diff --git a/server/internal/api/apiv1/post_init_handlers.go b/server/internal/api/apiv1/post_init_handlers.go
index 59d01858..ba5a97ff 100644
--- a/server/internal/api/apiv1/post_init_handlers.go
+++ b/server/internal/api/apiv1/post_init_handlers.go
@@ -475,7 +475,8 @@ func (s *PostInitHandlers) DeleteDatabase(ctx context.Context, req *api.DeleteDa
 		return nil, ErrDatabaseNotModifiable
 	}
 
-	prevState := db.State
+	// Use the raw stored state as the guard for this transition.
+	prevState := db.RawState
 	err = s.dbSvc.UpdateDatabaseState(ctx, db.DatabaseID, prevState, database.DatabaseStateDeleting)
 	if err != nil {
 		return nil, apiErr(err)
diff --git a/server/internal/database/database.go b/server/internal/database/database.go
index d550fde8..c1c250ca 100644
--- a/server/internal/database/database.go
+++ b/server/internal/database/database.go
@@ -48,6 +48,11 @@ type Database struct {
 	CreatedAt        time.Time
 	UpdatedAt        time.Time
 	State            DatabaseState
+	// RawState is the state as persisted in storage, before any derived
+	// adjustments (e.g. degrading State based on instance health). Callers
+	// that need to perform a guarded transition against the stored state
+	// (e.g. a compare-and-swap) should use this instead of State.
+	RawState         DatabaseState
 	Spec             *Spec
 	Instances        []*Instance
 	ServiceInstances []*ServiceInstance
@@ -71,13 +76,32 @@ func databaseToStored(d *Database) *StoredDatabase {
 	}
 }
 
+var degradedInstanceStates = ds.NewSet(
+	InstanceStateDegraded,
+	InstanceStateFailed,
+	InstanceStateUnknown,
+	InstanceStateStopped,
+)
+
 func storedToDatabase(d *StoredDatabase, storedSpec *StoredSpec, instances []*Instance, serviceInstances []*ServiceInstance) *Database {
+	state := d.State
+
+	if state == DatabaseStateAvailable {
+		for _, instance := range instances {
+			if degradedInstanceStates.Has(instance.State) {
+				state = DatabaseStateDegraded
+				break
+			}
+		}
+	}
+
 	return &Database{
 		DatabaseID:       d.DatabaseID,
 		TenantID:         d.TenantID,
 		CreatedAt:        d.CreatedAt,
 		UpdatedAt:        d.UpdatedAt,
-		State:            d.State,
+		State:            state,
+		RawState:         d.State,
 		Spec:             storedSpec.Spec,
 		Instances:        instances,
 		ServiceInstances: serviceInstances,
@@ -95,7 +119,6 @@ func storedToDatabases(storedDbs []*StoredDatabase, storedSpecs []*StoredSpec, a
 	for _, instance := range allInstances {
 		instancesByID[instance.DatabaseID] = append(instancesByID[instance.DatabaseID], instance)
 	}
-
 	serviceInstancesByID := make(map[string][]*ServiceInstance, len(allServiceInstances))
 	for _, serviceInstance := range allServiceInstances {
 		serviceInstancesByID[serviceInstance.DatabaseID] = append(serviceInstancesByID[serviceInstance.DatabaseID], serviceInstance)
diff --git a/server/internal/database/database_test.go b/server/internal/database/database_test.go
new file mode 100644
index 00000000..f3c6e677
--- /dev/null
+++ b/server/internal/database/database_test.go
@@ -0,0 +1,54 @@
+package database
+
+import (
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+)
+
+func TestStoredToDatabaseDegradesWhenInstanceUnavailable(t *testing.T) {
+	tests := []struct {
+		name          string
+		instanceState InstanceState
+		wantState     DatabaseState
+	}{
+		{"available instance keeps database available", InstanceStateAvailable, DatabaseStateAvailable},
+		{"degraded instance degrades database", InstanceStateDegraded, DatabaseStateDegraded},
+		{"failed instance degrades database", InstanceStateFailed, DatabaseStateDegraded},
+		{"unknown instance degrades database", InstanceStateUnknown, DatabaseStateDegraded},
+		{"stopped instance degrades database", InstanceStateStopped, DatabaseStateDegraded},
+		{"creating instance does not degrade database", InstanceStateCreating, DatabaseStateAvailable},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			stored := &StoredDatabase{
+				DatabaseID: "db1",
+				State:      DatabaseStateAvailable,
+			}
+			storedSpec := &StoredSpec{}
+			instances := []*Instance{
+				{InstanceID: "i1", DatabaseID: "db1", State: tt.instanceState},
+			}
+
+			db := storedToDatabase(stored, storedSpec, instances, nil)
+
+			assert.Equal(t, tt.wantState, db.State)
+		})
+	}
+}
+
+func TestStoredToDatabaseDoesNotDegradeNonAvailableDatabase(t *testing.T) {
+	stored := &StoredDatabase{
+		DatabaseID: "db1",
+		State:      DatabaseStateCreating,
+	}
+	storedSpec := &StoredSpec{}
+	instances := []*Instance{
+		{InstanceID: "i1", DatabaseID: "db1", State: InstanceStateFailed},
+	}
+
+	db := storedToDatabase(stored, storedSpec, instances, nil)
+
+	assert.Equal(t, DatabaseStateCreating, db.State)
+}
diff --git a/server/internal/database/service.go b/server/internal/database/service.go
index 29d10951..0335b542 100644
--- a/server/internal/database/service.go
+++ b/server/internal/database/service.go
@@ -77,6 +77,7 @@ func (s *Service) CreateDatabase(ctx context.Context, spec *Spec) (*Database, er
 		CreatedAt:  now,
 		UpdatedAt:  now,
 		State:      DatabaseStateCreating,
+		RawState:   DatabaseStateCreating,
 		Spec:       spec,
 		NotCreated: true,
 	}