diff --git a/.changeset/itchy-tools-run.md b/.changeset/itchy-tools-run.md
new file mode 100644
index 000000000..d187d2118
--- /dev/null
+++ b/.changeset/itchy-tools-run.md
@@ -0,0 +1,5 @@
+---
+'@lion/overlays': patch
+---
+
+Fix deep contains util to properly check multiple nested shadow roots, and do not set containsTarget to false when children deepContains returns false. This would undo a found target in another child somewhere that was found in an earlier recursion.
diff --git a/packages/overlays/src/utils/deep-contains.js b/packages/overlays/src/utils/deep-contains.js
index b5730ab68..0df64dc14 100644
--- a/packages/overlays/src/utils/deep-contains.js
+++ b/packages/overlays/src/utils/deep-contains.js
@@ -10,15 +10,13 @@ export function deepContains(el, targetEl) {
     return true;
   }
 
-  /** @param {HTMLElement} elem */
+  /** @param {HTMLElement|ShadowRoot} elem */
   function checkChildren(elem) {
     for (let i = 0; i < elem.children.length; i += 1) {
       const child = /** @type {HTMLElement}  */ (elem.children[i]);
-      if (child.shadowRoot) {
-        containsTarget = deepContains(child.shadowRoot, targetEl);
-        if (containsTarget) {
-          break;
-        }
+      if (child.shadowRoot && deepContains(child.shadowRoot, targetEl)) {
+        containsTarget = true;
+        break;
       }
       if (child.children.length > 0) {
         checkChildren(child);
@@ -27,14 +25,12 @@ export function deepContains(el, targetEl) {
   }
 
   // If element is not shadowRoot itself
-  if (el instanceof HTMLElement) {
-    if (el.shadowRoot) {
-      containsTarget = deepContains(el.shadowRoot, targetEl);
-      if (containsTarget) {
-        return true;
-      }
+  if (el instanceof HTMLElement && el.shadowRoot) {
+    containsTarget = deepContains(el.shadowRoot, targetEl);
+    if (containsTarget) {
+      return true;
     }
-    checkChildren(el);
   }
+  checkChildren(el);
   return containsTarget;
 }
diff --git a/packages/overlays/test/utils-tests/deep-contains.test.js b/packages/overlays/test/utils-tests/deep-contains.test.js
index 60b9382a2..fa743a885 100644
--- a/packages/overlays/test/utils-tests/deep-contains.test.js
+++ b/packages/overlays/test/utils-tests/deep-contains.test.js
@@ -19,14 +19,20 @@ describe('deepContains()', () => {
         <button id="light-el-1"></button>
       </div>
     `));
-    const lightEl = /** @type {HTMLElement} */ (element.querySelector('#light-el-1'));
+    const lightChildEl = /** @type {HTMLElement} */ (element.querySelector('#light-el-1'));
 
+    expect(deepContains(element, element)).to.be.true;
     expect(deepContains(element, shadowElement)).to.be.true;
     expect(deepContains(element, shadowElementChild)).to.be.true;
-    expect(deepContains(element, lightEl)).to.be.true;
+    expect(deepContains(element, lightChildEl)).to.be.true;
     expect(deepContains(shadowElement, shadowElement)).to.be.true;
     expect(deepContains(shadowElement, shadowElementChild)).to.be.true;
     expect(deepContains(shadowRoot, shadowElementChild)).to.be.true;
+
+    // Siblings
+    expect(deepContains(element.firstElementChild, element.lastElementChild)).to.be.false;
+    // Unrelated
+    expect(deepContains(lightChildEl, shadowElementChild)).to.be.false;
   });
 
   it('returns true if element contains a target element with a shadow boundary in between, for multiple shadowroots', async () => {
@@ -63,4 +69,42 @@ describe('deepContains()', () => {
     expect(deepContains(shadowElement2, shadowElementChild2)).to.be.true;
     expect(deepContains(shadowRoot2, shadowElementChild2)).to.be.true;
   });
+
+  it('can detect containing elements inside multiple nested shadow roots', async () => {
+    const shadowNestedElement = await fixture('<div id="shadow-nested"></div>');
+    const shadowNestedRoot = shadowNestedElement.attachShadow({ mode: 'open' });
+    shadowNestedRoot.innerHTML = `
+      <button id="nested-el-1">Button</button>
+      <a id="nested-el-2" href="#foo">Href</a>
+      <input id="nested-el-3">
+    `;
+
+    const shadowElement = /** @type {HTMLElement} */ (await fixture('<div id="shadow"></div>'));
+    const shadowRoot = shadowElement.attachShadow({ mode: 'open' });
+    shadowRoot.innerHTML = `
+      <button id="el-1">Button</button>
+
+      <input id="el-3">
+    `;
+    shadowRoot.insertBefore(shadowNestedElement, shadowRoot.lastElementChild);
+
+    const element = /** @type {HTMLElement} */ (await fixture(html`
+      <div id="light">
+        ${shadowElement}
+        <button id="light-el-1"></button>
+      </div>
+    `));
+
+    expect(deepContains(element, element.firstElementChild)).to.be.true;
+    expect(deepContains(element, element.firstElementChild.shadowRoot)).to.be.true;
+    expect(deepContains(element, element.firstElementChild.shadowRoot.children[1])).to.be.true;
+    expect(deepContains(element, element.firstElementChild.shadowRoot.children[1].shadowRoot)).to.be
+      .true;
+    expect(
+      deepContains(
+        element,
+        element.firstElementChild.shadowRoot.children[1].shadowRoot.lastElementChild,
+      ),
+    ).to.be.true;
+  });
 });