diff --git a/homeassistant/components/accuweather/sensor.py b/homeassistant/components/accuweather/sensor.py
index 4de089f9cf3..6cb0b45418c 100644
--- a/homeassistant/components/accuweather/sensor.py
+++ b/homeassistant/components/accuweather/sensor.py
@@ -249,7 +249,7 @@ SENSOR_TYPES: tuple[AccuWeatherSensorDescription, ...] = (
         metric_unit=UnitOfLength.METERS,
         us_customary_unit=UnitOfLength.FEET,
         value_fn=lambda data, unit: cast(float, data[unit][ATTR_VALUE]),
-        native_precision=0,
+        suggested_display_precision=0,
     ),
     AccuWeatherSensorDescription(
         key="CloudCover",
diff --git a/homeassistant/components/airly/sensor.py b/homeassistant/components/airly/sensor.py
index 93f6d26e145..754471c9d8b 100644
--- a/homeassistant/components/airly/sensor.py
+++ b/homeassistant/components/airly/sensor.py
@@ -69,8 +69,8 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_CAQI,
         icon="mdi:air-filter",
         name=ATTR_API_CAQI,
-        native_precision=0,
         native_unit_of_measurement="CAQI",
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LEVEL: data[ATTR_API_CAQI_LEVEL],
             ATTR_ADVICE: data[ATTR_API_ADVICE],
@@ -81,17 +81,17 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_PM1,
         device_class=SensorDeviceClass.PM1,
         name="PM1.0",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
     ),
     AirlySensorEntityDescription(
         key=ATTR_API_PM25,
         device_class=SensorDeviceClass.PM25,
         name="PM2.5",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_PM25}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_PM25}_{SUFFIX_PERCENT}"]),
@@ -101,9 +101,9 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_PM10,
         device_class=SensorDeviceClass.PM10,
         name=ATTR_API_PM10,
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_PM10}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_PM10}_{SUFFIX_PERCENT}"]),
@@ -113,32 +113,32 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_HUMIDITY,
         device_class=SensorDeviceClass.HUMIDITY,
         name=ATTR_API_HUMIDITY.capitalize(),
-        native_precision=1,
         native_unit_of_measurement=PERCENTAGE,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=1,
     ),
     AirlySensorEntityDescription(
         key=ATTR_API_PRESSURE,
         device_class=SensorDeviceClass.PRESSURE,
         name=ATTR_API_PRESSURE.capitalize(),
-        native_precision=0,
         native_unit_of_measurement=UnitOfPressure.HPA,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
     ),
     AirlySensorEntityDescription(
         key=ATTR_API_TEMPERATURE,
         device_class=SensorDeviceClass.TEMPERATURE,
         name=ATTR_API_TEMPERATURE.capitalize(),
-        native_precision=1,
         native_unit_of_measurement=UnitOfTemperature.CELSIUS,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=1,
     ),
     AirlySensorEntityDescription(
         key=ATTR_API_CO,
         name="Carbon monoxide",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_CO}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_CO}_{SUFFIX_PERCENT}"]),
@@ -148,9 +148,9 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_NO2,
         device_class=SensorDeviceClass.NITROGEN_DIOXIDE,
         name="Nitrogen dioxide",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_NO2}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_NO2}_{SUFFIX_PERCENT}"]),
@@ -160,9 +160,9 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_SO2,
         device_class=SensorDeviceClass.SULPHUR_DIOXIDE,
         name="Sulphur dioxide",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_SO2}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_SO2}_{SUFFIX_PERCENT}"]),
@@ -172,9 +172,9 @@ SENSOR_TYPES: tuple[AirlySensorEntityDescription, ...] = (
         key=ATTR_API_O3,
         device_class=SensorDeviceClass.OZONE,
         name="Ozone",
-        native_precision=0,
         native_unit_of_measurement=CONCENTRATION_MICROGRAMS_PER_CUBIC_METER,
         state_class=SensorStateClass.MEASUREMENT,
+        suggested_display_precision=0,
         attrs=lambda data: {
             ATTR_LIMIT: data[f"{ATTR_API_O3}_{SUFFIX_LIMIT}"],
             ATTR_PERCENT: round(data[f"{ATTR_API_O3}_{SUFFIX_PERCENT}"]),
diff --git a/homeassistant/components/sensor/__init__.py b/homeassistant/components/sensor/__init__.py
index bed886d4ba0..08e6a8a0c90 100644
--- a/homeassistant/components/sensor/__init__.py
+++ b/homeassistant/components/sensor/__init__.py
@@ -7,7 +7,7 @@ from dataclasses import dataclass
 from datetime import date, datetime, timedelta, timezone
 from decimal import Decimal, InvalidOperation as DecimalInvalidOperation
 import logging
-from math import ceil, floor, log10
+from math import floor, log10
 import re
 from typing import Any, Final, cast, final
 
@@ -138,10 +138,10 @@ class SensorEntityDescription(EntityDescription):
 
     device_class: SensorDeviceClass | None = None
     last_reset: datetime | None = None
-    native_precision: int | None = None
     native_unit_of_measurement: str | None = None
     options: list[str] | None = None
     state_class: SensorStateClass | str | None = None
+    suggested_display_precision: int | None = None
     suggested_unit_of_measurement: str | None = None
     unit_of_measurement: None = None  # Type override, use native_unit_of_measurement
 
@@ -152,12 +152,12 @@ class SensorEntity(Entity):
     entity_description: SensorEntityDescription
     _attr_device_class: SensorDeviceClass | None
     _attr_last_reset: datetime | None
-    _attr_native_precision: int | None
     _attr_native_unit_of_measurement: str | None
     _attr_native_value: StateType | date | datetime | Decimal = None
     _attr_options: list[str] | None
     _attr_state_class: SensorStateClass | str | None
     _attr_state: None = None  # Subclasses of SensorEntity should not set this
+    _attr_suggested_display_precision: int | None
     _attr_suggested_unit_of_measurement: str | None
     _attr_unit_of_measurement: None = (
         None  # Subclasses of SensorEntity should not set this
@@ -166,7 +166,7 @@ class SensorEntity(Entity):
     _invalid_state_class_reported = False
     _invalid_unit_of_measurement_reported = False
     _last_reset_reported = False
-    _sensor_option_precision: int | None = None
+    _sensor_option_display_precision: int | None = None
     _sensor_option_unit_of_measurement: str | None | UndefinedType = UNDEFINED
 
     @callback
@@ -236,7 +236,8 @@ class SensorEntity(Entity):
         await super().async_internal_added_to_hass()
         if not self.registry_entry:
             return
-        self.async_registry_entry_updated()
+        self._async_read_entity_options()
+        self._update_suggested_precision()
 
     @property
     def device_class(self) -> SensorDeviceClass | None:
@@ -254,7 +255,7 @@ class SensorEntity(Entity):
         if (
             self.state_class is not None
             or self.native_unit_of_measurement is not None
-            or self.native_precision is not None
+            or self.suggested_display_precision is not None
         ):
             return True
         # Sensors with custom device classes are not considered numeric
@@ -359,59 +360,14 @@ class SensorEntity(Entity):
         return self._attr_native_value
 
     @property
-    def native_precision(self) -> int | None:
-        """Return the number of digits after the decimal point for the sensor's state.
-
-        If native_precision is None, no rounding is done unless the sensor is subject
-        to unit conversion.
-
-        The display precision is influenced by unit conversion, a sensor which has
-        native_unit_of_measurement 'Wh' and is converted to 'kWh' will have its
-        native_precision increased by 3.
-        """
-        if hasattr(self, "_attr_native_precision"):
-            return self._attr_native_precision
+    def suggested_display_precision(self) -> int | None:
+        """Return the suggested number of decimal digits for display."""
+        if hasattr(self, "_attr_suggested_display_precision"):
+            return self._attr_suggested_display_precision
         if hasattr(self, "entity_description"):
-            return self.entity_description.native_precision
+            return self.entity_description.suggested_display_precision
         return None
 
-    @final
-    @property
-    def precision(self) -> int | None:
-        """Return the number of digits after the decimal point for the sensor's state.
-
-        This is the precision after unit conversion.
-        """
-        # Highest priority, for registered entities: precision set by user
-        if self._sensor_option_precision is not None:
-            return self._sensor_option_precision
-
-        # Second priority, native precision
-        if (precision := self.native_precision) is None:
-            return None
-
-        device_class = self.device_class
-        native_unit_of_measurement = self.native_unit_of_measurement
-        unit_of_measurement = self.unit_of_measurement
-
-        if (
-            native_unit_of_measurement != unit_of_measurement
-            and device_class in UNIT_CONVERTERS
-        ):
-            converter = UNIT_CONVERTERS[device_class]
-
-            # Scale the precision when converting to a larger or smaller unit
-            # For example 1.1 Wh should be rendered as 0.0011 kWh, not 0.0 kWh
-            ratio_log = log10(
-                converter.get_unit_ratio(
-                    native_unit_of_measurement, unit_of_measurement
-                )
-            )
-            ratio_log = floor(ratio_log) if ratio_log > 0 else ceil(ratio_log)
-            precision = max(0, precision + ratio_log)
-
-        return precision
-
     @property
     def native_unit_of_measurement(self) -> str | None:
         """Return the unit of measurement of the sensor, if any."""
@@ -576,7 +532,7 @@ class SensorEntity(Entity):
                 )
             return value
 
-        precision = self.precision
+        suggested_precision = self.suggested_display_precision
 
         # If the sensor has neither a device class, a state class, a unit of measurement
         # nor a precision then there are no further checks or conversions
@@ -593,13 +549,13 @@ class SensorEntity(Entity):
                     numerical_value = float(value)  # type:ignore[arg-type]
             except (TypeError, ValueError) as err:
                 # Raise if precision is not None, for other cases log a warning
-                if precision is not None:
+                if suggested_precision is not None:
                     raise ValueError(
                         f"Sensor {self.entity_id} has device class {device_class}, "
                         f"state class {state_class} unit {unit_of_measurement} and "
-                        f"precision {precision} thus indicating it has a numeric value;"
-                        f" however, it has the non-numeric value: {value} "
-                        f"({type(value)})"
+                        f"suggested precision {suggested_precision} thus indicating it "
+                        f"has a numeric value; however, it has the non-numeric value: "
+                        f"{value} ({type(value)})"
                     ) from err
                 # This should raise in Home Assistant Core 2023.4
                 if not self._invalid_numeric_value_reported:
@@ -629,7 +585,18 @@ class SensorEntity(Entity):
             # Unit conversion needed
             converter = UNIT_CONVERTERS[device_class]
 
-            if precision is None:
+            converted_numerical_value = UNIT_CONVERTERS[device_class].convert(
+                float(numerical_value),
+                native_unit_of_measurement,
+                unit_of_measurement,
+            )
+
+            # If unit conversion is happening, and there's no rounding for display,
+            # do a best effort rounding here.
+            if (
+                suggested_precision is None
+                and self._sensor_option_display_precision is None
+            ):
                 # Deduce the precision by finding the decimal point, if any
                 value_s = str(value)
                 precision = (
@@ -648,20 +615,10 @@ class SensorEntity(Entity):
                 )
                 precision = precision + floor(ratio_log)
 
-            converted_numerical_value = converter.convert(
-                float(numerical_value),
-                native_unit_of_measurement,
-                unit_of_measurement,
-            )
-            value = f"{converted_numerical_value:.{precision}f}"
-            # This can be replaced with adding the z option when we drop support for
-            # Python 3.10
-            value = NEGATIVE_ZERO_PATTERN.sub(r"\1", value)
-        elif precision is not None:
-            value = f"{numerical_value:.{precision}f}"
-            # This can be replaced with adding the z option when we drop support for
-            # Python 3.10
-            value = NEGATIVE_ZERO_PATTERN.sub(r"\1", value)
+                value = f"{converted_numerical_value:.{precision}f}"
+                # This can be replaced with adding the z option when we drop support for
+                # Python 3.10
+                value = NEGATIVE_ZERO_PATTERN.sub(r"\1", value)
 
         # Validate unit of measurement used for sensors with a device class
         if (
@@ -703,15 +660,35 @@ class SensorEntity(Entity):
 
         return super().__repr__()
 
-    def _custom_precision_or_none(self) -> int | None:
-        """Return a custom precisions or None if not set."""
+    def _suggested_precision_or_none(self) -> int | None:
+        """Return suggested display precision, or None if not set."""
         assert self.registry_entry
         if (sensor_options := self.registry_entry.options.get(DOMAIN)) and (
-            precision := sensor_options.get("precision")
+            precision := sensor_options.get("suggested_display_precision")
         ) is not None:
-            return int(precision)
+            return cast(int, precision)
         return None
 
+    def _update_suggested_precision(self) -> None:
+        """Update suggested display precision stored in registry."""
+        assert self.registry_entry
+
+        display_precision = self.suggested_display_precision
+
+        if (
+            sensor_options := self.registry_entry.options.get(DOMAIN, {})
+        ) and sensor_options.get("suggested_display_precision") == display_precision:
+            return
+
+        registry = er.async_get(self.hass)
+        sensor_options = dict(sensor_options)
+        sensor_options.pop("suggested_display_precision", None)
+        if display_precision is not None:
+            sensor_options["suggested_display_precision"] = display_precision
+        registry.async_update_entity_options(
+            self.entity_id, DOMAIN, sensor_options or None
+        )
+
     def _custom_unit_or_undef(
         self, primary_key: str, secondary_key: str
     ) -> str | None | UndefinedType:
@@ -732,7 +709,16 @@ class SensorEntity(Entity):
     @callback
     def async_registry_entry_updated(self) -> None:
         """Run when the entity registry entry has been updated."""
-        self._sensor_option_precision = self._custom_precision_or_none()
+        self._async_read_entity_options()
+
+    @callback
+    def _async_read_entity_options(self) -> None:
+        """Read entity options from entity registry.
+
+        Called when the entity registry entry has been updated and before the sensor is
+        added to the state machine.
+        """
+        self._sensor_option_display_precision = self._suggested_precision_or_none()
         assert self.registry_entry
         if (
             sensor_options := self.registry_entry.options.get(f"{DOMAIN}.private")
diff --git a/tests/components/accuweather/test_sensor.py b/tests/components/accuweather/test_sensor.py
index a96408e35ac..d80c5a331ca 100644
--- a/tests/components/accuweather/test_sensor.py
+++ b/tests/components/accuweather/test_sensor.py
@@ -44,7 +44,7 @@ async def test_sensor_without_forecast(hass):
 
     state = hass.states.get("sensor.home_cloud_ceiling")
     assert state
-    assert state.state == "3200"
+    assert state.state == "3200.0"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_ICON) == "mdi:weather-fog"
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == UnitOfLength.METERS
@@ -54,6 +54,7 @@ async def test_sensor_without_forecast(hass):
     entry = registry.async_get("sensor.home_cloud_ceiling")
     assert entry
     assert entry.unique_id == "0123456-ceiling"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_precipitation")
     assert state
@@ -665,7 +666,7 @@ async def test_availability(hass):
     state = hass.states.get("sensor.home_cloud_ceiling")
     assert state
     assert state.state != STATE_UNAVAILABLE
-    assert state.state == "3200"
+    assert state.state == "3200.0"
 
     future = utcnow() + timedelta(minutes=60)
     with patch(
@@ -696,7 +697,7 @@ async def test_availability(hass):
         state = hass.states.get("sensor.home_cloud_ceiling")
         assert state
         assert state.state != STATE_UNAVAILABLE
-        assert state.state == "3200"
+        assert state.state == "3200.0"
 
 
 async def test_manual_update_entity(hass):
@@ -736,7 +737,7 @@ async def test_sensor_imperial_units(hass):
 
     state = hass.states.get("sensor.home_cloud_ceiling")
     assert state
-    assert state.state == "10500"
+    assert state.state == "10500.0"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_ICON) == "mdi:weather-fog"
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == UnitOfLength.FEET
@@ -749,7 +750,7 @@ async def test_state_update(hass):
     state = hass.states.get("sensor.home_cloud_ceiling")
     assert state
     assert state.state != STATE_UNAVAILABLE
-    assert state.state == "3200"
+    assert state.state == "3200.0"
 
     future = utcnow() + timedelta(minutes=60)
 
diff --git a/tests/components/airly/test_init.py b/tests/components/airly/test_init.py
index 5e76e96305e..c8a79e04be2 100644
--- a/tests/components/airly/test_init.py
+++ b/tests/components/airly/test_init.py
@@ -28,7 +28,7 @@ async def test_async_setup_entry(hass, aioclient_mock):
     state = hass.states.get("sensor.home_pm2_5")
     assert state is not None
     assert state.state != STATE_UNAVAILABLE
-    assert state.state == "4"
+    assert state.state == "4.37"
 
 
 async def test_config_not_ready(hass, aioclient_mock):
diff --git a/tests/components/airly/test_sensor.py b/tests/components/airly/test_sensor.py
index 0501ae4193a..6aa24559314 100644
--- a/tests/components/airly/test_sensor.py
+++ b/tests/components/airly/test_sensor.py
@@ -38,7 +38,7 @@ async def test_sensor(hass, aioclient_mock):
 
     state = hass.states.get("sensor.home_caqi")
     assert state
-    assert state.state == "7"
+    assert state.state == "7.29"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == "CAQI"
     assert state.attributes.get(ATTR_ICON) == "mdi:air-filter"
@@ -46,10 +46,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_caqi")
     assert entry
     assert entry.unique_id == "123-456-caqi"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_humidity")
     assert state
-    assert state.state == "68.3"
+    assert state.state == "68.35"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == PERCENTAGE
     assert state.attributes.get(ATTR_DEVICE_CLASS) == SensorDeviceClass.HUMIDITY
@@ -58,10 +59,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_humidity")
     assert entry
     assert entry.unique_id == "123-456-humidity"
+    assert entry.options["sensor"] == {"suggested_display_precision": 1}
 
     state = hass.states.get("sensor.home_pm1_0")
     assert state
-    assert state.state == "3"
+    assert state.state == "2.83"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -73,10 +75,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_pm1_0")
     assert entry
     assert entry.unique_id == "123-456-pm1"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_pm2_5")
     assert state
-    assert state.state == "4"
+    assert state.state == "4.37"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -88,10 +91,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_pm2_5")
     assert entry
     assert entry.unique_id == "123-456-pm25"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_pm10")
     assert state
-    assert state.state == "6"
+    assert state.state == "6.06"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -103,16 +107,18 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_pm10")
     assert entry
     assert entry.unique_id == "123-456-pm10"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_carbon_monoxide")
     assert state
-    assert state.state == "162"
+    assert state.state == "162.49"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
         == CONCENTRATION_MICROGRAMS_PER_CUBIC_METER
     )
     assert state.attributes.get(ATTR_STATE_CLASS) == SensorStateClass.MEASUREMENT
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     entry = registry.async_get("sensor.home_carbon_monoxide")
     assert entry
@@ -120,7 +126,7 @@ async def test_sensor(hass, aioclient_mock):
 
     state = hass.states.get("sensor.home_nitrogen_dioxide")
     assert state
-    assert state.state == "16"
+    assert state.state == "16.04"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -132,10 +138,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_nitrogen_dioxide")
     assert entry
     assert entry.unique_id == "123-456-no2"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_ozone")
     assert state
-    assert state.state == "42"
+    assert state.state == "41.52"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -147,10 +154,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_ozone")
     assert entry
     assert entry.unique_id == "123-456-o3"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_sulphur_dioxide")
     assert state
-    assert state.state == "14"
+    assert state.state == "13.97"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert (
         state.attributes.get(ATTR_UNIT_OF_MEASUREMENT)
@@ -162,10 +170,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_sulphur_dioxide")
     assert entry
     assert entry.unique_id == "123-456-so2"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_pressure")
     assert state
-    assert state.state == "1020"
+    assert state.state == "1019.86"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == UnitOfPressure.HPA
     assert state.attributes.get(ATTR_DEVICE_CLASS) == SensorDeviceClass.PRESSURE
@@ -174,10 +183,11 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_pressure")
     assert entry
     assert entry.unique_id == "123-456-pressure"
+    assert entry.options["sensor"] == {"suggested_display_precision": 0}
 
     state = hass.states.get("sensor.home_temperature")
     assert state
-    assert state.state == "14.4"
+    assert state.state == "14.37"
     assert state.attributes.get(ATTR_ATTRIBUTION) == ATTRIBUTION
     assert state.attributes.get(ATTR_UNIT_OF_MEASUREMENT) == UnitOfTemperature.CELSIUS
     assert state.attributes.get(ATTR_DEVICE_CLASS) == SensorDeviceClass.TEMPERATURE
@@ -186,6 +196,7 @@ async def test_sensor(hass, aioclient_mock):
     entry = registry.async_get("sensor.home_temperature")
     assert entry
     assert entry.unique_id == "123-456-temperature"
+    assert entry.options["sensor"] == {"suggested_display_precision": 1}
 
 
 async def test_availability(hass, aioclient_mock):
@@ -195,7 +206,7 @@ async def test_availability(hass, aioclient_mock):
     state = hass.states.get("sensor.home_humidity")
     assert state
     assert state.state != STATE_UNAVAILABLE
-    assert state.state == "68.3"
+    assert state.state == "68.35"
 
     aioclient_mock.clear_requests()
     aioclient_mock.get(
@@ -218,7 +229,7 @@ async def test_availability(hass, aioclient_mock):
     state = hass.states.get("sensor.home_humidity")
     assert state
     assert state.state != STATE_UNAVAILABLE
-    assert state.state == "68.3"
+    assert state.state == "68.35"
 
 
 async def test_manual_update_entity(hass, aioclient_mock):
diff --git a/tests/components/sensor/test_init.py b/tests/components/sensor/test_init.py
index 17a794ac0d3..98cc3efb2e0 100644
--- a/tests/components/sensor/test_init.py
+++ b/tests/components/sensor/test_init.py
@@ -518,195 +518,6 @@ async def test_custom_unit(
     assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == state_unit
 
 
-@pytest.mark.parametrize(
-    "device_class,native_unit,custom_unit,native_value,native_precision,default_state,custom_state",
-    [
-        (
-            SensorDeviceClass.ATMOSPHERIC_PRESSURE,
-            UnitOfPressure.HPA,
-            UnitOfPressure.INHG,
-            1000.0,
-            2,
-            "1000.00",  # Native precision is 2
-            "29.530",  # One digit of precision added when converting
-        ),
-        (
-            SensorDeviceClass.ATMOSPHERIC_PRESSURE,
-            UnitOfPressure.INHG,
-            UnitOfPressure.HPA,
-            29.9211,
-            3,
-            "29.921",  # Native precision is 3
-            "1013.24",  # One digit of precision removed when converting
-        ),
-        (
-            SensorDeviceClass.ATMOSPHERIC_PRESSURE,
-            UnitOfPressure.INHG,
-            UnitOfPressure.HPA,
-            -0.0001,
-            3,
-            "0.000",  # Native precision is 3
-            "0.00",  # One digit of precision removed when converting
-        ),
-    ],
-)
-async def test_native_precision_scaling(
-    hass,
-    enable_custom_integrations,
-    device_class,
-    native_unit,
-    custom_unit,
-    native_value,
-    native_precision,
-    default_state,
-    custom_state,
-):
-    """Test native precision is influenced by unit conversion."""
-    entity_registry = er.async_get(hass)
-
-    entry = entity_registry.async_get_or_create("sensor", "test", "very_unique")
-    platform = getattr(hass.components, "test.sensor")
-    platform.init(empty=True)
-    platform.ENTITIES["0"] = platform.MockSensor(
-        name="Test",
-        native_value=str(native_value),
-        native_precision=native_precision,
-        native_unit_of_measurement=native_unit,
-        device_class=device_class,
-        unique_id="very_unique",
-    )
-
-    entity0 = platform.ENTITIES["0"]
-    assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
-    await hass.async_block_till_done()
-
-    state = hass.states.get(entity0.entity_id)
-    assert state.state == default_state
-    assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == native_unit
-
-    entity_registry.async_update_entity_options(
-        entry.entity_id, "sensor", {"unit_of_measurement": custom_unit}
-    )
-    await hass.async_block_till_done()
-
-    state = hass.states.get(entity0.entity_id)
-    assert state.state == custom_state
-    assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == custom_unit
-
-
-@pytest.mark.parametrize(
-    "device_class,native_unit,custom_precision,native_value,default_state,custom_state",
-    [
-        (
-            SensorDeviceClass.ATMOSPHERIC_PRESSURE,
-            UnitOfPressure.HPA,
-            4,
-            1000.0,
-            "1000.000",
-            "1000.0000",
-        ),
-        (
-            SensorDeviceClass.DISTANCE,
-            UnitOfLength.KILOMETERS,
-            1,
-            -0.04,
-            "-0.040",
-            "0.0",  # Make sure minus is dropped
-        ),
-    ],
-)
-async def test_custom_precision_native_precision(
-    hass,
-    enable_custom_integrations,
-    device_class,
-    native_unit,
-    custom_precision,
-    native_value,
-    default_state,
-    custom_state,
-):
-    """Test custom precision."""
-    entity_registry = er.async_get(hass)
-
-    entry = entity_registry.async_get_or_create("sensor", "test", "very_unique")
-    platform = getattr(hass.components, "test.sensor")
-    platform.init(empty=True)
-    platform.ENTITIES["0"] = platform.MockSensor(
-        name="Test",
-        native_value=str(native_value),
-        native_precision=3,
-        native_unit_of_measurement=native_unit,
-        device_class=device_class,
-        unique_id="very_unique",
-    )
-
-    entity0 = platform.ENTITIES["0"]
-    assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
-    await hass.async_block_till_done()
-
-    state = hass.states.get(entity0.entity_id)
-    assert state.state == default_state
-    assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == native_unit
-
-    entity_registry.async_update_entity_options(
-        entry.entity_id, "sensor", {"precision": custom_precision}
-    )
-    await hass.async_block_till_done()
-
-    state = hass.states.get(entity0.entity_id)
-    assert state.state == custom_state
-    assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == native_unit
-
-
-@pytest.mark.parametrize(
-    "device_class,native_unit,custom_precision,native_value,custom_state",
-    [
-        (
-            SensorDeviceClass.ATMOSPHERIC_PRESSURE,
-            UnitOfPressure.HPA,
-            4,
-            1000.0,
-            "1000.0000",
-        ),
-    ],
-)
-async def test_custom_precision_no_native_precision(
-    hass,
-    enable_custom_integrations,
-    device_class,
-    native_unit,
-    custom_precision,
-    native_value,
-    custom_state,
-):
-    """Test custom precision."""
-    entity_registry = er.async_get(hass)
-
-    entry = entity_registry.async_get_or_create("sensor", "test", "very_unique")
-    entity_registry.async_update_entity_options(
-        entry.entity_id, "sensor", {"precision": custom_precision}
-    )
-    await hass.async_block_till_done()
-
-    platform = getattr(hass.components, "test.sensor")
-    platform.init(empty=True)
-    platform.ENTITIES["0"] = platform.MockSensor(
-        name="Test",
-        native_value=str(native_value),
-        native_unit_of_measurement=native_unit,
-        device_class=device_class,
-        unique_id="very_unique",
-    )
-
-    entity0 = platform.ENTITIES["0"]
-    assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
-    await hass.async_block_till_done()
-
-    state = hass.states.get(entity0.entity_id)
-    assert state.state == custom_state
-    assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == native_unit
-
-
 @pytest.mark.parametrize(
     "native_unit, custom_unit, state_unit, native_value, native_state, custom_state, device_class",
     [
@@ -1188,6 +999,121 @@ async def test_unit_conversion_priority_suggested_unit_change(
     assert state.attributes[ATTR_UNIT_OF_MEASUREMENT] == original_unit
 
 
+@pytest.mark.parametrize(
+    "native_unit, suggested_precision, native_value, device_class",
+    [
+        # Distance
+        (
+            UnitOfLength.KILOMETERS,
+            4,
+            1000,
+            SensorDeviceClass.DISTANCE,
+        ),
+    ],
+)
+async def test_suggested_precision_option(
+    hass,
+    enable_custom_integrations,
+    native_unit,
+    suggested_precision,
+    native_value,
+    device_class,
+):
+    """Test suggested precision is stored in the registry."""
+
+    entity_registry = er.async_get(hass)
+    platform = getattr(hass.components, "test.sensor")
+    platform.init(empty=True)
+
+    platform.ENTITIES["0"] = platform.MockSensor(
+        name="Test",
+        device_class=device_class,
+        native_unit_of_measurement=native_unit,
+        native_value=str(native_value),
+        suggested_display_precision=suggested_precision,
+        unique_id="very_unique",
+    )
+    entity0 = platform.ENTITIES["0"]
+
+    assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
+    await hass.async_block_till_done()
+
+    # Assert the suggested precision is stored in the registry
+    entry = entity_registry.async_get(entity0.entity_id)
+    assert entry.options == {
+        "sensor": {"suggested_display_precision": suggested_precision}
+    }
+
+
+@pytest.mark.parametrize(
+    "native_unit, old_precision, new_precision, native_value, device_class",
+    [
+        (
+            UnitOfLength.KILOMETERS,
+            4,
+            1,
+            1000,
+            SensorDeviceClass.DISTANCE,
+        ),
+    ],
+)
+async def test_suggested_precision_option_update(
+    hass,
+    enable_custom_integrations,
+    native_unit,
+    old_precision,
+    new_precision,
+    native_value,
+    device_class,
+):
+    """Test suggested precision stored in the registry is updated."""
+
+    entity_registry = er.async_get(hass)
+    platform = getattr(hass.components, "test.sensor")
+    platform.init(empty=True)
+
+    # Pre-register entities
+    entry = entity_registry.async_get_or_create("sensor", "test", "very_unique")
+    entity_registry.async_update_entity_options(
+        entry.entity_id,
+        "sensor",
+        {
+            "suggested_display_precision": old_precision,
+        },
+    )
+    entity_registry.async_update_entity_options(
+        entry.entity_id,
+        "sensor.private",
+        {
+            "suggested_unit_of_measurement": native_unit,
+        },
+    )
+
+    platform.ENTITIES["0"] = platform.MockSensor(
+        name="Test",
+        device_class=device_class,
+        native_unit_of_measurement=native_unit,
+        native_value=str(native_value),
+        suggested_display_precision=new_precision,
+        unique_id="very_unique",
+    )
+    entity0 = platform.ENTITIES["0"]
+
+    assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
+    await hass.async_block_till_done()
+
+    # Assert the suggested precision is stored in the registry
+    entry = entity_registry.async_get(entity0.entity_id)
+    assert entry.options == {
+        "sensor": {
+            "suggested_display_precision": new_precision,
+        },
+        "sensor.private": {
+            "suggested_unit_of_measurement": native_unit,
+        },
+    }
+
+
 @pytest.mark.parametrize(
     "unit_system, native_unit, original_unit, native_value, original_value, device_class",
     [
@@ -1519,10 +1445,10 @@ async def test_non_numeric_validation_raise(
     platform.ENTITIES["0"] = platform.MockSensor(
         name="Test",
         device_class=device_class,
-        native_precision=precision,
         native_unit_of_measurement=unit,
         native_value=native_value,
         state_class=state_class,
+        suggested_display_precision=precision,
     )
     entity0 = platform.ENTITIES["0"]
 
@@ -1650,7 +1576,7 @@ async def test_device_classes_with_invalid_state_class(
 
 
 @pytest.mark.parametrize(
-    "device_class,state_class,native_unit_of_measurement,native_precision,is_numeric",
+    "device_class,state_class,native_unit_of_measurement,suggested_precision,is_numeric",
     [
         (SensorDeviceClass.ENUM, None, None, None, False),
         (SensorDeviceClass.DATE, None, None, None, False),
@@ -1669,7 +1595,7 @@ async def test_numeric_state_expected_helper(
     device_class: SensorDeviceClass | None,
     state_class: SensorStateClass | None,
     native_unit_of_measurement: str | None,
-    native_precision: int | None,
+    suggested_precision: int | None,
     is_numeric: bool,
 ) -> None:
     """Test numeric_state_expected helper."""
@@ -1681,7 +1607,7 @@ async def test_numeric_state_expected_helper(
         device_class=device_class,
         state_class=state_class,
         native_unit_of_measurement=native_unit_of_measurement,
-        native_precision=native_precision,
+        suggested_display_precision=suggested_precision,
     )
 
     assert await async_setup_component(hass, "sensor", {"sensor": {"platform": "test"}})
diff --git a/tests/testing_config/custom_components/test/sensor.py b/tests/testing_config/custom_components/test/sensor.py
index 6594d9bbfae..4eae52fd4a5 100644
--- a/tests/testing_config/custom_components/test/sensor.py
+++ b/tests/testing_config/custom_components/test/sensor.py
@@ -98,9 +98,9 @@ class MockSensor(MockEntity, SensorEntity):
         return self._handle("last_reset")
 
     @property
-    def native_precision(self):
+    def suggested_display_precision(self):
         """Return the number of digits after the decimal point."""
-        return self._handle("native_precision")
+        return self._handle("suggested_display_precision")
 
     @property
     def native_unit_of_measurement(self):