diff --git a/internal/controller/imageupdateautomation_controller.go b/internal/controller/imageupdateautomation_controller.go
index c44c810..d3bbc0a 100644
--- a/internal/controller/imageupdateautomation_controller.go
+++ b/internal/controller/imageupdateautomation_controller.go
@@ -396,6 +396,10 @@ func (r *ImageUpdateAutomationReconciler) reconcile(ctx context.Context, sp *pat
 	if r.features[features.GitShallowClone] {
 		checkoutOpts = append(checkoutOpts, source.WithCheckoutOptionShallowClone())
 	}
+	if r.features[features.GitSparseCheckout] && obj.Spec.Update.Path != "" {
+		checkoutOpts = append(checkoutOpts, source.WithCheckoutOptionSparseCheckoutDirectories(obj.Spec.Update.Path))
+	}
+
 	// If full sync is still not needed, configure last observed commit to
 	// perform optimized clone and obtain a non-concrete commit if the remote
 	// has not changed.
diff --git a/internal/features/features.go b/internal/features/features.go
index 0446a03..7a30cc1 100644
--- a/internal/features/features.go
+++ b/internal/features/features.go
@@ -34,6 +34,9 @@ const (
 	// GitAllBranchReferences enables the download of all branch head references
 	// when push branches are configured. When enabled fixes fluxcd/flux2#3384.
 	GitAllBranchReferences = "GitAllBranchReferences"
+	// GitSparseCheckout enables the use of sparse checkout when pulling source from
+	// Git repositories.
+	GitSparseCheckout = "GitSparseCheckout"
 	// CacheSecretsAndConfigMaps controls whether Secrets and ConfigMaps should
 	// be cached.
 	//
@@ -55,6 +58,10 @@ var features = map[string]bool{
 	// opt-out from v0.28
 	GitAllBranchReferences: true,
 
+	// GitSparseCheckout
+	// opt-in from v0.42
+	GitSparseCheckout: false,
+
 	// CacheSecretsAndConfigMaps
 	// opt-in from v0.29
 	CacheSecretsAndConfigMaps: false,
diff --git a/internal/source/source.go b/internal/source/source.go
index 5edea83..51403c8 100644
--- a/internal/source/source.go
+++ b/internal/source/source.go
@@ -21,6 +21,7 @@ import (
 	"errors"
 	"fmt"
 	"os"
+	"path/filepath"
 	"strings"
 	"text/template"
 	"time"
@@ -196,6 +197,19 @@ func WithCheckoutOptionShallowClone() CheckoutOption {
 	}
 }
 
+// WithCheckoutOptionSparseCheckoutDirectories is a CheckoutOption option to configure
+// SparseCheckoutDirectories.
+func WithCheckoutOptionSparseCheckoutDirectories(updatePath string) CheckoutOption {
+	return func(cc *repository.CloneConfig) {
+		cleanedPath := filepath.Clean(updatePath)
+		if cleanedPath == "." {
+			// Do not set SparseCheckoutDirectories if repository root is specified
+			return
+		}
+		cc.SparseCheckoutDirectories = []string{cleanedPath}
+	}
+}
+
 // CheckoutSource clones and checks out the source. If a push branch is
 // configured that doesn't match with the checkout branch, a checkout to the
 // push branch is also performed. This ensures any change and push operation
diff --git a/internal/source/source_test.go b/internal/source/source_test.go
index a62a9b2..0a66e43 100644
--- a/internal/source/source_test.go
+++ b/internal/source/source_test.go
@@ -222,13 +222,14 @@ func TestSourceManager_CheckoutSource(t *testing.T) {
 
 func test_sourceManager_CheckoutSource(t *testing.T, proto string) {
 	tests := []struct {
-		name         string
-		autoGitSpec  *imagev1.GitSpec
-		gitRepoRef   *sourcev1.GitRepositoryRef
-		shallowClone bool
-		lastObserved bool
-		wantErr      bool
-		wantRef      string
+		name                    string
+		autoGitSpec             *imagev1.GitSpec
+		gitRepoRef              *sourcev1.GitRepositoryRef
+		shallowClone            bool
+		sparseCheckoutDirectory string
+		lastObserved            bool
+		wantErr                 bool
+		wantRef                 string
 	}{
 		{
 			name: "checkout for single branch",
@@ -275,6 +276,42 @@ func test_sourceManager_CheckoutSource(t *testing.T, proto string) {
 			wantErr:      false,
 			wantRef:      "main",
 		},
+		{
+			name: "with sparse checkout",
+			autoGitSpec: &imagev1.GitSpec{
+				Push: &imagev1.PushSpec{Branch: "main"},
+				Checkout: &imagev1.GitCheckoutSpec{
+					Reference: sourcev1.GitRepositoryRef{Branch: "main"},
+				},
+			},
+			sparseCheckoutDirectory: "testdata/appconfig/deploy.yaml",
+			wantErr:                 false,
+			wantRef:                 "main",
+		},
+		{
+			name: "with sparse checkout for current directory",
+			autoGitSpec: &imagev1.GitSpec{
+				Push: &imagev1.PushSpec{Branch: "main"},
+				Checkout: &imagev1.GitCheckoutSpec{
+					Reference: sourcev1.GitRepositoryRef{Branch: "main"},
+				},
+			},
+			sparseCheckoutDirectory: "./",
+			wantErr:                 false,
+			wantRef:                 "main",
+		},
+		{
+			name: "with sparse checkout for different push branch",
+			autoGitSpec: &imagev1.GitSpec{
+				Push: &imagev1.PushSpec{Branch: "foo"},
+				Checkout: &imagev1.GitCheckoutSpec{
+					Reference: sourcev1.GitRepositoryRef{Branch: "main"},
+				},
+			},
+			sparseCheckoutDirectory: "testdata/appconfig/deploy.yaml",
+			wantErr:                 false,
+			wantRef:                 "foo",
+		},
 		{
 			name: "with last observed commit",
 			autoGitSpec: &imagev1.GitSpec{
@@ -386,6 +423,9 @@ func test_sourceManager_CheckoutSource(t *testing.T, proto string) {
 			if tt.shallowClone {
 				opts = append(opts, WithCheckoutOptionShallowClone())
 			}
+			if tt.sparseCheckoutDirectory != "" {
+				opts = append(opts, WithCheckoutOptionSparseCheckoutDirectories(tt.sparseCheckoutDirectory))
+			}
 			if tt.lastObserved {
 				opts = append(opts, WithCheckoutOptionLastObserved(headRev))
 			}