diff --git a/packages/edit-post/src/components/layout/use-padding-appender.js b/packages/edit-post/src/components/layout/use-padding-appender.js
index efd46a485058c..8bd245e278aec 100644
--- a/packages/edit-post/src/components/layout/use-padding-appender.js
+++ b/packages/edit-post/src/components/layout/use-padding-appender.js
@@ -11,7 +11,13 @@ export function usePaddingAppender() {
 	return useRefEffect(
 		( node ) => {
 			function onMouseDown( event ) {
-				if ( event.target !== node ) {
+				if (
+					event.target !== node &&
+					// Tests for the parent element because in the iframed editor if the click is
+					// below the padding the target will be the parent element (html) and should
+					// still be treated as intent to append.
+					event.target !== node.parentElement
+				) {
 					return;
 				}
 
@@ -38,7 +44,7 @@ export function usePaddingAppender() {
 					return;
 				}
 
-				event.stopPropagation();
+				event.preventDefault();
 
 				const blockOrder = registry
 					.select( blockEditorStore )
@@ -57,9 +63,12 @@ export function usePaddingAppender() {
 					insertDefaultBlock();
 				}
 			}
-			node.addEventListener( 'mousedown', onMouseDown );
+			const { ownerDocument } = node;
+			// Adds the listener on the document so that in the iframed editor clicks below the
+			// padding can be handled as they too should be treated as intent to append.
+			ownerDocument.addEventListener( 'mousedown', onMouseDown );
 			return () => {
-				node.removeEventListener( 'mousedown', onMouseDown );
+				ownerDocument.removeEventListener( 'mousedown', onMouseDown );
 			};
 		},
 		[ registry ]