diff --git a/pkg/azure/api/providerspec.go b/pkg/azure/api/providerspec.go
index c5df3e30d..da50fcc02 100644
--- a/pkg/azure/api/providerspec.go
+++ b/pkg/azure/api/providerspec.go
@@ -116,6 +116,14 @@ type AzureVirtualMachineProperties struct {
 	MachineSet *AzureMachineSetConfig `json:"machineSet,omitempty"`
 	// SecurityProfile specifies the security profile to be used for the virtual machine.
 	SecurityProfile *AzureSecurityProfile `json:"securityProfile,omitempty"`
+	// CapacityReservation represents the configuration for capacity reservations on Azure.
+	CapacityReservation *CapacityReservation `json:"capacityReservation,omitempty"`
+}
+
+// CapacityReservation represents the configuration for capacity reservations on Azure.
+type CapacityReservation struct {
+	// CapacityReservationGroupID is the resource ID of the capacity reservation group to use.
+	CapacityReservationGroupID *string `json:"capacityReservationGroupID,omitempty"`
 }
 
 // AzureSecurityProfile specifies the security profile to be used for the virtual machine.
diff --git a/pkg/azure/api/validation/validation.go b/pkg/azure/api/validation/validation.go
index 51364b2c7..5d43aa027 100644
--- a/pkg/azure/api/validation/validation.go
+++ b/pkg/azure/api/validation/validation.go
@@ -12,6 +12,7 @@ import (
 	"slices"
 	"strings"
 
+	"github.com/Azure/azure-sdk-for-go/sdk/azcore/arm"
 	"github.com/Azure/azure-sdk-for-go/sdk/resourcemanager/compute/armcompute/v5"
 	"github.com/gardener/machine-controller-manager/pkg/apis/machine/v1alpha1"
 	"github.com/gardener/machine-controller-manager/pkg/util/provider/machinecodes/codes"
@@ -128,6 +129,7 @@ func validateProperties(properties api.AzureVirtualMachineProperties, fldPath *f
 	allErrs = append(allErrs, validateOSProfile(properties.OsProfile, fldPath.Child("osProfile"))...)
 	// validate availability set and vmss
 	allErrs = append(allErrs, validateAvailabilityAndScalingConfig(properties, fldPath)...)
+	allErrs = append(allErrs, validateCapacityReservationConfig(properties.CapacityReservation, fldPath.Child("capacityReservation"))...)
 	allErrs = append(allErrs, validateSecurityProfile(properties.SecurityProfile, fldPath.Child("securityProfile"))...)
 	return allErrs
 }
@@ -294,6 +296,38 @@ func validateAvailabilityAndScalingConfig(properties api.AzureVirtualMachineProp
 	return allErrs
 }
 
+func validateCapacityReservationConfig(capacityReservationConfig *api.CapacityReservation, fldPath *field.Path) field.ErrorList {
+	var allErrs field.ErrorList
+
+	if capacityReservationConfig == nil {
+		return allErrs
+	}
+
+	if capacityReservationGroupID := capacityReservationConfig.CapacityReservationGroupID; capacityReservationGroupID != nil {
+		resourceID, err := arm.ParseResourceID(*capacityReservationGroupID)
+		if err != nil {
+			allErrs = append(
+				allErrs,
+				field.Invalid(
+					fldPath.Child("capacityReservationGroupID"),
+					*capacityReservationGroupID,
+					fmt.Sprintf("invalid Azure resource ID: %v", err),
+				),
+			)
+		} else if resourceType := resourceID.ResourceType.Type; !strings.EqualFold(resourceType, "CapacityReservationGroups") {
+			allErrs = append(
+				allErrs,
+				field.Invalid(
+					fldPath.Child("capacityReservationGroupID"),
+					*capacityReservationGroupID,
+					fmt.Sprintf("provided resource ID must be of type 'CapacityReservationGroups', got '%s'", resourceType),
+				),
+			)
+		}
+	}
+	return allErrs
+}
+
 func validateTags(tags map[string]string, fldPath *field.Path) field.ErrorList {
 	const (
 		clusterKeyPrefix  = "kubernetes.io-cluster-"
diff --git a/pkg/azure/api/validation/validation_test.go b/pkg/azure/api/validation/validation_test.go
index 74230d4d9..2277a83cd 100644
--- a/pkg/azure/api/validation/validation_test.go
+++ b/pkg/azure/api/validation/validation_test.go
@@ -561,6 +561,32 @@ func TestValidateTags(t *testing.T) {
 	))
 }
 
+func TestCapacityReservationConfig(t *testing.T) {
+	fldPath := field.NewPath("providerSpec.capacityReservation")
+
+	// invalid resource group IDs should fail validation
+	testConfig := &api.CapacityReservation{CapacityReservationGroupID: ptr.To("Foo/bar/baz")}
+	g := NewWithT(t)
+	errList := validateCapacityReservationConfig(testConfig, fldPath)
+	g.Expect(len(errList)).To(Equal(1))
+	g.Expect(errList).To(ConsistOf(
+		PointTo(MatchFields(IgnoreExtras, Fields{"Type": Equal(field.ErrorTypeInvalid), "Field": Equal("providerSpec.capacityReservation.capacityReservationGroupID")})),
+	))
+
+	// IDs for other resource types should fail validation
+	testConfig = &api.CapacityReservation{CapacityReservationGroupID: ptr.To("/subscriptions/foo/resourceGroups/bar/providers/Microsoft.Compute/FooResource/foobar")}
+	errList = validateCapacityReservationConfig(testConfig, fldPath)
+	g.Expect(len(errList)).To(Equal(1))
+	g.Expect(errList).To(ConsistOf(
+		PointTo(MatchFields(IgnoreExtras, Fields{"Type": Equal(field.ErrorTypeInvalid), "Field": Equal("providerSpec.capacityReservation.capacityReservationGroupID")})),
+	))
+
+	// Valid ID should work
+	testConfig = &api.CapacityReservation{CapacityReservationGroupID: ptr.To("/subscriptions/foo/resourceGroups/bar/providers/Microsoft.Compute/CapacityReservationGroups/foobar")}
+	errList = validateCapacityReservationConfig(testConfig, fldPath)
+	g.Expect(errList).To(BeEmpty())
+}
+
 func createSecret(clientID, clientSecret, workloadIdentityTokenFile, subscriptionID, tenantID, userData string) *corev1.Secret {
 	data := make(map[string][]byte, 4)
 	if !utils.IsEmptyString(clientID) {
diff --git a/pkg/azure/provider/helpers/driver.go b/pkg/azure/provider/helpers/driver.go
index fd5435855..e3c508735 100644
--- a/pkg/azure/provider/helpers/driver.go
+++ b/pkg/azure/provider/helpers/driver.go
@@ -771,6 +771,7 @@ func createVMCreationParams(providerSpec api.AzureProviderSpec, imageRef armcomp
 			}
 		}
 	}
+
 	if diskSecurityProfile := providerSpec.Properties.StorageProfile.OsDisk.ManagedDisk.SecurityProfile; diskSecurityProfile != nil {
 		if diskSecurityProfile.SecurityEncryptionType != nil {
 			securityEncryptionType := armcompute.SecurityEncryptionTypes(*diskSecurityProfile.SecurityEncryptionType)
@@ -780,6 +781,12 @@ func createVMCreationParams(providerSpec api.AzureProviderSpec, imageRef armcomp
 		}
 	}
 
+	if capacityReservationConfig := providerSpec.Properties.CapacityReservation; capacityReservationConfig != nil {
+		vm.Properties.CapacityReservation = &armcompute.CapacityReservationProfile{
+			CapacityReservationGroup: &armcompute.SubResource{ID: capacityReservationConfig.CapacityReservationGroupID},
+		}
+	}
+
 	return vm, nil
 }