diff --git a/homeassistant/components/shelly/coordinator.py b/homeassistant/components/shelly/coordinator.py
index 2710565f960..6286e515727 100644
--- a/homeassistant/components/shelly/coordinator.py
+++ b/homeassistant/components/shelly/coordinator.py
@@ -682,6 +682,7 @@ class ShellyRpcCoordinator(ShellyCoordinatorBase[RpcDevice]):
             self.entry.async_create_background_task(
                 self.hass, self._async_connected(), "rpc device init", eager_start=True
             )
+            # Make sure entities are marked available
             self.async_set_updated_data(None)
         elif update_type is RpcUpdateType.DISCONNECTED:
             self.entry.async_create_background_task(
@@ -690,6 +691,8 @@ class ShellyRpcCoordinator(ShellyCoordinatorBase[RpcDevice]):
                 "rpc device disconnected",
                 eager_start=True,
             )
+            # Make sure entities are marked as unavailable
+            self.async_set_updated_data(None)
         elif update_type is RpcUpdateType.STATUS:
             self.async_set_updated_data(None)
             if self.sleep_period:
diff --git a/homeassistant/components/shelly/entity.py b/homeassistant/components/shelly/entity.py
index 5bf8a411377..980a39feaba 100644
--- a/homeassistant/components/shelly/entity.py
+++ b/homeassistant/components/shelly/entity.py
@@ -358,6 +358,14 @@ class ShellyRpcEntity(CoordinatorEntity[ShellyRpcCoordinator]):
         self._attr_unique_id = f"{coordinator.mac}-{key}"
         self._attr_name = get_rpc_entity_name(coordinator.device, key)
 
+    @property
+    def available(self) -> bool:
+        """Check if device is available and initialized or sleepy."""
+        coordinator = self.coordinator
+        return super().available and (
+            coordinator.device.initialized or bool(coordinator.sleep_period)
+        )
+
     @property
     def status(self) -> dict:
         """Device status by entity key."""
diff --git a/tests/components/shelly/test_sensor.py b/tests/components/shelly/test_sensor.py
index 843270107e0..7aa4218341f 100644
--- a/tests/components/shelly/test_sensor.py
+++ b/tests/components/shelly/test_sensor.py
@@ -47,7 +47,7 @@ from . import (
     register_entity,
 )
 
-from tests.common import mock_restore_cache_with_extra_data
+from tests.common import async_fire_time_changed, mock_restore_cache_with_extra_data
 
 RELAY_BLOCK_ID = 0
 SENSOR_BLOCK_ID = 3
@@ -1279,3 +1279,35 @@ async def test_rpc_rgbw_sensors(
     entry = entity_registry.async_get(entity_id)
     assert entry
     assert entry.unique_id == f"123456789ABC-{light_type}:0-temperature_{light_type}"
+
+
+async def test_rpc_device_sensor_goes_unavailable_on_disconnect(
+    hass: HomeAssistant,
+    mock_rpc_device: Mock,
+    monkeypatch: pytest.MonkeyPatch,
+    freezer: FrozenDateTimeFactory,
+    caplog: pytest.LogCaptureFixture,
+) -> None:
+    """Test RPC device with sensor goes unavailable on disconnect."""
+    await init_integration(hass, 2)
+    temp_sensor_state = hass.states.get("sensor.test_name_temperature")
+    assert temp_sensor_state is not None
+    assert temp_sensor_state.state != STATE_UNAVAILABLE
+    monkeypatch.setattr(mock_rpc_device, "connected", False)
+    monkeypatch.setattr(mock_rpc_device, "initialized", False)
+    mock_rpc_device.mock_disconnected()
+    await hass.async_block_till_done()
+    temp_sensor_state = hass.states.get("sensor.test_name_temperature")
+    assert temp_sensor_state.state == STATE_UNAVAILABLE
+
+    freezer.tick(60)
+    async_fire_time_changed(hass)
+    await hass.async_block_till_done()
+    assert "NotInitialized" not in caplog.text
+
+    monkeypatch.setattr(mock_rpc_device, "connected", True)
+    monkeypatch.setattr(mock_rpc_device, "initialized", True)
+    mock_rpc_device.mock_initialized()
+    await hass.async_block_till_done()
+    temp_sensor_state = hass.states.get("sensor.test_name_temperature")
+    assert temp_sensor_state.state != STATE_UNAVAILABLE