diff --git a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/EditorMaterialComponent.cpp b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/EditorMaterialComponent.cpp
index 866b2dec56..d2f8c1daa0 100644
--- a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/EditorMaterialComponent.cpp
+++ b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/EditorMaterialComponent.cpp
@@ -45,8 +45,57 @@ namespace AZ
 
             if (classElement.GetVersion() < 3)
             {
-                AZ_Error("EditorMaterialComponent", false, "Material Component version < 3 is no longer supported");
-                return false;
+                // The default material was changed from an asset to an EditorMaterialComponentSlot and old data must be converted
+                constexpr AZ::u32 defaultMaterialAssetDataCrc = AZ_CRC("defaultMaterialAsset", 0x736fc071);
+
+                Data::Asset<RPI::MaterialAsset> oldDefaultMaterialData;
+                if (!classElement.GetChildData(defaultMaterialAssetDataCrc, oldDefaultMaterialData))
+                {
+                    AZ_Error("AZ::Render::EditorMaterialComponent::ConvertVersion", false, "Failed to get defaultMaterialAsset element");
+                    return false;
+                }
+
+                if (!classElement.RemoveElementByName(defaultMaterialAssetDataCrc))
+                {
+                    AZ_Error("AZ::Render::EditorMaterialComponent::ConvertVersion", false, "Failed to remove defaultMaterialAsset element");
+                    return false;
+                }
+
+                EditorMaterialComponentSlot newDefaultMaterialData;
+                newDefaultMaterialData.m_id = DefaultMaterialAssignmentId;
+                newDefaultMaterialData.m_materialAsset = oldDefaultMaterialData;
+                classElement.AddElementWithData(context, "defaultMaterialSlot", newDefaultMaterialData);
+
+                // Slots now support and display the default material asset when empty
+                // The old placeholder assignments are irrelevant and must be cleared
+                constexpr AZ::u32 materialSlotsByLodDataCrc = AZ_CRC("materialSlotsByLod", 0xb1498db6);
+
+                EditorMaterialComponentSlotsByLodContainer lodSlotData;
+                if (!classElement.GetChildData(materialSlotsByLodDataCrc, lodSlotData))
+                {
+                    AZ_Error("AZ::Render::EditorMaterialComponent::ConvertVersion", false, "Failed to get materialSlotsByLod element");
+                    return false;
+                }
+
+                if (!classElement.RemoveElementByName(materialSlotsByLodDataCrc))
+                {
+                    AZ_Error("AZ::Render::EditorMaterialComponent::ConvertVersion", false, "Failed to remove materialSlotsByLod element");
+                    return false;
+                }
+
+                // Find and clear all slots that are assigned to the slot's default value
+                for (auto& lodSlots : lodSlotData)
+                {
+                    for (auto& slot : lodSlots)
+                    {
+                        if (slot.m_materialAsset.GetId() == slot.m_defaultMaterialAsset.GetId())
+                        {
+                            slot.m_materialAsset = {};
+                        }
+                    }
+                }
+
+                classElement.AddElementWithData(context, "materialSlotsByLod", lodSlotData);
             }
 
             if (classElement.GetVersion() < 4)