diff --git a/e2e/embed-content.spec.js b/e2e/embed-content.spec.js
index adb56fe09..fe870d6cd 100644
--- a/e2e/embed-content.spec.js
+++ b/e2e/embed-content.spec.js
@@ -107,7 +107,7 @@ test.describe( 'Embedded Content', () => {
 		expect( blocks[ 0 ].attributes.providerNameSlug ).toBe( 'youtube' );
 	} );
 
-	test( 'should show a fallback link for a non-embeddable URL', async ( {
+	test( 'should store no preview for a non-embeddable URL', async ( {
 		page,
 	} ) => {
 		const editor = new EditorPage( page );
@@ -123,16 +123,13 @@ test.describe( 'Embedded Content', () => {
 		await urlInput.fill( 'https://example.com/not-embeddable' );
 		await page.keyboard.press( 'Enter' );
 
-		// Wait for the embed to resolve (or fall back).
-		// The block should still render with the URL attribute.
+		// The proxy answers 404, so core stores `false` for the preview
+		// rather than a preview object.
 		await page.waitForFunction(
-			() => {
-				const blocks = window.wp.data
-					.select( 'core/block-editor' )
-					.getBlocks();
-				return blocks[ 0 ]?.attributes?.url;
-			},
-			null,
+			( url ) =>
+				window.wp.data.select( 'core' ).getEmbedPreview( url ) ===
+				false,
+			'https://example.com/not-embeddable',
 			{ timeout: 30_000 }
 		);
 
diff --git a/src/utils/api-fetch.js b/src/utils/api-fetch.js
index d136c3a38..d08aa9431 100644
--- a/src/utils/api-fetch.js
+++ b/src/utils/api-fetch.js
@@ -1,5 +1,4 @@
 import apiFetch from '@wordpress/api-fetch';
-import { getQueryArg } from '@wordpress/url';
 import { __ } from '@wordpress/i18n';
 import { getGBKit, POST_FALLBACKS } from './bridge';
 import { info, warn, error as logError } from './logger';
@@ -454,56 +453,35 @@ function mediaPermissionsMiddleware( options, next ) {
  * Remove the wrapping element from the oEmbed response, as it breaks
  * Gutenberg's sizing styles.
  *
+ * A failed request is left to reject, so core stores `false` and blocks that
+ * poll for a preview (e.g. VideoPress while processing an upload) ask again.
+ *
  * @type {APIFetchMiddleware}
  *
  * @todo Hoist this host-specific logic to the host app.
  */
 function transformOEmbedApiResponse( options, next ) {
 	if ( options.path && options.path.indexOf( 'oembed' ) !== -1 ) {
-		const url = getQueryArg( options.path, 'url' );
-		const response = next( options, next );
-
-		/**
-		 * Creates an embed response emulating core's fallback link.
-		 */
-		function createFallbackResponse() {
-			const link = document.createElement( 'a' );
-			link.href = url;
-			link.innerText = url;
-			return {
-				html: link.outerHTML,
-				type: 'rich',
-				provider_name: 'Embed',
-			};
-		}
-
-		return new Promise( ( resolve ) => {
-			response
-				.then( ( data ) => {
-					if ( data.html ) {
-						/**
-						 * Removes wrappers from YouTube, Vimeo, Dailymotion, TED block, e.g.
-						 * <span class="embed-youtube">, <div class="embed-vimeo">, <div class="embed-dailymotion">, <div class="embed-ted">
-						 * and return just the <iframe> child directly to allow wide & full width sizing.
-						 */
-						const doc =
-							document.implementation.createHTMLDocument( '' );
-						doc.body.innerHTML = data.html;
-						const selectors = [
-							'[class="embed-youtube"]',
-							'[class="embed-vimeo"]',
-							'[class="embed-dailymotion"]',
-							'[class="embed-ted"]',
-						].join( ',' );
-						const wrapper = doc.querySelector( selectors );
-						data.html = wrapper ? wrapper.innerHTML : data.html;
-					}
+		return next( options, next ).then( ( data ) => {
+			if ( data?.html ) {
+				/**
+				 * Removes wrappers from YouTube, Vimeo, Dailymotion, TED block, e.g.
+				 * <span class="embed-youtube">, <div class="embed-vimeo">, <div class="embed-dailymotion">, <div class="embed-ted">
+				 * and return just the <iframe> child directly to allow wide & full width sizing.
+				 */
+				const doc = document.implementation.createHTMLDocument( '' );
+				doc.body.innerHTML = data.html;
+				const selectors = [
+					'[class="embed-youtube"]',
+					'[class="embed-vimeo"]',
+					'[class="embed-dailymotion"]',
+					'[class="embed-ted"]',
+				].join( ',' );
+				const wrapper = doc.querySelector( selectors );
+				data.html = wrapper ? wrapper.innerHTML : data.html;
+			}
 
-					resolve( data );
-				} )
-				.catch( () => {
-					resolve( createFallbackResponse() );
-				} );
+			return data;
 		} );
 	}
 
diff --git a/src/utils/api-fetch.test.js b/src/utils/api-fetch.test.js
index a9b24fc9a..a81937895 100644
--- a/src/utils/api-fetch.test.js
+++ b/src/utils/api-fetch.test.js
@@ -743,4 +743,77 @@ describe( 'api-fetch credentials handling', () => {
 		expect( options.headers[ 'X-Custom-Header' ] ).toBe( 'custom-value' );
 		expect( options.headers.Authorization ).toBe( 'Bearer preserve-test' );
 	} );
+
+	describe( 'oEmbed responses', () => {
+		const proxyPath =
+			'/oembed/1.0/proxy?url=https%3A%2F%2Fvideopress.com%2Fv%2FeDeLfBNN';
+
+		beforeEach( () => {
+			bridge.getGBKit.mockReturnValue( {
+				siteApiRoot: 'https://example.com/wp-json/',
+				authHeader: 'Bearer test-token',
+				siteApiNamespace: [],
+				namespaceExcludedPaths: [],
+			} );
+		} );
+
+		function respondWith( body, status = 200 ) {
+			global.fetch = vi.fn( () =>
+				Promise.resolve(
+					new Response( JSON.stringify( body ), {
+						status,
+						headers: { 'Content-Type': 'application/json' },
+					} )
+				)
+			);
+		}
+
+		it( 'rejects when WordPress cannot embed the URL', async () => {
+			respondWith(
+				{
+					code: 'oembed_invalid_url',
+					message: 'Not Found',
+					data: { status: 404 },
+				},
+				404
+			);
+
+			await expect(
+				apiFetch( { path: proxyPath } )
+			).rejects.toMatchObject( { code: 'oembed_invalid_url' } );
+		} );
+
+		it( 'rejects when the request fails', async () => {
+			global.fetch = vi.fn( () =>
+				Promise.reject( new TypeError( 'Load failed' ) )
+			);
+
+			await expect(
+				apiFetch( { path: proxyPath } )
+			).rejects.toBeDefined();
+		} );
+
+		it( 'removes the wrapper around a provider iframe', async () => {
+			respondWith( {
+				html: '<span class="embed-youtube"><iframe src="https://www.youtube.com/embed/abc"></iframe></span>',
+				type: 'video',
+			} );
+
+			const preview = await apiFetch( { path: proxyPath } );
+
+			expect( preview.html ).toBe(
+				'<iframe src="https://www.youtube.com/embed/abc"></iframe>'
+			);
+		} );
+
+		it( 'returns other embed markup as WordPress sent it', async () => {
+			const html =
+				'<a href="https://example.com/post">https://example.com/post</a>';
+			respondWith( { html, type: 'rich' } );
+
+			const preview = await apiFetch( { path: proxyPath } );
+
+			expect( preview ).toEqual( { html, type: 'rich' } );
+		} );
+	} );
 } );