diff --git a/internal/controllers/machinedeployment/machinedeployment_controller.go b/internal/controllers/machinedeployment/machinedeployment_controller.go
index 64ac90c58d0f..615c4191477c 100644
--- a/internal/controllers/machinedeployment/machinedeployment_controller.go
+++ b/internal/controllers/machinedeployment/machinedeployment_controller.go
@@ -88,14 +88,14 @@ func (r *Reconciler) SetupWithManager(ctx context.Context, mgr ctrl.Manager, opt
 			handler.EnqueueRequestsFromMapFunc(r.MachineSetToDeployments),
 		).
 		WithOptions(options).
-		WithEventFilter(predicates.ResourceNotPausedAndHasFilterLabel(ctrl.LoggerFrom(ctx), r.WatchFilterValue)).
+		WithEventFilter(predicates.ResourceHasFilterLabel(ctrl.LoggerFrom(ctx), r.WatchFilterValue)).
 		Watches(
 			&clusterv1.Cluster{},
 			handler.EnqueueRequestsFromMapFunc(clusterToMachineDeployments),
 			builder.WithPredicates(
 				// TODO: should this wait for Cluster.Status.InfrastructureReady similar to Infra Machine resources?
 				predicates.All(ctrl.LoggerFrom(ctx),
-					predicates.ClusterUnpaused(ctrl.LoggerFrom(ctx)),
+					predicates.ClusterCreateUpdateEvent(ctrl.LoggerFrom(ctx)),
 				),
 			),
 		).Complete(r)
@@ -131,12 +131,6 @@ func (r *Reconciler) Reconcile(ctx context.Context, req ctrl.Request) (_ ctrl.Re
 		return ctrl.Result{}, err
 	}
 
-	// Return early if the object or Cluster is paused.
-	if annotations.IsPaused(cluster, deployment) {
-		log.Info("Reconciliation is paused for this object")
-		return ctrl.Result{}, nil
-	}
-
 	// Initialize the patch helper
 	patchHelper, err := patch.NewHelper(deployment, r.Client)
 	if err != nil {
@@ -155,6 +149,14 @@ func (r *Reconciler) Reconcile(ctx context.Context, req ctrl.Request) (_ ctrl.Re
 		}
 	}()
 
+	// Return early if the object or Cluster is paused.
+	if annotations.IsPaused(cluster, deployment) {
+		log.Info("Reconciliation is paused for this object")
+		conditions.MarkTrue(deployment, clusterv1.PausedCondition)
+		return ctrl.Result{}, nil
+	}
+	conditions.MarkFalse(deployment, clusterv1.PausedCondition, clusterv1.ResourceNotPausedReason, clusterv1.ConditionSeverityInfo, "Resource is operating as expected")
+
 	// Ignore deleted MachineDeployments, this can happen when foregroundDeletion
 	// is enabled
 	if !deployment.DeletionTimestamp.IsZero() {
@@ -262,6 +264,10 @@ func (r *Reconciler) reconcile(ctx context.Context, cluster *clusterv1.Cluster,
 	}
 
 	if md.Spec.Paused {
+		log.Info("This machine deployment is paused. Sync and status updates will still be reconciled")
+		// TODO: Make this condition specific, with a different reason to the other
+		// paused = true conditions
+		conditions.MarkTrue(md, clusterv1.PausedCondition)
 		return r.sync(ctx, md, msList)
 	}
 
diff --git a/internal/controllers/machinedeployment/machinedeployment_controller_test.go b/internal/controllers/machinedeployment/machinedeployment_controller_test.go
index b54f128cb41e..8299daf6999a 100644
--- a/internal/controllers/machinedeployment/machinedeployment_controller_test.go
+++ b/internal/controllers/machinedeployment/machinedeployment_controller_test.go
@@ -465,6 +465,25 @@ func TestMachineDeploymentReconciler(t *testing.T) {
 			return conditions.IsTrue(deployment, clusterv1.MachineDeploymentAvailableCondition)
 		}, timeout).Should(BeTrue())
 
+		// By default, the machine deployment is not paused
+
+		g.Eventually(func() bool {
+			key := client.ObjectKey{Name: deployment.Name, Namespace: deployment.Namespace}
+			g.Expect(env.Get(ctx, key, deployment)).To(Succeed())
+			return conditions.IsFalse(deployment, clusterv1.PausedCondition)
+		}, timeout).Should(BeTrue())
+
+		// Pause the cluster, expect the paused condition to be set
+		g.Expect(env.Get(ctx, util.ObjectKey(testCluster), testCluster)).To(Succeed())
+		testCluster.Spec.Paused = true
+		g.Expect(env.Update(ctx, testCluster)).To(Succeed())
+
+		g.Eventually(func() bool {
+			key := client.ObjectKey{Name: deployment.Name, Namespace: deployment.Namespace}
+			g.Expect(env.Get(ctx, key, deployment)).To(Succeed())
+			return conditions.IsTrue(deployment, clusterv1.PausedCondition)
+		}, timeout).Should(BeTrue())
+
 		// Validate that the controller set the cluster name label in selector.
 		g.Expect(deployment.Status.Selector).To(ContainSubstring(testCluster.Name))
 	})