diff --git a/subsys/fs/zms/Kconfig b/subsys/fs/zms/Kconfig
index bc1dae78279..c9514608da8 100644
--- a/subsys/fs/zms/Kconfig
+++ b/subsys/fs/zms/Kconfig
@@ -51,6 +51,15 @@ config ZMS_MAX_BLOCK_SIZE
 	help
 	  Changes the internal buffer size of ZMS
 
+config ZMS_LOOKUP_CACHE_FOR_SETTINGS
+	bool "ZMS Storage lookup cache optimized for settings"
+	depends on ZMS_LOOKUP_CACHE
+	help
+	  Use the lookup cache hash function that results in the least number of
+	  collissions and, in turn, the best ZMS performance provided that the ZMS
+	  is used as the settings backend only. This option should NOT be enabled
+	  if the ZMS is also written to directly, outside the settings layer.
+
 module = ZMS
 module-str = zms
 source "subsys/logging/Kconfig.template.log_config"
diff --git a/subsys/fs/zms/zms.c b/subsys/fs/zms/zms.c
index 891af027916..32aafcfbe04 100644
--- a/subsys/fs/zms/zms.c
+++ b/subsys/fs/zms/zms.c
@@ -11,6 +11,10 @@
 #include <zephyr/fs/zms.h>
 #include <zephyr/sys/crc.h>
 #include "zms_priv.h"
+#ifdef CONFIG_ZMS_LOOKUP_CACHE_FOR_SETTINGS
+#include <zephyr/sys/util.h>
+#include <settings/settings_zms.h>
+#endif
 
 #include <zephyr/logging/log.h>
 LOG_MODULE_REGISTER(fs_zms, CONFIG_ZMS_LOG_LEVEL);
@@ -25,6 +29,45 @@ static int zms_ate_valid_different_sector(struct zms_fs *fs, const struct zms_at
 
 #ifdef CONFIG_ZMS_LOOKUP_CACHE
 
+#ifdef CONFIG_ZMS_LOOKUP_CACHE_FOR_SETTINGS
+
+static inline size_t zms_lookup_cache_pos(uint32_t id)
+{
+	/*
+	 * 1. The ZMS settings backend uses up to (ZMS_NAME_ID_OFFSET - 1) ZMS IDs to
+	      store keys and equal number of ZMS IDs to store values.
+	 * 2. For each key-value pair, the value is stored at ZMS ID greater by exactly
+	 *    ZMS_NAME_ID_OFFSET than ZMS ID that holds the key.
+	 * 3. The backend tries to minimize the range of ZMS IDs used to store keys.
+	 *    That is, ZMS IDs are allocated sequentially, and freed ZMS IDs are reused
+	 *    before allocating new ones.
+	 *
+	 * Therefore, to assure the least number of collisions in the lookup cache,
+	 * the least significant bit of the hash indicates whether the given ZMS ID
+	 * represents a key or a value, and remaining bits of the hash are set to
+	 * the ordinal number of the key-value pair. Consequently, the hash function
+	 * provides the following mapping:
+	 *
+	 * 1st settings key   => hash 0
+	 * 1st settings value => hash 1
+	 * 2nd settings key   => hash 2
+	 * 2nd settings value => hash 3
+	 * ...
+	 */
+	BUILD_ASSERT(IS_POWER_OF_TWO(ZMS_NAMECNT_ID), "ZMS_NAMECNT_ID is not power of 2");
+	BUILD_ASSERT(IS_POWER_OF_TWO(ZMS_NAME_ID_OFFSET), "ZMS_NAME_ID_OFFSET is not power of 2");
+
+	uint32_t key_value_bit;
+	uint32_t key_value_ord;
+
+	key_value_bit = (id >> LOG2(ZMS_NAME_ID_OFFSET)) & 1;
+	key_value_ord = id & (ZMS_NAME_ID_OFFSET - 1);
+
+	return ((key_value_ord << 1) | key_value_bit) % CONFIG_ZMS_LOOKUP_CACHE_SIZE;
+}
+
+#else /* CONFIG_ZMS_LOOKUP_CACHE_FOR_SETTINGS */
+
 static inline size_t zms_lookup_cache_pos(uint32_t id)
 {
 	uint32_t hash;
@@ -40,6 +83,8 @@ static inline size_t zms_lookup_cache_pos(uint32_t id)
 	return hash % CONFIG_ZMS_LOOKUP_CACHE_SIZE;
 }
 
+#endif /* CONFIG_ZMS_LOOKUP_CACHE_FOR_SETTINGS */
+
 static int zms_lookup_cache_rebuild(struct zms_fs *fs)
 {
 	int rc, previous_sector_num = ZMS_INVALID_SECTOR_NUM;