_features = UpdateEntityFeature.INSTALL
     _attr_title = "ESPHome"
     _attr_name = "Firmware"
 
@@ -85,6 +84,8 @@ class ESPHomeUpdateEntity(CoordinatorEntity[ESPHomeDashboard], UpdateEntity):
                 (dr.CONNECTION_NETWORK_MAC, entry_data.device_info.mac_address)
             }
         )
+        if coordinator.supports_update:
+            self._attr_supported_features = UpdateEntityFeature.INSTALL
 
     @property
     def _device_info(self) -> ESPHomeDeviceInfo:
diff --git a/tests/components/esphome/test_dashboard.py b/tests/components/esphome/test_dashboard.py
index 0960556503a..ed2afb7e500 100644
--- a/tests/components/esphome/test_dashboard.py
+++ b/tests/components/esphome/test_dashboard.py
@@ -73,3 +73,29 @@ async def test_new_dashboard_fix_reauth(
     assert len(mock_get_encryption_key.mock_calls) == 1
     assert len(mock_setup.mock_calls) == 1
     assert mock_config_entry.data[CONF_NOISE_PSK] == VALID_NOISE_PSK
+
+
+async def test_dashboard_supports_update(hass, mock_dashboard):
+    """Test dashboard supports update."""
+    dash = dashboard.async_get_dashboard(hass)
+
+    # No data
+    assert not dash.supports_update
+
+    # supported version
+    mock_dashboard["configured"].append(
+        {
+            "name": "test",
+            "configuration": "test.yaml",
+            "current_version": "2023.2.0-dev",
+        }
+    )
+    await dash.async_refresh()
+
+    assert dash.supports_update
+
+    # unsupported version
+    mock_dashboard["configured"][0]["current_version"] = "2023.1.0"
+    await dash.async_refresh()
+
+    assert not dash.supports_update
diff --git a/tests/components/esphome/test_update.py b/tests/components/esphome/test_update.py
index d7ad83697af..9cfba03be9f 100644
--- a/tests/components/esphome/test_update.py
+++ b/tests/components/esphome/test_update.py
@@ -5,6 +5,7 @@ from unittest.mock import Mock, patch
 import pytest
 
 from homeassistant.components.esphome.dashboard import async_get_dashboard
+from homeassistant.components.update import UpdateEntityFeature
 from homeassistant.helpers.dispatcher import async_dispatcher_send
 
 
@@ -22,12 +23,16 @@ def stub_reconnect():
             [
                 {
                     "name": "test",
-                    "current_version": "1.2.3",
+                    "current_version": "2023.2.0-dev",
                     "configuration": "test.yaml",
                 }
             ],
             "on",
-            {"latest_version": "1.2.3", "installed_version": "1.0.0"},
+            {
+                "latest_version": "2023.2.0-dev",
+                "installed_version": "1.0.0",
+                "supported_features": UpdateEntityFeature.INSTALL,
+            },
         ),
         (
             [
@@ -37,12 +42,16 @@ def stub_reconnect():
                 },
             ],
             "off",
-            {"latest_version": "1.0.0", "installed_version": "1.0.0"},
+            {
+                "latest_version": "1.0.0",
+                "installed_version": "1.0.0",
+                "supported_features": 0,
+            },
         ),
         (
             [],
             "unavailable",
-            {},
+            {"supported_features": 0},
         ),
     ],
 )