diff --git a/.changeset/cyan-onions-juggle.md b/.changeset/cyan-onions-juggle.md
new file mode 100644
index 000000000..e8d00433b
--- /dev/null
+++ b/.changeset/cyan-onions-juggle.md
@@ -0,0 +1,5 @@
+---
+'@lion/overlays': patch
+---
+
+Only set inert when placementMode is global, otherwise events are broken inside local overlay content
diff --git a/packages/overlays/src/OverlayController.js b/packages/overlays/src/OverlayController.js
index 6f6ec0588..405e6453f 100644
--- a/packages/overlays/src/OverlayController.js
+++ b/packages/overlays/src/OverlayController.js
@@ -1013,7 +1013,7 @@ export class OverlayController extends EventTargetShim {
     this._containFocusHandler = containFocus(this.contentNode);
     this.__hasActiveTrapsKeyboardFocus = true;
     if (this.manager) {
-      this.manager.informTrapsKeyboardFocusGotEnabled();
+      this.manager.informTrapsKeyboardFocusGotEnabled(this.placementMode);
     }
   }
 
diff --git a/packages/overlays/src/OverlaysManager.js b/packages/overlays/src/OverlaysManager.js
index 5144255e5..8d67ab04a 100644
--- a/packages/overlays/src/OverlaysManager.js
+++ b/packages/overlays/src/OverlaysManager.js
@@ -153,8 +153,11 @@ export class OverlaysManager {
     });
   }
 
-  informTrapsKeyboardFocusGotEnabled() {
-    if (this.siblingsInert === false) {
+  /**
+   * @param {'local' | 'global' | undefined} placementMode
+   */
+  informTrapsKeyboardFocusGotEnabled(placementMode) {
+    if (this.siblingsInert === false && placementMode === 'global') {
       if (OverlaysManager.__globalRootNode) {
         setSiblingsInert(this.globalRootNode);
       }