diff --git a/e2e/invoice-filters.spec.ts b/e2e/invoice-filters.spec.ts
new file mode 100644
index 0000000..49f1db1
--- /dev/null
+++ b/e2e/invoice-filters.spec.ts
@@ -0,0 +1,19 @@
+import { expect, test } from "@playwright/test";
+
+test.describe("Invoice Processing filters (AP-43)", () => {
+  test("Action and Vendor filters reduce grid rows and badge counts", async ({ page }) => {
+    await page.goto("/");
+    const grid = page.getByTestId("grid-pending");
+    await expect(grid.locator(".MuiDataGrid-row").first()).toBeVisible();
+    const before = await grid.locator(".MuiDataGrid-row").count();
+    expect(before).toBeGreaterThan(0);
+
+    await page.getByTestId("action-filter").click();
+    await page.getByRole("option", { name: "Approve invoice" }).click();
+    await expect(page.getByTestId("filter-toggle").locator(".MuiBadge-badge")).toHaveText("1");
+
+    await page.getByTestId("vendor-filter").fill("Harbor");
+    await expect(page.getByTestId("filter-toggle").locator(".MuiBadge-badge")).toHaveText("2");
+    await expect(grid.locator(".MuiDataGrid-row")).toHaveCount(1);
+  });
+});
diff --git a/src/dashboard/DashboardGrids.tsx b/src/dashboard/DashboardGrids.tsx
index e6b97f9..ba23661 100644
--- a/src/dashboard/DashboardGrids.tsx
+++ b/src/dashboard/DashboardGrids.tsx
@@ -1,16 +1,7 @@
 import { useMemo, useState } from "react";
-import {
-  Alert,
-  Box,
-  Button,
-  Chip,
-  CircularProgress,
-  Stack,
-  Tab,
-  Tabs,
-  Typography,
-} from "@mui/material";
+import { Alert, Box, CircularProgress, Stack, Tab, Tabs, Typography } from "@mui/material";
 import type { GridRowParams, GridRowSelectionModel } from "@mui/x-data-grid";
+import { InvoiceFilterToolbar } from "@/dashboard/InvoiceFilterToolbar";
 import { CreatePayRunButton } from "@/dashboard/CreatePayRunButton";
 import { InvoiceDataGrid } from "@/dashboard/InvoiceDataGrid";
 import {
@@ -18,6 +9,7 @@ import {
   invoiceAttentionColumns,
   readyToPayColumns,
 } from "@/dashboard/columns";
+import { EMPTY_INVOICE_FILTERS, type InvoiceFilterState } from "@/dashboard/invoice-filters";
 import { countSelectedRows } from "@/dashboard/selection";
 import { useInvoices, useUpdateInvoicePayDate } from "@/domain/invoices/use-invoices";
 import { areMocksEnabled, type MockInvoice } from "@/mocks";
@@ -30,6 +22,8 @@ const emptySelection: GridRowSelectionModel = {
   ids: new Set(),
 };
 
+const emptyFilters = EMPTY_INVOICE_FILTERS;
+
 const rowClickSx = {
   border: 1,
   borderColor: "divider",
@@ -38,10 +32,26 @@ const rowClickSx = {
   borderRadius: 1,
 } as const;
 
+function applyInvoiceFilters(rows: MockInvoice[], filters: InvoiceFilterState): MockInvoice[] {
+  const vendorQuery = filters.vendorQuery.trim().toLowerCase();
+  return rows.filter((invoice) => {
+    if (filters.action && invoice.actionLabel !== filters.action) {
+      return false;
+    }
+    if (vendorQuery && !invoice.vendorName.toLowerCase().includes(vendorQuery)) {
+      return false;
+    }
+    return true;
+  });
+}
+
 export function DashboardGrids() {
   const navigate = useNavigate();
   const [tab, setTab] = useState<InvoiceTab>("attention");
   const [selection, setSelection] = useState<GridRowSelectionModel>(emptySelection);
+  const [filters, setFilters] = useState<InvoiceFilterState>(emptyFilters);
+  const [, setColumnsDrawerOpen] = useState(false);
+  const [, setFilterDrawerOpen] = useState(false);
   const { data: invoices = [], isLoading, isError, error } = useInvoices();
   const updatePayDate = useUpdateInvoicePayDate();
 
@@ -69,9 +79,24 @@ export function DashboardGrids() {
     );
   }, [invoices]);
 
+  const filteredAttention = useMemo(
+    () => applyInvoiceFilters(attentionRows, filters),
+    [attentionRows, filters],
+  );
+  const filteredAll = useMemo(() => applyInvoiceFilters(invoices, filters), [invoices, filters]);
+  const filteredApproved = useMemo(
+    () => applyInvoiceFilters(approvedRows, filters),
+    [approvedRows, filters],
+  );
+  const filteredRejected = useMemo(
+    () => applyInvoiceFilters(rejectedRows, filters),
+    [rejectedRows, filters],
+  );
+  const filteredLate = useMemo(() => applyInvoiceFilters(lateRows, filters), [lateRows, filters]);
+
   const selectedCount = countSelectedRows(
     selection,
-    approvedRows.map((invoice) => invoice.id),
+    filteredApproved.map((invoice) => invoice.id),
   );
 
   const processRowUpdate = async (newRow: MockInvoice, oldRow: MockInvoice) => {
@@ -152,20 +177,20 @@ export function DashboardGrids() {
           </Alert>
         ) : null}
 
-        <Stack direction="row" spacing={1} alignItems="center" sx={{ mb: 2 }}>
-          <Chip label="Action" variant="outlined" size="small" />
-          <Chip label="Vendor" variant="outlined" size="small" />
-          <Box sx={{ flexGrow: 1 }} />
-          <Button variant="contained" size="small" data-testid="review-all-items">
-            Review All Items
-          </Button>
-          {tab === "approved" ? <CreatePayRunButton selectedCount={selectedCount} /> : null}
-        </Stack>
+        <InvoiceFilterToolbar
+          filters={filters}
+          onFiltersChange={setFilters}
+          onOpenFilterDrawer={() => setFilterDrawerOpen(true)}
+          onOpenColumnsDrawer={() => setColumnsDrawerOpen(true)}
+          trailingActions={
+            tab === "approved" ? <CreatePayRunButton selectedCount={selectedCount} /> : null
+          }
+        />
 
         {tab === "attention" && (
           <InvoiceDataGrid
             data-testid="grid-pending"
-            rows={attentionRows}
+            rows={filteredAttention}
             columns={invoiceAttentionColumns}
             onRowClick={openInvoice}
             sx={rowClickSx}
@@ -175,7 +200,7 @@ export function DashboardGrids() {
         {tab === "all" && (
           <InvoiceDataGrid
             data-testid="grid-all"
-            rows={invoices}
+            rows={filteredAll}
             columns={allInvoicesColumns}
             onRowClick={openInvoice}
             sx={rowClickSx}
@@ -185,7 +210,7 @@ export function DashboardGrids() {
         {tab === "approved" && (
           <InvoiceDataGrid
             data-testid="grid-ready"
-            rows={approvedRows}
+            rows={filteredApproved}
             columns={readyToPayColumns}
             checkboxSelection
             rowSelectionModel={selection}
@@ -201,7 +226,7 @@ export function DashboardGrids() {
         {tab === "rejected" && (
           <InvoiceDataGrid
             data-testid="grid-rejected"
-            rows={rejectedRows}
+            rows={filteredRejected}
             columns={allInvoicesColumns}
             onRowClick={openInvoice}
             sx={rowClickSx}
@@ -211,7 +236,7 @@ export function DashboardGrids() {
         {tab === "late" && (
           <InvoiceDataGrid
             data-testid="grid-late"
-            rows={lateRows}
+            rows={filteredLate}
             columns={allInvoicesColumns}
             onRowClick={openInvoice}
             sx={rowClickSx}
diff --git a/src/dashboard/InvoiceFilterToolbar.tsx b/src/dashboard/InvoiceFilterToolbar.tsx
new file mode 100644
index 0000000..009ab27
--- /dev/null
+++ b/src/dashboard/InvoiceFilterToolbar.tsx
@@ -0,0 +1,112 @@
+import FilterListIcon from "@mui/icons-material/FilterList";
+import MoreVertIcon from "@mui/icons-material/MoreVert";
+import ViewWeekOutlinedIcon from "@mui/icons-material/ViewWeekOutlined";
+import {
+  Autocomplete,
+  Badge,
+  Box,
+  Button,
+  IconButton,
+  InputAdornment,
+  Stack,
+  TextField,
+} from "@mui/material";
+import type { ReactElement } from "react";
+import { INVOICE_ACTION_OPTIONS } from "@/dashboard/column-catalog";
+import { countActiveFilters, type InvoiceFilterState } from "@/dashboard/invoice-filters";
+
+type InvoiceFilterToolbarProps = {
+  filters: InvoiceFilterState;
+  onFiltersChange: (next: InvoiceFilterState) => void;
+  onOpenFilterDrawer: () => void;
+  onOpenColumnsDrawer: () => void;
+  trailingActions?: ReactElement | null;
+};
+
+export function InvoiceFilterToolbar({
+  filters,
+  onFiltersChange,
+  onOpenFilterDrawer,
+  onOpenColumnsDrawer,
+  trailingActions = null,
+}: InvoiceFilterToolbarProps): ReactElement {
+  const activeCount = countActiveFilters(filters);
+
+  return (
+    <Stack
+      direction="row"
+      spacing={1}
+      alignItems="center"
+      sx={{ mb: 2 }}
+      flexWrap="wrap"
+      useFlexGap
+    >
+      <Box data-testid="action-filter" sx={{ minWidth: 240 }}>
+        <Autocomplete
+          size="small"
+          options={[...INVOICE_ACTION_OPTIONS]}
+          value={filters.action}
+          onChange={(_event, value) => onFiltersChange({ ...filters, action: value })}
+          renderInput={(params) => <TextField {...params} placeholder="Search" label="Action" />}
+        />
+      </Box>
+      <TextField
+        size="small"
+        name="vendor"
+        id="vendor"
+        label="Vendor"
+        placeholder="Vendor"
+        value={filters.vendorQuery}
+        onChange={(event) => onFiltersChange({ ...filters, vendorQuery: event.target.value })}
+        sx={{ minWidth: 180 }}
+        slotProps={{
+          htmlInput: { "data-testid": "vendor-filter" },
+          input: {
+            endAdornment: filters.vendorQuery ? (
+              <InputAdornment position="end">
+                <Button
+                  size="small"
+                  onClick={() => onFiltersChange({ ...filters, vendorQuery: "" })}
+                  aria-label="Clear vendor"
+                >
+                  Clear
+                </Button>
+              </InputAdornment>
+            ) : undefined,
+          },
+        }}
+      />
+      <Box sx={{ flexGrow: 1 }} />
+      <IconButton
+        size="small"
+        aria-label="Filter actions"
+        data-testid="filter-actions-menu"
+        id="default-filter-actions-menu"
+      >
+        <MoreVertIcon fontSize="small" />
+      </IconButton>
+      <IconButton
+        size="small"
+        aria-label="Open filters"
+        data-testid="filter-toggle"
+        onClick={onOpenFilterDrawer}
+      >
+        <Badge badgeContent={activeCount || undefined} color="primary">
+          <FilterListIcon fontSize="small" />
+        </Badge>
+      </IconButton>
+      <IconButton
+        size="small"
+        aria-label="Open columns"
+        data-testid="columns-toggle"
+        onClick={onOpenColumnsDrawer}
+      >
+        <ViewWeekOutlinedIcon fontSize="small" />
+      </IconButton>
+      <Button variant="contained" size="small" data-testid="review-all-items">
+        Review All Items
+      </Button>
+      {trailingActions}
+    </Stack>
+  );
+}
diff --git a/src/dashboard/invoice-filters.ts b/src/dashboard/invoice-filters.ts
new file mode 100644
index 0000000..5504bcc
--- /dev/null
+++ b/src/dashboard/invoice-filters.ts
@@ -0,0 +1,17 @@
+export type InvoiceFilterState = {
+  action: string | null;
+  vendorQuery: string;
+};
+
+export function countActiveFilters(filters: InvoiceFilterState): number {
+  let count = 0;
+  if (filters.action) {
+    count += 1;
+  }
+  if (filters.vendorQuery.trim()) {
+    count += 1;
+  }
+  return count;
+}
+
+export const EMPTY_INVOICE_FILTERS: InvoiceFilterState = { action: null, vendorQuery: "" };