diff --git a/esphome/components/display/display_color_utils.h b/esphome/components/display/display_color_utils.h
index 7f29586932..bf6d5445f1 100644
--- a/esphome/components/display/display_color_utils.h
+++ b/esphome/components/display/display_color_utils.h
@@ -107,6 +107,53 @@ class ColorUtil {
     uint32_t gs4 = esp_scale8(color.white, 15);
     return gs4;
   }
+  /***
+   * Converts a Color value to an 8bit index using a 24bit 888 palette.
+   * Uses euclidiean distance to calculate the linear distance between
+   * two points in an RGB cube, then iterates through the full palette
+   * returning the closest match.
+   * @param[in] color The target color.
+   * @param[in] palette The 256*3 byte RGB palette.
+   * @return The 8 bit index of the closest color (e.g. for display buffer).
+   */
+  // static uint8_t color_to_index8_palette888(Color color, uint8_t *palette) {
+  static uint8_t color_to_index8_palette888(Color color, const uint8_t *palette) {
+    uint8_t closest_index = 0;
+    uint32_t minimum_dist2 = UINT32_MAX;  // Smallest distance^2 to the target
+                                          // so far
+    // int8_t(*plt)[][3] = palette;
+    int16_t tgt_r = color.r;
+    int16_t tgt_g = color.g;
+    int16_t tgt_b = color.b;
+    uint16_t x, y, z;
+    // Loop through each row of the palette
+    for (uint16_t i = 0; i < 256; i++) {
+      // Get the pallet rgb color
+      int16_t plt_r = (int16_t) palette[i * 3 + 0];
+      int16_t plt_g = (int16_t) palette[i * 3 + 1];
+      int16_t plt_b = (int16_t) palette[i * 3 + 2];
+      // Calculate euclidian distance (linear distance in rgb cube).
+      x = (uint32_t) std::abs(tgt_r - plt_r);
+      y = (uint32_t) std::abs(tgt_g - plt_g);
+      z = (uint32_t) std::abs(tgt_b - plt_b);
+      uint32_t dist2 = x * x + y * y + z * z;
+      if (dist2 < minimum_dist2) {
+        minimum_dist2 = dist2;
+        closest_index = (uint8_t) i;
+      }
+    }
+    return closest_index;
+  }
+  /***
+   * Converts an 8bit palette index (e.g. from a display buffer) to a color.
+   * @param[in] index The index to look up.
+   * @param[in] palette The 256*3 byte RGB palette.
+   * @return The RGBW Color object looked up by the palette.
+   */
+  static Color index8_to_color_palette888(uint8_t index, const uint8_t *palette) {
+    Color color = Color(palette[index * 3 + 0], palette[index * 3 + 1], palette[index * 3 + 2], 0);
+    return color;
+  }
 };
 }  // namespace display
 }  // namespace esphome
diff --git a/esphome/components/ili9341/display.py b/esphome/components/ili9341/display.py
index 157e8212bd..6b18196ef1 100644
--- a/esphome/components/ili9341/display.py
+++ b/esphome/components/ili9341/display.py
@@ -3,13 +3,16 @@ import esphome.config_validation as cv
 from esphome import pins
 from esphome.components import display, spi
 from esphome.const import (
+    CONF_COLOR_PALETTE,
     CONF_DC_PIN,
     CONF_ID,
     CONF_LAMBDA,
     CONF_MODEL,
     CONF_PAGES,
+    CONF_RAW_DATA_ID,
     CONF_RESET_PIN,
 )
+from esphome.core import HexInt
 
 DEPENDENCIES = ["spi"]
 
@@ -23,6 +26,7 @@ ILI9341M5Stack = ili9341_ns.class_("ILI9341M5Stack", ili9341)
 ILI9341TFT24 = ili9341_ns.class_("ILI9341TFT24", ili9341)
 
 ILI9341Model = ili9341_ns.enum("ILI9341Model")
+ILI9341ColorMode = ili9341_ns.enum("ILI9341ColorMode")
 
 MODELS = {
     "M5STACK": ILI9341Model.M5STACK,
@@ -31,6 +35,8 @@ MODELS = {
 
 ILI9341_MODEL = cv.enum(MODELS, upper=True, space="_")
 
+COLOR_PALETTE = cv.one_of("NONE", "GRAYSCALE")
+
 CONFIG_SCHEMA = cv.All(
     display.FULL_DISPLAY_SCHEMA.extend(
         {
@@ -39,6 +45,8 @@ CONFIG_SCHEMA = cv.All(
             cv.Required(CONF_DC_PIN): pins.gpio_output_pin_schema,
             cv.Optional(CONF_RESET_PIN): pins.gpio_output_pin_schema,
             cv.Optional(CONF_LED_PIN): pins.gpio_output_pin_schema,
+            cv.Optional(CONF_COLOR_PALETTE, default="NONE"): COLOR_PALETTE,
+            cv.GenerateID(CONF_RAW_DATA_ID): cv.declare_id(cg.uint8),
         }
     )
     .extend(cv.polling_component_schema("1s"))
@@ -73,3 +81,13 @@ async def to_code(config):
     if CONF_LED_PIN in config:
         led_pin = await cg.gpio_pin_expression(config[CONF_LED_PIN])
         cg.add(var.set_led_pin(led_pin))
+
+    if config[CONF_COLOR_PALETTE] == "GRAYSCALE":
+        cg.add(var.set_buffer_color_mode(ILI9341ColorMode.BITS_8_INDEXED))
+        rhs = []
+        for x in range(256):
+            rhs.extend([HexInt(x), HexInt(x), HexInt(x)])
+        prog_arr = cg.progmem_array(config[CONF_RAW_DATA_ID], rhs)
+        cg.add(var.set_palette(prog_arr))
+    else:
+        pass
diff --git a/esphome/components/ili9341/ili9341_display.cpp b/esphome/components/ili9341/ili9341_display.cpp
index 09524ba787..0ad5446d9a 100644
--- a/esphome/components/ili9341/ili9341_display.cpp
+++ b/esphome/components/ili9341/ili9341_display.cpp
@@ -161,8 +161,13 @@ void HOT ILI9341Display::draw_absolute_pixel_internal(int x, int y, Color color)
   this->y_high_ = (y > this->y_high_) ? y : this->y_high_;
 
   uint32_t pos = (y * width_) + x;
-  uint8_t color332 = display::ColorUtil::color_to_332(color, display::ColorOrder::COLOR_ORDER_RGB);
-  buffer_[pos] = color332;
+  if (this->buffer_color_mode_ == BITS_8) {
+    uint8_t color332 = display::ColorUtil::color_to_332(color, display::ColorOrder::COLOR_ORDER_RGB);
+    buffer_[pos] = color332;
+  } else {  // if (this->buffer_color_mode_ == BITS_8_INDEXED) {
+    uint8_t index = display::ColorUtil::color_to_index8_palette888(color, this->palette_);
+    buffer_[pos] = index;
+  }
 }
 
 // should return the total size: return this->get_width_internal() * this->get_height_internal() * 2 // 16bit color
@@ -227,7 +232,13 @@ uint32_t ILI9341Display::buffer_to_transfer_(uint32_t pos, uint32_t sz) {
   }
 
   for (uint32_t i = 0; i < sz; ++i) {
-    uint16_t color = display::ColorUtil::color_to_565(display::ColorUtil::rgb332_to_color(*src++));
+    uint16_t color;
+    if (this->buffer_color_mode_ == BITS_8) {
+      color = display::ColorUtil::color_to_565(display::ColorUtil::rgb332_to_color(*src++));
+    } else {  //  if (this->buffer_color_mode == BITS_8_INDEXED) {
+      Color col = display::ColorUtil::index8_to_color_palette888(*src++, this->palette_);
+      color = display::ColorUtil::color_to_565(col);
+    }
     *dst++ = (uint8_t)(color >> 8);
     *dst++ = (uint8_t) color;
   }
diff --git a/esphome/components/ili9341/ili9341_display.h b/esphome/components/ili9341/ili9341_display.h
index eeff688f4f..6014dbf9a6 100644
--- a/esphome/components/ili9341/ili9341_display.h
+++ b/esphome/components/ili9341/ili9341_display.h
@@ -14,6 +14,11 @@ enum ILI9341Model {
   TFT_24,
 };
 
+enum ILI9341ColorMode {
+  BITS_8,
+  BITS_8_INDEXED,
+};
+
 class ILI9341Display : public PollingComponent,
                        public display::DisplayBuffer,
                        public spi::SPIDevice<spi::BIT_ORDER_MSB_FIRST, spi::CLOCK_POLARITY_LOW,
@@ -24,6 +29,8 @@ class ILI9341Display : public PollingComponent,
   void set_reset_pin(GPIOPin *reset) { this->reset_pin_ = reset; }
   void set_led_pin(GPIOPin *led) { this->led_pin_ = led; }
   void set_model(ILI9341Model model) { this->model_ = model; }
+  void set_palette(const uint8_t *palette) { this->palette_ = palette; }
+  void set_buffer_color_mode(ILI9341ColorMode color_mode) { this->buffer_color_mode_ = color_mode; }
 
   void command(uint8_t value);
   void data(uint8_t value);
@@ -59,6 +66,9 @@ class ILI9341Display : public PollingComponent,
   uint16_t y_low_{0};
   uint16_t x_high_{0};
   uint16_t y_high_{0};
+  const uint8_t *palette_;
+
+  ILI9341ColorMode buffer_color_mode_{BITS_8};
 
   uint32_t get_buffer_length_();
   int get_width_internal() override;
diff --git a/esphome/const.py b/esphome/const.py
index c2aa53be70..b73d7e33bd 100644
--- a/esphome/const.py
+++ b/esphome/const.py
@@ -105,6 +105,7 @@ CONF_COLOR_BRIGHTNESS = "color_brightness"
 CONF_COLOR_CORRECT = "color_correct"
 CONF_COLOR_INTERLOCK = "color_interlock"
 CONF_COLOR_MODE = "color_mode"
+CONF_COLOR_PALETTE = "color_palette"
 CONF_COLOR_TEMPERATURE = "color_temperature"
 CONF_COLORS = "colors"
 CONF_COMMAND = "command"