diff --git a/packages/overlays/src/OverlayController.js b/packages/overlays/src/OverlayController.js
index 22fd296fd..f92b871da 100644
--- a/packages/overlays/src/OverlayController.js
+++ b/packages/overlays/src/OverlayController.js
@@ -32,6 +32,7 @@ export class OverlayController {
       preventsScroll: false,
       trapsKeyboardFocus: false,
       hidesOnEsc: false,
+      hidesOnOutsideEsc: false,
       hidesOnOutsideClick: false,
       isTooltip: false,
       handlesUserInteraction: false,
@@ -376,6 +377,9 @@ export class OverlayController {
     if (this.hidesOnEsc) {
       this._handleHidesOnEsc({ phase });
     }
+    if (this.hidesOnOutsideEsc) {
+      this._handleHidesOnOutsideEsc({ phase });
+    }
     if (this.hidesOnOutsideClick) {
       this._handleHidesOnOutsideClick({ phase });
     }
@@ -537,6 +541,15 @@ export class OverlayController {
     }
   }
 
+  _handleHidesOnOutsideEsc({ phase }) {
+    if (phase === 'show') {
+      this.__escKeyHandler = ev => ev.key === 'Escape' && this.hide();
+      document.addEventListener('keyup', this.__escKeyHandler);
+    } else if (phase === 'hide') {
+      document.removeEventListener('keyup', this.__escKeyHandler);
+    }
+  }
+
   _handleInheritsReferenceWidth() {
     if (!this._referenceNode) {
       return;
diff --git a/packages/overlays/test/OverlayController.test.js b/packages/overlays/test/OverlayController.test.js
index e31b59a57..f8d607f48 100644
--- a/packages/overlays/test/OverlayController.test.js
+++ b/packages/overlays/test/OverlayController.test.js
@@ -314,6 +314,29 @@ describe('OverlayController', () => {
       });
     });
 
+    describe('hidesOnOutsideEsc', () => {
+      it('hides when [escape] is pressed on outside element', async () => {
+        const ctrl = new OverlayController({
+          ...withGlobalTestConfig(),
+          hidesOnOutsideEsc: true,
+        });
+        await ctrl.show();
+        document.dispatchEvent(new KeyboardEvent('keyup', { key: 'Escape' }));
+        await aTimeout();
+        expect(ctrl.isShown).to.be.false;
+      });
+
+      it('stays shown when [escape] is pressed on inside element', async () => {
+        const ctrl = new OverlayController({
+          ...withGlobalTestConfig(),
+          hidesOnOutsideEsc: true,
+        });
+        await ctrl.show();
+        ctrl.contentNode.dispatchEvent(new KeyboardEvent('keyup', { key: 'Escape' }));
+        expect(ctrl.isShown).to.be.true;
+      });
+    });
+
     describe('hidesOnOutsideClick', () => {
       it('hides on outside click', async () => {
         const contentNode = await fixture('<div>Content</div>');
diff --git a/packages/tooltip/src/LionTooltip.js b/packages/tooltip/src/LionTooltip.js
index 2ac6f2430..315d99e14 100644
--- a/packages/tooltip/src/LionTooltip.js
+++ b/packages/tooltip/src/LionTooltip.js
@@ -44,6 +44,7 @@ export class LionTooltip extends OverlayMixin(LitElement) {
       placementMode: 'local',
       elementToFocusAfterHide: null,
       hidesOnEsc: true,
+      hidesOnOutsideEsc: true,
       popperConfig: {
         placement: 'top', // default
         modifiers: {
diff --git a/packages/tooltip/test/lion-tooltip.test.js b/packages/tooltip/test/lion-tooltip.test.js
index 3dabb59b6..83151b10f 100644
--- a/packages/tooltip/test/lion-tooltip.test.js
+++ b/packages/tooltip/test/lion-tooltip.test.js
@@ -85,41 +85,6 @@ describe('lion-tooltip', () => {
       expect(el._overlayCtrl.isShown).to.equal(true);
     });
 
-    it('should show content on focusin and hide on Escape key press', async () => {
-      const el = await fixture(html`
-        <lion-tooltip>
-          <div slot="content">Hey there</div>
-          <button slot="invoker">Tooltip button</button>
-        </lion-tooltip>
-      `);
-      const invoker = Array.from(el.children).find(child => child.slot === 'invoker');
-      const eventFocusIn = new Event('focusin');
-      invoker.dispatchEvent(eventFocusIn);
-      await el.updateComplete;
-      expect(el._overlayCtrl.isShown).to.equal(true);
-      const eventEscapeKeypress = new KeyboardEvent('keyup', { key: 'Escape' });
-      invoker.dispatchEvent(eventEscapeKeypress);
-      await el.updateComplete;
-      expect(el._overlayCtrl.isShown).to.equal(false);
-    });
-
-    it('should show content on mouseenter and hide on Escape key press', async () => {
-      const el = await fixture(html`
-        <lion-tooltip>
-          <div slot="content">Hey there</div>
-          <button slot="invoker">Tooltip button</button>
-        </lion-tooltip>
-      `);
-      const eventMouseEnter = new Event('mouseenter');
-      el.dispatchEvent(eventMouseEnter);
-      await el.updateComplete;
-      expect(el._overlayCtrl.isShown).to.equal(true);
-      const eventEscapeKeypress = new KeyboardEvent('keyup', { key: 'Escape' });
-      document.dispatchEvent(eventEscapeKeypress);
-      await el.updateComplete;
-      expect(el._overlayCtrl.isShown).to.equal(false);
-    });
-
     it('should tooltip contains html when specified in tooltip content body', async () => {
       const el = await fixture(html`
         <lion-tooltip>