diff --git a/packages/components/src/color-palette/README.md b/packages/components/src/color-palette/README.md
index 83fac83707aec6..2f0722dea29592 100644
--- a/packages/components/src/color-palette/README.md
+++ b/packages/components/src/color-palette/README.md
@@ -50,6 +50,16 @@ Whether the palette should have a clearing button or not.
 - Required: No
 - Default: true
 
+### disableAlpha
+
+Whether the custom color picker allows the selection of alpha values. Only relevant, when
+`disableCustomColors` is false. If alpha is enabled, the returned color format will be rgba
+instead of hex.
+
+- Type: `Boolean`
+- Required: No
+- Default: true
+
 
 ## Usage
 ```jsx
diff --git a/packages/components/src/color-palette/index.js b/packages/components/src/color-palette/index.js
index 6f8dc6181ee03d..6058c26a899455 100644
--- a/packages/components/src/color-palette/index.js
+++ b/packages/components/src/color-palette/index.js
@@ -23,6 +23,7 @@ export default function ColorPalette( {
 	disableCustomColors = false,
 	onChange,
 	value,
+	disableAlpha = true,
 } ) {
 	const clearColor = useCallback( () => onChange( undefined ), [ onChange ] );
 	const colorOptions = useMemo( () => {
@@ -61,8 +62,12 @@ export default function ColorPalette( {
 	const renderCustomColorPicker = () => (
 		<ColorPicker
 			color={ value }
-			onChangeComplete={ ( color ) => onChange( color.hex ) }
-			disableAlpha
+			onChangeComplete={ ( color ) =>
+				disableAlpha
+					? onChange( color.hex )
+					: onChange( tinycolor( color.rgb ).toRgbString() )
+			}
+			disableAlpha={ disableAlpha }
 		/>
 	);
 
diff --git a/packages/components/src/color-palette/stories/index.js b/packages/components/src/color-palette/stories/index.js
index 11096ce9ae67cf..d997270f3884ad 100644
--- a/packages/components/src/color-palette/stories/index.js
+++ b/packages/components/src/color-palette/stories/index.js
@@ -39,3 +39,16 @@ export const withKnobs = () => {
 
 	return <ColorPaletteWithState colors={ colors } />;
 };
+
+export const alphaEnabled = () => {
+	const colors = [
+		object( 'Red', { name: 'red transparent', color: '#f00a' } ),
+		object( 'White', { name: 'white transparent', color: '#fff9' } ),
+		object( 'Blue', {
+			name: 'blue transparent',
+			color: 'rgba(0, 0, 255, 0.5)',
+		} ),
+	];
+
+	return <ColorPaletteWithState colors={ colors } disableAlpha={ false } />;
+};